The Government conundrum over Tata steel

By Chris Rogers May 26, 2016 4:53 pm

Albert Einstein once proclaimed that the definition of insanity was doing the same thing over and over again, expecting a different result.

It’s a lesson that Business Secretary Sajid Javid has evidently learned if his appearance in Mumbai this week is anything to go by. Mr Javid has travelled to India to attend high level meetings with Tata, the owner of the Port Talbot steel works, who earlier in the year announced their intentions to sell. At the time of the announcement, Mr Javid was on an official trip in Australia and was publicly eviscerated for his failure to travel to Mumbai to meet with Tata executives.

The fact a Secretary of State would travel halfway around the world to meet with business executives and major shareholders (as opposed to expecting them to come to London) is in itself a demonstration of the importance the government places in resolving the crisis facing the steel industry. After all, the consequences of Port Talbot in particular closing would be more than grave. The local economy would be decimated, national unemployment levels would rise, and tens of thousands of workers would likely be consigned to the proverbial scrapheap given they would require substantial retraining to secure work with a salary equivalent to what they currently receive.

And this is before you consider the impact the closure of a major industry would have on the Conservatives’ credentials as a party and government for business.

So off went Mr Javid. His brief, in the broadest terms, is to help ensure Tata don’t cut their losses any further by closing the steel plant before a buyer can be found. Thankfully, there have been numerous expressions of interest, all of which have been undeterred by the suggestion that Tata was losing up to £1 million a day.

But expressions of interest are different from a deal being in place, and the government is now forced to grapple with the enormous pensions liabilities of the steel works (estimated to be worth £16 billion) and the near £500 million shortfall in the fund, which is the deterrent for potential investors.

The government’s response has been to look at basing the pension scheme’s annual return on the lower consumer prices index rather than the currently employed retail prices index. And this is fraught with danger for the government. Failure could see off entirely prospective investors, putting ministers back to square one and leaving workers facing a very bleak future. But even addressing the pensions shortfall in this way is not without risk. It would firmly signal the steel industry is too big to fail, and would set a precedent. So next time a major business fails (like, for example, BHS), will we see workers and experts asking “why not them?” And that’s before the quagmire of whether the government’s plans breach stringent rules on state aid.

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