17 February 2017
Article by Gareth Thomas, National Assembly for Wales Research Service
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.
What is in the deal?
The UNITE trade union has set out details of the proposal that union members were balloted on, which included:
- Closing the British Steel Pension Scheme to future accrual on 31 March 2017 and introducing a Defined Contributions Pension Scheme. Additional one-off payments to pension scheme employee members aged 50+ who retire between 60 and 64 will also be available in some circumstances.
- Commitment to run 2 blast furnaces at Port Talbot until at least 2021, and proposed investment in Blast Furnace 5 to extend its lifespan beyond 2021.
- Commitment to an investment plan which proposes £1 billion of investment over 10 years, conditional on Tata Steel UK making at least £200 million in earnings before tax, interest, debt and amortisation (EBITDA) per year.
- Protection against compulsory redundancies until 2021, equivalent to the commitment given to the workforce at Tata’s IJmuiden plant in the Netherlands.
Tata will also seek to restructure its UK Profit Bonus, and introduce new rates and conditions for new employees. It also aims to make £13 million of employment cost savings across the UK.
How have the Welsh and UK Governments invested in the steel industry and steelmaking communities?
The previous Welsh Government offered Tata a package of over £60 million, with conditions attached, prior to the announcement on the sale of its UK assets in March 2016, including investment in environmental improvements and developing the galvanising line at Port Talbot. Following the vote, the Cabinet Secretary for Economy and Infrastructure said that he hopes to be able to bring forward announcements shortly on these projects.
The Welsh Government also established the Port Talbot Waterfront Enterprise Zone in response to the job losses announced in January 2016. The UK Government also agreed to fund Enhanced Capital Allowances for three sites within the Enterprise Zone, which enable businesses to claim a 100% first year allowance for the capital cost of new investment in plant and equipment.
In December 2016, the Welsh Government agreed to contribute £8 million towards a total investment of £18 million in improvements to the Port Talbot power plant and setting up a R&D base in Swansea. In February 2017, it contributed funding of £1.6 million towards environmental improvements at Celsa Steel in Cardiff, and £1.2 million for investment in three other companies in the industry.
In December 2016 the Welsh Government agreed to provide £4 million to Tata to match its investment in training staff and managers across Wales. The Welsh Government’s ReAct redundancy support scheme has assisted workers from Tata and supply-chain companies.
The UK Government has provided assistance to mitigate high electricity prices and the impact of climate change policy. Over the two compensation schemes that have been introduced, the UK Government has provided over £100 million in compensation to the steel industry.
Has this support addressed the key challenges the industry faces, and what further action is needed?
In October 2015, the steel industry identified five areas where action could be taken to address the challenges it faces in the longer term. UK Steel says that of these, one has been actioned fully, three partially and one not at all. In contrast, the UK Government considers it has addressed four of these actions.
On energy prices, while the steel industry welcomed the UK Government’s package of support, electricity prices for UK producers remain considerably higher than those for European competitors. UK Steel highlight a differential of £17 per Mega Watt Hour between UK and German producers, impacting on investment decisions between steelworks in different countries.
Action around the ‘dumping’ of steel will be a key area where the UK Government will need to make decisions after the UK leaves the EU, as it will need to establish trade defence measures. There has been concern that previous EU anti-dumping tariffs have not been high enough, and that the UK Government has not supported the lifting of the ‘lesser duty’ rule by the EU. The sector is concerned about the potential for tariffs being imposed after the UK leaves the EU. While WTO tariffs on steel products are 2%, tariffs such as the 10% on the automotive industry are of greater concern.
On business rates, the steel industry has called for plant and machinery to be exempt from business rates bills. UK Steel found that UK companies pay five to ten times more business rates than producers in France and Germany. The Welsh Government has not taken this forward, as they consider it complicated to operate and have preferred to support the industry in other ways. However, the recent business rates revaluation has seen a fall in the average rateable values of steelworks in Wales. UK Steel have noted that under the Welsh Government’s transitional relief scheme steelworks will not have business rates bills reductions capped as will happen in England.
Both governments have also taken action on procurement. The Welsh and UK Governments have published infrastructure pipelines of which projects will require steel. Additionally, the Welsh Government has changed its transport contracts to require that ‘dumped’ steel is not used. The UK Government has also introduced procurement measures, including requiring central government departments to consider economic and social impacts of the steel they source. Key areas of future action for the steel industry include monitoring compliance with guidance, and developing transparent reporting mechanisms.
In May 2016, Swansea University called for backing for a new proposal for a national innovation and technology centre for steel. The IPPR have argued that foundation industries such as steel should be better integrated into the Catapult networks, which are designed to boost innovation in key sectors across the UK.
Looking forward, while the UK Government’s proposals for an industrial strategy have been seen by some as not sufficiently considering steel, the UK Government and the steel industry are discussing the potential for a ‘sector deal’ for the industry, which is supported by the Welsh Government. Sectors will develop plans to boost productivity. The UK Government could then assist in a number of ways, including skills and training policy, changes to regulation, helping address barriers to trade and supporting the creation of new sectoral institutions.