Chancellor Jeremy Hunt is poised to sign off a support package for British Steel and Tata Steel UK worth over half a billion pounds in a move that will be tied to Britain’s two biggest steel manufacturers switching to green technology.
The funding package, which is expected as early as next week, is designed to stem thousands of job losses in the UK’s industrial heartlands.
The chancellor has been considering British Steel’s request for £300mn in grants to prevent the closure of its blast furnace at Scunthorpe in Lincolnshire for several weeks, after an intervention last month by Grant Shapps, the business secretary, and Michael Gove, the levelling up secretary.
The Financial Times has learned that Tata Steel UK, owner of the Port Talbot site in south Wales, is also set to receive a broadly “equivalent” sum of money to introduce green furnaces at its operations, according to government officials close to the negotiations.
Sky News first reported that the aid package for British Steel will go ahead. In return, the company, owned by China’s Jingye since 2020, will replace its two remaining blast furnaces on the Lincolnshire site with greener electric arc furnaces.
Tata employs about 3,500 workers at Port Talbot, which currently uses two blast furnaces to turn iron ore and coal into molten iron and steel. In total, the company has 8,000 staff in the UK.
Last year, the company warned it could be forced to shut down its operations in the UK if it did not receive support to help it move to less carbon-intensive steelmaking.
Industry insiders have estimated that it would cost more than £2bn to decarbonise Port Talbot alone. Industry executives have said they also need guarantees around electricity pricing to ensure a level playing field with European competitors.
British steelmakers have faced soaring energy prices and high inflation as well as softening demand due to the economic downturn. At the same time, they are under pressure to invest in greener steelmaking processes to reduce harmful carbon emissions.
Liberty Steel, owned by industrialist Sanjeev Gupta, last week blamed high energy costs for its decision to cut production and mothball some of its sites, threatening more than 400 jobs. The company already operates an electric arc furnace.
Both Jingye and Tata Steel, which is owned by Indian conglomerate Tata, will be required to offer pledges on investment and the preservation of jobs up to 2030 in return for state support, according to government insiders.
For Jingye that amounts to fulfilling an existing pledge to invest at least £1.2bn by the end of the decade.
Jingye rescued British Steel from insolvency in 2020 after the government had spent £588mn keeping it operational while finding a buyer in a 10-month intervention.
British Steel employs close to 4,000 people of which 1,700 work at the blast furnace facility in Scunthorpe. It warned in October that it was losing about £1mn a day and needed government support both in the short-term as well as in the longer-term to help with the transition.
But Shapps and Gove warned in their intervention in December that letting the company collapse could cost the state up to £1bn in liabilities, including decommissioning costs.
The ministers argued that all G20 nations had maintained domestic steel production for strategic reasons.
British Steel was not immediately available for comment but earlier this week said it was “continuing formal talks with the government about decarbonisation along with the global challenges we currently face”.
Tata Steel UK and the Treasury both declined to comment.