Why the Government shouldn’t step in to save steel

Government intervention won’t improve the long term fortunes of Redcar and Port Talbot, says Paul Swinney.

The uncertain future surrounding Tata Steel’s Port Talbot site has intensified calls for the Government to step in and save the British steel making industry. But while such calls are understandable, they’ll do little to help the areas most affected by the industry’s demise.

Two main prongs in the argument to save the Port Talbot plant are firstly that steel is part of a wider national identity, and secondly that given the bailout of the banking industry in the midst of the banking crisis, the same should apply to the steel industry as well.

It’s worth looking at these arguments in turn. In terms of identity, steel making has been playing an ever smaller role in the identity within the local authorities of Swansea and Neath Port Talbot, never mind the nation as a whole, for the last 100 years. In 1911, metal making accounted for over 15,000 jobs – or 15 per cent of the total jobs in the area. In 1981, this had fallen to 9,000 (7.3 per cent). And in 2014 it was down further to 7,000 (4.6 per cent).

This decline has mainly come about because of changes in the global economy. The UK can’t compete with other, cheaper locations when it comes to industries such as mining and coal. Instead, it has become a world leader in high skilled, knowledge-based type activities where it can compete on quality. And our research shows that it has been those cities that have best been able to adapt to changes in the global economy, and attract investment from knowledge based businesses, that are our strongest performers today.

Unlike its near neighbour Cardiff, Swansea (which we define as the local authorities of Swansea and Neath Port Talbot) has struggled to do this. This has meant that in our most recent Cities Outlook the city ranked 49th out of 63 cities for the number of knowledge services jobs in its economy, had the 10th lowest workplace wages in 2015, the third lowest productivity and the fourth highest welfare bill per capita.

The Government could step in to bail out a plant that is losing close to £1 million per day. But if it did, it’s not clear how it would help turn around the plant’s fortunes. And given the city’s struggles even with the plant open, it’s not clear how such an intervention would help to address the wage, welfare and productivity problems it faces.

The second line of argument is based on fairness – if the bankers, the very architects of the financial crisis, got help then why shouldn’t the steel workers? But the roles that the two industries play in the wider economy aren’t comparable. The collapse of the banking industry wouldn’t have just affected bankers – it would have affected the whole economy, with fragile sectors such as the steel industry likely to have been most impacted. And whether this sits comfortably or not in this case is almost irrelevant – using it as justification for intervention in steel will do little to support the people that those arguing for intervention are trying to help.

The Government should react to the closure. But using taxpayers’ money to delay the pain doesn’t seem like a very good idea. Instead it should be looking to improve Swansea’s attractiveness to investment from knowledge based businesses, principally through improving the skills of the city’s residents – at 11.8 per cent, Swansea has the 14th highest share of residents with no formal qualifications of all cities – as well as giving direct help to those who stand to lose their jobs as a result of the closure.

Our most successful cities have shifted from places of low cost production to knowledge production. And the ones that are struggling need to shift their identities away from being the producers of good to the producers of knowledge. Not doing so leaves them vulnerable to further closures in other low cost industries in the future.

Paul Swinney is Principal Economist for the Centre for Cities.

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