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UK offers £600m help to try to keep last steel plants going and save jobs

<span>Photograph: Jeff Morgan 01/Alamy</span>
Photograph: Jeff Morgan 01/Alamy

The companies running Britain’s four remaining steel blastfurnaces have been offered £600m in government support to help fund the switch from coal and invest in lower-emissions technology.

The chancellor, Jeremy Hunt, is expected to confirm £300m each for British Steel and Tata Steel in an announcement as soon as this week, although the timing will depend on them accepting the offers. The BBC first reported the government offer to both companies.

The steel industry is one of the most difficult to decarbonise because of the huge energy requirements and the use of coking coal in iron smelting, a process that emits carbon dioxide directly.

Related: Jeremy Hunt poised to approve £300m support package for British Steel

British Steel, which is owned by China’s Jingye, and Indian-owned Tata Steel, are looking at how to upgrade their plants from burning coal to electric arc furnaces, which heat recycled metal using electricity that can in theory come from zero-emissions sources.

The companies’ plants employ thousands of workers with two furnaces each at Scunthorpe in Lincolnshire and Port Talbot in south Wales respectively.

British Steel has been in talks with the government over support since the autumn to help it with the increased costs of carbon credits as well as much higher energy prices after Russia’s full invasion of Ukraine 11 months ago. Tata, meanwhile, has been in talks over the longer-term future of the Port Talbot site for several years.

It is understood any government support would be conditional on the companies also committing to investing in the plants themselves, and will be tied to environmental investments in order to comply with state aid rules.

Labour’s Stephen Kinnock, MP for Aberavon, home to the Port Talbot steelworks, said: “While news of the UK government’s forthcoming investment is welcome, the reality is that it will just act as another sticking plaster for an industry that needs a level playing field in order to compete internationally in the long term.”

The Tata Group chair, Natarajan Chandrasekaran, said last summer the Port Talbot site would require £3bn – including £1.5bn from the government – to remain operational.

Industry sources question whether that much would be required to upgrade two blastfurnaces, although £300m would probably only cover the costs of upgrading one.

British Steel is also thought to be looking at the possibility of carbon capture and storage for one of the blastfurnaces at Scunthorpe, a method of emissions reduction that traps and stores carbon in underground caverns. That would retain the UK’s ability to continue primary steel production – making molten iron and steel from ore, coal and limestone – rather than relying on recycled scrap.

The steel industry has been demanding support to decarbonise for several years. Labour has committed to spending £3bn to upgrade the industry.

Politicians in south Wales including Kinnock and the Conservative MP Stephen Crabb are supporting a bid for a “Celtic freeport” for the region that would aim to combine investment in floating windfarms in the Celtic Sea to the south-west of Wales. The green energy generated could then in theory be used to power Tata’s electric arc furnaces.

Kinnock said: “We need government action on industrial electricity prices to bring them in line with other European countries; a commitment from public bodies to buy more steel from Britain rather than abroad; and more support for green initiatives such as floating offshore wind and a Celtic freeport which will boost Tata Steel’s supply chains and offer energy security.”

Freeports are a pet policy of the prime minister, Rishi Sunak, although they are controversial because of tax breaks that critics say merely displace activity from elsewhere.

Charlotte Brumpton-Childs, a national officer for the GMB, one of the unions representing steelworkers, said she would also welcome steel investment, but said the government plans would do nothing to address “catastrophic energy costs” or the UK’s disadvantage compared with other countries.