Steel Industry: Contribution to the UK Economy

Stephen Doughty Excerpts

Wednesday 25th January 2023 Westminster Hall

[Jessica Morden (Newport East) (Lab)]

I beg to move,

That this House has considered the contribution of the steel industry to the UK economy.

It is a pleasure to serve under your chairmanship, Mr Pritchard, and to lead today’s debate. My hon. Friend the Member for Aberavon (Stephen Kinnock), a Welsh Labour colleague, secured the debate and was due to lead it, but he has been waylaid by his Front-Bench duties on the Economic Crime and Corporate Transparency Bill. He is an excellent chair of the all-party parliamentary group for steel and metal related industries. He represents the UK’s biggest steelworks—in Port Talbot—and I know that he will take a keen interest in today’s debate and wishes that he was here. Before I begin, I declare an interest: I am a member of the Community and GMB trade unions, both of which represent steelworkers in my constituency so ably, as does Unite. I refer Members to my declaration in the Register of Members’ Financial Interests.

I am incredibly proud to represent a steel constituency; for well over a century, the industry has been at the heart of the communities that I serve, and of constituencies represented by Members present. It is good to see interest from Members on both sides of the House. The contribution of the steel industry to the UK economy is the title of the debate, but the immense contribution of this vital strategic industry is, in a sense, undebatable. Our steel sector employs 34,500 people directly in the UK and supports a further 43,000 in supply chains. Steel salaries are 45% higher than the UK national average and 59% higher than the regional median in Wales, Yorkshire and Humberside. It goes without saying, then, that the steel industry should be at the heart of any levelling-up agenda worth the paper it is written on.

The workforce is a winning combination of highly skilled, experienced workers who have honed their expertise over decades of dedicated work, and a healthy influx of younger steelworkers eager to work in an industry that is at the cutting edge of innovation. Even in the face of the considerable challenges that the industry faces, which I will talk about today, steel still has enormous pulling power for young workers who are looking to build up skills that will last them a lifetime. That is clear to see at Tata’s Llanwern steelworks in my constituency, where the average age of the workforce has fallen from 53 to 32 in recent years. There is a new generation of workers who, like so many before them, are hugely proud to be steelworkers. We must look after them.

Directly and through supply chains, the steel sector adds £5.5 billion to UK GDP and makes a £2.4 billion direct contribution to the UK’s balance of trade. It underpins our entire manufacturing base, and steel is an essential material for the construction, energy, aerospace, defence, engineering and packaging sectors. Some 96% of Network Rail’s steel is sourced from British Steel in Scunthorpe; 250,000 tonnes of steel from Celsa in Cardiff will support the building of Hinkley C nuclear power station; and Liberty Steel produces critical parts for aircraft engines and wind turbine gears. Nearly all 1p, 2p, 5p and 10p coins originate from steel made at Tata in Port Talbot, and Tata Llanwern produces world-class automotive steel for the likes of Jaguar Land Rover and BMW.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

My hon. Friend is making an excellent speech. She rightly mentions the Celsa plant in my constituency and the critical role that steel plays in so many of our industries and in manufacturing. Does she share my frustration that we seem to have been going round the houses for the last 10 years, particularly on the critical issue of competitive energy pricing? We have seen something like 12 steel Ministers during that time. That is not to disparage the current Minister, whom I like immensely on a personal level, but we need consistency and action on the critical issue of energy prices.

[Jessica Morden]

I thank my hon. Friend, who is a champion for steel in his constituency, where Celsa is based. I wholeheartedly agree that we have been going on about energy prices for so long—it is a theme that I will come to later in my speech—and I thank him for his contribution.

--- Later in debate ---

[Jessica Morden]

I thank the right hon. Member for that very important intervention. She gave an example, as did the right hon. Member for Preseli Pembrokeshire (Stephen Crabb), of how we can use our steel in these projects, and I hope that the Minister will refer directly to that point when she responds to the debate.

These interventions prove that we simply cannot decarbonise the economy without decarbonising steel. As Tata has highlighted, almost every aspect of the UK’s decarbonisation plan is steel-intensive, with 10 million tonnes of steel being required over the coming years for offshore wind, solar, nuclear, hydrogen, and carbon capture and utilisation storage projects. The “Britain, we need our steel” campaign was launched by the Community trade union and union partners in 2020. It is not just a slogan; it is a statement of fact.

Today’s debate comes in the context of the recent worrying news from Liberty Steel, which has announced that it will idle its steel plants in my constituency and at the Tredegar site in the constituency of my hon. Friend the Member for Blaenau Gwent (Nick Smith). The primary production plant in the constituency of my hon. Friend the Member for Rotherham (Sarah Champion), who is also an excellent advocate for steel in her area, and the Performance Steel supplier in the constituency of the hon. Member for West Bromwich East (Nicola Richards), are among the other sites affected.

In a written response to me last week, the Secretary of State for Wales mentioned that he had spoken to Cabinet colleagues about the situation at Liberty and what it means for the workforce, and said that the Government stood ready to provide support. Any updates on that written response that the Minister can provide would of course be welcome to us and, more importantly, all those working at the plants, who are worried about the future. We must not underestimate the uncertainty that they will feel following the news about Liberty.

Of course Liberty has its specific issues, and the Community union is seeking answers from the company about how the latest announcement squares with previous commitments to invest in the business and ramp up production in Newport, Tredegar and elsewhere. It is clear, however, that there is a wider context, and that Liberty’s announcement again demonstrates the precarious outlook for the steel industry more widely. Indeed, the company specifically cited energy costs as a factor in the decision that it made this month.

The same is true for British Steel in Scunthorpe, which is paying nearly £1 million a day for electricity, the cost of electricity having risen tenfold since 2021. There is still real uncertainty about the situation of British Steel, and I am sure that the hon. Member for Scunthorpe (Holly Mumby-Croft), who is here, will speak about that shortly. I hope that the Minister can provide updates. It is imperative that talks between the company and the Government continue, and reach a successful outcome that ensures that steelmaking at Scunthorpe continues and decarbonises.

As Community has highlighted, the cost of Government inaction, in terms of job losses, employment support, and the loss of a vital strategic foundation site, is incalculable. The sky-high energy costs facing the steel sector are by no means a new issue, as my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty) said. It is one that I and other Members representing steelmaking constituencies have raised with 12 different steel Ministers since 2010, including six in the last three years alone. It is difficult to establish a long-term relationship when our steel Ministers change so often. I also like the Minister personally, but I make that point.

Over recent years, Opposition Members will have lost track of the number of times we have had to highlight the energy cost disparity, which remains a blight on the competitiveness of UK steel producers compared with their continental counterparts, particularly those in France and Germany. Indeed, UK Steel research shows that British steel producers paid twice as much for electricity last year as German counterparts, hitting competitiveness.

The UK Government’s response to this over the years can be described as piecemeal at best. The energy bills discount scheme announced by the Treasury earlier this month confirmed that there would be at least a continuation of energy price support for businesses until April 2024, removing fears of a March cliff edge—an uncertainty that the Government allowed to fester through the tail end of last year.

However, it is important to note that the support for energy-intensive industries outlined by the Exchequer Secretary to the Treasury falls far short of that provided by competitor countries. That is the point. For example, the German Government have guaranteed their steel industry an electricity price of €130 per MWh for 2023. In contrast, the Treasury’s announcement on non-domestic energy support earlier this month provides our steel industry with a discount only to electricity prices higher than £185 per MWh. That means that UK steelmakers will stump up an estimated 63% more than their German counterparts for electricity.

UK Steel has rightly been critical of what the UK Treasury has on offer, saying that its

“reforms significantly narrow the help that Government will provide”,

and that Ministers are

“betting on a calm and stable 2023 energy market, in a climate of unstable global markets, with the scheme no longer protecting against extremely volatile prices.”

For a decade, British steelmakers have continually been asked to compete with one hand tied behind their back. That is why Labour’s £1 billion contingency fund to help energy-intensive industries, such as steel, deal with energy costs is crucial. It goes far further than this Government’s proposals and is vital.

The £800 million toward energy costs that the Minister mentioned in previous meetings is not all for the steel sector. In any case, it is not a new package of support. It relates to a package introduced under the coalition Government between 2013 and 2015, which was pushed largely by the Liberal Democrat-operated Department for Business, Innovation and Skills. In any case, the support referenced is significant less than the £1 billion contingency fund that Labour has suggested.

We need a Government who will support the industry in a move towards decarbonisation. We have read the reports of the £600 million that the Government have pledged, or are reported to have pledged, to Tata and British Steel this week to help with lower-emissions technology. I trust that we will get more details on this from the Minister later. I hope the negotiations continue and progress with urgency, and that any plan to decarbonise will be fully consulted on and agreed with the unions to ensure a just transition for the workforce. However, it is important to note that the support arrived significantly later than the support for other European countries did, and is significant lower. For example, the German Government have already spent €8.5 billion towards greening their domestic steel industry, and the French Government have spent €2.2 billion. British Steel Scunthorpe’s multi-union chair, Paul McBean, put it well in his recent interview with The Yorkshire Post, saying:

“We are the only country being told to go green and (with) no help.”

I look forward to the Minister’s response on that point about the adequacy of what is on offer.

It is clear that the steel sector is committed to the transition to net zero, but needs a long-term policy framework to make that a reality without penalising steelmakers with gargantuan carbon prices in the interim years. As things stand, rising carbon costs are eating into any available capital that steel companies may have to invest in decarbonisation. That is completely counterproductive, and we need the Minister to act on it. That is a key point.

The Government have spoken about a roughly £1.5 billion package of support schemes for the industry. However, it is important to note that those schemes are spread across many industries, so £1.5 billion does not translate into very much direct capital support for the steel sector. In particular, the £1 billion carbon capture, utilisation and storage infrastructure fund is not money provided to steel companies to support CCUS on site, but investment in pipelines and storage that may at some point be used by steel companies—it is far from a certainty. For example, Welsh steel plants will not be using that infrastructure even if they opt for carbon capture, as it is all for the North sea. Let us not forget the £250 million clean steel fund promised by the Government led by the right hon. Member for Maidenhead (Mrs May), which disappeared without trace.

Labour’s proposed £3 billion green steel fund represents a potential way forward—not a sticking-plaster emergency bail-out, but a plan to work with industry, investing alongside it over the next 10 years. If this Government will not take action, we will.

I also urge the Minister to look at proposals for a carbon border adjustment mechanism. The costs of the UK’s emissions trading system have spiralled over the past two years. Compliance costs for the sector reached £120 million last year, which is equivalent to 60% of the average annual capital investment of the sector, and are set to get much worse. A carbon border adjustment mechanism would create a level playing field by applying carbon prices at the border equivalent to those faced by domestic producers, ensuring that imported steel does not have a price advantage. The Community union has highlighted that such a mechanism would also support the decarbonisation of steel production, as it would allow steelmakers to produce low-emission steel without being out-competed by high-emission, lower-cost imported steel.

[Stephen Doughty]

I thank my hon. Friend for her generosity in giving way again. I should also put on record my membership of the GMB, and past interests involving the GMB and Community.

On the subject of that transition to green steel, my hon. Friend will know that the Celsa plant uses an electric arc furnace—it is producing green steel from scrap. Does she agree that if we are switching to scrap-made steel, we need to ensure not only that there are adequate supplies of scrap in the UK, but that we do not suddenly all start producing the same product? Celsa predominantly produces rebar; we also need the flats, the sections, and all the other products that the UK currently provides so excellently.

[Jessica Morden]

My hon. Friend makes an excellent point—I cannot top it, really. I hope the Minister has heard it.

Procurement policies also need to be updated. For every 1,000 tonnes of steel produced in the UK, 4.2 direct jobs are created, with a further 6.6 jobs created in the supply chain. It is understandable, then, that Make UK found that 68% of the UK public think that public infrastructure projects should prioritise the use of UK-made steel wherever possible, yet the Government have a pretty poor track record in this area. The most recent example was last month’s announcement that a £1.6 billion contract for steel for three fleet solid support vehicles was awarded to a Spanish consortium. That is just one case, but there have been too many missed opportunities for the steel industry. We cannot let that carry on.

As I mentioned earlier, green infrastructure projects will need literally millions of tonnes of steel by the end of the decade. The UK Government’s own steel public procurement pipeline data, released last June, states that offshore wind projects alone will require some 5.3 million tonnes of steel within five years. We need the Government to commit now to maximising the procurement of British steel for all those upcoming projects, a move that Make UK estimates could boost the UK economy by as much as £4 billion and support 11,000 British jobs in steel companies and their supply chains. As the Community union’s general secretary Roy Rickhuss has rightly said,

“The green energy revolution presents a huge opportunity to build a robust British supply chain based on the supply of top-quality domestic steel.”

The events of the past two years tell us that Britain cannot rely on fragile global supply networks for strategic goods, and that if we want to go green, it is nonsensical to transport steel from the other side of the world.

On that point, I welcome that the Government themselves have acknowledged that, in the area of energy supply, the country has

“drifted into dependence on foreign sources”.

We agree, and I echo Roy Rickhuss by calling on Ministers to not make the same mistake when it comes to steel, a sector of such vital strategic importance to our sovereign capability and our national security. Alun Davies, a stalwart of Community in south Wales, puts it succinctly:

“There is a clear choice facing this Government—either they back our workforce and our industries or they choose to offshore thousands of good jobs to other countries.”