This article is taken from the June 2025 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £25.
Whether it’s power cuts, the “brain drain” or mounds of fly-blown rubbish piling up in city centres, 2020s Britain seems hell-bent on recreating the 1970s. Well, here’s another example: the return of the lame duck. You might not remember the limping fowl, but in 1970 Ted Heath, in a moment of free market vigour, promised in the Tory manifesto to stop subsidising Britain’s “lame duck” industries and let competition do its work. The idea was that less Whitehall meddling might actually be good for growth.
But kicking the habit proved hard. Within two years, Heath had effected the overnight rescue of a bankrupt Rolls-Royce and bailed out Upper Clyde Shipbuilders — the prelude to what became a decade of Band Aid-style subsidies and interventions. Only with the arrival of Margaret Thatcher’s astringent policies was Heath’s promise finally realised. Or so we thought.
Sadly, the lame duck is making a reappearance. In April, business secretary Jonathan Reynolds had his own Rolls-Royce moment. Having summoned Parliament on a Saturday for the first time since the Falklands crisis of 1982, Reynolds urged MPs to rush through legislation allowing him to dispatch a task force to take control of British Steel, owner of two blast furnaces in Scunthorpe, without buying out its Chinese owners, Jingye, who were threatening to shut it down. The reason? A product “fundamental to Britain’s industrial strength, security and our identity as a primary global power” was under threat.
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It says something profound about the state of British industry that the fate of a single steel plant should elicit such a response. After all, until Reynolds pointed out its centrality to Britain’s place in the world, ministers didn’t seem to care too much about Scunthorpe’s steelworks as long as it didn’t close down entirely. Part of the Corus steel group until its takeover by India’s Tata Steel in 2007, Scunthorpe had since been sold on twice: first to an investment firm called Greybull, notionally turnaround specialists but possessed of a record that suggested they might be better termed corporate undertakers, then in 2019, when Greybull predictably shut it to Jingye, a second-tier Chinese steel firm of which few had ever heard.
This time it was clear no rescuers were coming. Instead there was a sense of an ending: With Scunthorpe closing, Britain would become the first G7 country without the capacity to make “virgin steel”. Another capacity lost at a time when British industries seem to be retreating en masse. Take UK car production, which this year is down to levels not seen since the 1950s. In aluminium, Britain is down to its last plant.
In petrochemicals, Ineos boss Jim Ratcliffe recently closed the Grangemouth Refinery (responsible for roughly 15 per cent of UK capacity) and replaced it with an import terminal. The Saudi firm Sabic is suspending investment in another big chemical facility — an ethylene cracker on Teesside, which it is said to be about to close.
Gas tends tends to set the wholesale price for British electricity
These aren’t knackered hulks left over from the Industrial Revolution, overmanned and groaning under antiquated work practices. British industry has been through many rounds of restructuring since Mrs Thatcher’s day, and those that remain — accounting for a little more than 8 per cent of GDP — are battle-hardened and productive. Nor are they easily dispensable, at least in a nation aspiring to strengthen its industrial resilience as this government claims to want to do.
What makes the situation especially dire is that the industries under threat represent the backbone of most modern economies, either supplying essential inputs for other production processes or acting as the repository of key engineering skills that confer a degree of strategic autonomy. And there’s a final feature they all have in common: they consume a great deal of energy, much in the form of electricity.
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Energy costs are not the only problem vexing Britain’s basic manufacturers. There’s the shrinking of the country’s manufacturing base, which means there’s ever less domestic demand for their products. (British demand for steel, expressed in kilograms per capita, is less than half that of the European average, reflecting the impact of deindustrialisation.)
Meanwhile the sudden riot of new tariffs is creating huge trade distortions, which raise questions not only about where to site production, but also the risk of goods being diverted by overproducing countries into UK markets, driving down prices to levels where domestic producers can’t compete. Then there’s Rachel Reeves’ self-harming decision to jack up labour costs by raising employers’ National Insurance.
But in the end, most things come back to the high cost of power. This is driven by two politically sensitive factors — one elective and the other less so. The elective bit is the government’s net zero policies that have grafted additional costs on electricity bills. These are essentially levies designed to meet the elevated cost of green policies. Other countries tend to exempt energy-intensive manufacturers from these entirely.
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The other immediate problem is the high market price of gas-fired electricity — the product both of high gas prices since Russia’s invasion of Ukraine and the fact that more renewable energy on the grid means gas stations get called on less frequently. Gas tends tends to set the wholesale price for British electricity much of the time: the trade body UK Steel recently analysed the scale of the problem and found that British steel producers paid 33 per cent more for power than their German rivals and 50 per cent more than the French.
This wide gap deters investment, especially as so many British manufacturers are part of multinationals which have a choice of where to produce. And, as few multinationals relish taking the rap for shuttering politically sensitive manufacturing operations, the result has been an accelerating downward spiral of UK industrial facilities falling into the hands of ever more short-term owners, sometimes little better than ill-financed asset strippers.
Ministers are reduced to running around as each plant’s equipment nears the end of its useful life, offering bungs to keep each struggling enterprise afloat.
With huge green costs involved, cleaning up “dirty” industries like steel or making companies introduce new products such as electric vehicles mean these subsidies are getting pretty pricey. As the economist Dieter Helm has pointed out, the “going rate” is now £500 million per plant. Even then, as the government found out with Jingye, there’s no guarantee of compliance: the Chinese threw Reynolds’ cheque back in his face when he offered them half a billion pounds to replace Scunthorpe’s elderly blast furnaces with more climate-friendly electric arc ones.
Whilst this prompted the minister to accuse them of negotiating in an underhand manner, looked at another way, Jingye were simply asserting their right as owners to source cheaper steel from operations overseas. As an aside, according to The Times, the company even went to the trouble of setting up a Chinese plant to make so-called long products for the rail industry (Scunthorpe’s main product) and sought to encourage some UK workers to move there.
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Reynolds’ intervention has now put the government on the hook for all British Steel’s losses, presently running at a sobering £700,000 a day. He has also said that full nationalisation is “likely”; which at least has the virtue of being realistic. But he has yet to articulate a plan that would make any obvious difference to the company’s performance, other than proceeding with the new furnace investment — a step that will cut carbon emissions (and employment) but expose the plant further to stratospheric electricity costs.
Simply subsidising an uncompetitive plant without doing anything else is pure 1970s-style lame-duckery. Other steps, such as erecting tariff quotas or imposing “buy British” procurement policies, may help the plant in question but will do nothing to deal with the underlying malaise.
The UK needs urgently to address the competitiveness problem at its energy source. High electricity prices don’t just knock out ailing manufacturing; they also zap some of the high tech service sectors in which Britain aspires to compete, such as AI. “The assumption built into the UK business model was always that a ‘knowledge economy’ wouldn’t be very energy intensive so we could survive with a less robust system,” says Peter Atherton, an energy consultant. “But now with things like AI, with its massive energy needs, that bet doesn’t look so sure.”
Some changes have happened, if only because the competitiveness problem has become so glaring that even Tony Blair has noticed. He recently issued an encyclical through his institute saying that Britain’s net zero policy was “doomed to fail”. The last government had already lifted some of the green policy costs from manufacturers and dumped them on general taxation, a necessary step as they still have to be paid for. Starmer needs to go the whole hog and mirror French and German practice by shielding industry from high transmission charges. (Rather than just sticking everything on the taxpayer, he might also look at ways to cut the subsidies that drive them.)
The other obvious step is to abandon the sprint to net zero, which requires Britain to decarbonise electricity in the next 55 months by replacing most of its remaining fossil fuel output with renewables. Granted, U-turning would be politically awkward as it conflicts with other government priorities: the energy secretary Ed Miliband has not only made it his mission to hit the 2030 target; he also argues that doing so will actually reduce energy costs, largely because consumers will no longer have to buy so much expensive gas. (Famously he promised this would cut household bills by £300, although Number 10 has since distanced itself from the figure.)
Embedded in Miliband’s bold claim is a bet that fossil fuel prices will remain permanently at their elevated level. If energy-intensive producers shared this belief they’d be ditching fossil fuels and flocking to countries with lots of cheap renewables like Britain. They are not. More likely, as the world market adjusts, for instance ramping up Liquid Natural Gas capacity, the price will trend back towards its longer term mean.
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What makes abandonment urgent is that there’s a trap concealed in Miliband’s mission. Proceeding with the 2030 plan means replacing fossil fuel assets with their low fixed, high variable operating costs with renewable technology with the opposite: high fixed, but low operating costs. True, this banishes fossil fuel volatility, but the fixed costs of those renewables are then set in stone. How high would they be? More importantly, would they be higher in the long-run price than fossil fuels? It doesn’t take an arch-sceptic to be worried.
After all, as Helm has pointed out, what the 2030 sprint means is “the UK must pay whatever it takes to commandeer the necessary equipment for the supply chains and the necessary skilled labour, as well as whatever returns investors demand, too”. Odds are they’ll be higher than Miliband hopes. Only the other day, Orsted, a Norwegian renewable energy company, withdrew from a huge wind project in the North Sea because of soaring costs.
Some experts worry Britain already has too much inflexible renewable capacity. Last year, 51 per cent of Britain’s electricity came from renewables. “At the rate we are accelerating the roll-out of that fixed price capacity, within five years you might see no benefit even if the gas price plummeted,” says Atherton.
In the 1970s, it took more than a decade for Britain to see the folly of lame duckery. Now we don’t have the luxury of time.
