The Government’s new steel strategy will not save the industry, but will cause long-term harm.
Their intervention will ensure that the main sites stay open and there will be photographs — hard hats, sparks, hi-vis jackets, national pride — they practically stage themselves. Yet none of this alters the underlying reality: that steel is a globally traded commodity business where costs decide everything, and Britain has chosen, quite deliberately, to make itself a high-cost place to produce it.
Consider energy. UK industrial electricity prices are among the highest in the developed world — often multiples of those in the United States and well above much of Europe. Add in relatively expensive labour, land use constrained by regulation, and a rising cost of capital driven by persistent government borrowing, and you have a simple truth: British steel is uncompetitive because Britain is uncompetitive.
Ministers know this. Which is why the strategy does not attempt to fix those costs. Instead, it attempts to hide them. The centrepiece is tariffs of up to 50 per cent on imported steel. This is presented as a way to “level the playing field”, yet it does no such thing. It tilts the entire pitch against British industry.
A tariff does not make domestic production cheaper. It makes everything using steel more expensive. Since the UK imports most of the steel it uses, the immediate effect is to raise costs across the economy — construction, manufacturing, infrastructure, defence. Every sector that uses steel becomes less competitive overnight.
Maybe this isn’t like tilting the playing field. Maybe it’s like breaking most of the players’ legs.
At this point, defenders of the policy reach for a familiar line: we must save strategic industries. Possibly, although when the French define yoghurt as strategic, the Italians handbags, and the Chinese have strategic pork reserves, it isn’t the most compelling argument.
If, further, your definition of “saving” an industry is to make all of its customers poorer while leaving its underlying cost base untouched, then this is a triumph. If, however, you mean making it capable of competing without permanent protection, then this policy does the opposite.
There is no shortage of evidence here. The Trump-era steel tariffs in the United States did protect some domestic capacity. They also raised input costs for manufacturers and are widely estimated to have destroyed more jobs in steel-using industries than they preserved in steel production. Britain, being smaller and more open, is not likely to escape that arithmetic.
Another defence follows quickly: other countries do this too. They do. And they pay for it too! The existence of bad policy elsewhere is not a compelling case for making the same mistake. If anything, it should prompt the opposite conclusion: that a relatively open economy like Britain benefits more than most from resisting the temptation.
The Government’s second move is to subsidise the industry directly, with £2.5 billion from the National Wealth Fund — an institution more accurately described as a National Debt Fund, which is borrowing money from future taxpayers. This, mind you, is only the beginning. Subsidies create dependencies, dependencies create expectations, and expectations create lobbies.
Here the strategy becomes circular. Lobbies demand tariffs. Tariffs raise prices. Higher prices weaken downstream industries. Weakened industries demand support. Support is financed through borrowing. Borrowing pushes up interest rates. Higher rates weaken investment. And so on — we call it “ratchet intervention” and it’s a major cause of the British cost disease.
The policy is soaked in a technological illusion. Ministers insist that the future lies in electric arc furnaces and “green steel”. Electric arc furnaces have their place, but they recycle scrap. They do not, in any meaningful sense, replace primary steelmaking based on iron ore. A country that moves entirely to EAF production is not securing sovereign steel capacity. It is becoming dependent on past production — and on global scrap markets.
Besides, electric arc furnaces are electricity hungry. To insist on EAF-led renewal while maintaining some of the highest industrial electricity prices in the world is contradictory and self-defeating.
If ministers wished to support steel seriously, they would start with costs — particularly energy. That would mean confronting the accumulation of net zero policy costs embedded in UK electricity prices, from levies to network charges, and rethinking the constraints on domestic energy supply, from North Sea production to onshore fracking, and possibly mining for coking coal.
None of this is easy but it is at least relevant. Instead, we have chosen what looks like the smoother path: subsidise the symptom, ignore the cause, and declare success.
There is precedent here. In the 1970s, governments across the developed world attempted to preserve industrial capacity through protection and subsidy. The results were consistent: industries that survived, but did not improve; jobs that were delayed in their disappearance, but not saved; and public finances that carried the cost.
Eventually, as always, reality reasserted itself. The only question is whether adjustment happens early and gradually, or later and abruptly. The steel strategy opts firmly for the latter. It will preserve a version of the industry — smaller than advertised, more expensive than acknowledged, and permanently dependent on political support. A zombie sector animated by policy rather than competitiveness.
Zombies, as a rule, are hard to kill. They require constant feeding, and they have a habit of biting the rest of the economy.
Alas, Britain can have a competitive economy, or it can have the appearance of a protected steel industry. It cannot, on these terms, have both.
