The cost of keeping the UK’s last remaining blast furnaces operating at British Steel’s Scunthorpe plant could exceed £1.5bn by 2028 if it continues at the current rate, according to the government’s spending watchdog.
Ministers took the plant under public control in April last year after its Chinese owner, industrial company Jingye, threatened to close the loss-making site.
The National Audit Office (NAO), which oversees state spending, said the intervention saved thousands of jobs in Scunthorpe and avoided a “serious impact” on UK industry, including Network Rail, which buys steel for the railways from the plant.
Closing the plant would also have wiped out Britain’s “primary” steelmaking capacity because blast furnaces allow steel to be made from scratch, rather than relying on scrap metal.
While the NAO report highlighted the benefits of the intervention, it warned of the high cost of the rescue package, which had reached £377m by the end of January this year, including £15m spent on advisers.
The bill could exceed £1.5bn if operating costs continue at the rate of £1.3m a day, he said.
In practice, the taxpayer’s liability could be significantly higher because the estimate does not include the compensation that could be paid to Jingye, the costs associated with any eventual sale process or the huge investment that would be required to replace its blast furnaces with greener electric arc furnaces.
Gareth Davies, director of the NAO, said the Department of Business and Trade (DBT) “should learn from this experience to be better prepared for future interventions”.
The £377m spent so far is classed as a DBT loan.
DBT has no set payment schedule, the NAO said, and it seems unclear whether British Steel will be able to repay the money.
The department was not allocated funds for intervention in the spending review and will have to make savings elsewhere to cover some of the costs, he added.
The government has previously announced a £2.5bn support package for the steel industry, through measures such as reducing energy bills and using more UK-made green steel for infrastructure projects.
The NAO said using that fund to support British Steel would lead to “trade-offs” with other spending plans. DBT is working on a wider strategic proposal for the struggling UK steel industry.
Alasdair McDiarmid, general secretary of the Community steelworkers union, said: “If the government had stood by and allowed British Steel to collapse, the financial and social impacts would have been catastrophic.
“The government made the right decision to invest now because local economies would have been decimated, our nation would have been less safe and we would have seen a massive, long-term increase in the welfare bill.”
