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The UK government will commit £500mn of taxpayer aid to help Britain’s largest steelworks in south Wales move to greener forms of steelmaking, though the wide-ranging deal will still lead to the loss of about 2,500 jobs.
Under the agreement, Indian-owned Tata Steel will invest £750mn of its own money as the company closes its blast furnaces in Port Talbot and starts building an “electric arc furnace”, which is more environmentally friendly but less labour intensive.
Business secretary Jonathan Reynolds said on Wednesday that the new agreement “does what previous deals failed to do — give hope for the future of steelmaking in south Wales”.
But steel unions described the deal as a “tragic missed opportunity” that raises questions about whether the UK’s transition to a low-carbon economy will come at the immediate cost of huge job losses in the country’s industrial heartlands.
Tata Steel, which currently employs around 8,000 staff across the UK, including 4,000 at Port Talbot, will eventually employ about 5,200 once the transition is complete.
“Clearly this is not where we wanted to be, and we know that a better plan was available,” said the Community and GMB unions in a statement.
Those unions had pushed Tata Steel to consider keeping one of its blast furnaces open until 2032 while the new furnace is built over the next three to four years.
Natarajan Chandrasekaran, chair of the holding company for the Indian conglomerate, told the Financial Times in an interview on Tuesday that “however painful, it is the right step” to put the industry on a viable and sustainable path.
Port Talbot was until recently the largest single emitter of carbon emissions in the UK and needs to decarbonise if the government is to meet its net zero climate targets.
Although the terms of the deal are broadly similar to one that Tata Steel had agreed in principle with the previous Conservative government a year ago, the company has committed to improved redundancy terms and a comprehensive skills and training package.
Workers will be offered a voluntary redundancy payment of 2.8 weeks’ earnings for every year they have worked at Tata — up from an original offer of 2.1 weeks a year.
Under the terms of the deal, full-time employees will receive a minimum redundancy payment of £15,000, plus a one-off £5,000 “retention” payment.
A smaller number of staff who were at risk of compulsory redundancy — estimated to be between 300 and 400 — could see this delayed by a year if they choose to enter a retraining programme. Under the scheme they will receive a month of full pay and then £27,000 for the following 11 months.
Reynolds, announcing the agreement in the House of Commons, said the deal would ensure a “long-term vision for a bright and sustainable future” for the steel industry.
Greg Smith, the Conservative shadow minister for business, accused the Labour government of “presiding over the demise of our steel sector” with a “heartbreaking” impact on Welsh jobs.
Reynolds accused Smith of having “brass neck” given the blast furnaces would have closed under the Tory deal.
Elsewhere ministers face a looming industrial crisis in Scunthorpe where the Chinese-owned British Steel is poised to announce the closure of a blast furnace with thousands more jobs at risk. Reynolds admitted negotiations with British Steel had become “very, very challenging”.
If British Steel follows Tata’s example and closes its furnaces, it will mean the end of primary steelmaking — which involves making steel from scratch using iron ore — in the UK.
Meanwhile, the Scottish oil refinery at Grangemouth is scheduled to cease operations within days with 400 job losses, while concerns mount about the future of Harland & Wolff, a shipbuilder based in Belfast.
The new Tata deal includes increased penalty payments in the event that Tata Steel not retain 5,000 jobs across its UK business once the transformation is complete.
The company will also explore additional investments at the Port Talbot site, although the government did not provide specific details.
The Labour government, which has promised to invest £2.5bn to help the steel industry move to greener forms of steelmaking — in addition to the £500mn for Tata — is set to publish a strategy for the sector next spring.
Steel unions said the deal was “not something to celebrate” but insisted they had secured important concessions, including a skills and retention programme, as well as investment commitments from the company.
Trade union members are currently being balloted on whether to accept the revised memorandum of understanding secured with Tata.
One union leader said: “It’s unbelievable that a Labour government would sacrifice thousands of jobs just to cut a tiny fraction, 1.5 per cent of UK emissions.”