The Government’s justification for stepping in to save Scunthorpe’s British Steel site leaned heavily on an argument about economic security. But, Daniela Lai argues, too much focus on security obstructs the many other challenges that buttressing steelmaking poses, including the environmental costs.
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Why has the UK government intervened to stop the blast furnaces at the British Steel site in Scunthorpe being shut down?
The proximate cause of the intervention – which saw Parliament being recalled on a Saturday to pass the Steel Industry (Special Measures) Bill – was the breakdown in negotiations with British Steel, owned by Jingye. After the company announced ongoing heavy losses, the government had tried to negotiate a deal similar to the one reached with Tata Steel in Port Talbot (where £500 million in government funds were provided to support the transition from integrated steelmaking in blast furnaces to Electric Arc Furnaces, albeit at the cost of 2800 jobs). It later transpired that a deal could not be reached with Jingye. The company had stopped ordering raw materials for the Scunthorpe furnaces, which were then at risk of being shut down permanently.
As the UK attempts to develop a new industrial strategy and plan for steel, the risk is that security logics will dominate decision-making at the expense of addressing the intertwined economic, environmental and social challenges posed by the transformation of UK steelmaking.
However, alongside the specific circumstances of the failed negotiations with Jingye (and the potential boost in popularity that taking a stance against the company might have brought), this government intervention must be understood in a broader context, one in which policymaking is increasingly driven by the increasingly relevant narrative of “economic security”. As the UK attempts to develop a new industrial strategy and plan for steel, the risk is that security logics will dominate decision-making at the expense of addressing the intertwined economic, environmental and social challenges posed by the transformation of UK steelmaking.
The UK’s slow downsizing of steel production
This recent government intervention constitutes a significant change in direction in UK industrial policy, one that could be characterised as the most consequential decision since the privatisation of the UK steel sector in the 1980s. The promise of globalisation, belief in free market, and the idea that other sectors – such as finance – would be better placed to drive economic growth meant that successive UK governments that had effectively left the steel sector shrink in the hands of private companies, and let those companies free to make crucial decisions about pathways to decarbonisation and about the preservation of primary steelmaking capacity in the UK.
The steelmaking sector is characterised by global overcapacity, and this means that operating plants in countries like the UK is too expensive to be profitable for companies who could be making steel in countries with cheaper energy costs and cheaper labour costs.
The steel sector is also a major polluter, for example in terms of CO2 emissions, and is attempting a “green transition”, especially in Europe where old blast furnaces will become obsolete over the coming decades and carbon emissions legislation (such as the Carbon Border Adjustment Mechanism or CBAM) is soon coming into force. In the UK, this has meant for example that Port Talbot has closed down its coke ovens and blast furnaces over the past year, while an EAF is being built to make steel by recycling scrap.
The strategic importance of steelmaking in a globalised world
While these economic and environmental factors help explain the ongoing transformations of steelmaking, states also have an interest in maintaining steelmaking capabilities because steel is essential for anything from infrastructure to construction, from food packaging to industrial machinery, as well as in military applications. It is in this broader sense that steelmaking – and especially primary steelmaking where steel is made from iron ore and coking coal in blast furnaces – is often labelled as “strategic” for states. In the current circumstances, losing this capacity would mean relying on imports for some products that are still most commonly made via primary steelmaking. Scunthorpe, for example, supplies Network Rail with steel for rail tracks. In the uncertainty of the past few weeks, National Rail decided to stockpile a year’s worth of materials to soften the blow of the potential closure at Scunthorpe. Dealing with this eventuality, and the risks that might come with importing steel for critical infrastructure, was one of factors motivating the government to pass this bill.
While these economic and environmental factors help explain the ongoing transformations of steelmaking, states also have an interest in maintaining steelmaking capabilities because steel is essential for anything from infrastructure to construction, from food packaging to industrial machinery, as well as in military applications.
What makes steelmaking capacities particularly important at the moment is a global context in which countries are increasingly driven by “economic security” considerations: governments increasingly see globalisation as having made them vulnerable to supply chain disruptions and security risks where they depend on foreign, potentially hostile countries, or simply companies seeking profits at the expense of the welfare of the population. While supply chain risks became evident since the COVID19 pandemic, a global context increasingly characterised as unstable and threatening has made economic security increasingly prominent. A Business and Trade Sub-Committee on Economic Security, Arms and Export Controls is currently running an inquiry on the subject.
The risk is that security arguments will not make for effective long-term industrial strategies and – crucially – for a fair and just green transition.
The Steel Industry (Special Measures) Bill is thus linked to this political context, as the UK – and other countries – are increasingly subjecting economic decision-making to security logics. Attaching the term “security” to decision-making has specific political effects, helping governments justify ‘urgent’ and “extraordinary” interventions.
The risk, however, is that security arguments will not make for effective long-term industrial strategies and – crucially – for a fair and just green transition. It was probably necessary for the government to step in to stop a private company from making a decision purely based on profit, on a matter of clear public interest. Yet, this intervention does not address the economic problem of making steel profitably in a context of global overcapacity; the urgency of making steel through “greener” technologies that will lessen the huge environmental burden of this industry; and the social and political challenge of providing a fair deal for steelmaking communities in Scunthorpe, Port Talbot and beyond. In other words, the UK still needs a plan for a just transition in steelmaking. It remains to be seen how this just transition fits in the UK government’s strategy for economic security.
All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.
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