15th Report - Government's intervention in British Steel Ltd

The Department has not yet set out a credible plan for the future of British Steel, including how the company will become financially sustainable. Despite monitoring British Steel for several years and being aware of the challenges facing the business, the Department had to intervene using emergency legislation to prevent the closure of the blast furnaces. The intervention in April 2025 successfully bought time and provided short-term stability for workers, customers and the wider supply chain, but it did not resolve the underlying problem that British Steel remains structurally unprofitable. The Department took this action without being able to conclude on value for money and still cannot demonstrate how it will achieve it. More than a year later, it could not set out what business model or decarbonisation pathway would put the company on a sustainable footing. Trade unions and the local Council were able to describe a range of practical options for the future of the company and the Scunthorpe site. Without a credible long-term plan, uncertainty and costs for workers, industry and taxpayers will continue to increase. recommendation The Department should publish the plan for the whole of British Steel. We expect this to include options and analysis for the intended future production model and the role of British Steel in the UK economy; the preferred decarbonisation pathway; how the company will become financially sustainable; and the expected costs, funding sources and timetable.

The Department does not know how much the intervention will cost the taxpayer. As at March 2026, spending was expected to reach £642 million by 30 June 2026, including adviser costs. Actual funding was £555 million by 18 June 2026 (not including adviser costs). The Department continues to fund the company now that it is nationalised, without a clear end date in sight. While we recognise that some costs, including any potential compensation arising from nationalisation, remain uncertain, the Department could not provide even indicative estimates of how much taxpayers may ultimately be asked to fund. It could not explain how much investment may be required to transform British Steel, how much it expects 3 to spend on advisers and other support, or how long it is expected to remain in public ownership. The Department is assuming HM Treasury will continue to provide funding through the next spending review but could not provide clarity on the impact on other priorities if costs continue to increase. It is fortunate that the Department had budget underspend that offset some of the cost of the intervention in 2025–26, but it does not know what will happen in 2026–27. However the support is financed, taxpayers remain exposed to significant and growing costs and uncertainty, and, although the funding is classed as a loan to British Steel, it is not clear whether these amounts will ever be recovered. recommendation The Department should write to the Committee, alongside its Treasury Minute response to this report, setting out an estimate of total costs (other than compensation costs if any), including: a breakdown of funding to date and forecast future expenditure (operations, advisers, investment and transformation costs), sensitivity analysis under different options; and an assessment of the likelihood of recovering any of these amounts.

The Department has not set out a clear or timely pathway for how long it will continue to support the company for, increasing the risk that costs and uncertainty will continue to grow. British Steel’s 4,052 employees were given short-term stability when the intervention happened, but there is still uncertainty over their long-term future employment. The Steel Industry (Nationalisation) Act has enabled the Government to nationalise British Steel, after a public interest test was met. The Department has appointed a new Board to build internal capacity to enable to private sector to invest in the plant. Any transition, for example from blast furnaces to electric arc furnaces, would require substantial investment, consultation with the workforce and local community, and implementation over many years. Trade unions stressed to us the importance of a managed transition that protects jobs, skills and industrial capability. Without a clear plan and managed transition, the UK risks higher costs and continued uncertainty. The UK steel sector could miss key market opportunities, fail to meet its ambition for domestic steel production, and lag behind progress being made in other countries, losing momentum in securing its future. recommendation As part of its plans for British Steel, the Department should clearly set out: a. how it will establish governance (including Board arrangements), reduce reliance on advisers and build internal capability; 4 b. how it will work with the Board and stakeholders (e.g. unions, local leaders) to set the direction for the future and ensure a managed transition; and c. provide assurance on how it will retain involvement with the company, given the importance for national and economic security.

The Department engaged effectively with the local Council and trade unions at the start of the intervention, but it is not clear how it will involve them in shaping the future of the company and the steel sector. The Department engaged the three unions that represent steel workers and North Lincolnshire Council throughout the intervention and maintained constructive working relationships despite the ongoing uncertainty. The unions and the local Council made a strong case to us for continued involvement as government considers its options for British Steel. They articulated practical ideas for the future of the company and the Scunthorpe site, including attracting new investment, supporting a managed workforce transition and reducing the risk of significant redundancies through natural attrition. It was not clear how the Department intends to draw on this expertise as it develops plans for the future of the company. We expect the Department to continue to involve these key stakeholders in a meaningful way so that it can protect jobs, retain skills and maximise the long-term benefits of the Scunthorpe site. recommendation The Department’s plans for British Steel should also make clear: a. how it will ensure formal and ongoing involvement of workers, unions and local stakeholders in decisions about the future of British Steel and the UK steel sector, including formal consultation mechanisms, and options for representation in governance structures, including the new Board. b. How it will work with North Lincolnshire Council and other stakeholders to develop an assessment of options for the future of the Scunthorpe site.

The Department has not set out a detailed implementation plan for funding and delivering its steel strategy. The government’s steel strategy, which is aligned with its ten-year industrial strategy, sets an ambition to increase the proportion of UK steel demand met by domestic production from around 30% in 2024 to 40% to 50% and to position the UK as a world leader in clean, modern steel production. However, the strategy does not set a time by which this target is expected to be met, or the corresponding 5 volume of steel that would be required domestically to meet it. As part of its strategy, the Government should set a tonnage target with corresponding timescales.

The Department could not explain to us how much funding may be required or how much of the government’s £2.5 billion commitment to the steel sector remains available once support for British Steel is taken into account. The Department also could not clearly set out how it will work across government and industry to deliver the wider conditions needed for a competitive steel sector, including coherent policies on affordable energy, skills, decarbonisation, research and development, access to iron and scrap, and investment in future technologies. Nor could it set out a clear plan for securing future iron supply or assessing the role of hydrogen- powered Direct Reduced Iron (DRI) production in supporting the transition to green steel. Without a clear implementation plan, there is a risk that the strategy will not deliver the transformation needed to secure a competitive and sustainable future for the UK steel industry. recommendation Once the new spending review period has been completed, the Department should write to the Committee to set out: a. an implementation plan for the steel strategy, including target dates and volumes for domestic steel production, how allocation of the overall £2.5bn funding commitment will be spent on each initiative, the indicative milestones and delivery timelines, and arrangements for monitoring progress; b. how it will coordinate delivery of the steel strategy to ensure policy coherence across government (for example, the Department for Energy Security & Net Zero on energy policy and decarbonisation and the Department for Education on skills); and c. a plan for scrap metal which would be required for new electric furnaces and an assessment of the economic viability of establishing a hydrogen-powered DRI plant in the UK. This should highlight the costs and benefits of ensuring access to a secure supply of iron in the UK. d. what plans it has to involve private sector investment

The Department has not addressed the concerns of businesses who are affected adversely by the new tariff regime that started on 1 July 2026. The Department introduced tariffs on imported steel without detailed information about which steel products can be sourced from the UK. For example, pipes of all sizes are treated as a single 6 product, despite not every size being produced by UK steel companies. This risks steel manufacturers having to pay tariffs on types of steel that they cannot avoid importing. There is a risk that businesses reliant on these products will face higher costs, which could result in smaller firms going out of business or companies moving production overseas, which would be counter to the aims of the steel strategy and the government’s objective of driving growth. The Department said it would not undertake a substantive review of the tariffs for a year, but this leaves businesses bearing the cost of a dysfunctional system. While the Department cannot mitigate all the costs to businesses, we are concerned that it has not responded with sufficient urgency to credible evidence of unintended impacts on UK manufacturers. recommendation a. The Department should urgently establish a formal route for businesses to raise concerns about the new tariff regime. b. Within six months, the Department should work with industry to develop a more detailed product classification system and set out how it will monitor and mitigate unintended impacts on UK manufacturers. 7 1 The taxpayer support to British Steel Introduction

Trade union representatives were optimistic about the future of British Steel, and had already put forward several suggestions to ensure the site has a viable future, including adopting new technology and establishing a new plate mill.20 Trade unions and the local Council agreed a managed transition plan was needed to ensure the blast furnaces were kept on during conversion to electric arc furnaces.21 Charlotte Brumpton-Childs said any transition must protect jobs and communities,22 and Councillor Rob Waltham said investment would prevent future spending on generations of local families who would be impacted if the site closed.23 Written evidence from Dr McLacklan and Professor MacKenzie cited the long-lasting negative impact of job losses in the steel sector and the submission from University College London recommended that any future private ownership is carefully overseen by the government.24 14 Qq 78-81 15 GBS005, GBS0003 16 Qq 56, 57 17 C&AG’s Report, para 3.11 18 Q 75 19 Q 34 20 Qq 18, 21, 22, 33 21 Q 33 22 Q 22 23 Q 25 24 GBS0004, GBS0005 10 The total cost of the intervention

When it intervened, the Department required a Ministerial Direction due to the need to act urgently and a lack of information for the Department’s Accounting Officer to be satisfied that the Accounting Officer standards were met.25 Its impact assessment, concluded earlier this year, found the intervention does in fact have a net social value, but that costs would continue to increase until the intervention had ended.26 As at March 2026, spending was expected to reach £642 million by 30 June 2026, including adviser costs.27 By 18 June 2026, the Department had provided £555 million funding and spent £15 million on advisers and £2.6 million on Department staff costs to 31 January 2026.28 When asked how much money the taxpayer would need to provide in total, the Department could only say that it would take it time to make British Steel a viable company.29

We wanted to understand how the intervention would impact the Department’s other activities, such as support for the eight priority sectors in the industrial strategy including work on digital transformation, but the Department could only say that several of those critical sectors depend on a secure and resilient steel supply. So far, the Department says it has not had to request additional budget from HM Treasury with most of the funding coming from HM Treasury reserves. However, some £95 million underspending on other Departmental projects has allowed unallocated funding to be repurposed to support British Steel. It denied this was a sign of surplus money in the Department.30 It said the intervention would create pressures on its budget in future, and that it would need to manage this through the spending review process.31

The Department had spent £15 million on advisers by January 2026. It said it had benefited from the expert legal and technical advice and had used advisers to fill capability gaps in British Steel. While the main funding was classed as a debt, there is no formal loan agreement in place, and it is not apparent that British Steel will be able to repay it. The Department said it had not tried to recover adviser costs from British Steel as it did not want to create any perception of a conflict of interest.32 25 Qq 43-44; C&AG’s Report, para 2.8 26 Qq 45-46; C&AG’s Report, para 18 27 C&AG’s Report, Figure 12 28 C&AG’s Report, para 12 and Figure 12 29 Q 58 30 Qq 61-62 31 Qq 68-71 32 Q 74; C&AG’s Report paras 15, 3.12 11

The NAO found that if spend continued at the current rates it could exceed £1.5 billion in 2028. This is before any potential transformation of British Steel, compensation to the owner, or exit costs.33 The Department told us as British Steel has been nationalised, an independent valuer will now be appointed to determine what if any compensation is due to the previous owner. The Department considered that ongoing losses show that the company is not commercially valuable.34 33 C&AG’s Report, para 13 34 Qq 56-57, 82-85 12 2 Ensuring the intervention ends successfully Preparing a timetable for ending the intervention

The NAO reported that while the Department has started to consider options for the longer-term future of British Steel, there is no timetable set for returning the company to the private sector.35 The Department said the process would take some time, and that it was prepared to spend a similar amount on funding British Steel in 2026–27 as it had in 2025–26.36 The Department said it considered five options before concluding that no deal could be reached with the owner and proceeding with the intervention.37 The Steel Industry (Nationalisation) Act, which was passed in July 2026, enabled the Government to nationalise the steel works, and appoint a Board to assess the company’s preparedness for transition.38

North Lincolnshire Council told us there was a concern that the longer funding is spent on subsidising production at British Steel, the less government support would be available to invest in longer-term improvements.39 The trade unions said they also had concerns, based on previous experiences, of investors’ promises failing to materialise, and that there was still uncertainty among workers.40

The trade unions told us they would like the Department to learn lessons from the transition currently taking place in Tata Steel’s Port Talbot steelworks, which have switched off their blast furnaces while converting to electric arc furnaces. They said that any transition needs to ensure it protects jobs and communities and ensure it follows the timelines set out.41 Now that the intervention has ended the trade unions told us they will 35 C&AG’s Report, paras 4.2-4.4 36 Q 57 37 Q 49 38 British Steel statement made on 16 July 2026, Written statements - Written questions, answers and statements - UK Parliament 39 Q 25 40 Q 26 41 Qq 22, 37, 38 13 return to discussing the decarbonisation plan options that they had initially set out to the current owner.42 There were a range of views from the trade union witnesses about the timeline for converting from blast to electric arc furnaces, which could range from three to ten years, depending on the options chosen.43 Involving key stakeholders in future discussions about British Steel

The trade unions and local Council told us that British Steel is important to the local area, and that closure would have a significant impact.44 Dr Christoper McLachlan and Professor Robert MacKenzie told us that “British Steel has historically managed major restructuring through negotiated processes between management and unions”, and that “The future of the Scunthorpe plant, and the wider steel strategy, depends on re-establishing union involvement to maintain good industrial relations and enable negotiated modernisation.”45 Councillor Rob Waltham said steel working had once been considered a job for life, and that losing the steelworks could affect 20,000 people in the supply-chain. Charlotte Brumpton-Childs said the consultation had felt like the start of an irreversible change, and that its ‘town hall’ meetings were attended by over 600 people. Councillor Rob Waltham was heartened to have seen more stability since the intervention.46

All three trade unions praised the Department for its open communication about the intervention and agreed that, despite changes of government, the Department had provided consistent support.47 They said that the Department and its civil servants had been key to a successful intervention, and that morale in the workforce had improved since the intervention. 48 They noted that British Steel restarting apprenticeships was a welcomed by the local community.49 Councillor Rob Waltham was also positive about how the Department had engaged with North Lincolnshire Council at the start of the intervention. They had been involved in the negotiations over closing the blast furnaces before the intervention, holding weekly meetings with the owner, and working closely with the Department and Members of 42 Q 24 43 Q 39 44 Qq 2-4 45 GBS0004 46 Qq 3, 4 47 Qq 10-11 48 Qq 2, 10 49 Q 2 14 Parliament for the local area. It praised the effectiveness of the relationship with government, noting that, sadly, economic shocks had brought out the best of cross-government working.50

The trade unions made a case to us for continued involvement saying that “The key message from the trade unions and our members is: do it with them, not to them; do it for them, not against them; and ensure that a transition protects our jobs and communities”. Charlotte Brumpton-Childs said that GMB had already put forward a plan for converting British Steel from blast furnaces to electric arc furnaces.51 Councillor Rob Waltham said that with 300 acres, the Scunthorpe site could be used to support a range of other businesses, creating a steelmaking cluster, which would help grow the local economy. He said that other steel businesses were already located near Scunthorpe and there was a demand for green steel.52 Charlotte Brumpton-Childs also noted high demand for steel from defence and offshore wind.53 However, more recently, while the trade unions have had discussions with British Steel, they said they needed to have continued involvement with government over the future of the company. They noted there are ongoing concerns around energy pricing, and Councillor Rob Waltham said that other countries are investing in steel and there is a risk that the UK is too slow to build up its steelmaking capacity.54

Councillor Rob Waltham said that uncertainty over the ownership is frustrating. Charlotte Brumpton-Childs noted that government taking over a private company was an action of last resort, but nationalisation could have happened sooner, and that government should consider all options for future ownership models, including government retaining an equity stake, which has been used in infrastructure programmes such as Sizewell C.55 Unite the Union said that it accepted that moving from blast furnaces to electric arc furnaces would lead to fewer people employed, but that this could be managed by using the natural attrition and reskilling people. It said that it was important for government to undertake the transition properly and at pace.56 50 Q 5-9; C&AG’s Report, Figure 7 51 Qq 22, 33 52 Qq 29, 36 53 Q 32 54 Qq 22, 23, 32 55 Q 36 56 Q 35 15 3 Protecting the wider steel industry Implementing the government’s steel strategy

The government published its steel strategy in March 2026, aligned with its ten-year industrial strategy, setting out ambitions to increase the competitiveness of the UK steel sector, with an aim to increase the share of UK steel demand met by domestic production from around 30% in 2024 to 40% to 50%.57 The target date for achieving the increase of domestic supply was not set out in the strategy, and the strategy did not therefore also set out the corresponding volume of steel that this equates to. The Department told us the steel strategy set out a clear plan for rebuilding the steel sector, increasing the share of domestic steel that is consumed in the UK, and how it will support a clean, modern steel sector.58 The Department said the steel strategy makes it clear that electric arc furnaces are likely to be the future.59 The Department told us it was confident that it could deliver the strategy, but that many factors were unknown, and it was not clear on the funding that would be needed for every element of the strategy.60

In September 2024, the government announced it would provide £2.5 billion support for the steel sector.61 The Department acknowledged that much of this would be spent on the Scunthorpe site, but could not give us a precise figure, saying only that some funding had been allocated to the National Wealth Fund and that support for Speciality Steel UK (SSUK) and Sheffield Forgemasters was separate. The Department agreed that SSUK would need funding until the Official Receiver can agree a sale. The Department told us that a deal to sell SSUK to a preferred bidder has fallen through, and more support from the Department is likely to be needed.62 Unite the Union said 57 Department for Business and Trade, The UK Steel Strategy, March 2026; Department for Business and Trade, The UK’s Modern Industrial Strategy 2025, June 2025 58 Q 55 59 Q 41 60 Q 72 61 C&AG’s Report, para 13 62 Qq 63-68, 72 16 that it would like to see more “meat put on the bones” of the strategy, and the Community Trade Union said developing a plan for acquiring the scrap metal to power electric arc furnaces was “key”.63

The Department told us that its analysis shows that the UK has an abundant supply of scrap, which suggests the steel sector could transition to decarbonised scrap-based electric arc furnaces.64 The Department said that while it had done some analysis of options for developing the ironmaking capacity needed to feed electric arc furnaces, it did not yet have a business model. The Department said it would be keen to see a Direct Reduced Iron (DRI) plant in the UK if that can be made economically viable, but this depends on having a large supply of methane or hydrogen. It said that, in the absence of having a supply, the UK is reliant on imports of DRI. The Department told us the National Wealth Fund was looking at opportunities to increase the UK’s capacity for using and producing renewable energy such as hydrogen to power DRI-making in the UK.65

Charlotte Brumpton-Childs told us that when the Department was putting the steel strategy together, it had listened to a range of experts and successfully identified common ground. She said the steel strategy was built on identifying capability gaps and having a plan for meeting them. However, she also said there was still more to be done on a range of strategy measures such as energy policy, the emissions trading scheme, and investing in steel for defence and offshore wind. Charlotte Brumpton- Childs said GMB had raised concerns about the emissions trading scheme with the Department for Energy Security & Net Zero.66

Councillor Rob Waltham said there were several factors affecting the competitiveness of the UK steel sector, including high energy costs.67 The trade unions agreed that high energy costs were affecting several energy-intensive industries, including steel.68 University College London noted that decarbonising the steel sector would need more than just financing new technology, and that in other countries decarbonisation projects had been cancelled because of high energy costs and a lack of affordable green hydrogen.69 Councillor Rob Waltham told us that, without a business plan for Scunthorpe, the UK risked falling behind 63 Q 30 64 Q 55 65 Qq 78-81 66 Q 32 67 Qq 14-17 68 Qq 18-22 69 GBS00005 17 other countries that are already investing in these markets. Trade union witnesses also emphasised that future competitiveness would depend on wider government action on energy policy, procurement and trade rules.70

We asked the Department what lessons it had learned from the intervention. The Department told us it has a centre of expertise on economic shocks, which has developed frameworks and “playbooks” to use in emerging situations. The centre gathers evidence on warning signs from public data and sector engagement. The Department said it had reflected on whether it could have intervened earlier in British Steel and had applied this learning to more recent interventions in the chemicals and ceramics industries. It noted that many companies requiring support are highly energy intensive and exposed to the impacts of trade.71 Trade measures

On 1 July 2026, the government introduced a new set of trade measures for steel, including reduced quotas on imported steel, with higher tariffs on above-quota imports. The government’s steel strategy states that “the measure is designed to ensure the continued viability of domestic steel production in the UK and will take into account the impact on supply for downstream sectors.” The strategy states that “steel is an essential part of our national life and key to the UK government’s priority mission to deliver strong, secure and sustainable economic growth”.72

Many Members of Parliament have had representations from constituent businesses about the impact of the new steel tariffs.73 We asked how the Department is assessing whether tariffs are working to protect UK steelmakers without imposing undue costs elsewhere in the supply chain.74 The Department said it intended its measures to only apply to types of steel produced in the UK. It blamed businesses for incorrectly assuming measures apply to all imports, and said it could not help businesses who find it difficult to secure supply from UK manufacturers.75

The Department disclosed that there are in fact circumstances where its tariffs apply to steel products not made in the UK.76 For example, it said it was not able to distinguish between different sizes of steel pipes, because all diameters and lengths are given the same standard industrial classification code, and that code is the only data that HM Revenue & 70 Qq 12, 32 71 Qq 53-54 72 Department for Business and Trade, Steel strategy, pages 11, 15 73 Q 92 74 Q 86 75 Qq 86, 96-97 76 Q 87 18 Customs have to enforce the trade measure. But only some diameters and lengths are made in the UK. It said that companies affected would have to use the quota system or pay the tariffs, which might put smaller companies out of business.77 Industry groups have also reported that the tariff regime may discourage companies that import steel from manufacturing products in the UK, and the British Chamber of Commerce has said that the tariffs incentivise companies to import finished products, which are not subject to tariffs.78

Although the Department claimed to be listening to feedback and holding discussions with industry to understand the concerns, it said it would not review the tariffs for 12 months.79 It said unused quotas would roll forward, but when we asked if the tariffs could put small businesses out of business, it could only say it was “afraid that may well be the case”.80 The Department said it cannot mitigate all the costs to business, and was still preparing guidance. It was not clear on what exemptions would be available, despite the response from industry.81 77 Qq 93-96 78 British Chambers of Commerce, Steel Tariffs Risk Serious Damage To UK Manufacturers, May 2026 79 Qq 88-91 80 Qq 88, 92-95 81 Qq 91-98 19