Tata Steel: The Empire for Sale

AT THE END of March, in the middle of Britain’s Easter holiday break, the board of Tata Steel, meeting in Mumbai, caught this country’s political and industrial leaders napping. The sudden announcement that the company wanted to sell all of its UK holdings was as unexpected as it was traumatic. Since then, the shock of the decision continues to reverberate while serious questions are being asked about what it means for Britain’s industrial and strategic role in the modern world.

The minister responsible, the business secretary Sajid Javid, could not have been further away from the eye of the storm. He was on a visit to Australia from where he promptly called the Tata boss, Cyrus Mistry, before flying home to take charge of the crisis. Both the prime minister, David Cameron, and the Chancellor of the Exchequer (Finance Minister), George Osborne, were also out of the country. It looked for all the world as if the government had taken its collective eye off the ball while a crucial part of Britain’s industrial sector was being knocked for a six.

Ministers scrambled to recover from the political hit they had taken. There has been a flurry of parliamentary statements, top-level meetings both in India and the UK, and declarations of support for the steel-making communities in what used to be considered Britain’s industrial heartlands. Even Prince William, on an official visit to India with his wife Catherine, made a point of raising the issue over lunch with Narendra Modi.

For Sajid Javid in particular, it has been a career-defining experience. A relative newcomer to high office, he has long been tipped as the man most likely to become the UK’s first prime minister of South Asian descent. The British-born son of Pakistani parents, he has risen from relatively humble beginnings (his father was a bus driver) to become first, a very successful banker and then, a political high-flyer. This was by far the biggest test of his career.

Javid’s first move on arriving back in the UK was to travel to Port Talbot in South Wales, site of Tata’s biggest plant employing some 4,000 people. It has been estimated that as many as 40,000 jobs were put on the line by the Tata decision, 15,000 on the books of Tata Steel itself and another 25,000 in the supply chain. It was preserving their jobs, not Javid’s, that concerned the nation. Nevertheless, questions were being asked about whether he could and should have done more to avert the crisis.

Local union leaders and members of parliament said it was common knowledge on the ground that Tata was about to announce its pull-out. If he was so smart, and understood the business world as well as he claimed to do, why hadn’t he known too?

The truth is that he did know the writing was on the wall for Tata’s steel interests in the UK, but hadn’t expected the announcement to come quite so soon. The figures spoke for themselves. The company’s UK plants were said to be losing a million pounds a day. Back in February, Tata’s European operations reported a loss in the first nine months of its financial year before interest and tax of Rs 2,100 crore, with most of the losses due to the UK arm.

So when the workers took to the streets to demand action, their fury was not directed at Tata itself. The company has a good reputation for caring about the communities in which it operates. They had invested heavily in an effort to modernise their steelworks and make them internationally competitive. Cyrus Mistry, who is personally close to Ratan Tata, the man he succeeded in 2012 at the helm of the company, pushed ahead with a new multi- million pound blast furnace at Port Talbot when more cautious heads were advising against such a risky investment.

It had been Tata’s decision to purchase the British steelworks back in 2007 as part of his campaign to develop the company as a major global player. It was at the height of the commodity price boom before the international financial crisis and it didn’t come cheap. Today the plants are worthless, saddled with debt and massive pension liabilities. A provisional deal to sell off another Tata plant in Scunthorpe, in the north-east of England, to a management-backed consortium for one pound brought some hope, but finding a buyer for the Port Talbot plant remains a formidable challenge.

Politicians and trade unionists in South Wales directed their anger at the government of David Cameron and the perceived lack of an industrial strategy that would protect not just jobs in sectors like steel, but the country’s strategic interests too. The governing Conservative party is politically vulnerable because for those with long memories, they will be forever associated with the near destruction of the country’s coal mining industry back when Margaret Thatcher was prime minister. Many former coal communities, including those in Wales, have never recovered. They are still economically depressed 30 years later despite all the promises about economic regeneration that were made at the time.

Then, as now, the reason given was the inability to compete with cheap imports. But if we can’t produce our own coal or steel at a viable price then can we any longer think of ourselves as a strategically independent industrial nation at all? Those with even longer memories recall Britain’s valiant efforts to stand alone during World War II. Without a strong manufacturing base, could we ever survive in such circumstances again? At a time when the British people are being asked to decide in a referendum in June whether we can afford to go it alone outside the European Union, the steel crisis has provoked yet more soul-searching about this country’s role in the world.

STEEL HAS BEEN emblematic of Britain’s global strength since the days of the Raj. The post-war Labour government of Clement Attlee gave independence to India and much of the Empire, but took it away from the steel and coal industries. They were brought into public ownership as part of an industrial strategy that regarded them as national assets that shouldn’t be run for private profit. Since then, steel has been de-nationalised, taken back into state control and then de-nationalised again. Such is its importance that nationalisation is again on the agenda, although stoutly resisted by the pro-market Conservative party.

Sajid Javid said he didn’t want to live in a Britain that couldn’t produce its own steel. He suggested, without quite saying so publicly, that the total collapse of the industry was unthinkable. Yet ministers seemed to have no plan for its long-term sustainability beyond finding a new buyer who might, with greater support from the taxpayer, have better luck than Tata in keeping it going.

By coincidence, the local MP in Port Talbot is the son of the man who led the opposition Labour Party at the time Mrs Thatcher’s government seemed set on destroying Britain’s coal industry. Back then, Neil Kinnock struggled to find his voice as opposition to the pit closures was being led by an uncompromising Marxist trade union leader who took the miners out on a bitter and ultimately fruitless strike. Today, his son is in full voice, standing shoulder to shoulder with a much more moderate and constructive trade union movement.

Stephen Kinnock went to Mumbai to talk directly with Tata executives and came back with high praise for their efforts to keep the business going. The MP said it was the British government which was to blame for failing to offer sufficient financial and political support or, crucially, not doing enough to tackle the root problem—the flood of cheap, subsidised Chinese steel on the world market.

British ministers, he argued, had been flocking to China trying to woo their leaders, rather than standing up to them for dumping steel at below the cost of production in European markets. “They are in hock to China,” he said. “Our commercial policy, our approach to trade and manufacturing, and our overall industrial strategy, is being dictated by Beijing.” He pointed out that four- fifths of the Chinese steel industry was state-owned and heavily subsidised and yet Britain was aiding China in its efforts to get full market economy status at the World Trade Organisation.

Prime Minister David Cameron raised concerns over Chinese over-supply of cheap steel with President Xi Jinping during the recent international nuclear security summit in Washington. But Downing Street has made it clear that the government prefers to try to work with China to tackle the problem rather than engaging in a damaging trade war.

Some economists have pointed out that cheap steel benefits other sectors of the economy and helps support jobs there. Meanwhile consumers benefit from cheaper cars, washing machines and other products with high steel components. Ministers calculate that the cost of a trade war, even one confined to steel, would be too high, but the charge of ‘kowtowing’ to Beijing has proved hard to shake off, given the extraordinary efforts Britain has gone to trying to gain access to Chinese markets. The deals signed by Narendra Modi when he visited the UK at the end of last year were relatively small fry compared to those secured by President Xi on a similar visit a month earlier.

The impression that Britain, once the greatest industrial power on earth, has been reduced to a supplicant powerless in the face of international competition is hard to counter. Ministers have urged public bodies to take wider considerations—not just price—into account when making purchase decisions. In other words, they are exhorting them to buy British-produced steel without insisting that they must. It hasn’t helped their case that the government recently signed a major defence deal that sourced Swedish steel over that manufactured at home.

The unions and the opposition Labour party argued from the start that renationalisation had to be on the agenda once again, if only as a stopgap measure while a long-term solution is worked out. Sajid Javid told MPs at Westminster that the government would consider ‘co-investing’ in Tata’s UK businesses ‘on commercial terms’, but journalists were briefed that this was unlikely to be in the form of even partial nationalisation.

Conservative government ministers are intrinsically hostile to any kind of public ownership, but they know the taxpayer will have to pay out a lot of money one way or another. Asking a potential buyer to take on the industry’s debts as well as the cost of its pension liabilities would not just be a hard sell, it would make the chances of success for any restructured and recapitalised industry too precarious.

In any event, how could ministers justify the billions of pounds of public money poured into the banking sector, which carried no small share of responsibility for the global financial crisis, while refusing to do the same for the steel industry that was a victim of the international slow-down?

If the government is unwilling to run the steel industry itself then it will have to find others with the resources and the vision to restore it to financial viability. The first candidate to come forward was Punjab-born Sanjeev Gupta. Gupta came to the UK at the age of 12 when his father, a successful businessman, despaired at the prospects for India during Indira Gandhi’s Emergency. He inherited his father’s shrewd business mentality and, through his Liberty House company, already has a track record of helping turn around smaller steel works in South Wales and elsewhere.

Gupta’s proposal has one major drawback in the eyes of industry traditionalists. It would involve switching from producing steel to recycling it. The state of the art blast furnace at Port Talbot, Tata’s most expensive legacy there, would go and be replaced by arc furnaces. The volume of production would inevitably be smaller and the unions fear job losses would follow, despite Gupta’s assurances to the contrary.

Sanjeev Gupta is not interested in the Tata Steel assets out of philanthropy. He sees an opportunity to secure a very good deal at a time when the value of those assets are at rock bottom and the British government is desperate to find a buyer.

Stephen Kinnock, the local MP, and others are urging caution. They say the company’s debts are coming down significantly and hope that an alternative that retains actual steel production can still be found.

There are wider political considerations at stake too. Both Kinnock and David Cameron want Britain to remain in the European Union. South Wales is traditionally a very pro-EU area, not least because it has done well out of European subsidies in the past. But if anger at the government becomes tied up with frustration at the European Union for failing to do enough to defend the steel industry against Chinese imports, then that sentiment could change.

The referendum on EU membership, to be held on 23 June, is currently too close to call. Voters in Wales could potentially hold the balance and directly affect the outcome. If Britain votes to leave, Cameron’s position as prime minister would be untenable. He would be under enormous pressure to resign.

So Tata Steel’s bombshell threatens not just the future of an industry. It has the potential to destroy political careers and, more importantly, to contribute to a fundamental shift in Britain’s status in the world. Belatedly, ministers have been galvanised into action. But until some kind of rescue deal is signed, sealed and delivered, whole communities remain in limbo, fearful of what the future may hold.

(Lance Price is an author and political commentator based in London. He is a former adviser to Tony Blair. An updated edition of his book, The Modi Effect: Inside Narendra Modi’s Campaign to Transform India (Hachette India) was recently published)

BritainCyrus MistryDavid CamerondevelopmentindustrialisationNarendra ModiRatan TataTata Steel