There's an excessive amount of thrashing around being done over the question of Port Talbot and the Tata steelworks there. And there's very few managing to ask the right starting question. Which is not "How will we save Port Talbot" but rather "Should we save Port Talbot?"
As many are pointing out, there are indeed times when government can and should step in to "save" something: an industry, a system, perhaps even a company. As many are again pointing out a few years ago much was done to stop the financial system collapsing into a heap of smoking rubble. If that and then, why not this and now? Do though note that not all of that financial system was saved, rescued nor did we even try to do so. Lehman, Northern Rock, the Dunfermline, Chelsea and other building societies, Alliance and Leicester slightly differently, all were allowed to go their own way into distress sales or outright bankruptcy. Even in such extremis we did indeed select between those who needed to be saved and those who did not (our own opinion being that rather fewer of those who were saved should have been so but that's another matter).
Which brings us to that Port Talbot plant. Various people are muttering various things about which bits of the business they might like to take over. But all are saying the same thing about the major plant at the heart of it all, the blast furnaces on the site. No one wants them. And the truth of it is, as one of us has been saying for near five years now, that the world simply needs fewer such plants for we all recycle much more steel now than we used to. Recycling happening in an entirely different technology, arc furnaces. Well over 50% of Europe's steel comes from this process now. And there's not really any good argument as to why blast furnaces should be in the UK either. Sure, there are some times when entirely new, virgin, steel is necessary but we import the coking coal, the iron ore, to make that at present. There is no good reason why we should import the raw materials and lose £1 million a day processing them instead of just importing the virgin steel itself.
Which brings us to a good example of that thrashing about:
The scale of the challenge, though, means that no private investor is likely to be willing to take on the entirety of the risk. We need other investors to bridge that gap, but this investment could come from a range of sources and take a multiplicity of forms. Tata’s environmental liability – which could run to as much as £1bn at Port Talbot alone – converted into an “exit dowry” could be reinvested by the Welsh government as an equity stake in a new joint venture company. The workforce could do the same, perhaps via Tata’s contribution to the pension fund deficit, trading accrued rights for employee shares. Local authorities could invest through the City Deal in a research and development centre for new hi-tech steels or the kind of process and business model innovation that Liberty Steel’s Gupta has promoted as a possible medium-term solution.
The UK government could also become a stakeholder, perhaps holding the heavy-end blast furnaces as a strategic asset – or, if its ideological aversion was too strong, simply providing very large, very long-term and very soft loans.
What is strategic about holding something that no one wants to use? What is asset-like about something which has a negative value? And look at the financial prestidigitation being suggested there! The debts for the environmental clean up are to be declared an asset, pensions are to be converted into equity in an asset that has a negative value and the taxpayer invited to spray cash all over the result as a beneficience.
This is not sensible. We must ask the correct question in the first place. Is there any good reason to "save" a blast furnace in the UK today? We would say no, others might differ in their views on that. We do have the advantage that we actually understand the technology of the steel industry but we would not claim omniscience on this specific point.
However, we are entirely adamant that that is the first and important question to be asked and only an answer to that then leads to what should be done next. And sadly, as far as we can see, we're the only people actually asking that question before some billions of your and our money is sprayed around to quite possibly no good purpose.