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Lord Sharpe of Epsom (Con)
My Lords, only last year Ministers were forced to rush through the Steel Industry (Special Measures) Act, which was an emergency nationalisation of British Steel in an industry that they had helped to destabilise. That Act told us everything we need to know—socialists must seize the means of production because they are utterly incapable of creating, maintaining or managing it. Unfortunately, this strategy is a testament to that.
Since the intervention at British Steel, the National Audit Office has now reported on the actual cost. The taxpayer has been paying £1.28 million to British Steel every single day. This strategy was meant to be published last year but has been delayed many times because the Government have said that they needed to get it right. What they needed, it appears, was time to construct a protectionist nightmare—a scheme that throws up tariff walls of potentially up to 50% and showers subsidies on a narrow set of domestic producers, while leaving the downstream industries that depend on affordable steel to fend for themselves.
The Government tell us that this strategy is necessary because British steel producers face crippling energy costs and unsustainable labour costs. Whose fault is that? This Government have driven energy costs higher through the contradictions of their own net-zero agenda. This Government have loaded employers with higher national insurance contributions and the cumulative regulatory burden and costs of the Employment Rights Act. They now arrive with subsidies, presenting themselves as the saviours of the very sector they have helped to cripple.
We have seen this pattern before. It is the logic of the youth jobs subsidy: the Government manufacture hostile conditions then spend taxpayers’ money papering over the consequences of their own failure while the underlying damage festers untouched. It is always the taxpayer who must bear the full weight of this Government’s incompetence. Even after subsidy, the UK’s energy prices in the steel sector will be almost two and a half times those of the US, 15% above France and 25% above Germany. There was no mention at all of any Asian producers in the steel strategy. I wonder why.
On net zero, the Government cannot have it both ways. They have banned new domestic coking coal production in the name of environmental responsibility, but the United Kingdom now imports coking coal from abroad: 47% comes from the United States and 38% from the European Union. We are not, therefore, reducing emissions. We are offshoring them, and paying a premium to do so, while simultaneously claiming to be building a strong domestic primary steel industry on the very raw material that we have made it illegal to produce ourselves.
We are told that this strategy is a response to global overcapacity and that the world is awash with cheap foreign steel, undercutting our producers at every turn. I invite the Government to explain precisely what they mean, because some might recognise what they describe as overcapacity as competitive pricing. Cheap steel is not a threat to the British economy; it is a benefit to it. Lower input costs for our manufacturers, our construction firms and our aerospace and automotive sectors mean that those businesses can invest, grow and employ more people.
The Government propose to eliminate that benefit artificially in order to protect a narrow band of domestic producers, and the bill, as ever, falls to the taxpayer. We have already seen £377 million consumed by the emergency nationalisation of British Steel in under a year. Now, the Government are announcing another £2.5 billion. The consequences of this decision will be felt most immediately by the industries that depend on steel as an input. Consider, for example, the automotive sector. There is, on average, 900 kilograms of steel in every vehicle manufactured in this country. The sector supports over 150,000 jobs and is already under severe pressure. When President Trump imposed 25% tariffs on passenger vehicles, UK car exports to the United States fell 55.4% year on year.
Construction tells a similar story. It is the largest single consumer of steel in the United Kingdom, accounting for about 53% of all domestic steel demand, and it is already suffering its fourth consecutive quarter of falling output. I ask the Minister directly: have the Government assessed the cost that these tariffs will impose on the construction sector? If they have, that assessment is conspicuously absent from the strategy.
There is a deeper contradiction that the Government must answer. They offer two arguments for these tariffs. The first is overcapacity: too much foreign steel flooding the market, creating supply so abundant that it undercuts our producers at every turn. The second is national security: we are dangerously exposed to unstable foreign supply and cannot afford dependence on it. But these two arguments cannot coexist: if the world is drowning in cheap steel then supply is, by definition, abundant; if foreign supply is genuinely precarious and could be disrupted then the overcapacity does not exist. Which is it? Is there too much steel in the world, or too little? Until the Government can answer that question honestly, this strategy has no coherent foundation whatever.
The national security argument also deserves further scrutiny on its own terms. The Government’s own data reveals that direct defence procurement requires around 36,000 tonnes of steel per year. Total domestic steel demand runs between 9 million and 11 million tonnes. Defence procurement represents less than 1% of total demand. The notion that we require up to 50% import tariffs and billions in state subsidy to secure that supply is a protectionist canard. Genuine strategic resilience is achieved through diversification—sourcing from the widest possible range of allies and partners. A supply chain built across allied democracies will be far more resistant to even the most radical geopolitical events.
If the Government wish to understand how world-class industries are built, they need look no further than some of our own. Financial services, life sciences and Scotch whisky between them are worth tens of billions in exports and, in many cases, are the envy of the world. Not one of them was built through the protectionism of the state. They were built through open markets, accumulated capital and the freedom to compete.
The Government have set a target of 50% steel production. Can the Minister commit today to providing the House with regular updates on progress toward that target? Will the Government tell us what the exit strategy from public subsidy is and when private sector investment is expected to replace it? What does the future of British steel-making actually look like, and who will build it? Any new entrant to the British steel market today will still face high and rising electricity costs, banned domestic coking coal, import quotas raising the cost of scrap metal inputs and a market dominated by subsidised incumbents with the full backing of the state.
This side of the House is not indifferent to the communities whose livelihoods depend on steel, nor to the genuine strategic importance of manufacturing in this country. But we do British industry no favours by raising input costs for every sector that depends on steel, and we do this country no favours by abandoning the open, competitive, capital-generating approach that made us a strong economy in exchange for a protectionism that serves the few at the expense of the many.
Lord Fox (LD)
My Lords, I thank the Minister for the Statement and welcome that there is a strategy here, although, as the noble Lord, Lord Sharpe, said, we were expecting it for some time. However, given what is happening in the world, reading this document conjures the image of someone trying to put up a tent in a howling blizzard, and at the heart of the blizzard are the energy market ructions caused by the Iran conflict.
The UK’s industrial energy costs were already at least twice those of the EU and four times those of the USA. The noble Lord, Lord Sharpe, and I have different multiples, but they are all very large. It is not clear to me whether these distortions that are already there in the UK energy pricing system will increase the gap as a result of the Iran issue as it bites. I doubt the gaps will narrow.
As the strategy sets out, the British industry supercharger scheme helps those companies that benefit from it. However, the steel industry comprises very many businesses, large and small, that do not qualify for the supercharger, although some may qualify for the British industrial competitiveness scheme—BICS. Can the Minister say how many steel-related businesses will benefit from BICS? However, BICS does not kick in until 2027. Given what is happening internationally, will the Minister undertake to speak with her Treasury colleagues about bringing forward the implementation of BICS? In any case, we should note that while the supercharger scheme exempts recipients from network charges, BICS does not, and those network charges are set to increase by a staggering 60%.
These are just a few of the reasons why, unless the Government revisit the energy costs issue, the steel strategy will quite simply be blown away.
Among the more eye-catching and concerning parts of the strategy are the new trade measures to introduce tariff-rate quotas and the possibility of, in future, raising most favoured nation—MFN—applied tariffs to 50%. Late last year, the Trade Remedies Authority ran its rule over imports of rebar from Vietnam and made recommendations to the Secretary of State. This was an entirely appropriate use of that body; indeed, it is what the body was created to do. Having worked on the Trade Act, which established the TRA, at the start of this decade, I see that it clearly has an important role, particularly given the wider scope of the potential actions set out in the strategy. But I do not see any reference in the strategy to the role of the TRA. Have the Government asked the TRA for its recommendations? When could we expect its report? It seems inappropriate to act without that authority.
Next, in his answer to questions in the Commons, the Secretary of State confirmed that there has been discussion with his EU counterparts and that the discussion would continue when they meet at the WTO. Can the Minister confirm that for the purposes of these discussions, steel’s treatment in the TCA—the trade and co-operation agreement with the EU—is equivalent to its treatment in an FTA; in other words, from a WTO perspective, is the TCA equal to an FTA? Furthermore, can the Minister say how, for the purposes of these discussions, the Government are treating the MoU with the USA regarding steel? I assume it does not have the status of an FTA, so how will this modify what we can legally do under the WTO with the United States?
I turn to the local impact of this strategy, which means that there remain question marks for a lot of our communities. My honourable friend in the Commons, David Chadwick MP, spoke very forcefully about the importance of steel to Wales and its economy. He also reinforced the need for faster action in ensuring that the electricity used, for example, to power the arc furnaces is green energy. I strongly commend his comments.
In geographical terms, I would like to highlight the South Yorkshire area, including Sheffield, where there is a host of important steel businesses. It is not just down to the headline firms; there are many other important businesses further down the supply chain that make up this vital steel ecosystem. These kinds of ecosystems are echoed all over the country. The Statement says the defence growth deal will be established in five areas, including South Yorkshire, as part of the defence industrial strategy. Can the Minister tell us when full details will be published? When will a defence growth deal be operational?
To support the effectiveness of a growth deal, a colleague of mine from Sheffield Council, with a strong steel background, suggests that a defence manufacturing supply chain database be built to include the hundreds of thousands of smaller tier 2 and tier 3 suppliers that are critical to our sovereign capability. In this way, the whole sector can be explicitly brought into the realm of the defence growth deal. Noble Lords will be surprised, I think, to know that there is no such survey and no such data available.
I was able to see how the Aerospace Growth Partnership worked effectively with its supply chain, and perhaps the Minister might like to look at how that operated and try to put the same principles into practice for steel. We on these Benches share the Government’s ambitions for a robust and growing steel sector, and we believe that this strategy makes some steps in the right direction. However, the already significant headwinds just got a whole lot worse. That is why success will depend on further action on energy, clarity on tariffs and a truly inclusive growth strategy.
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Innovation and Technology (Baroness Lloyd of Effra) (Lab)
I thank noble Lords for their rich contributions. They have raised many matters that are covered in the steel strategy and are of vital importance to the future of steel-making and its centrality to the UK’s economic success.
This steel strategy is the first one to be set out. It explains the vision and sets out bold measures across the business environment, trade, electricity costs, carbon leakage and public procurement, and it is that which distinguishes it from what has gone before. We do not believe that, although the sector does face challenges, it is inevitable that it will decline. The steel strategy’s aim is to stabilise and rebuild our existing strategy, as the noble Lord opposite mentioned, with an aim to sustain 40% to 50% of domestic demand, which of course will be tracked over the coming years. We can see the benefit of moving with this vision to a greener, high-production steel model. Sheffield Forgemasters’ electric arc furnaces have the technical capability that we need to produce steel of the highest standards.
On the question of energy prices, businesses are naturally worried about the impact of the situation in the Middle East. The Prime Minister chaired a meeting of COBRA this afternoon and the Secretary of State is meeting business organisations to look at the impact on energy prices and the supply chain. We have a diverse and resilient energy system, but we are monitoring it extremely closely. If there is a lesson, it is that reducing dependence on externally produced fossil fuels and moving to clean, green, home-produced energy has to be the way of the future. That is exactly what we are doing with the clean energy mission to increase our energy security and reduce electricity bills over the long term.
However, as noble Lords have mentioned, there are measures in place right now, including the supercharger, the energy-intensive industries compensation scheme for steel producers and, as the noble Lord mentioned, the British industrial competitiveness scheme, which will reduce bills for other businesses in the sector more widely. As I mentioned, the Prime Minister, the Chancellor and the Secretary of State are looking very closely at what needs to be done in the current context so that our businesses can be supported through this tumultuous time.
On the question of the trade measure, it is designed to shield steel-making from the damaging effects of overcapacity. This is not something that is unique to the UK. The US, Canada and the EU all apply their own similar measures to tackle overcapacity. We want to do this so that the British steel industry contributes fully to Britain’s crucial national security and defence, and to shore up the UK’s resilience to global shocks. Without this action, the UK steel-making capability faces real jeopardy, leaving us reliant on overseas suppliers. We do not want to let that happen.
I stress that this measure follows the expiry of the UK steel safeguard measure on 30 June this year, but it is a different measure and it has been carefully calibrated, following engagement with downstream importers, to get the right balance between measures to support our domestic steel industry and ensuring that those who use steel in the national economy can manage their businesses well. Following engagement with those downstream importers, we are exploring a transitional arrangement under which the new tariff would not apply to goods under contracts agreed before 14 March and imported between 1 July and 30 September 2026. We are finalising those details to ensure it provides genuine support to firms facing unexpected costs, while still protecting the UK market from excessive imports. We will also review the measure after 12 months to ensure it remains effective.
On the question of how it fits with other international agreements, with regard to the TRA, this measure is distinct from the steel safeguard and is not a replacement. It is separate from trade remedies, such as the current safeguard, which it is the Trade Remedies Authority’s role to review, so the TRA does not have a role in reviewing the new measure. On the TCA, I say that the TCA is the same as an FTA in the eyes of the WTO. I fear I have not addressed all the questions, but I am sure I will come back to them shortly.
Lord Jones (Lab)
My Lords, I thank the Minister for her Statement, delivered persuasively and helpfully. What good news might be given for the steelworkers of Wales? We once had a mighty industry, up until the late 1970s. Not any more. We employed tens of thousands in that once-great industry.
The ministerial foreword by the Secretary of State and Minister of State, Messrs Kyle and McDonald, was apposite. I liked their basic statement:
“This decline is not inevitable”.
I also liked their two concluding sentences:
“Steel built our past. It will shape our future”.
Certainly, the Welsh steelworker helped to defeat the Kaiser and Adolf Hitler. We have a mighty record: a case in point now is Port Talbot. What good news might be given for the steelworkers of Wales?
I declare an interest: I worked in a giant steelworks called Shotton in north-east Wales. At its tremendous best, as late as 1980, some 14,000 worked on site. Not now: there are much less than 1,000. When I worked there, I was a common labourer. I worked on the furnace stage of number 2 blast furnace, and my role was at the point when the metal burst from the furnace base.
Baroness Lloyd of Effra (Lab)
My noble friend brings his experience and wisdom to the House. Welsh steel is expected to account for half of future UK steelmaking. As he will be aware, we have also invested £500 million in the electric arc furnace in Port Talbot. In addition to that, the Secretary of State for Wales will convene the National Wealth Fund and the private sector in a new initiative to help unlock investment in Welsh steel projects to help and support communities across Wales that rely on the industry.
The Lord Bishop of Oxford
My Lords, for seven years I was privileged to be the Bishop of Sheffield, and I am familiar with the complex ecology of south Yorkshire, articulated by the noble Lord, Lord Fox. For those seven years, each year I was the guest of the Cutlers Company, who would invite a Minister, always from London and normally the Chancellor. In those years it was the coalition and Conservative Governments. The script followed by the speakers from the Cutlers Company, who did not mince their words, was always the same. It was about the neglect of the manufacturing industry by government and, in particular, high energy costs. This seems to me to be the key to the next chapter in this strategy.
I would be very grateful if the Minister could expand further and give some assurance that, in five years’ time, the Cutlers Company in Sheffield will not be making the same comments about higher electricity costs than for their partners overseas. I would also be grateful if the Minister could say something about the connection between advanced manufacturing and research, and the revitalisation of the steel industry. It was said in my time in Sheffield that Sheffield still produced as much steel by volume, but employed a fraction of the number of people, and that was because of advanced manufacturing. Thirdly, I would be really grateful for an unpacking of the defence contingency, the importance of which I would underscore.
Baroness Lloyd of Effra (Lab)
The right reverend Prelate raises some important issues. There are two elements here in respect of energy prices. The first is the immediate action we are taking, including the supercharger, to support the steel industry now. The second is the investment we are making in renewable energy, clean power and nuclear energy that will set this country on the right track to low-carbon energy that has high energy security here in the United Kingdom.
The other point, on advanced manufacturing and R&D, goes to one of the particular strengths of the United Kingdom, which is our expertise and the types of firms we have. One benefit of the industrial strategy is linking the sectors we have set out there, which of course include defence, with the importance of high-quality manufactured low-carbon steel, which is what the UK excels in.
Lord Harper (Con)
My Lords, the Minister knows that tariffs are a tax paid by the consumers of the steel that will be introduced. I have looked carefully in the steel strategy, and I cannot see any analysis of the impact of those increased costs on either our domestic construction sector or our domestic manufacturing sector. I ask the Minister, did the Government conduct such an analysis of the impact those tariffs are going to have? If they did not, why not? If they did, can they publish it, so that Members of your Lordships’ House can see the detail of the impact those taxes are going to have on our domestic manufacturing?
Baroness Lloyd of Effra (Lab)
We engaged carefully with the industry in constructing these tariffs, and we will review the measure after 12 months to ensure it remains effective.
Baroness Bennett of Manor Castle (GP)
My Lords, the Statement says:
“Britain can recycle more steel. Making better use of scrap steel is fundamental to the sector’s future growth”.
However, I am sure the Minister is aware that, currently, four-fifths of the UK’s scrap steel is exported, primarily to non-OECD countries with far lower environmental standards than us. I looked carefully at the strategy, but I could not see any actions planned by the Government to ensure that scrap steel stays in the UK to be recycled. I also could not find a target for the level of recycling that we expect of that scrap steel; I hope that it will eventually be 100%. How long will that take? If I have missed any actions and targets, I would love to hear about them.
Baroness Lloyd of Effra (Lab)
The noble Baroness is right that there is a strong emphasis on the importance of scrap steel. The move to using some of the electric arc furnaces will increase the demand for that scrap steel in our supply chain. Our move towards the aim of getting the domestic market share back to 50% will drive much more demand for domestic scrap steel.
Lord Mohammed of Tinsley (LD)
My Lords, I add my voice to the comments that were made by the right reverend Prelate, the former Bishop of Sheffield—I remember him well and his commitment to the city—particularly on the issues around the Company of Cutlers. Its members are a tough bunch but they are fair—sometimes they speak truth to power, and often that is what is required. I will follow up on the points raised by my noble friend Lord Fox, particularly on the current turmoil in the energy market with the ongoing conflicts, first, in Ukraine and, more recently, in the Middle East. I suspect that he has been speaking to many people across the steel sector and not only in Sheffield, but I will stick to Sheffield and Stocksbridge.
There is a point to be made about the cost of energy. I understand that large energy-intensive businesses can hedge energy prices over a longer period, but a number of smaller businesses, including those with limited credit available to them, are really suffering now, leading to vulnerability and volatility as energy prices are paid either a day ahead or in the short term. I will give the Minister an example. I spoke to a steel contractor over the weekend which had an order that it was preparing for last week. All the materials and energy costs were factored in at the time and it was just about to make a profit, but after the Israeli attack on the Iranian gas field and then the Iranian attack on Qatar its gas price went up by 30%, because it did not have a great credit rating. From making a potential small profit, it is now going to incur a loss. These organisations are desperately looking for help right now—not in 2027. Can the Minister say what the Government are doing, particularly now, to help small and medium-sized businesses, or those with issues with their credit rating?
Baroness Lloyd of Effra (Lab)
The noble Lord also brings his extensive interest and expertise to this. I agree that businesses will be worried about the impacts of the situation in the Middle East. The example he gave is very good at showing the practical impacts of what people are encountering day to day. We are monitoring this extremely closely and working with industry—the Secretary of State will meet with businesses in the coming days—to get a full picture of those types of impacts. The consultation on the British industrial competitiveness scheme is currently closed, but we will set out what it means in the coming period.
The Earl of Effingham (Con)
My noble friend Lord Sharpe quite rightly said that open markets are good and, following on from my noble friend Lord Harper, it is quite correct that economists may say that the uncertainty of tariff policy is not favourable for employment or investment. So I ask the Minister: why exactly do the Government think tariffs are a good idea and when can we see the assessment of the cost—the knock-on effect that tariffs will have on consumers?
Baroness Lloyd of Effra (Lab)
Like many countries, we have applied tariffs to counteract the damaging effects of global overcapacity. Our action is not unique; the US, Canada and the EU all apply similar measures to tackle overcapacity. As I mentioned, it has followed engagement and we are looking at transitional measures to ensure that those contracts that have already been put into place can be taken forward. We will also review the measure after 12 months to ensure that it remains effective.
Lord Wigley (PC)
My Lords, with the indulgence of the House, I welcome the strategy and the Statement, as far as it goes. The Government previously announced that £500 million would come to Port Talbot. Will any of the newly announced £2.5 billion come to Wales? Did the Welsh Government ask for part of that and were they given a full answer? The Minister will be aware that the steel-utilising industries that currently still exist in Wales may require high-quality steel. Is it possible for the electric arc furnaces to produce high-quality steel from recycled scrap?
Baroness Lloyd of Effra (Lab)
I thank the noble Lord for his questions. On the effectiveness of electric arc furnaces, there are a couple of points. First, at Sheffield Forgemasters, we see the technical capability to produce steel to the highest quality, for the nuclear industry, aerospace and defence. Independent experts’ view is that any grade can be made by electric arc furnaces, so that addresses the question about the quality of steel that can be made by this technology. On the other point about the benefit to Wales, we have already invested £500 million in the electric arc furnace for Port Talbot. We are working with the Secretary of State for Wales and the private sector to see what investment can be unlocked under the £2.5 billion that the National Wealth Fund will have allocated for steel projects.
Baroness Bennett of Manor Castle (GP)
My Lords, since there is time, I note that the Statement talks, I am happy to say, about the shift to “greener, decarbonised steel production”. However, will the Minister acknowledge that there is a rather great irony that when the Statement comes to consider the potential markets for this British-made steel, it talks about the third runway at Heathrow requiring 400,000 tonnes of steel? This is the third runway that, according to the Government’s own figures, uncovered by Politico last year, will result in an addition 2.4 million tonnes of CO2 equivalent being released into the atmosphere each year by 2050. This is at the same time as the Joint Intelligence Committee is warning what a great threat to our security the climate emergency is.
Baroness Lloyd of Effra (Lab)
The noble Baroness is right: there is a great market for green steel. Hatch estimates that over 90% of steel demand in the UK in 2050 will be steel produced with low emissions. The transition to net zero is across the entire economy, and we will take that forward across all sub-sectors.
Lord Harper (Con)
My Lords, since there is still time, can I just press the Minister on her attempted answer to my question? She did not confirm that there had been any kind of economic analysis. She said that there had been engagement with the sector. Can she tell us whether the customers of the steel industry—manufacturing and construction—support the introduction of 50% tariffs on their products, and that tax that they are going to have to pay?
Baroness Lloyd of Effra (Lab)
We are still in discussions with much of the sector, explaining what the precise tariffs mean across different sub-sectors, and we are gaining feedback following the publication. We continue to work across many sub-sectors and business areas on implementing the trade measure ahead of 1 July, and we will consider what information we further publish following those consultations.
Lord Mohammed of Tinsley (LD)
My Lords, given the extra time, can I just pose another question? Given that defence supply chains already receive special treatment in procurement and export controls, I wonder whether the Government would consider also extending that to energy policy.
I will give some examples: the right reverend Prelate will know exactly where I am going to come from. I live in Tinsley. Just down the road from me is the Meadowhall shopping centre, and just around the corner from there is Sheffield Forgemasters, where many members of my family worked from the 1970s and 1980s onwards. At the moment, when it comes to energy pricing, both those two—the commercial shopping centre and the steelworks—get priority in terms of the level. However, I want to push the Minister on whether the Government would consider prioritising defence, just as they do with other elements of defence, given that Sheffield Forgemasters and others will be working on that. If I was to speak to a couple of my steel contacts in the city, would the Minister consider an offer of a meeting, possibly on Zoom, to be able to go through some of these more technical issues with her and the department, rather than trying to do it from the Dispatch Box in your Lordships’ House?
Baroness Lloyd of Effra (Lab)
I thank the noble Lord. I will be happy to meet with the industry representatives he talks about and to explore this in more detail. As he knows, we have changed the steel procurement guidance more generally, updating it to ensure that UK-made steel is regularly considered in public projects, and we are requiring procurers to consult a digital catalogue of UK-made steel products. But, specifically in the realm of defence, I would be very happy to take that further with the noble Lord.
Lord Fox (LD)
My Lords, the answer that the Minister gave me on the Trade Remedies Authority was a little confusing—or it confused me, anyway. Can she set out in some detail in writing why the TRA is not involved in this? When you look at the Vietnam case, it is exactly analogous, only much less significant than the case we are looking at now. If it was good for the Vietnam rebar, why is it not good for the much larger and more important issue that we are discussing here? Perhaps a detailed letter would be helpful.
Baroness Lloyd of Effra (Lab)
This measure is distinct from the steel safeguard. It is distinct from trade remedies, which is why it is not the role of the Trade Remedies Authority to review it, because the TRA does not have a role in reviewing this measure.