The Government has confirmed a £500m taxpayer -backed deal will secure the future of steel making at the Port Talbot plant in South Wales but could not secure guarantees it was attempting to save up to 2,500 jobs expected to be lost at the site.
Jonathan Reynolds, the Business Secretary, told MPs the deal fell “short of what would be my ideal”, as he unveiled a new package. The Government will agree to provide £500m towards the construction of a new greener electric arc furnace at the site, with the plant’s Indian owner, Tata Steel, paying £750m.
Approximately 100 extra jobs will be saved as a result of the deal, it is thought.
He said the deal was an improvement on that first outlined by the previous government’s by agreeing better redundancy payments for workers as well as an enhanced training package for those looking to get new jobs outside the steel industry.
The government said 2,000 workers had expressed interest in voluntary redundancy under the deal. Employees who choose redundancy will be paid 2.8 weeks’ earnings for each year of service, up to a maximum of 25 years resulting in minimum voluntary redundancy payout of £15,000 for full-time employees plus a £5,000 “retention” payment together with paid-for training.
Tata has said the last blast furnace will close later this month and it expects “spades in the ground” building the new electric arc furnace to begin next July. The new, greener furnace, while environmentally friendly is a less labour intensive process and will only require around 500 new jobs to operate it. The furnace isn’t likely to begin production until 2028. Tata will rely on imported steel to supply its customers until then.
The Government said the deal contains “claw-back” commitments which would see money taken back from Tata if the Indian-owned firm fails to retain 5,000 jobs across its UK-wide business afterwards.
He blamed the previous government for not being able to secure a better deal saying: “Since becoming the Secretary of State two months ago, I’ve had to respond to a series of challenges not just with the steel industry, but also in shipping, such as Harland & Wolff, and in other areas where the previous government had simply ceased to make decisions and decided to leave them for us to deal with. This was a dereliction of duty and it has left the steel industry in particular in an extremely perilous position.”
The government has also pledged £2.5bn of investment to rebuild the industry and help it decarbonise, and said it would lay out a wider steel strategy next spring. The deal also includes a commitment from Tata to consider new investments.
Mr Reynolds said: “Port Talbot has always been and will always be a steelmaking town. This deal does what previous deals failed to do – give hope for the future of steelmaking in South Wales.
“Steel is fundamental to the UK’s economy, sovereignty, and communities, but previous government inaction has blighted the steelmaking industry. That’s why this Government is taking strong action through a new deal and strategy which will reverse the industry’s stagnation and set out a long-term vision for a bright and sustainable future.
“We know that a cleaner, greener future for UK steelmaking is vital to the industry’s long-term economic stability. The road ahead is not without its challenges but our steel strategy will set forth a positive vision for the future of the industry, backed by our manifesto commitment to £3bn of government investment.
The Chinese-owned British Steel, which has two blast furnaces in Scunthorpe, Lincolnshire is currently in talks with the Government about shifting to cleaner manufacturing.
Tata has said the switch will cut its carbon emissions by about 85 per cent and the UK’s overall CO2 output by about 1.5 per cent. The Port Talbot site is reportedly the UK’s second largest emitter of CO2 and the biggest in Wales. Less carbon in the atmosphere will aid the fight against climate change. It will also make Tata’s UK made steel less expensive.
The UK and the European Union are to introduce carbon taxes to encourage greener, more sustainable goods and services. The aim of the taxes is to highlight the “hidden” social costs of carbon emissions. The less carbon involved in production, the less tax will be added.
Steel making using the electric arc furnaces uses scrap steel rather than iron ore and coke. The new process will require a plentiful supply. Unions point out that steel, already one of the most recycled materials in globally, is quickly becoming a crucial raw material.
In 2021, more than 8.2 million tonnes of steel scrap was exported from the UK. Once collected and sorted it could help to meet some of the national demand for steel.
Tata called the project one of the largest industrial transition projects in the UK and praised the responsible approach of its workforce, the UK Steel Committee representing the trade unions, and support of the UK Government.
T V Narendran, Tata Steel chief executive officer, said: “With the UK Government’s critical support, this complex and ambitious transformation of Port Talbot has the potential to make the plant one of Europe’s premier centres for green steelmaking.
First Minister Eluned Morgan welcomed confirmation of the deal, saying the Labour Welsh government stood “shoulder-to-shoulder with the UK government in doing all we can to support workers at Tata Steel and provide a new future for steel production in Wales”.
Llinos Medi, Plaid Cymru MP for Ynys Mon, said losing the ability to make virgin steel at Port Talbot was a “serious economic blunder” that will “devastate the communities of Port Talbot”. “Unions have previously called for additional investment of £683m in Port Talbot to save jobs. Meanwhile, Germany has invested 1.3 bn euros in decarbonising steel in one region alone this year,” she said as she called for the Government to match the ambition of governments of other countries to save Welsh steel.
Dr Simon Cran-McGreehin, at the Energy and Climate Intelligence Unit (ECIU) said a better planned transition away from carbon intensive steel making could have saved many jobs. With an announcement from British Steel about the future of the Scunthorpe plant expected soon he said it was “clear that the future of British steelmaking still hangs in the balance”.
“Over recent years, the UK has been falling behind Europe in the development of green steel manufacturing, with a number of hydrogen-based green steel plants moving ahead across the Continent. The big test for the new Government will be whether it is able with its planned Steel Strategy to develop a long-term, strategic plan for the industry.”
There was a muted welcome from unions over the deal. In 2023, their own joint plan to protect 2,300 jobs at the plant was rejected by the company.
In a joint statement the Community and GMB unions said: “This deal is not something to celebrate, but – with the improvements the unions and the Government have negotiated – it is better than the devastating plan announced by Tata and the Tories back in September 2023.” They said they welcomed the Labour Government’s intervention which helped strengthen the final deal.
“Clearly this is not where we wanted to be, and we know that a better plan was available. Back in November last year, Community and GMB published the Multi-Union Plan, an alternative approach that would have safeguarded Port Talbot steelmaking and secured a just transition for the workforce.
“Regretfully we couldn’t secure the support of all stakeholders for our credible alternative decarbonisation strategy, and ultimately the company rejected the basis of our proposals, representing a tragic missed opportunity.
“Under the circumstances representatives of all the steel unions resolved to negotiate the best possible deal, and then put it to a ballot of the membership. This is what we have done, and voting is under way.
“Going forward, the Government must review existing policies and do everything in its power to ensure that decarbonisation does not mean de-industrialisation – you can’t build a greener economy without a healthy steel industry.”
Sharon Graham, general secretary of the Unite union said the government funding was “vital for local communities as well as the long-term future of the steel industry”.3
“The last government was quite frankly asleep at the wheel. The present crisis is a direct result of it failing to invest in the UK steel industry and allowing the companies involved to run down their operations and let them fall into disrepair. Conservative inaction and disdain have resulted in wholly avoidable job losses.
“Unite, which secured the additional funding, will ensure the substantial second stage investment in South Wales means new jobs will be available and secure the future of Port Talbot and Llanwern.”