Steelworkers vote to accept Tata deal – what are the next steps for the industry?

 

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On 15 February 2017, trade union members from Community, UNITE and GMB all voted to accept the deal offered by Tata Steel relating to pensions, future investment and job security.  The three trade unions had recommended that workers accept the deal, while recognising the difficult decision workers would have to make on their pensions.  Tata have said that work continues with the unions and others to build a secure future for the industry.

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New Publication: The steel industry: an in-depth look

19 May 2016

National Assembly for Wales Research Service

The challenges facing the steel industry have been one of the most high-profile issues of 2016. This paper sets out a summary of the industry in Wales and the UK, recent developments with the Tata Steel sites and the key pressures facing the industry.

The steel industry: an in-depth look (PDF, 1MB)

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The future of the steel industry

19 May 2016

Article by Gareth Thomas, National Assembly for Wales Research Service

This article is taken from ‘Key issues for the Fifth Assembly’, published on 12 May 2016.

Developments in the steel industry have been one of the most high profile political issues of 2016. What are the key pressures facing the industry and how might the new Welsh Government help it secure a sustainable long-term future?

The decision by Tata Steel in March 2016 to put its UK assets up for sale was the latest development in a ‘perfect storm’ of recent challenges for the steel industry in both Wales and the UK.

As well as the Port Talbot steelworks, Tata has a number of other operations in Wales, at Llanwern, the Orb in Newport, Shotton and Trostre near Llanelli. Other producers with Welsh operations include Celsa Steel and Liberty House Steel UK. The iron and steel industries employed 6,420 people across Wales in 2015, with the primary steel industry and its supply chain accounting for close to 20,000 jobs.

The Welsh Economy Research Unit at Cardiff University found that the total economic impact of Tata was £3.2 billion in Wales per year, with a supported gross value added of £1.6 billion. Tata contributes £200 million in wages into the Welsh economy each year, and each job at Tata supports an additional 1.22 jobs throughout the Welsh economy.

steel Map

What are the options for securing the future of the Tata Steel plants?

Reaching a conditional sale agreement for the Tata plant in Scunthorpe in April 2016 took nine months, and both UK and Welsh Governments have urged Tata to allow sufficient time for a sale to take place. In March 2016, the Scottish Government purchased two Tata steel plants before selling them on to Liberty Steel the same day.

Potential options for the Tata sites include the sale of all plants; management buyouts of certain sites; nationalisation; co-investment between the public and private sectors; temporary ‘mothballing’ of sites in their current condition to enable future reopening; or closure.

The previous Welsh Government offered Tata a package of over £60 million, which included funding for environmental products and skills and training, and a commercial loan to develop a galvanising line for steel coating. It also discussed co-investing in a power plant at the Port Talbot works, which would lead to lower energy costs and greater energy efficiency.

Given the scale of the investment needed across the Tata plants, UK Government assistance will also be required. The UK Government has indicated that it would consider co-investing with a buyer on commercial terms, including potentially taking on some of the debts associated with the plants. Other areas for potential UK Government support include the power supply, the British Steel Pension Scheme and infrastructure.

How can the key challenges facing the sector be addressed?

Of the industry’s five ‘key asks’ at the start of the crisis, four remain major concerns for the sector. Some of these are in non-devolved areas, meaning that the new Welsh Government will need to work in partnership to address these issues.

What is dumping, and what measures are currently used to combat it?

Dumping is where the export price of a product such as steel is lower than the exporter’s home market price, or perhaps even lower than cost price. The EU investigates these cases, and can impose tariffs that are based on the dumping margin unless a lower tariff would remove the injury caused to EU producers. This is known as the ‘lesser duty’ rule

The ‘dumping’ of steel is dealt with at EU level, and concerns centre on the global competitiveness of European steel against exports from China and Russia. The European Commission launched proposals to address these challenges in March 2016, including reducing the length of time that anti-dumping investigations take and changing the way that anti-dumping tariffs are calculated in certain circumstances. A further issue is the impact that awarding Market Economy Status to China would have on action that could be taken against ‘dumping’.

Energy prices for UK steel producers are higher than other European nations, despite the UK Government introducing compensation for energy intensive industries. While steel producers have welcomed the compensation package, they are still paying significantly more for electricity than European competitors and would like further action taken.

Business rates paid by UK producers are said to be between five and ten times higher than in other European nations. In Wales, powers over business rates are wholly devolved to the Welsh Government. The sector has called for the removal of plant and machinery from business rates bills, which are seen as a disincentive to invest. At the end of the Fourth Assembly, the previous Welsh Government was still considering how to address this issue across the whole of the manufacturing industry in Wales.

The steel industry also wants the Welsh public sector and the Welsh and UK Governments to use procurement for major infrastructure projects to better support UK steel. The previous Welsh Government considered that its procurement policies support the principles of the Charter for Sustainable British Steel, although the industry has called for procurement policies to be implemented and monitored more closely. The Tata Taskforce, established by the previous Welsh Government, is developing a list of infrastructure projects that could help the steel industry, and looking at how major capital projects are setting criteria for steel procurement.

The steel industry has also cited Welsh and UK Government co-investment in research and development as ways to take the steel sector forward.

The decisions taken by the Welsh and UK Governments will affect both the immediate and long-term future of steel. With thousands of jobs and the future of an industry at stake, working with partners to relieve the pressures faced by the sector will be one of the first major challenges for the new Welsh Government.

Since this article was produced for the hard copy Key Issues publication, there have been a number of developments:

  • The UK Government has provided further details of potential support available to the successful buyer, including the possibility of it taking an equity stake of up to 25%;
  • Tata has announced that seven bidders have reached the next stage of the bidding process.  These include Liberty Steel and Excalibur Steel UK, and are also rumoured to include Greybull Capital, JSW Steel and Nucor; and
  • The Welsh Government has confirmed that it has made an offer of financial support to the Excalibur Steel UK bid, although the value of this support is not yet known.  However, this is not a formal endorsement of the Excalibur bid as support is open to other bidders should they request it.

Key sources

Promoted by the National Assembly for Wales Commission, Cardiff Bay, Cardiff, CF99 1NA

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Steel in Wales: potential Welsh Government support

21 January 2016

Article by Gareth Thomas, National Assembly for Wales Research Service

Second blog post pic

Image from Flickr by Ben Salter.  Licensed under the Creative Commons

 

Following our first article on the steel industry published earlier today, this article considers the support that the Welsh Government can offer the workforce and industry following recent events.

What can the Welsh Government do to assist the workforce?

The First Minister has asked the Minister for Economy, Science and Transport to chair a high-level taskforce to support workers affected by the Tata Steel announcement, which met for the first time yesterday.

Looking at specific programmes, the Welsh Government’s ReAct programme supports both individuals affected by redundancy and employers taking on workers who have previously been made redundant.

Support for individuals under the ReAct scheme is available free of charge to those under notice of redundancy, or who have been made redundant in the last 3 months and have not been in continuous employment for 6 weeks or more since being made redundant. The support offered by ReAct includes recruitment and training support, and discretionary vocational training and extra support grants.

Employers taking on workers previously affected by redundancy can benefit from two packages.

  • Employer Recruitment Support funds employers who recruit individuals made redundant in the past 3 months. The award offers up to £3,000 paid in four instalments as a contribution towards wage costs
  • Employer Training Support is a separate discretionary fund of up to £1,000 that an employer can put towards the cost of the new recruit’s job-related training. This can only be applied for in conjunction with Employer Recruitment Support.

Detailed information on qualification criteria is available from the Welsh Government’s website.

During the Business, Innovation and Skills Select Committee’s recent inquiry into the UK steel industry at Westminster, the Community trade union highlighted the Welsh Government’s previous ProAct scheme as an example of good practice in ensuring skills retention for the industry when plants are threatened by closure. ProAct was a financial support package in the economic downturn available to businesses which had introduced short time working and faced the threat of redundancies and, broadly, offered:

  • Up to £2,000 per individual towards training costs
  • A wage subsidy of up to £2,000 (at a rate of £50 a day) per individual whilst this training is being undertaken (up to 12 months

In Scotland, the Scottish Government has recently introduced a similar package where staff will be paid approximately 60 per cent of gross salary and receive advanced training to ensure plants can reopen quickly when production resumes.

What could be done to reduce the amount of business rates paid by the steel industry?

Business rates are fully devolved to Wales, and there have been calls to exempt plant and machinery from business rates. In relation to the steel industry, assistance in this area would mean that businesses would be exempt from paying business rates on infrastructure such as blast furnaces, coking ovens, turbines and generators. The current arrangement is seen by some as a disincentive to investment, and UK Steel has highlighted that UK companies pay between five and 10 times more business rates than their EU competitors. The Minister for Economy, Science and Transport has stated that, given the state aid considerations involved in supporting a specific industry, the Welsh Government has been looking at exempting plant and machinery from the calculation of business rates across all sectors. The Minister estimates this would cost roughly £25 million to £30 million per financial year.

Another aspect of business rates policy being considered by the Welsh Government includes ensuring that the overall approach to valuation considers the current challenges facing the steel industry. This is being taken forward through discussions with the Valuation Office Agency, the UK Government department that assesses business rates liability in Wales and England.

What can be done on procurement to help the domestic steel industry?

Assistance with procurement is another of the steel industry’s key asks. The Welsh Government has a Wales procurement policy statement, which sets out the procurement practices and the specific actions required of every public sector organisation in Wales. It considers that its procurement policies support the principles of the Charter for Sustainable British Steel. The latest statistics on procurement show that Welsh firms receive 55% of Welsh public sector spend.

In her Plenary statement on Tuesday, the Minister for Economy, Science and Transport noted that the Welsh Government is reviewing model contract documents for the delivery of major transport projects to ensure that they meet the aims of the Charter for Sustainable British Steel.

The Welsh Government is calling for an Enterprise Zone in Port Talbot. What is an Enterprise Zone, and what might it achieve?

The Minister for Economy, Science and Transport has written to the Chancellor of the Exchequer with a proposal to create an additional Enterprise Zone around the Port Talbot Steelworks. There are currently 7 Enterprise Zones in Wales, which focus on key business sectors, with the aim of creating new jobs and sustainable growth.

The Minister considers that to maximise the impact of the Enterprise Zone, Enhanced Capital Allowances would be needed, and has included this as part of her proposal to the UK Government. These are particularly aimed at Enterprise Zones supporting manufacturing, and enable businesses to claim a 100% first year allowance for the capital cost of investment in plant and equipment made before 31 March 2020.

The Welsh Government has also previously run business rate relief schemes for SMEs in the current 7 enterprise zones.  The scheme is focussed on businesses in the area that are new starts or are increasing the size of their workforce.

It has also been suggested that some other examples of economic development policies could be adapted to address the situation in Port Talbot. These include the Newport Unlimited programme set up in 2003 following the decline in heavy industry in the area, and the work done following the closure of the Murco oil refinery in Pembrokeshire.

What assistance is being provided relating to research and development (R&D) and environmental improvements?

A recent briefing by UK Steel raised the issue of direct funding assistance for the sector on Research and Development (R&D) and environmental improvements, which would come under the responsibility of both Welsh and UK Governments.

Examples of projects which have received funding over recent years include Steel Training Research and Innovation Partnership (STRIP), which is aimed at boosting the skills of the Welsh steel industry and its supply chain, and the Sustainable Product Engineering Centre for Innovative Functional Industrial Coatings (SPECIFIC) project.

The Minister has also stated that the Welsh Government is exploring opportunities to upgrade and modernise the steel sector through use of the European Investment Advisory Hub and the European Fund for Strategic Investments.

We’ll be returning to look at this area as and when developments take place.

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Steel in Wales: pressures facing the industry

21 January 2016

Article by Gareth Thomas, National Assembly for Wales Research Service

Port Talbot Steelworks

Image from Flickr by Ben Salter.  Licensed under the Creative Commons

The recent uncertainty facing the steel sector across the UK has had a major impact on communities across Wales, with the job losses announced by Tata Steel on Monday following those announced at the end of last year.

Given the importance of the steel industry to Wales, we’re taking a look at the key issues. This article provides an overview of the Welsh steel industry and the challenges it faces, and later on today in a second article we’ll be looking in more detail at the support that the Welsh Government is able to offer.

What economic contribution does the steel industry make to Wales?

It has been reported that Tata Steel contributes £200 million in wages into the Welsh economy. A study by the Welsh Economy Research Unit at Cardiff University found that the total economic impact of Tata was £3.2 billion in Wales, with a supported GVA of £1.6 billion.

There has been a considerable decrease in the number of people employed in the steel industry over the past four decades. The number of people employed in the iron and steel industries in Wales in 2014 was 6,630, just 10% of the 62,400 people employed in the sector 40 years ago and the lowest level at any point over the past 40 years. Much of this decrease was seen in the late 1970s and early 1980s.

Number of people employed in the iron and steel industry in Wales and the UK

Steel graph Eng

Source: Stats Wales, Iron and steel production by year, measure and area

It is worth being aware that there are a number of different figures out there on employment in the Welsh steel industry. Alternative figures using a different definition of the steel industry suggest that it employed 8,100 people in Wales in 2014. The Minister for Economy, Science and Transport has suggested that in total the primary steel industry, and its supply chain in Wales accounts for close to 20,000 jobs.

In Wales, 4,400 kilo-tonnes of crude steel were produced in 2014, 37% of the UK total of 12,030 kilo-tonnes. Production tends to fluctuate between years at both Welsh and UK level.

Imports of iron and steel into Wales have increased at a much faster pace over recent years than exports from Wales. Figures show that in 2014 Wales exported nearly £1.3 billion in iron and steel, with imports of just over £400 million.

However, between 1996 and 2014 (the time period for which figures are available), the annual value of iron and steel imports into Wales has increased by 370% over this period, compared to a 69% increase in the annual value of exports. Put another way, the annual value of exports in 1996 was nearly nine times higher than imports. In 2014, the annual value of exports was just over three times the value of imports.

In terms of overall steel production, the UK steel industry has reduced substantially over the last forty years. Over the same period, other countries have increased production considerably.

Over the last four decades steel production in the UK has fallen behind that of nations such as France, Spain and Italy, and has remained behind that of Germany. The difficulties faced by the industry have been known for some years, and have received considerable media and political attention over recent months.

What are the key challenges faced by the steel industry, and what are the potential solutions?

A number of factors have been cited as potential explanations for the pressures facing the steel industry and the recent job losses. These include the availability of cheap imports, the strong pound, energy costs and business rates. The industry has identified five areas where action can be taken to address the challenges it faces. A number of these policy areas are non-devolved, and action at UK Government or EU level is required.

Action against trading practices such as the ‘dumping’ of steel – where the export price is lower than the exporter’s home market price, or perhaps even lower than cost price. This is an issue to be dealt with at the EU level, and centres on concerns about the global competitiveness of European steel against the record level of exports from China. This is seen by the Business, Innovation and Skills Select Committee at Westminster as the most important challenge, and they conclude that there is no guarantee that this will be resolved imminently. The UK Government has voted in favour of ‘anti-dumping’ measures on certain steel imports, and secured an extraordinary meeting of the EU’s Competitiveness Council on this issue.

Energy Prices for steel producers are higher than in other EU nations. The steel industry has been calling for an Energy Intensive Industries package since 2011. In December 2015 the UK Government secured state aid approval to pay further compensation to energy-intensive industries, including steel, to include renewables policy costs. However the UK Government has stated that it has already paid about £60 million to the steel industry to help to mitigate the costs of existing energy policies prior to the announcement in December 2015.

The Industrial Emissions Directive threatens further pressure on costs. In October 2015, the UK Government announced, subject to final approval by the Commission, a four and a half year postponement in implementing the Industrial Emissions Directive for the steel sector.

Business rates across the UK are higher than in other EU nations, UK Steel has highlighted that UK-based steel firms pay between five and 10 times more in business rates than their EU competitors. A particular concern for the steel sector is the inclusion of plant and machinery in the calculation of business rates, as it is seen as a disincentive to invest in these if they then result in a business paying more in business rates.

Concerns that UK steel companies are losing out on defence and major infrastructure projects, due to procurement processes not sufficiently taking into account social, sustainability and environmental considerations as well as price.

Other issues raised in a recent briefing by UK Steel include EU-level action on Market Economy Status for China and direct funding assistance for the sector on Research and Development (R&D) and environmental improvements, which would come under the responsibility of both Welsh and UK Governments.

The key challenges that the Welsh Government is able to respond to are those around business rates and procurement. The Welsh Government will also play a key role in supporting workers who have been made redundant through the ReAct programme, and through other economic development policy levers. These areas will be discussed in more detail later on today.

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