It is not often that a British cabinet minister travels 150 miles to oversee a ship unloading its cargo. Business secretary Jonathan Reynolds did just that on Tuesday, however, as the ship docked at Immingham port was delivering a politically vital cargo — the raw materials needed to keep British Steel’s Scunthorpe plant running.
After seizing control of the steelworks through emergency legislation passed in a rare weekend parliamentary session, Reynolds had promised to secure supplies needed to keep its two blast furnaces operating. The unloading of coke and iron ore — after being paid for by the government — were proof he had achieved it, and maintained Britain’s ability to make raw steel.
Reynold’s dash to Lincolnshire — and a similar trip to the plant by Prime Minister Sir Keir Starmer on Saturday — were evidence of how important the future of British Steel has suddenly become. The government’s dramatic intervention to seize control of the company came after talks with Jingye, British Steel’s Chinese owner, broke down.
The episode has triggered wider warnings about the UK’s approach to Chinese involvement in sensitive British sectors. But on Tuesday Reynolds stressed that “it was one specific company that I thought wasn’t acting in the UK’s national interest, and we had to take the action we did”.
The collapse in talks has also prompted questions about what went wrong and how long-running talks with the government foundered so abruptly.
Jingye bought British Steel from the UK’s official receiver for about £50mn in March 2020, saving more than 3,000 jobs. The group, chaired by former Chinese Communist party official Li Ganpo, pledged to invest £1.2bn to revitalise its fortunes.
But from the outset there were concerns about whether this relatively unknown group from China could turn the steelmaker round when so many others had failed. Over the past 20 years British Steel has been merged or sold three times, before collapsing in May 2019 when Brexit uncertainty led to a slump in customer orders and a cash crisis over carbon credit obligations.
British Steel’s first accounts filed under Jingye’s ownership, to the end of December 2020, nevertheless showed a company that was profitable and had no debt. Yet a promise to turn it into a leading European steel producer came to nothing. The company struggled to make money in the face of increasing energy costs, the price of carbon emission permits, and the availability of cheap imported steel. Losses and debts quickly multiplied, with British Steel reporting losses of £408mn in 2022.
Operationally, relations between the British workforce and the Chinese owners were never ideal, according to people familiar with the situation. Chinese executives often needed interpreters to communicate with staff.
Roy Rickhuss, general secretary of the Community steel union, said “we found it very difficult dealing with Jingye on normal industrial relations stuff . . . I don’t think that Jingye had any experience of working with unions”.
In September 2022, Jingye turned to the then Conservative government for help. Some six months later, in January 2023, chancellor Jeremy Hunt appeared poised to approve an aid package for British Steel tied to switching to greener technology after interventions by ministers Grant Shapps and Michael Gove who warned that letting the company collapse could cost the state up to £1bn in liabilities.
A deal never materialised, however. “This has been going on for a long time,” said one person of the lengthy talks, adding that conversations with the Tory government towards the end were “awful”.
In November 2023, Jingye announced plans to close the blast furnaces at Scunthorpe and replace them with less carbon-intensive electric arc furnaces. The company said it would invest £1.25bn but that it needed public sector support. Its plan mirrored one put forward by India’s Tata Steel for Port Talbot in south Wales.
Talks on securing taxpayer aid were complicated by the company’s failure to file accounts on time, said people familiar with the situation. Two auditors resigned — one in 2022 following a row over fees, a second in January 2024 after it said it was unable to verify tens of millions of pounds’ worth of stock.
Meanwhile, talks with government slowed as the July 2024 general election approached, according to people familiar with the negotiations.
Officials opened fresh discussions with Jingye within days of Labour sweeping to victory and Reynolds held his first direct talks with Li Huiming, group chief executive of Jingye Group, in August.
One person familiar with the government’s view of the talks said: “There wasn’t a point where they stalled, it was a long-winded back and forth.”
The UK government was aware throughout that the conditions it applied to potential state investment were a sticking point for Jingye. Ministers sought guarantees on retaining the UK workforce throughout a transition from blast furnaces to electric arc furnaces, and for British Steel to supply steel to its existing customers during this transition, notably Network Rail.
The UK government also wanted concrete assurances from Jingye that any investment in British Steel would not be siphoned off to China.
Complicating matters, said people familiar with the talks, was the fact that Jingye presented multiple plans and appeared to not have a clear view of what it wanted.
Another obstacle was the amount of investment each side was willing to inject into the modernisation of the Scunthorpe plant. Jingye was accused of lowballing with an opening offer of £22mn, which was not taken seriously by government officials.
“When those sort of numbers were coming back to us, we viewed it as a stalling tactic. I don’t think they were intended to be taken seriously,” one government figure said.
Jingye’s second offer of investment was significantly higher at several hundred million pounds, followed by an eventual proposal last month to invest £1bn — but only if the government matched it.
The government’s offer of investment topped out at £500mn, however, in order to remain aligned with the level of state support granted to Tata Steel, according to people familiar with the talks.
Jingye rejected that offer late last month and began consultations on job losses after setting out plans to close its two furnaces as early as June.
The situation escalated quickly once it finally became clear this month that Jingye would not meet the “basic principles” that ministers insisted would apply to pouring public money into the plant.
Some politicians have claimed Jingye was intent on sabotaging the plant. Industry figures, however, stressed that the Chinese group was prepared to invest, pointing out that the company spent money on getting one of the furnaces back up and running last year.
Rickhuss said he believed there was an element of “brinkmanship being played by Jingye in the last few days to apply pressure on the government to cough up £1bn”.
Jingye has so far declined to comment.
Unions are hopeful that their alternative plan — to keep the two furnaces running while building the two electric arc furnaces — and supported by the local management, could still be salvaged.
The government, said one industry figure, is conscious that this weekend’s intervention was only a stop-gap measure and that a private-sector solution needs to be found as soon as possible.
Andrew Griffith MP, shadow business secretary, this week described the recent events as “sticking plaster politics”.
“Taking powers to direct British Steel won’t reduce the ruinously high price of energy that is hitting all sorts of businesses, it just leaves the taxpayer footing the bill.”
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