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The British Steel Industry has seen it’s fair share of ups and downs. It has been privatised, nationalised, privatised, nationalised and then privatised again. It has been on a steady rate of decline for the past 50 years but how and why did it get to the state it is in today?
Many people blame Thatcher and her dismantling of the Steel Industry in the 1980’s via privatisation and the loss of well over 100,000 jobs. But if you look back at British Steels history, and the history of steel production as a whole, you can see that this problem has been a long time coming.
First, we need to look at why steel is such an important material. At the heart of Britain’s Industrial Revolution was Iron, leading to the world’s first Iron bridge across the Severn at (the imaginatively titled) Ironbridge. The biggest problem with Iron though was that it was brittle and snapped under pressure. In the 1850’s Steel production was upscaled and it became possible to mass produce it.
It was our ability to mass produce steel that started the ‘boom and bust’ markets that still persist today. The EU started life as the European Coal & Steel Community due to the importance of steel during Europe’s post-war recovery. It was a strategic industry, steel was vital to the production of things like battleships and munitions.
Any developing country creating its own industrial revolution needs steel. It’s used to build bridges, railways and buildings. As such, these nations invest heavily into new steelworks to mass produce steel for infrastructural development. This in turn leads to an oversupply in the marketplace once projects are reaching their conclusions thus driving down prices and forcing the country to look further afield in the worldwide markets to sell their product.
A sudden oversupply into the market leads to a plunge in prices, large steel companies make losses or, if lucky, break even. Things usually level out but eventually, or inevitably, the process starts again and a surplus of steel brings the market to its knees. This cycle has been ongoing since 1945.
How Did it Get There?
It’s isn’t worse than it was per se. It has been in steady decline over the last 60 years since the first attempts to nationalise the industry. In 1951, Clement Atlee’s Labour Government nationalised the industry under the Iron and Steel Act 1949 creating the Iron and Steel Corporation of Great Britain (ISCGB), It became the sole shareholder in 80 steel companies. This was short lived however as Winston Churchill replaced the ISCGB with the Iron and Steel Holding and Realisation Agency which privatised most of the industry in 1953.
This only lasted until 1967 when Harold Wilson’s labour government again renationalised the industry, merging 14 companies (about 90% of UK production) together as the British Steel Corporation. At this point, the industry accounted for about 270,000 jobs.
In 1980, Margaret Thatcher set out to cut British Steels losses at a time of overcapacity in the industry, coupled with rising energy prices and a deepening recession. Between 1979 and 1981, the number of people employed in the industry fell from 156,600 to 88,200. Full privatisation occurred in 1988 and by 1989-90, the new British Steel PLC made a pre-tax profit of £733m despite the workforce now sitting at 55,000.
1992 saw a decline in the demand for steel during the recession, ending steel making in Scotland as the Ravenscraig Steelworks closed. In 1999 British Steel merged with Koninklijke Hoogovens to form Corus Group. By this point, the UK steel workforce is approximately 29,000. Further closures were seen in 2002 to stem losses from the industry. Tata Steel buys Corus Group in 2007 with the UK workforce at 23,000 which leads us to 2016 and Tata announcing plans to sell its loss-making UK steel business putting another 15,000 jobs at risk.
Why Does it Continually Decline?
The decline of the steel industry isn’t just a British phenomenon. Across the globe the steel industry is in turmoil. Even though UK steel mills are some of the most efficient in the world, the price of low-cost steel flooding the market has collapsed global prices worldwide. The main culprit for this at the moment is China.
Over the last 30 years, Chinas industrial revolution has been phenomenal and one of the biggest things it’s invested in is steel. As Chinas economic development has slowed down over the last five years, they have produced too much steel which has been flooding international markets for the last few years.
In addition to this, demand for steel has not reached pre-financial crisis levels and global demand will remain sluggish.
In 2014, UK imports of Chinese steel came in at 687,000 tonnes, more than a 50% increase on the previous year. Whilst the UK does source a lot of steel from the EU, the fact that China can charge 583 euros per tonne compared to 897 euros per tonne in Europe means that the proportion of Chinese steel imports will increase.
Many argue that this flood of cheap steel is being subsidised by the Chinese government, something Britain would struggle to do under EU rules. That’s not to say that our government can’t do anything at all. They are allowed to fund research and development or help with high energy bills to help boost their competitiveness.
High energy costs are another factor that makes British Steel less competitive. As an energy-hungry industry, it has been hit hard by government environmental initiatives, as well as higher energy costs. Again, this all adds to the total cost per tonne of steel.
How Do We Save Our Steel?
There are many suggestions as to how we can improve our global competitiveness including lower business rates, a review of carbon emission targets for heavy manufacturers and more compensation for high energy costs. On top of this, a commitment from the government to use British Steel in all construction projects would also help.
Tackling the low cost of Chinese steel cannot solely be done by Britain, that would require cooperation from the European commission. Whilst tariffs seem a quick-fire way to fix it, the commission and Britain would need to think carefully about the best way to tackle the problem.
Another suggestion is to follow Germany and Frances lead in reducing business rate calculations by excluding plant and machinery costs. The business rates for steelmakers can be up to a tenth of those in Britain.
The main thing to remember is this is not solely a British problem, the world is currently oversupplied with steel, with only two thirds of the supply actually being used. The industry can be saved but it will require a unilateral approach by all of Europe, something we’ve been trying for for years…..
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