Is Port Talbot the latest example of ‘too big to fail’? Based on today’s headlines, you’d have to say yes.
A scan of the newspaper will reveal the Government has at least adjusted its position, although there will many who would suggest Business Secretary Sajid Javid has rowed back on the statements of the Prime Minister and other Cabinet colleagues last week. David Cameron had previously indicated that nationalisation and government funding of the steel works was not under consideration following the announcement of Tata that it intends to sell the site.
Mr Javid has now stated the Government is prepared to consider “co-investing” with a private sector buyer to ensure the steel works remains open.
There are cogent arguments both for and against government financial intervention. Supporters argue the steel works employs tens of thousands of jobs directly, with many thousands more within the local area dependent on what is the dominant local industry. They would also argue that Britain needs a functioning steel industry and cannot be reliant on imports for critical infrastructure development.
Critics will question how government financial support will sit with European regulations on state aid, while also challenging the notion that a steel works can viably survive in a market awash with cheap Chinese steel. They will instead make the case for retraining of the workforce and support for the community rather than the industry directly.
The answer may be somewhere between these two poles, but the mere suggestion the Government is considering some form of co-funding will strike many with unease, and prompt uncomfortable reminders of the banking crisis.
Few will have forgotten the dark days of the credit crunch when the likes of RBS, Lloyds and Northern Rock faced collapse. The decision of government at the time was that the banking sector was too big to fail. And so, tens even hundreds of billions were poured into shoring up financial institutions. The Government became a major shareholder in many of the high street banks.
This had long-term implications and nearly a decade on, the country hasn’t recouped the investment that came from the public purse. The likelihood is that it never will. But it prompts some serious questions about latest industry to face oblivion.
The steel works in Port Talbot could well be ‘too big to fail’. But in learning the lessons of the past, ministers must fully explain why that’s the case. They will need to articulate the level of investment that will be required from the public finances and, as importantly, what if any implications this will have on the Government’s austerity programme and deficit reduction.
Most importantly, ministers will have to set out a clear plan for the future. How will a joint venture turn round a business model losing a million pounds a day? And when is the public likely – if ever – to see a return on their investment?
Failure to answer these questions for the benefit of the public will damage the Government’s economic and business credentials. And it will invoke painful memories of the past, with many fearing an investment might simply become a money pit.