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Tough options for UK government to rescue British Steel

Steel News - Published on Wed, 22 May 2019

Image Source: Reuters
Mr Gregory David Clark UK’s Secretary of State for Business, Energy and Industrial Strategy has one of the worst jobs in the UK government. The business secretary needs to decide whether to nationalize British Steel, let it go bust with the loss of at least 5,000 jobs or apply a sticking plaster to let it limp on. British Steel’s labor and energy costs, which make it harder to compete when times are tough, are an argument for shuttering the plants rather than keeping them alive. If Mr Clark rejects this as unpalatable ahead of European Parliament elections this week, he could nationalize the operations, leaving him to face a difficult conversation with the European Union over state aid. But even that would be more palatable than a loan that might only be a short-term fix, and which delivers most of the reputational hit of nationalization without sufficiently penalizing the current owner.

A loosely binding procurement policy is a long way from being a coordinated strategy to transform an industry that plainly needs to adapt to a lower-carbon future. The Brexit factor is undeniable. If the UK were to leave the European Union in November in chaotic fashion, tariffs could be imposed on UK steel exports under WTO rules.

British Steel provides a third of the UK’s annual 7.8 million tonnes of steel production from its Lincolnshire works. And since 2016, it has been owned by a private equity outfit called Greybull Capital, which bought the plant for a token GBP 1 from Tata Steel in 2016. A fortnight ago the government agreed a GBP 120 million loan to cover British Steel’s cost of buying carbon credits under an EU-scheme to limit emissions.

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Posted By : Sanju Moirangthem on Wed, 22 May 2019
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