BRITISH STEEL JUNE 2019
TARNISHED STEEL
The collapse of the UK’s second largest steel producer could impact as many
as 25,000 people across the supply chain. How has the industry reacted?
On 22 May, news broke that British Steel
had been placed into receivership.
Freddy Khalastchi,
The jobs of 5,000 people employed
by the company, and an additional
business recovery partner, Menzies LLP
20,000 people in the supply chain were
instantly at risk.
Just three years ago, the future looked bright
for British Steel. The company had been sold
by Tata Steel for a token £1 in 2016 to private
equity fi rm Greybull Capital, and promises
of signifi cant investment followed. Indeed,
Sajid Javid, then-Business Secretary, hailed
the takeover, saying “there really is a viable,
sustainable future for world-class steelmaking in
this country.”
Early signs were good: under Greybull,
the company posted profi ts in 2017 and 2018.
However, the good times soon ran out. Firstly,
around 400 jobs were cut in 2018. Then, a
proposed joint venture between Tata Steel
(the UK’s largest steel producer) and German
company ThyssenKrupp collapsed earlier in
May, giving the fi rst warning signs that all was
not well with the UK’s steel industry. At the
time, Ross Murdoch, national offi cer at the GMB
Union, warned that “GMB is ready to fi ght hard
for every members’ job in the UK steel industry.”
Just two weeks later came the news that
British Steel was in dire need of £30 million of
fi nancial support to mitigate against ‘Brexitrelated
issues.’ Inevitably, this failed and left the
company with no direction to go but insolvency.
The company’s collapse could mean that as
many as 25,000 jobs could be at risk, adding to
the estimated 150,000 lost in the wider steel
industry since its heyday in 1981.
Industry voices were quick to share their
reaction to the news:
This is a devastating development for
the UK steel industry, and it will have a
tsunami-like e ect – impacting about
5,000 workers and many more across
the supply chain. It also represents
a signifi cant cost to the taxpayer
regardless of whether a white knight
can be found to buy the business out
of insolvency as it will undoubtedly lead
to many redundancies and further company
failures in associated businesses. We have not seen
an insolvency on this scale in the heavy industry sector since
the collapse of Rover.
Unfortunately, the writing has been on the wall for some
time and the business has been struggling to compete in a
market fl ooded by cheap imports from China. The business has
also experienced a slump in orders due to Brexit.
In the past we might have expected the government to
intervene to protect a major industrial employer and key supplier
to the UK defence sector. However, we are in uncertain times
and it is not clear whether it will be possible to tap into Brexit
mitigation funds in this case. The fact that British Steel recently
borrowed more than £100 million from the government to pay
an EU carbon bill and avoid further fi nes also suggests further
intervention may be unlikely.
Having failed to secure a last-ditch £30 million rescue
package, regrettably there is unlikely to be a way back from
the brink on this occasion.
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