This article has been corrected.
"Are EU rules restricting our Government from acting to save our steel industry?"
We looked recently into the impact of Chinese steel in the EU market on the British steel industry. A number of readers have asked about how EU rules are affecting the UK government's efforts to protect the industry.
The government has taken several steps, from limiting the cost of overheads to encouraging the purchase of British steel. However, there are a number of ways in which EU regulation is slowing or preventing certain actions from being taken, particularly providing financial support to failing plants.
At the same time, the EU has also implemented several measures to aid government action. A number of anti-dumping measures have been introduced, along with moves to make the industry more energy efficient and ensure that workers who are affected by job losses have the facilities in place to retrain.
There are also other options available to the government which it hasn’t yet used. It has actively argued against the EU raising duties on Chinese steel exports in the past and has been called on by the industry to modify business rates in an effort to reduce costs.
The government has offered a deal to Tata Steel
One way to support the British steel industry in the short term would be to provide financial support to plants in danger of closing. The EU has regulations preventing State Aid to industries unless they fall under specific exemptions. State Aid constitutes any resources given to an industry which may distort the market and competition within the EU.
The UK Government has offered a package on commercial terms to potential buyers of Tata Steel UK worth “hundreds of millions of pounds”. It has also indicated it is prepared to take a 25% stake in the company. The funding will be tailored to the buyer, but this may take the form of debt relief and energy efficiency funding amongst other things.
Business Secretary, Sajid Javid, has said he believes the deal will be structured to fall outside of State Aid rules and not need to be reviewed by the EU.
Addressing emissions regulations
The government has successfully lobbied the EU to have certain companies and industries exempt from emissions charges. As part of the EU’s Industrial Emissions Directive, companies must ensure their carbon emissions are in line with EU targets.
However, if costs are disproportionate to environmental benefit then certain plants may be allowed to meet lower emissions targets. Specific industries may also be allowed up to four and a half years before complying with the Directive. The UK’s steel industry has now been shielded in this way.
What can be done about Chinese steel?
The EU has proposed one measure which could slow the influx of Chinese steel into Europe. However, the UK has objected to proposals to raise duties, which currently vary depending on the type of steel.
The Business Secretary Sajid Javid has said the government doesn’t wish to see “disproportionate” duties introduced, arguing that this could have a negative impact on companies which use, rather than manufacture, steel in the UK.
Could energy be one solution?
The British steel industry has identified high energy prices in the UK as an issue which needs to be addressed in order for it to recover. At 9.27 pence per kilowatt, costs are more than double those in Germany and France.
The government announced that to try to balance these costs, energy intensive industries such as steel would be exempt from the policy costs of the Renewables Obligation and Feed in Tariffs. These schemes aim to encourage the use of renewable energy across the National Grid.
Where suppliers do not meet their renewable energy targets, they must make payments towards schemes’ administration. Unless exempt, these payments add additional costs for the energy customer.
The government still has a number of options to explore
There are a number of actions which are still available for the government to explore within the bounds of EU regulations.
The Business, Innovation and Skills Committee recently found that the UK lacked an adequate ‘early warnings system’ in the steel industry. This lack of an ability to flag up issues before they reached crisis point “greatly reduced the chances of saving the assets under threat.”
The steel industry has also called on the government to amend the way business rates for industry are calculated.
Currently, investment in plants and machinery is included in the calculation of business rates and steel industry representatives have asked the government to remove this consideration.
Correction (22 July 2016)
We originally said that current duties on Chinese steel were up to 16%, depending on the type of steel. There are actually cases with larger rates than these. We’ve updated the piece to show this variation.
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