The British steel industry is braced for 2,500 job cuts at the Port Talbot steelworks, with thousands more jobs at risk in the UK, as the government prepares a taxpayer-backed deal for the south Wales plant.
The business secretary, Jonathan Reynolds, is expected to outline on Wednesday details of a rescue deal which will see the government hand the historic Welsh plant’s owners, Tata Steel, £500m to build a new electric furnace – but at the cost of huge redundancies from the closure of its last remaining blast furnace.
Natarajan Chandrasekaran, the chair of Tata Group, told the Financial Times on Tuesday that talks were “going well” and it was “very close” to agreeing a deal.
It is understood the government, which previously promised to “push for job guarantees”, has been unable to protect these jobs, with 2,500 still expected to go in the coming months.
About 2,500 jobs at British Steel’s Scunthorpe site in north Lincolnshire are also under threat, with fears that the plant’s Chinese owner could bring forward the closure of the blast furnaces there to before the end of the year.
Tata plans to switch from polluting blast furnaces to much greener, but far less labour-intensive, electric arc technology. The imminent closure of the blast furnaces at Port Talbot and Scunthorpe would halt primary steel production – making steel from coal and iron ore – in the UK, with unions and politicians warning of deep economic scarring.
Tata, which also owns Jaguar Land Rover and Tetley Tea, has long complained that existing steel production at Port Talbot is unsustainable and lossmaking. Labour had promised to renegotiate the £500m subsidy deal with Tata, which was struck by the Conservative government last September.
In January, the Indian firm announced it could no longer afford to continue production at the works – which it said was losing £1m a day – and vowed to close down both its blast furnaces by the end of the year.
The first Port Talbot blast furnace was shut in July, with the second to cease production on 28 September. Ceasing raw steelmaking will put 2,500 jobs under threat, as electric arc furnaces require far fewer staff.
The Conservative government’s deal proposed to give £500m of funding for the construction of a new electric arc furnace, in return for a £750m investment from Tata.
In opposition, Reynolds, as the shadow business secretary, criticised the government for providing Tata with funds without any job guarantees. After Labour’s election victory, Reynolds said a “better deal was available” and he would press for “job guarantees” in return for taxpayer-funded investment.
It is now understood that the grant funding agreement will still see Labour provide the £500m in funding but without the promised job guarantees. However, part of the deal will see a commitment from Labour to work with Tata on future investments in the steelmaking industry across the country.
Labour has previously committed to providing an additional £2.5bn to “rebuild the country’s steel industry”, with unions receiving assurances that Reynolds would work closely with Tata to look at future investment opportunities.
A memorandum of understanding (MoU) with unions has also involved Tata committing to future investments in UK steel plants including at Port Talbot and its Llanwern site near Newport.
One source said: “Intervention from the Labour government has helped lock in the investment commitments from Tata which unions had pushed to be included in the MoU.
“This represents an improvement from where we were under the previous deal signed off with the Tory government, although the situation remains challenging for our members.”
Union members will now vote on the MoU, which would mean improved redundancy packages for those that lose their jobs, as well as better training terms. Employees would receive 2.8 weeks’ salary for every year of service, up to 25 years, with a guaranteed payment of £15,000, while those on Tata’s training scheme could receive up to £27,000 over the course of the year.
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Charlotte Brumpton-Childs, a GMB national officer, welcomed these enhancements as well as the assurances of future money.
She said: “GMB maintains there should be no compulsory redundancies and the multi-union plan is the best plan for the steel industry – but certainty for Port Talbot and the future operations is more than welcome.”
Tata has received more than 2,000 expressions of interest from workers regarding voluntary redundancy.
Meanwhile, the Chinese owner of British Steel looks set to accelerate plans to close its remaining blast furnaces at its site in Scunthorpe.
The BBC reported that unions had hoped a £600m support package could see Jingye, which bought British Steel in 2020, keep one of its blast furnaces open for three years so that a new electric furnace could be constructed.
It was initially expected that the closure of the furnace could be confirmed this week, but the Guardian understands that negotiations between the government and British Steel are continuing, with an announcement now expected next week.
The GMB previously warned in July that 2,500 jobs could go before Christmas if Jingye pushed ahead with the plan, but British Steel has insisted no decisions have been made.
A British Steel spokesperson added: “We are in ongoing discussions with the government about our decarbonisation plans and the future operations of our UK business.”
A Department for Business and Trade spokesperson said: “Steel is vital for a vibrant, secure economy. Our steel sector needs a government working in partnership with trade unions and business to secure a green steel transition that’s both right for the workforce and delivers economic growth.
“Decarbonisation does not mean deindustrialisation, and we will be working to safeguard jobs as part of these negotiations, securing the future of steelmaking communities for generations to come.”