The fate of incoming Labour business and industry secretaries seems to be to launch emergency rescue packages for industries that would otherwise face imminent closure.
Witness Jonathan Reynolds at last Saturday’sextraordinary parliamentary recallarguing for the legal right to take over the running of British Steel from its Chinese owner, Jingye, in order to save up to 3,500 jobs and Britain’s strategic capacity to make steel. And witness Tony Benn, in 1974, offering a financial lifeline to 3,000 workers forming a cooperative to save motorcycle manufacture at the failed BSA plant in Meriden, near Coventry.
Although 50 years apart, they both reflect the inability of the British financial and ownership system to make common cause with the state to drive forward vital innovation – and the regular crises that result. BSA’s demise is a moment etched in my memory. As a young stockbroker, I had lost a good part of my savings in carelessly buying and selling BSA shares in the hours before it became defunct.
As I ruefully took the bus home, I was angry not only at my idiocy but also at a financial system whose relationship with a great company was captured by dealing in its shares like casino chips even in its death throes – and into which I had been sucked. It was emblematic of a decades-old disengagement and lack of commitment to invest and support BSA, instead prioritising the capacity to pay annual dividends. More of this and Britain would be an industrial wasteland. Something had to change. One of the good outcomes from British Steel’s rescue is that, at last, this may be about to happen.
Like BSA, British Steel has never operated within a financial and ownership ecosystem supported by public policy that sees its objective as investment and value creation. Even when nationalised, it was simply an unwanted ward of state financed by a neglectful Treasury. By contrast,China, like Japan before it, aims to be the industrial and manufacturing powerhouse of the 21st century and puts the creation of value and investment in frontier technologies at the heart of its economics and politics – marshalled by a ruthless, autocratic, one-party state that knows its legitimacy depends on a successful economy.
China’s state-owned banking system is its weapon, locked in by capital controls that force it to make vast subsidised loans as directed by successive five-year economic plans. China’s technological prowess, and in particular the way it has implemented its decision 20 years ago to leapfrog the industrialised west by transitioning to a green economy built on cheap renewable energy rather than expensive, imported fossil fuels, has been built on bank debt. This debt is nowmore than 300% of GDP– a dangerous ratio that triggered first the Japanese and then the western banking crises.
But Chinese steelmaking, now half of world production, is a major beneficiary. Efficient electric arc steelmaking, requiring temperatures of up to 3,000C, needs huge volumes of cheap electricity provided by renewables. Already, renewable energy supplies two-fifths of China’s capacity: it will double by 2030.
Jingye, with £40bn of turnover, is located in China’s biggest steel-producing province, Hebei, just north of Beijing. Like every “private” firm in China, it has a supervisory committee of party members to ensure it complies with party wishes as set out in the national plans, as do the state banks that lend to it. This is capitalism married to Marxist-Leninism. British Steel’s fate was sealed 15 months ago when Hebei province released its “Guidelines for transitionfinance in the iron and steel industry”, conforming to the 14th five-year nationwide plan: electric arc steelmaking powered by renewables was to become the province’s industry standard.
Scunthorpe was never going to get near those criteria.
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When Jingye bought the company out of receivership in 2020, there seemed a reasonable chance that Britain’s cross-party commitment to renewables would underpin the next generation of electric arc steelmaking with cheap electricity. Instead, there has been a collective retreat, spearheaded by the British right, with cheap renewable power cast as “woke”. Worse, British electricity pricing policy is organised to make the least efficient gas-fired power station capable of entering the grid, so locking electricity prices into expensive fossil fuels.
Yet it was Donald Trump’s tariffs that forced the decision, with China facing the growing risk of a banking crisis if its overindebted steel and power industries could not service their loans. Doubtless the Communist party committee overseeing Jingye will have agreed its action – but as much to save itself as to do down Britain. Trump’s tariff war is simultaneously threatening not only the US financial system – but China’s. Jingye’s very survival is at stake.
Jonathan Reynolds may have won sweeping powers to control British Steel to an extent Benn never dreamed of – but its future remains murky. If Britain is to avoid being the only G7 country incapable of making virgin steel, there needs to be more hard thinking about the reforms to make that possible.
The UK will need a wholesale overhaul of its energy policy and an accompanying commitment to renewables to lower energy prices, massive investment in electric arc furnaces and a national strategic plan to get British steel users to buy locally. If the company is ever to go private, some combination of thenational wealth fund, British Business Bank and British pension funds and insurance companies will have to anchor its ownership and commit to investment. British Steel must become part of the new economy, not a prisoner of the old.
The prospect would have been laughable until very recently. But there are signs of change. The national wealth fund and British Business Bank exist. Today’s City is much more aware that its strength is interdependent with the strength of the British economy; there is to be a second “Mansion House compact” this summer in which pension fund managers commit to invest up to 10% of their funds in innovative startups and scaleups. The government is committed to an industrial strategy and is preparing to overhaul energy pricing policy to better reflect the cheapness of renewables.
The free market economics that warranted all the disengagement and lack of interest that drove de-industrialisation and decline is at a dead end. Companies that fail are part and parcel of capitalism; what makes failure acceptable is if they are accompanied by companies that succeed – thus the importance of creating the ecosystem in which more of that happens. There is a long way to go, but Britain could be feeling its way to answers that have eluded it for decades.
Will Hutton is an Observer columnist