Written evidence submitted by the Department for Business, Energy and Industrial Strategy (LS0004)

1.     The Department for Business, Energy and Industrial Strategy (BEIS) welcomes the Business, Energy and Industrial Strategy Select Committee’s inquiry into Liberty Steel and the Future of the UK Steel Industry.

2.     The Government has been closely monitoring the situation with Liberty Steel, including engaging with the local company management, trade unions, and devolved administrations.

3.     The UK has a proud record of steelmaking excellence – supporting a highly skilled workforce and producing high-quality steel supplying the UK’s world-leading automotive, construction, and defence sectors, amongst others. Therefore, the Government is focused firmly on providing the right business environment for the UK steel industry to develop a long-term sustainable future.

The future of the UK Steel Industry

4.     The Government recognises that global economic conditions continue to be challenging for the steel industry. Overcapacity in the sector is a significant global issue that lowers prices, distorts markets, and dampens profitability. Recent supply shortages, linked to the impact of the COVID-19 pandemic, have temporarily increased the price of steel; however, this is unlikely to be sustained as markets readjust. The UK is fully committed to the G20 Global Forum for Steel Excess Capacity. Going forward, we will continue to engage with other like-minded states to push for a resolution to this international challenge.

5.     Steel will continue to be a critical material for the UK, including for food packaging, hospital beds, construction, major infrastructure projects like HS2 – and for clean growth sectors such as offshore wind. BEIS commissioned research in 2016 that identified future domestic market opportunities for the UK steel sector worth an additional £3.8 billion per year by 2030.

6.     The future of steel in the UK is a top priority of the reconstituted Steel Council (see point 11), where members are working to create an achievable, long-term plan to support the sector’s transition to a competitive, sustainable and low carbon future.

Net Zero

7.     Decarbonising the UK industry, including steel, is a core part of the Government’s ambitious plan for the green industrial revolution. Our new Industrial Decarbonisation Strategy sets out, for the first time, the Government’s comprehensive assessment of how industry, including the steel sector, can decarbonise in line with net zero, in a way that supports competitiveness and clean growth. The strategy includes a commitment to work with the Steel Council to examine the implications of the recommendation of the Climate Change Committee to “set targets for ore-based steelmaking to reach near-zero emissions by 2035”.

8.     The UK iron and steel sector accounts for c.14.4% of total industry emissions, which equates to 2.3% of the UK’s total emissions.

9.     Future proofing the UK industry by transitioning to a competitive, sustainable and low carbon model means securing high-wage employment opportunities in key areas that need levelling up and securing strategic production capacity.

10. New technologies and infrastructure, capital investment and a market for low emissions steel will be required to deliver a transition to a decarbonised sector. The Government’s recent and on-going work to support the steel sector to decarbonise in line with net zero includes:

1. The £250 million Clean Steel Fund which will support the UK steel sector to transition to lower carbon iron and steel production through new technologies and processes, placing the sector on a pathway that is consistent with net zero, as well as maximising longevity and resilience in the UK steel sector by building on longstanding expertise and skills.
2. The £315 million Industrial Energy Transformation Fund, which aims to support businesses with high energy use to cut their bills and reduce carbon emissions.
3. Up to £66 million as part of the Industrial Strategy Challenge Fund to help key foundation industries, such as steel, develop innovative technology to reduce energy and resource use.
4. Providing £22 million to the Materials Processing Institute in Teesside to deliver a R&D programme of transformative manufacturing – to help UK steel and metals sector improve efficiencies, slash emissions and ultimately boost their global competitive edge.
5. Investing £1 billion up to 2025 to facilitate the deployment of Carbon Capture Usage and Storage (CCUS) in two industrial clusters by the mid-2020s, and a further two clusters by 2030.
6. The planned Net Zero Hydrogen Fund (previously Low Carbon Hydrogen Production Fund), with £240 million of capital co-investment out to 2024/25.

11. The Business Secretary reconstituted the Steel Council following his appointment in January. The Council is co-chaired by the Business Secretary and Luis Sanz, Chairman of UK Steel, and offers an important forum for Government, industry and trade unions to work in partnership on the shared objective of creating an achievable, long-term plan to support the sector’s transition to a competitive, sustainable and low carbon future. Countries around the world recognise it will be challenging to truly decarbonise steel production, but members of the UK Steel Council believe it is the right thing to do and it offers an opportunity to create a sustainable long-term future.

SSI and British Steel Insolvencies

12. In the last six years, there have been two major insolvencies in the steel sector: both involving blast furnaces that needed to be ‘kept warm’:

• On 2 October 2015, the SSI steel works in Redcar was placed into compulsory liquidation, and the Official Receiver took the decision to safely close-down the site. Following an independent report from Lord Heseltine, the then Government worked closely with local leaders to form the South Tees Development Corporation, the first mayoral development corporation outside London. The Corporation has set a framework that will see new investment on the site, with the creation of 20,000 new, good-quality jobs on one of the largest development sites in Europe;
• On 22 May 2019, British Steel entered compulsory liquidation. The Official Receiver made the decision to continue to trade whilst going through a sales process. On 9 March 2020, Jingye Group, a Chinese steelmaker, completed its purchase of British Steel Limited, securing more than 3,200 highly skilled jobs in the UK. Jingye has pledged investment of £1.2 billion to modernise the British Steel sites and improve energy efficiency and environmental performance.

13. These examples show that individual approaches were needed – taking into account specific company, local area circumstances, strategic importance and value for the taxpayer.

Government support for the UK Steel Industry through the COVID-19 pandemic

14. The COVID-19 pandemic has created unprecedented circumstances for UK citizens and businesses. As well as engaging closely with businesses, the Government published safer working guidance which enabled our manufacturing companies, including in the steel sector, to keep producing in Covid-safe ways. The Government also put together a far-reaching package of support to help businesses through the coronavirus pandemic, including:

• investing £350 billion to support individuals and businesses throughout the pandemic
• while conditions remain challenging, firms can continue to draw on the Government’s financial support packages, including billions of pounds of loans and guarantees, tax deferrals and the Coronavirus Job Retention Scheme
• the Government’s Plan for Jobs is helping support businesses to recover and create more jobs, with measures such as VAT cuts, business rates relief, and cash grants for the most affected sectors
• the Government’s Trade Credit Reinsurance Scheme has successfully seen the vast majority of credit insurance coverage being maintained for businesses across the UK during the pandemic.

15. In 2020, the Government provided a £30 million Coronavirus-related commercial loan to Celsa Steel – saving 1000 jobs. As part of the arrangement, the firm agreed a series of legally binding conditions – including conditions related to climate change, corporate governance, and tax – in line with the Government’s strategic aims and objectives. 

Ongoing Government support for the steel sector

16. In addition to the support set out for the sector in paragraphs 10 and 14, the UK Government has provided more than £500 million in relief for electricity costs to the steel sector since 2013.

17. We are also working hard to make sure that UK producers of steel have the best possible chance of competing for and winning contracts across all Government procurement. All Government departments and arms-length bodies are required to consider socio-economic and environmental factors when procuring steel. The Government also publishes a steel pipeline of upcoming national infrastructure projects every year, to enable steel businesses to plan ahead for future demand.

18. BEIS’s 2020 Steel Pipeline shows how the Government plans to procure around 5 million tonnes of steel over the next decade for infrastructure projects such as the construction of Hinkley Point C, and the maintenance and upgrading of the UK’s motorway network.

19. To take this further, on 12 March 2021, we established a new joint industry and BEIS Steel Procurement Taskforce – co-chaired by the Minister for Investment Lord Grimstone and Gareth Stace of UK Steel – with the aim of working with the sector to promote the unique selling points of UK steel and exploring how best to support and position the industry for success in forthcoming major public contracts.

20. Upon leaving the EU, the Government introduced a robust independent UK trade remedies system which upholds the World Trade Organisation (WTO) rules-based system and allows the UK to impose higher duties on imports which harm domestic steel producers. In March 2019, the Government established the independent Trade Remedies Authority (currently operating as the Trade Remedies Investigation Directorate) to make evidence-based recommendations – including on remedies protection for the steel sector; and transitioning rebalancing measures regarding the US’s section 232 trade measures on steel and aluminium. In 2020, the Government also worked with the EU to agree UK specific quotas for steel exports to the EU.

The UK’s Subsidy Framework

21. The UK’s exit from the European Union has provided an opportunity to review our subsidy control regime, to ensure that it works optimally for UK interests. 

22. Any support ultimately offered will need to meet the commitments the UK has made with partners through trade agreements and our commitments at the WTO, and any subsidy would have to meet the terms of the principles in the Trade and Co-operation Agreement.

23. Unjustifiable subsidies fuel overcapacity, distort markets and damage trade, particularly for capital-intensive foundation industries. The UK has been clear through our engagement at the G20 and the WTO that these should be removed wherever possible.

Liberty Steel

24. The situation at Liberty Steel is an ongoing one that Government is monitoring closely. We continue to engage with the company, trade unions, local MPs, and the UK steel industry. Liberty is an important supplier of steel and provides high-skilled jobs. The Government believes the Liberty sites can be viable and remains hopeful that the necessary commercial issues can be resolved to ensure their future success.

25. It is first and foremost the responsibility of the company to manage commercial decisions for the future of the organisation, and we welcome the dedicated efforts being made by the company to find solutions.

Greensill Capital and the GFG Alliance

26. The Government is unable to comment on any support that other jurisdictions and Governments may have given the GFG Alliance.

27. Greensill Capital were accredited to operate the Coronavirus Business Interruption Loan Scheme (CBILS) and the Coronavirus Large Business Interruption Loan Scheme (CLBILS) on the basis of the British Business Bank’s (BBB) publicly available criteria for accreditation. Analysis of lending data undertaken by the BBB led to concerns regarding Greensill’s compliance with CLBILS scheme rules, and in October 2020 the BBB opened an investigation. This investigation is ongoing, led by the BBB. In the meantime, the Guarantor’s obligations under the CLBILS Guarantee Agreement are suspended, meaning that the Government is protected against any immediate claim on the Guarantee.

28. On 14 May 2021, the Serious Fraud Office (SFO) announced that it is investigating suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of the business of companies within the Gupta Family Group Alliance (GFG), including its financing arrangements with Greensill Capital UK Ltd. As this is a live investigation, neither BEIS nor the SFO can provide further comment.

29. It is too early to say what role audit or corporate governance might have played in the difficulties faced by Greensill Capital, GFG Alliance and Liberty Steel.

30. The Government’s White Paper Restoring trust in audit and corporate governance (March 2021) set out a range of proposals for reform in response to previous corporate failures. Formal consultation on these proposals closes on 8 July 2021. If there are further, immediate lessons to be learned from the difficulties faced by Greensill Capital, GFG Alliance and Liberty Steel, the Government will consider them alongside responses to the White Paper. The Government would welcome the Committee’s input to the consultation if it identifies additional issues relating to audit or corporate governance that should be considered as part of the reform programme.

Conclusion

31. The Government has taken wide-ranging action to support the UK steel industry. We remain committed to working with the UK steel sector, trade unions and devolved administrations to support the delivery of the sector’s future plans and secure a modern, low-carbon, and vibrant steel sector to the benefit of the wider UK industrial base. We look forward to the Committee’s thoughts on these topics.

Department for Business, Energy and Industrial Strategy

May 2021