The fire from Port Talbot may burn more than just UK Steel

The Government continues to receive opprobrium over the potential closure of Port Talbot steelworks. It has come to light that the UK Government voted against the EU increasing tariffs on cheap Chinese imports of steel. Critics have suggested that the UK has been in cahoots with China in keeping tariffs low to woo Chinese investment for key infrastructure projects such as Hinkley Point C. Siding with China over ‘hard working people’ has taken the majority of the headlines, with energy prices falling lower down the order of blame. Don’t be surprised if you see the face of Chinese charm offensive – George Osborne – to be missing for the next few days. 

The political fallout from the UK steel saga could have consequences in the EU referendum debate and infrastructure projects. It has already been mooted in Parliament that large infrastructure projects should prioritise the use of UK steel. This would be difficult to evoke through legislation as it could contravene EU state aid rules or competition laws. The Government may start to put political pressure on companies in the hope that they volunteer to use UK content including steel. Eurosceptics will look to capitalise on the Government’s inability to support steel due to EU regulations.

So what can the Government do? Their options are few, and anything they do will either be expensive or politically dangerous. Nationalisation is on the table but unlikely. A more preferred and tested option is part-state ownership with private companies. The state ownership would be used to incentivise and offer loans but this is often seen as a way of just buying time ahead of the inevitable. The least favoured option is to let Talbot fail but this would evoke memories of the coal mines closing in 1980s. The question some will ask is how much is Cameron willing to pay to avoid this?

Douglas McIlroy

Hill & Knowlton Strategies Search