Allowing British Steel collapse would lead to £2.8 billion in lost wages and badly damage UK economy, warns IPPR
The cost to the UK economy of allowing British Steel to collapse would be far greater than the 4,500 jobs directly lost and the many thousands more at risk in the supply chain, according to research by IPPR.
It could lead to £2.8 billion in lost wages over a 10-year period, cost the government £1.1 billion in lost revenue and extra benefit payments and reduce household spending by £1.2 billion over the same period, the think tank has found.
The analysis comes as Britain’s second-largest steelmaker awaits a response from the government to its plea for up to £75 million in emergency support, needed because of what the company says are “Brexit-related issues”.
IPPR calculated that in addition to the 4,500 steelmaking jobs at risk at plants in Scunthorpe and Teesside, a further 7,000 jobs in the supply chain would be in jeopardy, many also in the North East. In total 12,000 jobs could be lost.
Looking at the impacts of the potential job losses, researchers calculated the cost to the UK government in the first year (2019/20) as £170m, accumulating to £1.1 billion over a full decade while former steelworkers gradually find new jobs. Households would spend £190 million less in the first year, accumulating to £1.2 billion over 10 years.
The upheaval faced by British Steel, owned by Greybull Capital, is just the latest example of British industry struggling with growing uncertainty and adverse conditions in the global economy.
A report published by IPPR’s Centre of Economic Justice last month, The UK in the Global Economy, warned that the UK is dangerously ill-prepared for the growing risk of a global economic downturn. It said that while policymakers have concentrated on planning for the UK’s departure from the EU, other hazards increasingly threaten global instability and recession – with the UK particularly exposed because of unresolved structural flaws within its economy.
Carys Roberts, IPPR chief economist and head of its new Centre for Economic Justice, said:
“Brexit uncertainty and problems in the global economy like the US-China trade war are presenting an uncertain and challenging environment for industries like steel.
“Our steel sector is important not just for the jobs of workers in the plants, but also for jobs in the local economy around the plants – as well as the success of exporting industries which rely on those inputs.
“We need a UK-wide industrial strategy that supports strong supply chains, including the foundation industries such as steelmaking that manufacture core materials for use in other industries. This must go alongside a plan to decarbonise by finding ways to produce materials like steel more efficiently, and to reduce our use of carbon-intensive materials, creating good jobs in the process.”
NOTES TO EDITORS
1. The IPPR Centre for Economic Justice paper, The UK in the Global Economy, can be read and downloaded at: http://www.ippr.org/research/publications/uk-in-the-global-economy
2. IPPR’s Commission on Economic Justice final report, Prosperity and Justice, whose recommendations included a far-reaching plan for a UK industrial strategy, was published in September 2018 and can be read here: https://www.ippr.org/research/publications/prosperity-and-justice
3. Figures for supply chain job losses are calculated using the same methodology as an IPPR 2016 assessment of job losses in the steel industry. These were based on IPPR analysis of ONS multipliers derived from 2010 ‘supply and use’ tables. Figures for employment are based on full-time equivalent jobs. Estimates of job losses down the supply chain are based on the assumption that output will fall as a result of job losses at the plant. As with all multipliers, these estimates will be subject to a margin of error. Further, these estimates do not take account of the fact that some people and suppliers will find business elsewhere, and that some affected suppliers and jobs will be located outside of the UK. They therefore represent estimates of gross job losses, not net.
4. Figures for the cost to government have been estimated using average pay in the basic iron and steel sector of £37,000 per annum, and for manufacturing as a whole at £33,300 per annum, and the Department for Transport’s estimate of the net fiscal impact of labour supply changes.
5. Figures for lost household spending power have been estimated using our calculation of total lost income net of taxes and the Bank of England’s estimate for the average marginal propensity to consume after a negative income shock of 64 per cent.
6. Cumulative figures are based on the assumption that 60 per cent of lost jobs will be replaced by new jobs over the course of ten years. Current estimates for the coal industry suggest that it took 23 years for 60 per cent of jobs lost in the 1980s to be replaced in other industries. We assume that the creation of new jobs is linear across time, such that 60 per cent of those made unemployed are back in employment after ten years. All cumulative figures have been discounted at 3.5 per cent per year to reflect net present day values in line with recommended HM Treasury methodology set out in The Green Book. Future earnings have been uplifted in line with OBR forecasts of average real earnings.
7. IPPR is the UK’s pre-eminent progressive think tank. With more than 40 staff in offices in London, Manchester, Newcastle and Edinburgh, IPPR is Britain’s only national think tank with a truly national presence.