Government officials will this week fly to China in an effort to convince the owner of British Steel to finalise plans for a state funding package amid hundreds of job cuts at the company.
Sky News has learnt that civil servants from the Department for Business and Trade are travelling to meet executives from Jingye Group amid protracted talks about a £300m grant to the Scunthorpe-based company.
Sources said the talks were expected to focus on the value of an energy subsidy package, which could take the overall value of government support for British Steel to approximately £1bn.
It comes just days after Kemi Badenoch, the new business and trade secretary, told Sky News’ economics and data editor, Ed Conway, that “nothing is ever a given” when asked whether Britain needed a steel industry.
A government spokesperson said: “The government recognises the vital role that steel plays within the UK economy, supporting local jobs and economic growth and is committed to securing a decarbonised, sustainable and competitive future for the UK steel sector.
“Government officials are engaging with Jingye regularly as part of the ongoing discussions with the company and our routine work with businesses across the steel sector.
“The Business and Trade Secretary considers the success of the steel sector a priority and continues to work closely with industry to achieve this.”
Sky News revealed last month that Jingye was drawing up plans to cut around 800 jobs at British Steel, with the BBC reporting on Tuesday night that 300 redundancies would be announced this week arising from the closure of coking ovens at the Scunthorpe plant.
Mrs Badenoch’s predecessor, Grant Shapps, told Jingye last month that proposals to make hundreds of workers redundant were “unhelpful” amid negotiations over a £300m taxpayer support package.
British Steel confirmed recently that it was “reluctantly having to consider cost-cutting” but did not specify the number of jobs that were at risk.
Nusrat Ghani, the business minister, had told MPs that talks between the government and British Steel were ongoing, even though the conditions attached to the taxpayer aid include a six-month moratorium on redundancies and a guarantee to preserve an unspecified proportion of the company’s workforce for the next decade.
Jingye said in January that steelmaking in Britain was “uncompetitive” in an international context.
“Unfortunately, like many other businesses we are reluctantly having to consider cost cutting in light of the global recession and increased costs,” the company said.
Sky News revealed last month that British Steel and larger rival Tata Steel would be required to guarantee thousands of jobs until 2033 in return for £600m of government support to help decarbonise the industry.
Any taxpayer funding is to be linked to the replacement of blast furnaces at the company’s sites with greener electric arc furnaces, while Jingye would be obliged to invest at least £1bn in the business by 2030.
A decision to grant the state aid would not be without controversy, given British Steel’s Chinese ownership and doubts about its adherence to financial commitments made when it bought the business out of insolvency proceedings in 2020.
In a letter to Jeremy Hunt, the chancellor, in December, Mr Shapps and Michael Gove, the levelling-up secretary, warned that British Steel’s demise could cost the government up to £1bn in decommissioning and other liabilities.
They cautioned Mr Hunt that British Steel “does not have a viable business without government support”.
“Closing one blast furnace would be a stepping-stone to closure of the second blast furnace, resulting in a highly unstable business model dependent on Chinese steel imports,” Mr Shapps and Mr Gove wrote.
“Given the magnitude of the liabilities due to fall on HMG in the event of blast furnace closure, and following the PM’s steer, we would like officials to test whether net Government support in the region of £300m for British Steel could prevent closure, protect jobs and create a cleaner viable long-term future for steel production in the United Kingdom.”
British Steel employs about 4,000 people, with thousands more jobs in its supply chain dependent upon the company.
Tata Steel employs substantially more people in the UK, including more than 4,000 at its Port Talbot steelworks in Wales.
According to the ministers’ letter, British Steel had already informed the government that it could close one of the Scunthorpe blast furnaces as soon as next month, with the loss of 1,700 jobs.
This would be “followed by the second blast furnace closing later in 2023, creating cumulative direct job losses of around 3,000”, Mr Shapps and Mr Gove wrote.
In May 2019, the Official Receiver was appointed to take control of the company after negotiations over an emergency £30m government loan fell apart.
British Steel had been formed in 2016 when India’s Tata Steel sold the business for £1 to Greybull Capital, an investment firm.
As part of the deal that secured ownership of British Steel for Jingye, the Chinese group said it would invest £1.2bn in modernising the business during the following decade.
Jingye’s purchase of the company, which completed in the spring of 2020, was hailed by Boris Johnson, the then prime minister, as assuring the future of steel production in Britain’s industrial heartlands.