Port Talbot and beyond: How the government can confront the crisis in UK steel and other foundation industries
Should we simply give up on steel and these other industries and accept that the UK cannot compete? We argue that would be the wrong approach. And it is strategic national interest, not just sentimental attachment to a declining industry, which should compel policy intervention.
Wednesday’s announcement that India’s Tata Steel plans to ‘explore all options for restructuring’ its European operations makes it likely the company will look to sell all or some of its UK business. Losing Tata would have an impact on jobs far beyond the 15,000-strong workforce they directly employ, with new IPPR analysis suggesting that a further 25,000 jobs depend on the company’s steel plants for business. In the South Wales Port Talbot plant, where there are currently around 4,000 workers, an additional 6,600 jobs in other firms stand to be lost following closure.
- Update, 6 April: Our latest estimates indicate that a loss of up to 40,000 jobs from Tata Steel UK and the supply chain could cost government a total of £4.6 billion in tax revenue and benefits over 10 years, and reduce household spending in the economy by £3 billion over the same period.
The mid- to longer-term global prospects for steel look very bleak. Weak demand from a slowing global economy has led to serious overcapacity, with suppliers producing more output than the market currently needs. Furthermore, these problems show little sign of abating. Globally, around 2.4 million tonnes of steel is expected to be produced annually by 2017, while consumption will reach only 1.8 million tonnes by 2020.
Much of the discussion in the coming days will centre on what, if anything, the UK government can do to support UK steel. But just as important – and almost as urgent – is the question of how we can prevent related industries going a similar way. Other manufacturers of core materials like chemicals, metals and wood – the ‘foundation industries’ – are also in serious trouble. IPPR’s recent report Strong foundation industries showed that between 2008 and 2014, output in these sectors fell by £7 billion, with the workforce shrinking by 100,000.
Many of our neighbours are weathering the storm of globalisation much better than the UK. Producers of core materials in the UK are smaller, and have contracted faster over the last decade, than has been the case in other developed countries – down 43 per cent in UK since 2000 compared with only 21 per cent in other OECD countries and just 10 per cent in Germany.
The UK is an anomaly among advanced economies in having so few manufacturing industries that can compete effectively in international markets. This is one of the main drivers of our large and longstanding trade deficit and unbalanced economy.
In those areas of advanced manufacturing where the UK does currently have a competitive edge internationally, such as aerospace, automobiles and pharmaceuticals, the UK needs to actively build-up supporting industries, including core materials producers that can further this success.
We recommend a number of proportionate measures from government, building on past or existing policies, to give support to those areas of the foundation industries that are most able to perform this role. Funding can be made available for this task by repurposing the Regional Growth Fund to target investment.
To support innovation around clusters we recommend renewing the Advanced Manufacturing Supply Chain Initiative, a scheme supporting new research across firms, and plugging foundation industries into the UK’s Catapult network, the purpose of which is to support businesses to adopt the latest technology through collaboration between universities and firms.
And rather than allowing firms that have a potentially viable future to go bust, the UK should introduce an 'employee right to buy', reducing the risk that our industrial capacity will be permanently lost during a period of global economic turbulence, and spreading ownership in the process.
The clock is at midnight for much of the UK steel industry, with its likely fate to be decided in the coming weeks, if not days. But it is at ten to midnight for many of the supplier firms that rely on UK steel for their custom, and at half past eleven in many places elsewhere across the foundation sectors. The UK government must act now to prevent other industries going the way of steel.