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.

11 thoughts on “Why the Government shouldn’t step in to save steel

  1. As a ‘Principal Economist’, Paul Swinney seems to have a very narrow (and biased) view of the world: “Our most successful cities have shifted from places of low cost production to knowledge production”. Despite all his knowledge he writes off the steel industry as “low cost production” which it clearly is not and, insulting those who work in it, suggests it’s an industry of low skills. He doesn’t realise that steelmaking requires high degrees of skills and embodies highly specialised knowledge. He also discounts the importance of the industry because it only employs 7,000 jobs in the area, while waffling on about ‘city identities’. Mr Swinney needs to open his eyes and just look around to see how vitally important steel making is to our economy as a nation: buildings, housing, cars, ships, energy, communications and transport infrastructure, white goods, you name it. Is he seriously suggesting that we simply give up our home based steel production and rely entirely on imports? That our future lies only in ‘knowledge production’, whatever that means? If he is I say good luck to him. And if he thinks the government shouldn’t step in, could he please tell us what governments are for?

  2. This seems a very sensible article. There is nothing that one can really contribute that doesn’t sound patronising, uninformed or unsympathetic to those affected by this.
    Then God said to Noah, “The end of all flesh has come before Me; for the earth is filled with violence because of them; and behold, I am about to destroy them with the earth. Make for yourself an ark of gopher wood; you shall make the ark with rooms, and shall cover it inside and out with pitch.…”
    Perhaps the workers of Port Talbot could consider ‘diversifying’ and taking things into their own hands by building things with all that steel they make but can’t sell. Like an Ark or a battleship or a few submarines or a North South tube or even a tidal barrage?
    Gopher wood – what on earth is that?

  3. Something has gone wrong with our educational system. We seem to churn out intelligent people who live in a world of abstractions. They utter sentences full of abstract nouns that on examination turn out to be just tautologies. Paul Swinney has caught the bug. Take “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.” What does that mean except the most adaptable and successful cities have been most successful? He didn’t need the research; that conclusion was predictable before they started. And what is a “knowledge based business” ? Does he know how to make steel? Doesn’t that require knowledge? Aren’t all businesses “knowledge-based”? We don’t know how to turn the steel business around he says. So we know how to encourage other knowledge-based businesses do we? His only suggestion is improve the training of the population. Well thanks. That should help in 20 years’ time. Meanwhile here’s my recommendation to Centre for Cities: translate sentences into plain language and if they turn out on inspection not to say anything – hey, don’t publish them,

  4. The decline in numbers of those directly employed in steel in South Wales omits the fact that this industry, like many, has been significantly restructured. Much of the work that was done ‘in-house’ by locally employed personnel in the 80’s is now outsourced to maintenance and engineering contractors. They draw on a UK wide, even international workforce. The work still has to be done and these are highly skilled, well paid roles.

    Losing a million pounds a day is a lot of money granted, but how much money is the UK taxpayer ‘losing’ through government policies that look kindly on our tax dodging city chums and their complex offshore corporate structures ?

    Right now China is effectively destroying the competition globally. Strategically I am not sure that we want to be in a position where we need to source chinese steel for our ships and submarines and they control the price.

    Are steel industry jobs and ‘knowledge economy’ mutually exclusive ?

  5. The government(s) shouldn’t step in to save the steel industry because with the limited tools at its disposal within the EU envelope it subscribes to there can only be one outcome – that of kicking the can down the road and throwing a lot of good money after bad. Energy intensive industries in the UK have very little future in a red-green country.

    If we had had a government free from EU constrictions much of the steel and other energy intensive industry could be been saved with a radical re-think of energy policy and a mild degree of protectionism.

    But we are now paying for 2 decades of inaction plus wrong-headed expensive taxpayer and industry subsidised carbon mitigation energy policy. As it is this pathetic dithering government now looks as if it is happy to sacrifice the steel industry to keep the Chinese sweet in order to get HInkley Point nuclear power station built for reliable baseload before the lights go out and before all our new knowledge-based industries go out with them.

    Between them – successive UK governments couldn’t have got it much more wrong and the steel industry is now just another part of the collateral damage.

  6. Why does HMG want the Chinese to finance Hinckley Point when it can borrow limitless amounts itself for 50 years at about 2 per cent? It makes no sense at all. As for energy prices, we have to be consistent. If we are reduce carbon emissions there is no point in just driving industries offshore. We should impose the carbon levy on imports according to the estimated emissions involved in their production and transportation. I doubt if Chinese steel imports would be a problem then. If the UK did it we would be subject to retaliation but if we got the EU to do it the world would have to alter its ways.

  7. Thank goodness China has a such a great record on human rights, given we are now at their mercy. I’m Welsh and even I am embarrassed by the subservience of the Conservative Party to China. David Cameron is NOT “doing everything” he can to save the UK steel industry. The UK for 3 years or more has been blocking EU proposals which would help stop China dumping steel on the world market…and that I read in the Telegraph (and from Eurofer). It’s not defensible but they could at least admit that UK steel and Port Talbot is a price worth paying for China’s favour. I wonder how this will affect the already unacceptable levels of child poverty, depression etc in South Wales. It’s OK though. Port Talbot steelworkers will just be able to get on their bikes to find work. Forget Cardiff, too many people for too few jobs there already – all public sector dependant with lots of cuts. There are however plenty of jobs in London for redundant steelworkers. Housing is perfectly affordable there and the London transport system can easily accommodate more people.

  8. The obvious answer to why the government won’t step in to save steel is it’s not in London or the South East of England. If it was you can bet your bottom dollar the government would do everything in their power to save steel

  9. The challenge here is for this to be spun out long enough for all politicians to wring their hands convincingly until the day after assembly elections then to drop the plant like a stone exclaiming that all avenues have been exhausted. The danger is that in the intervening period somebody works out a way for our steelworkers to say ‘tata’ to their pension fund as happened at Allied Steel & Wire in Cardiff.

  10. Steelmaking in the uk is vital to our strategic and military independence. We strategically need steel for our own industries including our automative and space industries, particularly the skills base. China is as commentated already effectively destroying all competition in steelmaking and needs to be stopped. The weak and ineffective cameron and all his eu loving crowd have utterly failed the steelmaking industry and the eu will continue to fail other vitalmindustries and job and wealth creating sectors as china flexes her muscles. We need to be an independent country able to defend our jobs and vital interests. Huge american style tarrifs should be slapped on china to show them that despite their so called economic potential for trade they just cannot bully everyone. Indeed the china trade focus is skewing the real tremendous trade potential that is The Commonwealth of united 53 nations. This has currently got a bigger gdp than china and GB is a major part of it. Cameron has shown that he is weak and the chinese now known it. A strong British government would have stepped in and slapped china down, they actually respect that and if they decided to retaliate in actual fact they only start hurting themselves, as most of their value added world trade comes from the west. As an ex steelman myself I am opposed to nationalisation, as I experienced it and its a disaster, as the unions takes over and its all about bigger payouts and less work and more useless socialism. I watched east moors steelworks go from very profitable to scrapped in less than five years under nationalisation destroyed by the unions. We also need to look at new technolgies and arc furnaces are more efficients and cleaner than the old blast furnaces and coke ovens. The Liberty deal is the best way forward and again from a Commonwealth country India who we should get getter trading agreements from as our cost of trading with them is a fraction of that with china and the defunct EU.

  11. The weak and ineffective cameron and all his eu loving crowd have utterly failed the steelmaking industry and the eu will continue to fail other vitalmindustries and job and wealth creating sectors as china flexes her muscles.

    Actually it was Westminster not the EU that utterly failed our steel making industry. The EU wanted to protect the steel industry. Once again the EU is being blamed for Westminster and Tory party failures

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