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The UK government has already set aside almost £100mn to pay for its bailout of British Steel just weeks after taking control of its two blast furnaces from Chinese owner Jingye.
Business secretary Jonathan Reynolds told the House of Commons on Thursday that £94mn of taxpayers’ money had gone towards keeping the factory running since it passed emergency legislation in early April to seize control of British Steel.
The company, the last outfit to make steel from scratch in the UK, employs about 3,500 people in the UK, including 2,700 at Scunthorpe.
“The amount of working capital provided for British Steel to date stands at £94mn, which is considerably less, of course, than if we had given a large amount of money to Jingye, or if we had to deal with the complete loss of the entire British Steel site and business,” he told MPs.
Reynolds said that the money spent so far was a lot less than if ministers had allowed the “total collapse” of British Steel, which he said would have cost £1bn. It was also less than the £1.2bn that Jingye had requested in financial support to keep its lossmaking operations running while switching to greener forms of steelmaking, he said.
Andrew Griffith, shadow business secretary, warned that the rescue could end up costing taxpayers billions of pounds in the long run.
“Isn’t the truth that sooner or later, this will have to come from his department’s budget at the expense of financial support for the automotive sector, for exporters, or hard-working trade negotiators?” the Conservative MP asked in the Commons on Thursday.
Ministers have repeatedly said that they have a “war chest” of £2.5bn to spend on green steel, which could come from the state-owned National Wealth Fund.
Griffith questioned the idea that the cash could come from the National Wealth Fund, which despite being state-owned is operationally independent.
The Labour government hopes to be able to find a new buyer for British Steel from the private sector, though analysts are sceptical about the prospects of a swift sale given losses that owner Jingye had estimated at £700,000 a day.
Ministers stepped in with emergency legislation last month to seize control of the plants after Jingye announced plans to close the Scunthorpe blast furnaces and axe thousands of workers.
Closure would have left the UK as the only G7 nation without the ability to make steel from raw materials, although the Scunthorpe plant relies on imports of iron ore and coking coal to keep running.
Ministers had been discussing with Jingye plans to close the blast furnaces and replace them with electric arc furnaces that would recycle steel rather than making steel from scratch.
A similar deal was struck with India’s Tata covering its site at Port Talbot in south Wales, which has led to the closure of two blast furnaces there.
Jingye had asked for £1.2bn towards its proposed £2bn project to switch to green steelmaking. It walked away when the government offered just £500mn.
The business was previously taken into state control in 2019 by the then-Conservative government before being sold to Jingye for a nominal sum. Its 10 months in temporary nationalisation in 2019 it cost taxpayers £600mn.
Officials and other industry experts are preparing an “investment case” to attract a third-party buyer for British Steel, but the business secretary has said that nationalisation of the company remains a “likely option”.