Steel Industry (Nationalisation) Bill

(Limited Text - Ministerial Extracts only)

2nd reading
Tuesday 16th June 2026 Lords Chamber

[Lord Frost (Non-Afl)]

My Lords, I congratulate the Minister on his promotion and thank him for his very clear opening statement. The problem we have today is that we are looking at a Bill that is important in its own right but is only one part of a much bigger problem: can we sustain a steel industry at all in this country and, if so, how? I am not quite such a fan of the Government’s March steel strategy as the Minister is. The problem is that what one thinks of this Bill really depends on what one thinks of this broader strategy and how viable it is.

I sympathise with the Government’s difficulties, even though they are in part self-generated, although not wholly. Even somebody as economically liberal as me recognises that we are hardly operating in a free market environment in this area and that some sort of government steering hand is needed. We all have an interest in maintaining a viable steel industry in Britain, after all. It is the design that is crucial.

I want to set out three contextual problems before talking about how we might find a way forward. The first problem has been alluded to before: the fact that there is no genuine market in steel globally. We know about the huge amount of structural overcapacity worldwide, the Chinese subsidies and the reaction—the wave of tariffs, quotas, anti-dumping measures and so on that has spread across the industrialised world. There is no sign that that is going to change any time soon. In that context I understand the Government resorting to tariffs. I certainly do not like them, but it is unreasonable to exclude them as a weapon. They could be better targeted on particular kinds of steel, stronger rules of origin and perhaps bigger TRQs for reliable suppliers. Maybe the Minister can say whether the Government have considered this or might consider it in the future as a way of reducing the downstream effect on our own producers.

The second problem is the need for resilience and the national security issues that go with that. That means maintaining a necessary sovereign capacity, as other noble Lords have said. The question is, what does that sovereign capacity actually mean? The UK currently consumes about 12 million tonnes of steel a year. It is going up slightly. Domestic production is about 30% of that and the Government say they want it to go up to 50%. It is never going to be 100%. Sovereign capacity does not mean producing everything you consume; it is about defining the capabilities you cannot afford to lose and the supply chains you cannot afford to depend on. Others will have different views, but my assessment is that the main capabilities we should be focusing on are: the defence-grade plate, forgings and specialist alloys that are broadly made in Sheffield, and the Government are committing to that; stockpiling and reliable contracts for the upstream supply chains; and rail and critical infrastructure products currently made at Scunthorpe but unprofitably.

The first of those three categories is largely state guided and in part state owned. As for the second, stockpiling, the Government have said nothing at all about this. On the third, Scunthorpe, the Government have not really been clear about the national security or resilience case for keeping Scunthorpe going. The Minister mentioned that it was about maintaining the ability to produce steel from scratch from raw iron, but an EAF plant with a DRI plant can do that as well, and that may well be the direction of travel. It is not in some particular resilience in the upstream supply chain either. After all, we no longer make coking coal in the UK, so we have to import that anyway to keep Scunthorpe going. As far as I can see, the only real case is transitional: to keep the UK as a main supplier to the rail industry while the new electric arc furnace facilities are built at Scunthorpe. I do not know whether this is the case or what mix of these things is the Government’s thinking on Scunthorpe. Perhaps the Minister can give us a bit more detail on that.

The third problem is this. If we are envisaging a modernised steel industry of some kind in this country and the capacity of specific types for specific purposes, can it be done profitably over the long term? Is it viable? I think our answer to that is yes. We can see it done in the US in the mini-mill industry and elsewhere—Turkey, for example, has a profitable steel industry based on EAF plants. Maybe this points to a UK model that is something like specialist capability for defence in Sheffield, two or three EAF clusters, perhaps including Scunthorpe, and this question of a DRI plant, which is touched on in the Government’s strategy but not brought to a conclusion.

Perhaps we could all agree to this as a viable destination. The problem is, how do we get there? As a destination, it depends on a cost and business environment that currently does not exist. Electricity is super expensive and getting more so. The business environment is poor and getting worse. As a transition, it involves somehow encouraging investment into this poor business environment, or else the Government coming up with the money themselves. This is why we have the problem that this Bill encapsulates. We are heading for a destination, however desirable it may be, that is probably unviable in current conditions without massive government help. This is the problem with rushing to nationalise Scunthorpe without thinking it through properly.

So where does that leave us? In the circumstances, there is clearly a case for the temporary nationalisation of Scunthorpe, on certain conditions. Temporary public ownership may be justified—and we wait to hear from the Minister on this—because closure might remove the UK’s primary iron capability overnight, with no clear succession plan. The problem is, as we know, that nationalisation always sets up terrible perverse incentives and poor management, which is why temporariness is really important. There must be a way out and a viable end point. It is reasonable to ask for something clearer on those conditions if we are going to proceed satisfactorily, and I give notice that I will probably put down some amendments to that effect.

We need three things. First, we need a clear exit strategy for Scunthorpe: the blast furnace run-out date if there is one, an EAF commissioning date if there is one and a target for return to the private sector. Without that, Scunthorpe risks becoming British Leyland—a permanent loss-making ward of the state where all the incentives are just to put in more money and hope that things turn out better, impossible to close but impossible to fix either.

The second condition—unfortunately, this is far from being fulfilled—is electricity and energy prices and a business environment that support a viable industry. We know the problem with electricity prices. It has been said that the British industrial competitiveness scheme exists and will hold down those prices, but that itself is only cross-subsidy. We are supposed to believe, and the Secretary of State for Energy has said, that our great net-zero project is going to bring prices down in the future, so why do we need the cross-subsidy if that is really the case? There is a real problem here with the strategy.

It is not just me saying that; plenty of people are. Dieter Helm, who is a pretty neutral commentator on this subject and has certainly supported net zero in the past, wrote on 3 June that the industrial consequences of the Government’s energy policy

“have been dire. High electricity prices have contributed to the closure of Grangemouth … the Exxon refinery in Scotland, one of the Hull refineries, the closure of most of the steel industry, the closure of the fertiliser and fibreglass industries, and severe problems for pottery and for glass-making. Car manufacturing is back to the 1950s’ levels. There is devastation amongst the SMEs … unfunded welfare spending has increased the cost of capital … Energy policy has reduced economic growth, not increased it”.

That is the problem. We are building a steel industry—we hope—in that environment but it is not clear to me how it is going to survive in those circumstances.

The third thing we need is a proper strategy for the industry as a whole, not just for Scunthorpe but something broader. What is the end point? Is there going to be a DRI plant or not? Do the Government recognise the need for the stockpiling of hard-to-source EAF kit and scrap? Do they recognise the need for strategic stockpiles of defence plate billets, HBI and so on?

The problem we have, to return to where we started, is that the March strategy covers only about half the ground. It commits on Port Talbot funding, on expanding Forgemasters and on one or two other things, but it is unclear on Scunthorpe—the subject before us today—non-committal on DRIs and silent on stockpiling. It says little or nothing about whether the future industry can be expanded further if we need to upgrade our defence effort. Above all, it does not tell us what the hierarchy of objectives is. What is the Government’s choice framework? When national security clashes with profitability, what is most important? When employment clashes with modernisation, do we protect jobs or do we fund the transition? When net zero clashes with the industrial base, do we change the plans or continue the charge of the Light Brigade to industrial suicide? That needs to be clear if it is a strategy. I would like to think the March strategy was interim but I do not know. Perhaps the Minister could say whether any thinking has been done on this broader approach and whether a broader strategy is needed.

Britain is not going to get back to a world of free trade in steel—that is not going to appear any time soon—but it can have a steel industry that is smaller, smarter, sovereign in the things that matter and capable of paying its own way. The problem is that putting so much of this in the hands of a Government relies on a Government who are capable of strategising for industries and running them, but history suggests that Governments are not good at those things. We are right to be sceptical about the approach and to ask for more information. Perhaps in winding up the Minister could start to give us some of that.

--- Later in debate ---

[Lord Sharpe of Epsom (Con)]

My Lords, I join the general approval of the Minister’s promotion. I wish him well and I am delighted to face-off somebody who has considerable business experience.

I am grateful to all noble Lords who have contributed to this important debate. It is always a pleasure to follow the noble Lord, Lord Fox, who, when talking about hubris, was slightly selective with his times. The steel industry has had systemic issues for a couple of decades—and there was a Liberal Democrat Business Secretary for at least five of those years. Apart from that, I agreed with much of what he said.

There was a great deal of agreement in the House about the general strategic importance of steel, which is welcome. British Steel matters to Scunthorpe, jobs, rail, construction, manufacturing, defence and our national resilience more generally, as many others have noted. We do not deny that the Government may have had to act in April 2025 to prevent an immediate and disorderly closure of the blast furnaces, but the central question remains, and it runs through the debate. It is not whether steel matters; it is whether nationalisation is a serious strategy for making British Steel viable. On that question, the Government have still not provided convincing answers.

As my noble friend Lady Noakes noted, nationalisation, we were told, was not the Government’s original plan. When the emergency Steel Industry (Special Measures) Bill was brought before Parliament last year, the then Secretary of State, Jonathan Reynolds, told the Commons that:

“The Bill does not transfer ownership to the Government”.


He said that the Government’s aspiration remained

“a co-investment agreement with a private sector partner to secure a long-term transformation”.—[Official Report, Commons, 12/4/25; cols. 840, 841.]

I have absolutely no doubt that the Minister will say that private investment remains the goal—indeed, the Minister in the other place, Chris McDonald, said as much in a Written Statement—but where is the plan to achieve it? Where is the timetable? Where is the private partner? Where is the route back to commercial viability?

The noble Baroness, Lady O’Grady, referred to the halcyon days of the 1970s—when state ownership worked so well that I have clear recollections of doing my homework by candlelight. In the 1970s, when the Labour Government last ran British Steel, the taxpayer was forced to carry staggering losses. We worry that the danger now is that we will repeat the same mistake, by not solving the underlying problem but moving it from the company’s balance sheet to the public balance sheet.

The central barrier is not ownership; the central barrier is competitiveness. Every speaker in the debate referred to high energy costs. It is the cost of doing business now more generally in Britain. It is the regulatory and taxation environment that makes heavy industry harder here than it is in competitor countries. Yet the Secretary of State for Energy Security and Net Zero appears more interested in driving forward an ideological net-zero agenda than in bringing industrial energy prices down dramatically. I cannot help thinking that, with his messianic zeal, he is doing more damage to the Government’s growth agenda than anyone else in Britain. Instead of cutting bills and taxes, abolishing the UK carbon border adjustment mechanism and giving energy-intensive industries a fighting chance, the Government seem preoccupied with regulating ever more aspects of economic life, from factories to household heating products.

We recognise that there has been a long-standing and serious problem with Jingye. We also recognise that there may now be legal proceedings. I do not ask the Minister to prejudice the Government’s position in litigation, but there are matters on which the House is entitled to clarity. Can the Minister confirm whether Jingye has asserted that, from 12 April 2025, the date on which the Government assumed control of British Steel, neither Jingye nor any company in the Jingye Group has any continuing obligation to British Steel? Can the Minister confirm whether Jingye intends to disaggregate British Steel from Jingye Steel (UK) Holding Ltd and remove assets, liabilities and other British Steel-related items from its own balance sheet? If that is correct, what is the Government’s assessment of the solvency position of British Steel itself?

If British Steel is continuing to trade only because the Government, directly or indirectly, are underpinning its working capital, does the Minister accept that this raises serious questions about the public accounts treatment of the support advanced since April 2025? Does it still make sense to treat that support as recoverable debt if the company cannot repay it without further taxpayer support? Do the Government now accept that, if British Steel continues to trade, the taxpayer may have to assume responsibility not merely for the working capital but for accumulated non-cash losses, balance sheet liabilities and forward obligations?

Will the Minister address the reported intercompany debt position? Jingye has been reported as quantifying outstanding British Steel debt to different Jingye counter- parties at hundreds of millions of pounds. If the Government acquire all the shares in British Steel and the company is not placed into insolvent liquidation, will the Government become responsible for those liabilities? Will the taxpayer be assuming the full built-up losses since 12 April 2025, losing the prospect of clawing back earlier support, and taking responsibility for future liabilities, including the eventual decommissioning of the blast furnaces?

In opening, the Minister talked about the premature closure of the blast furnaces, which the Steel Industry (Special Measures) Act was supposed to prevent. Have the Government commissioned a study of how much life the blast furnaces have left in them? It is important to ask that question and to know the answer, because it will have a material impact on the decommissioning costs, as and when they arise.

Can the Minister confirm whether our maths is correct on this? The National Audit Office has said that support for British Steel is expected to reach £615 million by June 2026, while Jingye is reportedly seeking compensation of more than £1 billion. Once potential compensation, operating support, working capital, administrative costs and future capital investment are taken together, is the taxpayer exposure now approaching £2 billion or potentially even higher? If that figure is wrong, will the Minister set out the Government’s current estimate of the total cost to the taxpayer, including any liabilities that may come on to the government balance sheet on day one of nationalisation? If the assets—a couple of 70 year-old blast furnaces—offset the liabilities, as the noble Lord, Lord Sikka, thinks likely, I have a couple of hats that I will eat.

As my noble friend Lord Hunt of Wirral set out so clearly, the Government came to office promising a £2.5 billion steel fund—a fund that was supposed to transform the sector, modernise production, support new technology and crowd in private investment. Yet there is now a real risk that this money will be consumed not by transformation but by rescue, as my noble friend Lord Redwood pointed out. Money that should have been used to modernise the sector, lower energy costs, support new technology and bring in private capital may instead be used simply to keep one loss-making business afloat. That leads to the question that has been asked repeatedly in this debate: where does this end? Will British Steel, under public ownership, be expected eventually to stand on its own two feet, or will taxpayers be asked year after year to fund operating losses, while Ministers promise that a solution is just around the corner?

The Bill says that the Secretary of State may exercise transfer powers only where he considers it necessary in the public interest. The noble Lords, Lord Sikka and Lord Fox, asked some good questions on what the public interest is and how it is defined. I look forward to the Minister’s answers to those. The Government say that public interest will include considerations of national security, the economy and critical infrastructure, but could Ministers be any more vague when they refer to the “economic interests” of the United Kingdom? Will taxpayer funding be limited or capped, or are Ministers asking Parliament to approve an open-ended commitment? Will the Government be required to show that they have made every reasonable effort to secure private sector investment before nationalisation proceeds?

It was uncomfortable and somewhat ironic to witness representatives of the Chinese ownership and the Chinese Communist Party lecturing the United Kingdom about abiding by market principles—although I note that the noble Baroness, Lady Donaghy, pointed out the irony of that as well. However, the Government must consider the signal that they are sending to international investors. If Ministers seize control, fail to secure a commercial settlement and then proceed to nationalisation without a clear compensation, exit or investment plan, how does that make Britain look to the next investor who is considering committing capital to a strategic industry here?

We also cannot ignore the wider business climate that the Government have created. As my noble friend Lord Hunt and others have made clear, the elephant in the room is the Employment Rights Act 2025. I know that Ministers are tired of hearing about it, but we are not going to stop raising it because it is helping to make the business environment less competitive and less investible. Combined with the increase in national insurance contributions, endless reporting requirements and carbon taxes, the Government are piling costs upon costs and burden upon burden on the very industries that they claim to want to support. For a steel sector that is already operating under intense global pressure, those additional costs are not abstract. They affect hiring, investment, margins, productivity and the ability of British steel-makers to compete. At precisely the moment when steel needs flexibility, lower costs and greater productivity, the Government are increasing the cost of hiring and handing still more leverage to trade unions.

It is no surprise that the unions have called for steel nationalisation. The concern is that the Government have given in to them. How will Ministers ensure that a national security asset is not left at the mercy of industrial action? The Government have removed important strike safeguards. What protections will exist to ensure continuity of supply for defence, infrastructure and critical manufacturing if British Steel is brought into public ownership? Are we seriously to place a strategic industrial asset under state control and then leave it vulnerable to the same union pressure that the Government have chosen to empower elsewhere?

The Government have had more than enough time to tackle the underlying problems—uncompetitive energy prices, rising employment costs, higher national insurance, excessive regulation, the burdens of the Employment Rights Act and the net-zero policy that too often ignores the realities of energy-intensive industry. The steel sector has been operating on a tight margin for years. Nationalisation does not make any of those problems disappear.

In closing, can I ask the Minister to answer the central questions: what is the total expected cost to the taxpayer? What is the plan for private investment? What is the timetable for restoring commercial viability? What is the exit strategy? What measures will the Government take to reduce the costs that made British Steel uncompetitive in the first place? Without answers to those questions, this Bill is not a serious strategy for steel; it is a costly exercise in papering over the cracks with nationalisation. We urge the Government to come forward with a serious plan—one that lowers costs, attracts investment, protects taxpayers and secures the long-term future of the British steel industry.