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12 April 2016updated 21 Sep 2021 4:58am

A decade on the dole for the UK’s 27,000 steel workers would waste £1.2bn

The events at Port Talbot provide an opportunity for George Osborne to learn from his errors.

By Harry Lambert


In the past 24 hours, the government has suggested it could co-invest to secure the future of Port Talbot steel works.

This is welcome news, and comes as a deal was struck for the rest of Tata Steel’s UK businesses.

Tata employs 14,300 workers across the UK, of which 4,100 are in Port Talbot. These jobs indirectly support thousands of others in the 14 sites where Tata operates, whether in Talbot, Scunthorpe, Rotherham or Hartlepool.

It’s unclear how many jobs have been secured by the Tata deal, while Port Talbot remains at risk. But if the Tories let the steel industry fold, 27,000 workers would move onto the dole, and many others might join them as local economies suffer.

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The suggestion that steel could be saved with government aid is the least the industry should expect.

Seven months ago, George Osborne offered the Chinese a £2bn loan guarantee to build the Hinkley Point nuclear power station in Somerset.

His generous intervention kickstarted a project that will, at its peak, create 5,000 construction jobs over the next nine years (although completion could be delayed until 2033).

Osborne has proven willing to use billions of taxpayers’ money to subside an industry essential for energy and vital for national security.

He should do the same for steel, an industry that supports five times as many jobs as Hinkley Point will before it is built.

Port Talbot is an opportunity for Osborne to learn from his errors.

A month before the Chancellor offered his £2bn carrot to China, a potential buyer of Tata’s Scunthorpe steel works walked away from buying the plant – and directly blamed the government’s approach.

“What is the industrial policy when it comes to energy or when it comes to the massive dumping of cheap Chinese steel?” he said, “No one seems to care … The industrial side is hurting. If it was important to them to ensure those jobs were saved they would figure it out.”

The steel industry will remain in peril as long as the Chinese continue to dump steel and the UK offers its own industry no support.

Much has been said about the increasing insignifance of the industry: it produces £1.6bn a year – a cobblestone in the brick tower built by the UK’s £363bn in manufacturing output in 2015. What does it matter if we let fold an industry worth half of one per cent?

And whereas steel once employed around 300,000 people in the 1970s, it now employs only 27,000 (there are various figures, mine are sourced from National Statistics).

But that still leaves a nearly £2bn industry that employs nearly 30,000 people, and produces a product we will always need, and may one day want to avoid having to buy from China.

Some back-of-the-envelope sums show why keeping at least 27,000 Brits in work is worth subsiding.

Let’s put aside the personal cost to the people losing their jobs, or the town losing a tenth of its workforce, or the grave knock-on effect that will have on its economy. Let’s focus solely on the cost to the Exchequer.

The jobseekers’ budget amounted to £3.4bn in the year to August 2015 (latest figures), with 785,000 claiming unemployment benefit of some kind in that period.

That works out at £4,400 per person. Which makes sense: jobseekers can claim up to £73 per week, or £3,800 per year, but we need to add on the cost of administering the scheme.

So every extra jobseeker costs the taxpayer nearly £4,500, quite apart from the child or housing benefits these newly jobless might be entitled to. And if the steel industry keeps shedding jobs, tens of thousands of skilled but specifically trained workers will become unemployed.

There’s a one-in-four chance that someone on unemployment benefit will stay on it for more than a year, and a two-in-three chance they’ll be on it for at least 4 months.

If those workers – many of whom are older men – can’t retrain and stay on the dole for a decade (until they, say, “retire” and start to claim state pension), the benefits bill would jump by more than a billion.

If they do manage to find new work, they’re likely to be paid less, and therefore pay less in tax.

In the past year alone, steel jobs have been shed at Redcar, where SSI announced the closure of its Teesside plant in October (costing 2,200 jobs), and across Tata’s UK operations, with nearly 3,000 jobs losses already announced across its various plants before its sale. The BBC has conservatively estimated that “one in four” of the industry’s workers are at risk.

Letting the industry rust is part of a wider strategy, or a lack of one.

Despite the Chancellor’s worthy proclamations about a “march of the makers”, the UK’s trade deficit – the difference between what the UK earns from its own products and buys from other countries – is at record heights.

In February, it reached £36.7bn (according to the Office for National Statistics annual figure). It has been at least 2 per cent of GDP for all but one year of the twenty-first century, the longest such streak since the Second World War.

While we are a net exporter of services to the rest of the world (mainly of financial and insurance services), we have a trade deficit because we’re a net importer of goods, of every type: from food stuffs and basic materials to semi- and fully finished manufactured goods.

Our £86bn services surplus is wiped out by a £121bn goods deficit.

We currently export about as much steel (£6bn worth) as we import. If the industry isn’t saved, we will not only add to the jobless but to our stubborn trade deficit.

For the past 40 years British government has let its manufacturing industries rust. The UK’s twenty biggest manufacturing industries in 1978 have shed more than 4 million jobs in the decades since: or about 300 a day.

Saving steel could be a belated first step towards stability. The government claims EU rules prevent them from doing much. They didn’t allow that to deter them with the Chinese and Hinkley Point.

While Sajid Javid searches for a Port Talbot buyer, the Chancellor can make his task far easier by treating steel as he did nuclear: with a subsidy that keeps its workers off the dole and the UK in the black.

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