Business Secretary Grant Shapps has told the Chinese owner of British Steel that proposals to lay off hundreds of workers are “unhelpful” amid negotiations over a £300million taxpayer support package.
Sky News understands Mr Shapps wrote to Li Huiming, chief executive officer of Jingye Group, this week ahead of the public announcement of his plans to cut 800 jobs at Britain’s second largest steelmaker.
British Steel confirmed for the first time on Thursday that it “must be reluctant to consider cost cutting”, but did not name the number of jobs at risk.
Nusrat Ghani, the business secretary, told MPs that talks between the government and British Steel are ongoing, although conditions attached to the taxpayer aid include a six-month moratorium on layoffs and a guarantee to keep an unspecified share of the company’s workforce the next Decade.
A Whitehall source said that although discussions are ongoing, the job cuts cast an “unhelpful” shadow over them.
“The timing of this is deeply undesirable,” the source added.
In its statement, British Steel said that Jingye has invested £330 million in capital projects since acquiring the company in 2020.
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“Jingye is committed to our long-term future, but decarbonization is a major challenge for our business, and like most companies, we face major challenges due to the economic slowdown, rising inflation and exceptionally high energy prices,” it said.
“For example, last year our energy bill went up by £120m while we also faced an increase in our annual carbon costs of over £70m.”
It states that steel production in Britain is “uncompetitive” in an international context.
“Unfortunately, like many other companies, we are reluctant to consider cost-cutting given the global recession and rising costs.
“We discussed this in preliminary talks with the unions, where we shared our challenges.
“We look forward to working closely with them to ensure a long-term secure and sustainable future for the company, thousands of employees and many more people in our supply chain.”
The proposed job cuts would focus primarily on British Steel’s Scunthorpe plant in north Lincolnshire, and would involve the closure of coke ovens, although Scunthorpe’s two blast furnaces and other plants within the Chinese-owned group would continue to operate.
Last week Sky News revealed that British Steel and larger competitor Tata Steel would have to guarantee thousands of jobs until 2033 in exchange for £600m in government support to help decarbonize the industry.
Any funding from taxpayers would be linked to the replacement of blast furnaces at the company’s sites with greener electric arc furnaces, while Jingye would be required to invest at least £1 billion in the company by 2030.
A decision to grant the state aid would not be without controversy given British Steel’s Chinese ownership and doubts over its ability to honor financial commitments made when it bought the company out of bankruptcy proceedings in 2020.
In a letter to Jeremy Hunt, the Chancellor, in December, Mr Shapps and Michael Gove, the rising Secretary, warned that the demise of British Steel could cost the Government up to £1billion in closure and other liabilities.
They warned Mr Hunt that British Steel “has no viable business without government support”.
“The closure of one blast furnace would be a stepping stone to the closure of the second blast furnace, resulting in a highly volatile business model dependent on Chinese steel imports,” Mr Shapps and Mr Gove wrote.
“Given the level of liability HMG would incur if the blast furnace were to close, and following the instructions of the Prime Minister, we would like officials to test whether the government’s net support of the order of £300m to British Steel prevents the closure and could protect jobs and create a cleaner, more viable long-term future for UK steel production.”
They also argued that retaining sovereignty over steel production was vital to the British economy.
“Every other G20 nation has sustained domestic steel production and while we do not believe this should be done at any cost, we believe it is in HMG’s interest to offer well-designed and well-targeted financing that encourages private investment and performs well for taxpayers and enables transformed, decarbonised and profitable domestic steel production in the UK to continue for the long term,” wrote Mr Shapps and Mr Gove.
“We don’t want to rely on steel sources elsewhere in the same way that energy security has become a given.”
British Steel employs around 4,000 people, with thousands more jobs in its supply chain dependent on the company.
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Tata Steel employs significantly more people in the UK, including more than 4,000 at its Port Talbot Steelworks in Wales.
According to last month’s letter, British Steel had already informed the government that it could close one of Scunthorpe’s blast furnaces as early as next month, resulting in the loss of 1,700 jobs.
This would be “followed by the closure of the second blast furnace later in 2023, resulting in cumulative direct job losses of around 3,000,” Mr Shapps and Mr Gove wrote.
In May 2019, the liquidator was appointed to take control of the company after negotiations for a £30million emergency government loan broke down.
British Steel was formed in 2016 when India’s Tata Steel sold the company to Greybull Capital, an investment firm, for £1.
As part of the deal that gave Jingye ownership of British Steel, the Chinese group said it would invest £1.2 billion to modernize the company over the next decade.
Jingye’s purchase of the company, completed in Spring 2020, was hailed by then Prime Minister Boris Johnson as securing the future of steel production in the UK’s industrial core areas.