What you need to know about the UK govt's GBP 500 million package to Tata Steel

The issue of UK state aid to Tata Steel was identified as one of the key decisions Rishi Sunak's administration had to make when he replaced Liz Truss as the UK's prime minister last year. (Image source: X)

The UK government has announced a £500 million package for Tata Steel to facilitate the switch to green energy at the country's biggest Port Talbot steelworks in south Wales.

The announcement has been one of the most crucial and anticipated decisions of the Rishi Sunak administration. This critical issue was waiting to be resolved since Boris Johnson was the prime minister followed by the brief premiership of Liz Truss after which Sunak took over in October 2022. However, the announcement has also allowed the Labour government to attack the Tory government led by Sunak.

The Tata group had maintained that if no aid was received from the government, they would be forced to shut down the plant, leading to thousands of job losses. The conglomerate and the UK government have been conducting negotiations for more than two years after the group made it clear that the government would have to provide subsidies for the expensive switchover to green energy. The Tata group is expected to invest over £700 million to match the required sum of £1.25 billion to get rid of the two coal-powered blast furnaces.

The announcement provides a boost to the UK's fledgling steel sector which has for decades cried over the government's alleged indifference. However, the deal has not been welcomed by unions who fear that 3,000 workers could lose their jobs. Gary Smith, general secretary of the GMB union, has said: "This deal will have devastating consequences for jobs and workers. It will rip the heart out of the Port Talbot community. Our country cannot be secure without a functioning domestic steel industry, and workers must be at the heart of plans to modernize it. Once again, we see how so-called transitions are anything but fair or just for working people."

The demand for financial aid from the UK government was made as countries ramp up efforts to meet climate objectives, which meant changing over to expensive greener fuels in carbon-intensive industries like steel. Several European countries have already announced substantial aid to steel companies to help in the transition, and Britain was seen as a laggard. While the negotiations between the Tata group and the UK government had their fair share of ups and downs, there were instances when the company made it clear that it would exit the steel sector in the absence of any package from the government. In fact, the issue of state aid to Tata Steel was identified as one of the key decisions Rishi Sunak's administration had to make when he replaced Liz Truss as the UK's prime minister last year.

"The agreement with the UK government is a defining moment for the future of the steel industry. The proposed investment will preserve significant employment and represents a great opportunity for the development of a green technology-based industrial ecosystem in south Wales," said Natarajan Chandrasekaran, Tata group chairman.

Cries of job loss

But not all stakeholders are excited about the announcement. Stephen Kinnock, the Labour MP whose constituency of Aberavon includes Port Talbot, feels that instead of focusing on electric arc furnaces, the option of hydrogen fuel should have been explored, which would have meant that the plant could have continued to produce all the qualities and grades of steel, thus ensuring that there were no job losses.

"The Government's decarbonisation strategy should build for the future whilst also protecting the current order book. This new government plan looks likely to fall short on both fronts. Labour's £3 billion steel renewal fund will meet these challenges because it is driven by long-term thinking, as opposed to the sticking-plaster approach preferred by the Conservatives," he wrote in a column for The Mirror after the announcement.

Kinnock, who chairs the All-Party Parliamentary Group on Steel, has on earlier occasions told me that the Tory government has allowed the crucial steel industry to suffer due to underinvestment and neglect. Just before Rishi Sunak left for India to take part in the G20 summit, Kinnock had raised the issue of the steel sector during the prime minister's questions on Wednesday, September 6.

In a statement, Sunak's spokesperson said: "We recognise that this will have been an anxious time for employees and their families while this work to find the right way forward has taken place for those that are affected. We are working with the Welsh government and with Tata Steel to establish a dedicated transition board which supports employees and the economy affected, worth up to £100 million in total. And there are significant opportunities for people in the area, including the new Celtic free port which is due to create 16,000 jobs. But it is important to note that simply maintaining blast furnaces production, i.e., the status quo, was not an option with the steel industry needing a sustainable future using more modern technology and practices."

The announcement of this £500 million package is part of the wider attempt by the UK government to ensure that companies stay in Britain. Several European countries, and more significantly the US, have announced tax credits for green businesses to attract companies and investments.

Tata Steel and UK - a long history

Tata Steel and the British government have a long relationship that goes back over a century to colonial times. In 1899, when Lord Curzon came to India as the viceroy, he introduced reforms in the mining rules and invited investments from English capitalists, which did not lead to much progress. Lord Curzon then turned to the Tata group which had been trying to enter the steel and iron sector since the 1880s. He facilitated the entry of the group into the sector by promising to buy large quantities of steel rails and by agreeing to build a railway line from the mines to the proposed plants.

However, Lord Curzon's support must be seen in the context of decreasing imports of UK steel in India. In the late 1960s, economist Amartya Sen pointed out that Lord Curzon's encouragement to the Tatas came at a time when Belgium had overtaken the UK as the biggest exporter of steel to India, and hence the establishment of an indigenous steel industry posed less of a challenge to steel manufacturers in England. However, when the Tatas attempted to raise capital in England for the venture, they failed spectacularly. English capitalists were not interested in investing in an Indian steel company, after which they decided to raise the capital in India. In just under a month the Tatas managed to raise £1,630,000 and floated the company in India riding on the Swadeshi credo.

During the two world wars, the Tatas provided steel and iron that bolstered Britain’s war efforts. In current times, the group is seen as a major investor and employer in Britain through its presence in software, automobile, hospitality and steel sectors.

The announcement (on Friday, 15 September) of the state package to Tata Steel is only appropriate, as the company manufactures around 50 percent of the UK's total steel production. One hopes that it is not an instance of too little, too late as the opposition Labour party would like the British public to believe.