The Labour MP whose constituency includes Port Talbot’s steelworks is urging the chancellor to amend the terms of state-guaranteed loans to larger companies as Britain’s steel industry faces running out of cash.
Sky News has seen a letter sent on Monday by Stephen Kinnock, MP for Aberavon, in which he asks Rishi Sunak to adjust the Coronavirus Large Business Interruption Loan Scheme (CLBILS) to include a cap based on applicants’ turnover.
The scheme partly guarantees loans of up to £50m for companies with a turnover of more than £250m, but Port Talbot’s owner, the Indian group Tata Steel, requires a sum far in excess of that to replace cashflow lost to COVID-19.
At the weekend, Sky News revealed that Tata Steel had approached the government to seek a £500m commercial loan to help it come through the coronavirus outbreak.
In his letter to the chancellor, Mr Kinnock highlighted the risks of the Port Talbot steelworks-owner being unable to access the funding it needs: “Tata Steel employs 4,000 highly skilled and relatively well paid men and women at the Port Talbot works, and tens of thousands work in the supply chains.
“I am sure that I don’t need to point out that if there were to be a catastrophic collapse and these jobs were to be lost, then the cost to the British taxpayer would be astronomical.”
Mr Kinnock added that Port Talbot steelworkers had “for years…been competing with one hand tied behind their backs due to a range of unhelpful UK government policies that have hamstrung our industry: energy costs 80% and 62% more, respectively, than it does for our French and German competitors, a failure to prevent the dumping of Chinese steel, an approach to government procurement that sees Royal Navy frigates being made with Swedish steel, and business rates that punish investment in new plant and machinery”.
He called on the Treasury to “follow best practice in competitor countries like France and Germany, where steel companies are getting access to the support they need based on their turnover rather than an arbitrary cap”.
Tata Steel’s cashflow problems have arisen after big steel industry customers such as car manufacturers called a halt to production across Europe because of the pandemic.
Although some plants are to reopen in the coming weeks, economists believe a recovery in industrial production will be slow and protracted with demand continuing to be weak for some time, and manufacturers forced to cope with long-term social distancing measures.
A Tata Steel spokesman said: “We continue to work with both the UK and Welsh governments to identify what support is available.”
Responding to a question in the Commons from Mr Kinnock last Wednesday, foreign secretary Dominic Raab said: “I know that the chancellor is looking carefully at the steel sector in the hon. gentleman’s constituency, and at all those who are not directly benefiting from this particular scheme to ensure that in the round we are providing the measures that we need in a targeted way to support all the different crucial elements of the economy.”
Mr Raab’s answer has offered hope to Tata Steel that its request will be viewed sympathetically, particularly after British Steel, the industry’s second-largest player, received hundreds of millions of pounds of taxpayer support after it collapsed into liquidation nearly a year ago.
British Steel was recently sold to Jingye Group, a Chinese conglomerate, and is expected to resume production at its Skinningrove works next week.
The Financial Times reported at the weekend that Celsa and Liberty Steel, two other industry players, were also seeking help from the government.
Tata Steel said last month that “a sudden drop in European steel demand after a number of steel-using manufacturers paused production, including European car manufacturers” had prompted it to slash production at some of its mills.
The company added that it was continuing to supply steel to supply chains in industries such as food packaging and construction materials for emergency medical buildings.
Roughly 1500 members of its UK workforce have been furloughed under the Coronavirus Job Retention Scheme, according to company insiders.