MPs criticise UK government's response to the steel crisis

22 December 2015

UK government changes to procurement guidelines aimed at helping UK steel companies secure contracts should have come earlier, and more jobs are still likely to be lost in the supply chain, according to a report from MPs.

The House of Commons' Business, Innovation and Skills Committee examined the government response to the steel industry crisis which has seen the closure several sites and thousands of job losses over recent months.

Its report concluded that the government did not have effective warning systems in place to detect mounting problems in the industry, and failed to push for EU action to tackle Chinese dumping and a global oversupply of steel.

The prospect of growth in the industry has been severally damaged, the committee found, and it predicted that more job losses were likely in supply chains connected to the industry.

The committee said that although it welcomed the government action to improve the chances of UK steel companies securing business for major projects, the impact of the changes would not be apparent for a considerable time.

“We regret that this change in policy was not made many months, if not years, earlier,” the committee’s report said. “While the new guidelines are welcome, the government – not just the minister – needs to actively champion the use of domestic steel in large public infrastructure projects. We recommend that the National Infrastructure Commission looks closely at how the interests of UK steel industry and its supply chain can be considered in relation to large scale procurement decisions.”

The recommendation is part of the report’s support for the “five asks” demanded by the UK steel industry to tackle its challenges. One concern is that UK steel companies are losing out on major procurement contracts. The industry has been calling for more consideration to be given to social, sustainability and environmental concerns, as well as price, when making procurement decisions.

A government-initiated working group is currently examining how procurement policy can help UK producers compete more effectively for major contracts. Guidelines were published at the end of October for government departments buying steel for big projects, which encourage consideration of the environmental and social implications of bids, such as their carbon footprint and impact on supply chains and disadvantaged workers, including the long-term unemployed.

The government said that the guidelines would improve opportunities for UK steel suppliers to bid on major projects such as HS2 and Network Rail.

When the new guidelines were published, chairman of the Steel Procurement Working Group Matthew Hancock said: “We will always strive to get the best value for money for taxpayers and we are going to do so in a way that strengthens our economy and bolsters the long-term prosperity of people across the country.

“I don’t want contracts going abroad if the best bid is a British bid with all the social and economic benefits that brings.”

The steel industry has also been calling for the introduction of compensation for energy-intensive industries to offset the cost of environmental levies, the reduction of business rates to competitive levels, a derogation from implementing the Industrial Emissions Directive, as well as EU measures to prevent dumping of Chinese steel in EU markets.

The committee warned that the scale of the problem of Chinese dumping of steel - selling below the domestic cost price - on European markets, should not be underestimated.

The committee quoted figures from UK Steel stating that since 2009 total steel exports from China have quadrupled and steel imports from the country to the EU have risen by 50 per cent. The price of steel dropped by 45 per cent in the 12 months to September 2015.

The committee said that even if the government were able to tackle all the other issues, “the future of the industry would remain in doubt unless effective action at an international level is taken to level the playing field in terms of trade practices and global pressures”.

The committee report has made a raft of other recommendations that it says are necessary to help the steel industry. They include that having accepted the steel industry is of strategic importance to the country, the government has a responsibility to do what it reasonably can to protect its health.

The government also needs to do more than revise procurement guidelines; it needs to actively champion the use of domestic steel in large public infrastructure projects.

Committee chair Iain Wright MP said: "The government have now woken up to the steel crisis and have begun to take action. But this recent activity still needs to translate to concrete results for the industry and the communities they sustain. 

“The government have relied on crisis management rather than ongoing engagement with the steel industry, they now need to commit to taking the necessary measures to ensure a sustainable future.”

Meanwhile, the OECD's Steel Committee has said “immediate action” is needed to address the challenges caused by excess global steel capacity. A “high-level” meeting will be held in the first half of 2016 at which the committee hopes ministers and senior government officials of steel-producing countries will agree on measures to tackle the crisis.

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