Why I've Changed My Mind on British Steel

Or: How I Learned to Stop Worrying and Support Some State Intervention

Yesterday the UK government nationalised British Steel.It’s obviously been a controversial move but I largely think it was the right one in that it was the least bad option. I’ve been thinking and writing about steel for about eight years now and oversaw steel policy at the Department for International Trade on behalf of the Secretary of State so let me explain how some of my thinking has developed over the past decade.

Almost exactly eight years I wrote a piece for the Mises Institute where I took the ultra free market view that the UK government should not under any circumstances be nationalised or receive any form of State support. In 2019 I wrote an article for CapX on similar lines and I explained that I was unconvinced by the national security angle for propping up the steel industry. I have shifted somewhat from this position and I now think that, while not ideal, there is a case to be made for State support for the steel industry - at least in the short term.

Why did I change my mind?

Working in government made me realise that the steel industry has been failed by government policy. I wrote back in 2023 when the EU’s CBAM was announced that my fellow free market travellers should not cheer the prospect of a flood of cheap steel imports as this would decimate the UK’s steel industry and would not necessarily be a result of the failure of workers or managers in the industry, but because of the government. When I worked on steel it was clear that successive governments had failed to think up a long term strategy for it and that politicians and officials were unprepared for measures such as the EU’s CBAM and how to respond.

Moreover, the steel industry is suffering in the UK due to government policies around Net Zero which has made energy prohibitively expensive. The UK has some of the highest energy prices in the world and so there is no way that heavy industries such as steel can compete. I wrote about this for UnHerd the other month, while the UK should protect the environment and take climate change seriously, it is madness to attempt the ‘Green Transition’ while also hiking energy prices for firms.

What is more, it is almost impossible for the UK steel industry to compete in a world where there are unfair trade practices taking place. The Chinese government subsidises its steel industry and dumps steel on the global market lowering its price. Again, this is not the fault of the UK steel industry.

Finally, as Keynes said ‘When the facts change, I change my mind’. I was previously dismissive about the need for a steel industry for national security purposes. Unfortunately the world is now a much more dangerous and unpredictable place and we may need a domestic steel industry and a manufacturing base to defend our interests, especially given that we can no longer rely on old allies.

However, I do not believe that as a general rule industries or firms should be bailed out. If they have made foolish decisions or have failed to innovate then we should welcome some creative destruction and allow the resources tied up in those organisations and industries to be freed up and utilised for more productive purposes. The exception to this would be the banks during the Global Financial Crisis because if action hadn’t been taken then the Great Recession would almost certainly have become a depression (but that’s a whole other article).

Moreover, the steel industry should not be nationalised in the long term. Instead the government should support it and urgently create the conditions in the wider economy for the steel industry to be able to survive and be an attractive proposition for a buyer.

First, it needs to deal with high energy costs. It should abandon the mad rush towards Net Zero by scrapping the taxes and regulations which increase energy costs. It should also focus on lowering energy prices by building more energy infrastructure including nuclear power plants.

Second, it needs to work with other countries to tackle unfair trade practices such as subsidies and dumping. As discussed above, the main offender here is China and so the UK should push for there to be real and severe consequences for breaches of trade law, including members being suspended or expelled for repeat offenders.

Finally, the government needs to be prepared to take on the trade unions. If it wants to find a buyer for British Steel then it needs to make it as attractive as possible. Given that labour costs are high in advanced manufacturing any potential buyer might only consider the deal if they can cut these costs. Although it would be politically unpopular, the government should overrule the unions and allow a buyer to make layoffs. The government should be prepared to sweeten the deal by providing a loan to allow the new owners to automate more processes.

We obviously need to remember here that these workers are real people with homes and families to support. One of the main things Thatcher got wrong when she (rightly) privatised industries but she failed to help the workers who were let go so that they could transition into new jobs. The government should do whatever it takes to help the steel workers who lose their jobs to retrain, find new jobs, and have a true safety net in the interim.

Nationalisation in the long term is not sustainable and it is not fair on taxpayers. However, the government was right to take action to support British Steel. It now needs to focus on creating the conditions for the UK to have a competitive steel industry and find a buyer ASAP.

Thanks as ever for reading. Enjoy the rest of your weekend!