UK faces multi-billion pound bill for nationalizing British Steel

The move to full nationalization is due to be “massively costly” for the government, a senior steel industry figure warned.

LONDON — Ministers have already spent hundreds of millions keeping British Steel afloat. Nationalizing the embattled steelmaker is set to cost taxpayers billions more, multiple steel industry figures have told POLITICO.

Without a commercial buyer in sight, taking on the loss-making firm could see ministers forced to spend billions transforming British Steel’s Scunthorpe steel mill to a modern electric arc furnace fit for the future.

The move to full nationalization, set out in Wednesday’s king’s speech, is due to be “massively costly for the U.K. government,” said a senior steel industry figure, granted anonymity to speak freely about the plans.

The taxpayer has already spent £419 million keeping the firm afloat since ministers seized control of the Scunthorpe site 11 months ago. At current rates, spending on British Steel could exceed £1.5 billion by 2028, a National Audit Office report found in March.

Transitioning the site to a more environmentally-friendly, electric arc furnace would cost at least £1 billion, the senior steel industry figure and two others said.

British Steel’s liabilities will also be taken on by the government, the steel industry figure said — potentially putting pressure on the exchequer to fork out even more taxpayer cash.

The government’s Steel Industry (Nationalisation) Bill will also require the government to get an independent valuation of the firm’s assets to “determine what compensation, if any, is required.”

The transition to a new furnace would take at least five years, the industry figure said, because British Steel “haven't even got agreement for a national grid connection. They haven't even got a contract in place to buy an arc furnace, decided where to buy, where to build it.”

Any investor taking on the project is “not going to turn a profit for five years,” the industry figure added. “Not that tempting, if I'm honest.”

“Ultimately, we have to find a way to do that transformation in Scunthorpe,” Industry Minister Chris McDonald told POLITICO in an interview last December, explaining British Steel “needs to be decarbonized.”

McDonald said he’s “been clear that we expect that transformation to be a partnership between government and the private sector.”

The government is now left holding an asset long past its end of life with little to whet the appetites of potential buyers.

With the EU’s carbon border tax and new steel quotas in Brussels factoring into its future commercial appeal, “everything has to align policy-wise to make investment attractive,” said a second steel industry figure.

Many in the steel industry see a way forward to appeal to investors if the government shoulders British Steel’s liabilities and merges the firm with Speciality Steel UK (SSUK), which has arc furnaces, after the government took control of the former Liberty Steel Group as it entered liquidation last year.

“Liberty has got the biggest electric arc furnace at the moment. The aerospace, defense and oil and gas sectors are selling well. It would make sense to put them together as an asset,” said a third steel industry figure. When it comes to national security, “you would want speciality steels in your artillery.”

“There may be some opportunity to tie the two plants together,” the first industry figure said. “It's definitely worth looking at.”