IAIN WRIGHT: Why we should all be worried about SSI steel plant bombshell

The SSI Steelworks in Redcar.
The SSI Steelworks in Redcar.

The news that the SSI steel plant in Redcar is to be mothballed is devastating news for the 1,700 workers who will lose their jobs.

This will have a big and heartbreaking impact on the town of Redcar, but of course many workers at the plant come from Hartlepool, and so our town will suffer, too.

It is not those directly working at the plant either; firms within the supply chain, providing products and services into SSI will also be at risk, making hundreds of other jobs vulnerable. Then there is the businesses throughout the local economy, the sandwich shops, newsagents, even car dealerships, who do well when the steel plant is at full operation, with plenty of overtime.

The impact of the closure of a steel plant in Redcar will leave a scar much bigger than the obvious direct and local impact.

That scar runs the risk of being left throughout the whole of the UK steel industry and indeed across British manufacturing.

The closure of SSI is the result of profound changes in the global steel market. There is significant overcapacity, caused by a slowdown in the economy in China which has led to the halving of the steel price on the world’s markets.

China’s steel factories are still producing the steel and dumping it on the world’s markets. They have millions of workers and large capacity and can continue doing this until the rest of the world’s steel industry puts up the white flag of surrender.

Cheap Chinese steel is being imported into Britain and is killing the UK steel industry.

The fall in the oil price has also impacted upon the demand for steel – oil companies are putting off investing in exploring new oil fields or trying to get more oil and gas out of existing fields because the price of oil doesn’t justify investing in new equipment, which means that the supply chain, particularly steel plants producing the pipes needed for extraction and movement of oil, are seeing their order books dry up.

These are global forces and in many respects the government’s room for manoeuvre is limited. I’m not suggesting that David Cameron can change the price of steel on the world’s markets. But he and his government can do substantially more than is being done at the moment.

First is the recognition that the steel industry remains important in the modern economy, literally the foundation of innovative and high-tech manufacturing.

This country is great at aerospace, automotives and construction and steel is a much needed part of these sectors’ supply chains. Given its strategic importance, it needs to be defended and maintained for the long term.

That means getting rid of some of the costs that makes British steel making more expensive compared with our continental rivals.

The cost of energy is about half as much again in Britain for manufacturers as it is in Germany or the Netherlands.

The business rates regime also fails to help manufacturers.

It also means defending our own home-based industry against imports. I’m not suggesting protectionism and pulling up the drawbridge. It’s ridiculous to suggest that in a modern, connected world and Britain always thrives when it competes against the rest of the world. But that competition should be based on a level playing field and government can level it further by ensuring that contracts for things like infrastructure and offshore wind turbines are awarded to British-based manufacturers.

That’s not protectionism – it’s smart procurement designed to improve manufacturing in Britain.

We have a long and proud history of steel making in Britain. But this is not about our past and a proud history and legacy. It’s about being objective about what a modern economy needs for the future in order to compete, to innovate and to thrive. This has to include a competitive steel industry. Other countries recognise that. I think David Cameron should recognise that too, not just to help those 1,700 workers from SSI who this week face anxiety, uncertainty and unemployment, but for the wider good of modern British manufacturing and the future prosperity of the entire British economy. It’s as important as that.