Steel: from resignation to resistance

Brian Parkin of Leeds rs21 offers a detailed briefing paper on the state of the UK steel industry and a alternative strategy for preserving jobs and production.

Blast furnace #5, Port Talbot. Image: www.newcast.co.uk

Blast furnace #5, Port Talbot. Image: http://www.newcast.co.uk

Seize the time

In an illusory globalised economy of post-industrial neoliberal financialisation the Tories never expected to have to face an industrial crisis. Industrial crises were surely the things of past Tory nightmares, chief among which is Edward Heath’s nationalisation of Rolls Royce and bail-out of the part-state owned Upper Clyde Shipbuilders in 1971.

For David Cameron and George Osborne industrial problems, let alone industrial policies, were long ago resolved. During the Thatcher-Major years a lethal combination of closures, privatisations and subsequent rationalisations all but saw off the UK manufacturing industry (currently accounting for 17% of overall UK economic activity. Dept of BIS 2015).

But the closure of capacity at SSI’s plant at Redcar, North Yorkshire last year with the loss of 2,200 jobs was a clear signal of an industry-wide crisis for UK steel which, true to their adherence to 21st century neoliberal laissez faire, sent a signal to the Tories to do nothing. And true to form the trade union bureaucracy, having essentially bought the neoliberal explanations of globalised market forces being at work, retreated behind a rear-guard ‘action’ of platitudes about it being a crying shame about a ‘once proud and great British industry’.

Then in late March news of the threat to Tata’s Port Talbot plant in South Wales offered the prospect of a sudden loss of critical mass for the UK steel industry as a whole. A columnist in the FT was forced to ask if there was ‘anyone left looking after the ****ing economy?’ Since then things for the government have gone from bad to worse. Bad PR and manifest political incompetence have combined with economic illiteracy to now cast the Tories in the eyes of many of their own supporters in run-up to the EU referendum as the party least able to defend British economic interests.

But ‘national interest’ issues aside and in which socialists have no interest, what are the issues involved? What lies behind the present steel crisis? What are the remedies currently being peddled – by the government, union leaders and the Labour party alike? Do they address the problem and what’s more, can they solve it? And above all, what are the socialist explanations and answers to yet another economic implosion for which workers are expected to pay the price?

Steel: decline and fall?

According to post-industrial orthodoxy, the UK steel industry has been in terminal decline throughout the post-war period. During this period it has been both nationalised and privatised twice. The second nationalisation in 1967 saw a massive injection of investment and crude steel production hit a peak of 27 million tonnes in 1973. Subsequent investment saw a continual drop in the workforce and the continued drop in world demand caused by replacement materials for steel – most notably aluminium and plastics – saw UK capacity cut further in line with demand.

Further rationalisations – steel plant closures – followed the national steel strike provoked by the government in 1981. After the strike some 30,000 workers lost their jobs. Further big plant closures followed in the wake of the miners’ defeat of 1985 with major closures at Connsett (County Durham), Corby in Northamptonshire and the Don Valley works in Sheffield. In 1988 the steel industry was privatised with the promise of further capacity cuts to come, as they did at Motherwell in Scotland with the loss of 14,000 jobs. The following year the rolling mills at Lackenby, Teesside and Hartlepool were part closed. Yet the industry was able to maintain an impressive output performance despite a sharply reduced workforce.

Steel production and manpower 1990-2015

Year Output (MTPA) Manpower*
1990 18.0 56,000
1994 16.5 38,100
2000 18.5 26,000
2006 14.5 22,000
2010 13.0 20,000
2012 9.0 20,000
2015 12.0 18,000

*Direct employment in steel production and finishing.

Source ISSB 2015.

This 60% loss of jobs in steel areas, usually adjacent to coalfields where the most massive defeat of workers defending jobs and communities occurred in 1985, has left an industrial workforce with every justification for thinking terminal industrial decline is now nigh. Yet the experience in the EU has been the maintenance of high volume steel production but with a league table in which the UK has slipped from 2nd place to bottom.

EU major steel production, 2015

Country Output
Germany 43mt
Italy 24mt
France 16mt
UK 12mt

Source Eurostat and ESCC 2015.

Imports and markets

In 2014 the UK imported 687,000 tonnes of steel from China. With negligible economic growth over the previous year this imported quantity will have knocked out an equivalent amount of UK capacity. The current flood of Chinese steel onto the world market – most of it at well below the costs of production – has led many steel producing economies to introduce import tariffs. In early 2016 the EU considered using a ‘lesser duty rule’ which would review an import penalty of at least 9% on steel. Then in February the European Steel Association applied for this tariff to be raised, bearing in mind that the US had raised some steel tariffs by as high as 200%. But Alex Heggert, Director General of the ESA was ‘astonished’ that UK government representatives did not seek the comfort of a raised tariff that could have been applied elsewhere within the EU.

Usually on the matter of trade tariffs socialists have little to say, opposed as we usually are to import controls and other aspects of capitalist trade wars. But in this instance there is at least something to note: for the past two years the Tories have been increasingly dependent on trade deals with China as a means of obtaining capital investment for the virtual entirety of the UK’s infrastructural developments . Everything from HS2 to Crossrail 2, from the Northern Powerhouse fantasy to the even greater nuclear power fantasy. And it would seem that in the absence of tempting the City of London’s trillions of interest bearing capital into investments in UK Plc the Tories are turning to China, in return for which they can make ‘easements’ for China into the EU market. Whether true or not, it is an interesting insight into the confidence crisis of late capital as well as a development that is leading many Tory commentators to suspect that their party of nation and state might be selling off more than the family silver.

Paved with good intentions?

The UK steel industry has over the past two decades tended to concentrate in a range of ‘special’ steels with varying carbon and alloy contents for dedicated higher added value applications. Despite this market specialisation a considerable number of jobs have been lost since November 2015.

UK Steel job losses Nov 2015 – Feb 2016.

Plant/location Jobs gone
Redar (N Yorks) 2200
Cambuslang (Scot) 45
Motherwell (Scot) 253
Scunthorpe (Lincs) 900
Trostre (S Wales) 15
Llanwern (S wales) 750
4123 (21% of 2015 workforce)

Source ISSB Feb 2016.

This widening wound is about to become a full-blown haemmorrhage within weeks if the industry is not retained as a single entity, particularly with its blast furnace capacity intact. This is clearly not what the government – or Tata – has in mind as they go through the motions of looking for a bidder whilst lumbering the disposal price with massive pension liabilities – of which more later.

So whilst from the start dismissing the government’s plans as dishonourable we should give serious consideration to those proposals that do have the merit of saving the industry and its jobs.

John McDonnell on behalf of the Labour opposition has come up with a four point set of proposals. These are:

  • To ‘stabilise’ the steel industry in the short-term in order to assist Tata in finding a replacement owner. Here the term ‘stabilise’ supposedly means a proper care and maintenance regime.
  • To support EU tariff adjustments while tackling burdens of high business rates, energy costs and CO2 penalties.
  • To initiate an Emergency Investment Programme as a first step in a national investment bank with the initial aim to stimulate demand for UK steel through infrastructure programmes.
  • To ‘restructure’ steel industry around a partnership of workers/owners/customers in order to ‘make UK steel industry fit for the 21st century’.

Of the above proposals only the first suggestion of an immediate care and maintenance programme is really useful for mobilising support for a ‘rescue’ occupation with mass action and solidarity. Much of the rest is good front bench knock-about ammo with which to ridicule the Tories and some of it could well be effective Labour manifesto content for a forthcoming election. But as Tata are hasty to quit with the minimum of liabilities and the government clearly wants rid of a major embarrassment, time is of the essence in order to prevent the blast furnaces at Port Talbot and Scunthorpe ‘going cold’ with the consequent effect of the refractory linings collapsing and rendering the plants write-offs.

The other obvious advantage of McDonnell’s plan is that it will be tabled for an emergency debate when parliament resumes which in turn makes any preemptive sabotage of the steel plants less likely. But that should not stop the campaign for an early occupation going ahead.

The steel unions’ proposals to date

The UK steel unions (Community, GMB and Unite) with the full support of the TUC met on Monday 4th April and demanded that the government with David Cameron at the helm take up the steel industry crisis as a full-blown emergency. This was with a view to the government working with TATA in order to find an alternative owner prepared to take over UK steel with the minimum of job losses, the maximum retention of capacity and proper assurances regarding the future of the British Steel Pension Scheme (BSPS).

Despite Unite representing only around 15% of the steel workforce it has been the largely combative and bullish reputation of that union and general secretary Len McCluskey in particular that has kept at least some tone of resistance rather than the supine begging bowl posture usually adopted by the majority steel union Community.

As a major industrial union Community has less than honourable antecedents. The union has its origins in the old British Iron, Steel and Kindred Trades Association (BISACTA) which was formed in 1917 with the consent of the Iron ‘masters’ and remained joined at the hip to the steel and iron companies association throughout the various phases of nationalisation and privatisations. In 1984 the association changed its name to the Iron and Steel Trades Confederation (ISTC) but only after a disastrous strike which was seen by the Thatcher government as the preparation for massive capacity cuts prior to the 1988 privatisation.

Despite the change of name in 1984 the ISTC more lately under the ‘leadership’ of Bill Sirs (later Sir Bill Sirs) was always a company union. Prior to the pre-strike period of the late 1970’s it did much to stifle what had become widespread rank and file revolt. But whatever their various origins, the current steel union grouping is presently united in what is essentially a partnership bid with Tata and the government to find an alternative owner.

However, the relatively muted demands of the unions with a total absence of demands that could mobilise any direct action is probably due to an unwillingness of the unions to enter into open-ended commitment to independent action in the absence of any militant pressure from below. It is also probably due to the knowledge that John McDonnell and Labour will not be making demands for direct action or even nationalisation as means by which steel can be saved.

The current ‘moratorium’ – buying time

It is clear from the sheer intensity of media and press coverage that the Tories are now seen to be both irresponsible and inept in their handling of steel in particular and the economy in general. In this they are also being impaled on the barbs from within their own ranks, over the EU referendum but also by a growing doubt in a failing austerity economic strategy with no plan B.

This means that if for only a short time the Tories will have to be seen to go through the motions of finding either an alternative buyer or coming up with some kind of ‘rescue’ package by which they hope to be able to shed their ‘hands off’ economic management reputation.

Although Tata are saying they want to be able to walk away from UK steel ‘within weeks’ – the opening of sale date is now put at Monday 11th April – it is nevertheless unlikely that they will have the nerve (nor the government’s blessing) to start sacking procedures nor the precipitate closure of plant within a ‘decent’ period of grace. This, plus the need for the Tories to be seen to consider a wide range of options with the resumption of parliament, means that there will possibly be a sufficient – albeit brief – period in which resistance can be turned around.

The options

Setting aside the present market conditions and the debate about tariffs and EU import quotas it would be more useful to briefly consider the current commercial options within the frame of the need to save capacity, jobs and the industry pension scheme.

Firstly, in order to understand the steel industry as a whole, it is worth remembering that just over 80% of all steel production, processing, rolling and coating is carried out by TATA. This company’s UK operations are as follows:

TATA UK steel operations: plants, employment and products March 2016

Plant/location Jobs Products
Hartlepool (Teesside) 501 Tubular
Redcar (N Yorks) 453 Rolled steel section
Skinnigrove (Teesside) 323 Tubular
Scuthorpe (N Lincs) 4500 Slab and ‘long’ products
Rotherham (S Yorks) 800 Special alloy steels
Stocksbridge (S Yorks) 476 Special steels
Corby (Northhamp’) 578 Tubular
Shotton (N Wales) 727 Coating and wire products
Wednesbury (W Midlands) 57 Wire
Walsall (W Mids) 54 Rods
Port Talbot (S Wales) 4104 Slab, plate and long products
Llanwern (S Wales) 1314 Rolled steel
Trostre (S Wales) 649 Plated steel

(Cambuslang – 45 employees and Motherwell – 253 in Scotland subject to bid by Liberty House. Dalzell steel plate mill and Clydesbridge steel processing with combined total of 1,200 jobs subject to similar offer).

Offers to date: Liberty House

Liberty House is a UK registered conglomerate with a varied portfolio of activities that include non-ferrous metal manufacture in West Africa as well as over 3mtpa steel production (2015) in India and S East Asia. The company has an annual turnover (2014-15) of over $5 billion. CEO Sanjeev Gupta in assessing the UK industry has cast doubts on the long-term need for blast furnace capacity, instead arguing that the smelting of imported graded steel scrap could be made into the feedstock for further steel products.

Liberty House as of 6th April stated that they were within days of making an initial bid for Tata’s former steel making assets although it was clearly stated that it would require ‘considerable government help’ in taking the burden of the industry’s pension fund deficit. And although Gupta stated his intention to retain the current UK steel workforce this would not be possible if the blast furnace capacity at Port Talbot was to be replaced with electric-arc furnaces.

Greybull Capital

This finance company, run from an office in London’s Sloane Street, is preparing a bid to take over the blast furnace and integrated products complex at Scunthorpe, North Lincolnshire. Greybull is essentially the archetypal vulture capitalist outfit, most recently known in the UK for the asset-stripping exercise at Comet Electrical in 2012 where over 6,000 workers lost their jobs and pensions in a bogus ‘rescue’ take-over.

Greybull is suggesting a £400 million deal for Scunthorpe based on a financial package that would involve an undisclosed amount of their own capital plus investment from a ‘consortium’ of so-far unnamed banks plus matching cash from the government. This £400 million bid is based on acquiring Tata’s Scunthorpe assets at a peppercorn sum with the cash fund going into the replacement of the plant’s four blast furnaces with electric-arc furnaces for which they would require very low electricity input prices. Greybull also suggested that the final year salary pension scheme would also have to be scrapped with the government covering the existing fund liabilities of over £2 billion.

Greybull is wholly owned and run by the ‘charismatic’ Meyohas brothers Marc and Nathaniel and although data on Greybull does not disclose the number of staff employed behind their Chelsea brass nameplate, Companies House does disclose a very ramshackle financial structure for a would-be steel mogul company.

Greybull Capital: Financial statement for 2014-15

Item Amount
Liquidity (cash) £622,300
Net worth 2014-15 £231,000
Net worth previous year £1,200,000
Losses on previous year £969,000
Assets £824,300
Liabilities £656,400

With such a losses and liabilities ratio to net worth, Greybull is exactly the kind of zombie wide-boy racket with which the Tories like to do business and it should be a matter of urgency that the steel unions and the Scunthorpe workers are warned of them.

ThyssenKrupp

This German based company was the first to show an interest in taking over Tata’s UK operations but within less than one week had announced its withdrawal. Obviously in taking over any UK capacity, ThyssenKrupp would have wanted to avoid any duplication and over-capacity with its own existing operations. But the main issue that informed their lack of interest was TataA’s insistence that over £12 billion of pension deficit be attached to the transfer price as current liabilities. And in the course of this disclosure Tata also made clear that in the event of continuing its UK operations into the 2017-17 financial year it would not have been able to continue to make contributions to the pension scheme.

So although we can now discount ThyssenKrupp as a future bidder their reasons for an early drop-out – the matter of pension fund liabilities and the uncertainties around the scale of its present deficit – are cause for very real concern. And for this reason alone the steel unions should refuse to accept Tata as capable of acting in good faith as well as be demanding the fullest investigation into the management of a pension scheme upon which some 130,000 workers and former workers will be relying on.

Conclusions: A case for an Occupation for Nationalisation under Workers Control

The significance of the present steel crisis is twofold. Firstly, as a clear demonstration of workers and their communities paying the price of the mayhem of capital and the markets, socialists should be duty-bound to at least try and build a movement of solidarity and resistance. In this issues of import quotas and tariffs are secondary, although they are very real issues for socialists to get to grips with as workers demand food on their families’ tables rather than a diet of noble platitudes.

And secondly that as even left-reformists and left union leaders remain frozen in the headlights of neoliberal surrender, the task of creating a resistance against such a passive mainstream is going to be hard. Faced with a government intent on the demise of the UK steel industry – were it not for the current lack of public confidence in its economic competence – as well as the reality that even part-nationalisation or bridging grants would be outlawed by the EU as state aid, it is nevertheless the task of socialists to raise the possibilities of class struggle over the fatal trap of class collaboration.

And now, due to a confluence of Tory blunder and loss of nerve combined with a growing loss of public confidence, a brief window of a few weeks at most offers the chance of changing the narrative of despair to one of defiance. That means a campaign now to stop the blast furnaces at Port Talbot and Scunthorpe going cold and effectively writing off the main productive assets of the industry.

It means both lobbying the steel unions, Labour’s economic team and above all getting that information out into the steel communities. It means arguing against a ‘social partnership’ with bosses who have both squandered the steel industry and the potential of its workers whilst very probably looting their pension scheme. In practical terms it will mean working in alliance with some on the left we have come to regard in less than comradely terms.

But a campaign to at first safeguard the integrity of the blast furnaces with the ultimatum that if not guaranteed then workers themselves will take over care and maintenance could decisively turn both confidence and the initiative. And given the geographical distribution of the industry the potential for local and regional solidarity campaigns is obvious. Added to which is a changing mood of passive dislike of the Tories into actual hatred of all they stand for. To paraphrase the mariners prayer; The sea may be so mighty and our ship so small. But we must try.

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