British Steel enters insolvency after rescue talks with government fail

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Steel industry British Steel enters insolvency after rescue talks with government fail

Steelmaker directly employs 5,000 people and thousands more in the supply chain

The British Steel plant in Scunthorpe. Photograph: Scott Heppell/Reuters

British Steel has entered insolvency, putting 5,000 jobs directly at risk and endangering thousands more in the supply chain after talks with the UK government failed to reach an agreement on emergency funding.

The business secretary, Greg Clark, issued a statement on Wednesday following confirmation that the court has granted an application by the directors of British Steel to enter an insolvency process.

Control of the company will pass to the official receiver – an employee of the Insolvency Service – who will run a compulsory liquidation. EY has been lined up to assist with the liquidation.

Clark said: “The government has worked tirelessly with British Steel, its owner Greybull Capital and lenders to explore all potential options to secure a solution for British Steel.”

Clark said the government had been willing to act, following a previous loan, but was not able to agree terms with Greybull.

He said: “The Government can only act within the law, which requires any financial support to a steel company to be on a commercial basis. I have been advised that it would be unlawful to provide a guarantee or loan on the terms of any proposals that the company or any other party has made.”

The UK’s second-largest steelmaker had sought £30m in government support after its private equity owner Greybull Capital and lenders agreed to inject £30m. The company had initially sought £75m from the government.

In 2017, China produced more than 110 times more crude steel than the UK

The collapse of the company, which blamed its woes partly on Brexit-related uncertainty, will add to pressure on the government in the run-up to the European parliament elections on Thursday.

Greybull Capital bought the business from Indian-owned Tata Steel in June 2016 and within a year appeared to have completed a rapid turnaround as it reached profitability.

Quick guide

What went wrong at British Steel?

Show Hide What has gone wrong at British Steel?

When Greybull Capital bought British Steel in 2016 it promised great things. The private equity firm pledged to invest £400m and within months it was boasting of a return to profit and a bright future ahead. Two years later it appears to be on the brink of collapse unless it receives a government-funded bailout. In a letter to staff last week, the British Steel chief executive blamed weak market demand, high raw material prices, the weakness of sterling and uncertainty over the outcome of Brexit discussions.

How much is Brexit to blame?

It is not the only factor in the crisis but it is very important. Steel contracts are typically agreed well in advance of the product being delivered. As things stand, the UK is due to leave the EU on 31 October and the terms of that separation are yet to be agreed, meaning British Steel’s overseas customers don’t know what tariffs will apply to steel they buy from the company. Sources close to the company say orders from customers in the EU and further afield have dried up as a result.

Can the company survive in some form?

The steelworks in Scunthorpe represents the bulk of the company and it is hard to see who would be an obvious buyer for the site, given that it has struggled under successive owners. The fundamental problems affecting it show no sign of solution any time soon.

Is the whole UK steel industry in trouble?

The UK steel industry has been in decline for some time due to a variety of factors such as overcapacity in EU steelmaking and Chinese state-subsidised firms flooding the global market with cheap product. An industry that employed 323,000 people in 1971 now employs less than a tenth of that, at 31,900. The closure of the Redcar steelworks in 2015 was a significant blow to the sector and left the UK with just two blast furnace steelworks: Scunthorpe and Tata Steel-owned Port Talbot in south Wales.

Rob Davies

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Unite’s assistant general secretary Steve Turner said: “We are clear that the government must now step up and step in and bring British Steel into public ownership until a buyer can be found to avoid an economic and industrial catastrophe.

“While Greybull cannot be allowed to walk away scot-free and must be held to account for its stewardship of Britain’s second-largest steelmaker, ministers cannot wash their hands of the Brexit farce and ongoing uncertainty that has placed the company in difficulty, nor allow a business of such strategic importance to UK plc to disappear like the steelworks of SSI several years ago.”

The number of people employed in UK steel manufacturing has fallen by 300,000 since 1971

However, it has struggled more recently, with prolonged Brexit uncertainty resulting in it losing 25% of orders at its Scunthorpe plant, adding to the problems already facing the UK steel industry, including higher energy costs than rival countries and a weaker pound, which made raw material imports more expensive.

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