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In the News

Should the Government Bail Out the UK Steel Industry?

Graham Watson

23rd January 2023

The decision to grant British Steel another £300 million in rescue funding demonstrates the dangers of subsidising failing businesses. Having already intervened, if the government withdraw funding, they will be held responsible for the collapse of the firm and the job losses.

And yet for all the reassurances being offered from the parent company, Jingye, if the business isn't viable in the long-term, then this represents another significant opportunity cost to what end? In cases such as these, where the government is trying to prevent structural unemployment, does such intervention help or hinder?

If the government doesn't intervene and the firm goes under, then workers will have to re-skill, or move, in search of jobs, which it looks like they are going to have to do at some point anyway.

Read: UK poised to give £300m in rescue funding to British Steel

More on the state of the UK steel industry with the trade union involved offering a cri-de-coeur, suggesting that the industry is on the brink of collapse and asking for more government assistance.

All of which is all very well, but does it make economic sense. Evidently, no-one wants to see people lose their jobs but equally no-one has the right to their job being guaranteed - just ask former miners, shipbuilders and so on. So is it better economics to step in a subsidise a sunset industry, or would it be better to use the same money to invest in retraining and other forms of investment in the affected regions to create new jobs?

Read: UK steel industry a whisker away from collapse - Unite

Background: Operating losses in the UK steel industry

The UK steel industry has faced a number of challenges in recent years, leading to significant losses and closures. Some of the main factors contributing to these losses include:

  • Global overcapacity: The global steel industry has been facing overcapacity for several years, with many countries producing more steel than they can consume. This has led to a decrease in steel prices and has made it difficult for UK steel producers to compete on the global market.
  • High energy costs: UK steel producers have been facing high energy costs, particularly for electricity. This is partly due to the UK's climate change policies, which have led to an increase in the cost of carbon emissions.
  • Cheap imports: The UK steel industry has also been facing competition from cheap imports, particularly from China. This has made it difficult for UK steel producers to compete on price.
  • Brexit: The UK's exit from the European Union has led to uncertainty and has made it more difficult for UK steel producers to export their products to the EU.
  • COVID-19 pandemic: The COVID-19 pandemic has also had a major impact on the steel industry, with many countries closing down their economies to curb the spread of the virus, resulting in a decrease in demand for steel.

These factors, among others, have led to significant losses and closures in the UK steel industry.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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