Steelmakers need our support

Manufacturing depends on steel, but the industry is in crisis. Angela Eagle, shadow business secretary, calls for a new strategy

By Angela Eagle

On 29 March this year, the board of Tata met in Mumbai and announced the company’s intention to sell its entire UK steel business. At the same time the UK’s Business Secretary, Sajid Javid, was telling an audience in Sydney that it was a “pleasure to be in Australia”. Javid’s trip, while the UK steel industry was on the verge of collapse, showed not just a staggering lack of political judgement; it was an insult to British steelmakers and their families. His absence was all too illustrative of this government’s ideologically driven, hands-off approach to the steel industry and the manufacturing sector as a whole.

Javid is a self-confessed devotee of that goddess of selfishness, the über-libertarian Ayn Rand. She claimed: “Government ‘help’ to business is just as disastrous as government persecution . . . the only way a government can be of service to national prosperity is by keeping its hands off.” The secretary of state has certainly followed this dictum in his handling of the steel crisis.

Yet recent events in the steel industry have shown just how short-sighted such an approach can be. Steel is a vital foundation industry and it’s also very cyclical. Of course there are global forces at play, but there are many actions a government with an active industrial strategy could have taken to secure the future of the industry. It was slow to assist with the high energy costs that faced energy-intensive industries in the UK after it unilaterally introduced the revenue-raising carbon price floor, and it has done nothing for the industry on business rates. Forward-thinking businesses in the UK that invest in new plant and machinery get landed with higher business-rates bills, something EEF (the manufacturers’ organisation) has described as a “tax on investment”.

Labour has consistently called on the government to develop a full industrial strategy that includes a procurement policy, committing to using British steel wherever possible for publicly funded infrastructure projects, and supporting industrial supply chains across the UK.

Crucially, we have been calling on the government to support tougher EU action to ensure a level playing field and prevent the dumping of Chinese steel. It should be supporting the scrapping of the lesser duty rule, which prevents higher tariffs being imposed. So far the UK has blocked this, showing much more interest in cosying up to the Chinese government.

The fact is that Javid is so deeply wedded to laissez-faire, free-market dogma that he is blinded to the enabling role the state should play in supporting a modern manufacturing sector. In contrast, Labour believes that we need an intelligent, modern industrial strategy, which recognises the role of government in cultivating an environment where manufacturing can thrive. It may not hold the central place it once did in the UK economy – throughout the 1970s it accounted for around 30 per cent of economic output, and in 1982 still employed 5.6 million people. Now it accounts for 11 per cent of output, employing around 2.6 million people.

But in spite of this, manufacturing remains vital to the economic health of the UK, with goods produced in the sector accounting for 44 per cent of all UK exports. Furthermore, communities – such as those in Port Talbot, Scunthorpe and Redcar – are still bound together by the manufacturing jobs that have existed for generations.

In the face of technological change and low-wage competition from other countries, some hold the view that the continued deindustrialisation of the UK economy is inevitable, and that we are wasting our time trying to save manufacturing industries such as steel.

No one is denying that the sector faces severe challenges. However, UK manufacturing must have a future in the 21st century, and it is the responsibility of the UK government to develop a robust industrial strategy to secure this future. The economic and social cost of inaction would be too great to bear.

Industries do not exist in a vacuum. They are deeply embedded in the economy through networks of supply chains, and through their contribution to wider demand and skills growth.

The steel industry is a case in point: it has been calculated that up to 40,000 jobs would be at risk if a buyer cannot be found for Tata’s British strip products division, including workers currently employed by Tata and those dependent on the supply chain. The loss of these jobs could cost the government £4.6bn in tax revenue and benefits, and could reduce UK household spending across the economy by £3bn over ten years. In 2016-17 alone, the lost revenue and benefit costs are estimated to be £800m, or £2.2m every single day.

Furthermore, steel is a key foundation industry, whose reach is far and wide. The British aerospace, automotive, defence, construction, rail and nuclear industries are all reliant on a strong and sustainable steel industry. The loss or severe degradation of British steel capacity will clearly have implications far beyond the industry and the immediate communities it supports. This is one example of the interdependence of the manufacturing sector, which places additional responsibility on the government to formulate a comprehensive industrial strategy.

This isn’t about some sort of Chinese Communist Party five-year plan. A sensible industrial strategy was put in place by Peter Mandelson when he was business secretary, and was continued in part under Vince Cable. It’s about an active and supportive government, working alongside employers, unions, skills providers and regions to ensure businesses have access to the supply chains, the funding and the skilled workforces they need to grow. The CBI and EEF, which represent manufacturing employers, are calling for an industrial strategy, as is the TUC. Unfortunately we now have a business secretary who is so straitjacketed by his restrictive ideology that he is unable even to utter the words, let alone take decisive action.

While most secretaries of state seek to resist savings to their departments, Javid has so far seemed willing to accept deeper cuts at the Department for Business, Innovation and Skills. He may even be the first secretary of state in history who doesn’t believe that his own department should exist.

Until the government recognises the recklessness of this approach, our manufacturing sector will continue to decline. In his 2011 Budget speech, George Osborne set out his vision for “a Britain carried aloft by the march of the makers”. Unfortunately it hasn’t really got off the ground. Manufacturing output has declined since Osborne’s speech; in January this year it was lower than the previous year, and it is still 6.4 per cent down on the same period before the global crash in 2008 (in contrast, the service sector is up 12 per cent).

This trend has been reflected across all rich economies in recent decades, as growth in the service sector has outstripped manufacturing. But the UK situation is particularly poor – in Germany, manufacturing still makes up 21 per cent of output, compared to the UK’s 11 per cent.

The crisis in the steel industry has exposed this government’s abject failure to devise a coherent strategy for manufacturing. It has been left behind the curve, caught out by predictable events. We have a secretary of state who is seemingly allergic to any form of government intervention, and oblivious to the role the state can play in stimulating our industrial base. The UK desperately needs a comprehensive strategy for the manufacturing sector, and unless the government realises this, the “march of the makers” is destined to become yet another unfulfilled Tory promise.