The case for a rescue of Liberty Steel assets

Sanjeev Gupta presented himself as a potential saviour of heavy industry in Britain. The charismatic chief executive of Liberty Steel offered a chance to reverse the decline of steelmaking in a country that was once called the “workshop of the world” but where high energy and labour costs have since made the industry uncompetitive. Having bought up a mosaic of metals, engineering and renewable energy assets, Gupta promised to bring back jobs at steel foundries in poorer parts of the country, using a combination of financial alchemy and investment to revitalise the industry.

The collapse of Greensill Capital, the main financial backer of Liberty Steel’s parent company GFG Alliance, has made it into a more familiar story: struggling, unprofitable steel plants seeking government support to stay afloat. In 2016, Tata’s steelworks in Port Talbot, south Wales, needed help. That was swiftly followed by British Steel’s operations in 2019 — the government temporarily took control before it found a new owner in China’s Jingye, at a cost to the taxpayer of £600m. It is long overdue for the UK government to set out a strategy for handling such episodes rather than dealing with them on a case-by-case basis. 

In terms of the raw number of jobs, there is not much of a case for saving Liberty Steel. The 3,000 or so workers that it directly employs in the UK are far fewer than the 12,000 at risk from the department store Debenhams, which was allowed to fail. However, the government may still be tempted to step in given that many of the steel jobs are located in politically sensitive areas, including in Hartlepool, where a by-election is scheduled for early May.

Any role for the government should be based on there being some function for the steel plants that a private sector owner cannot fulfil. There is an argument that core capacity in these basic materials is vital for national defence. Squabbles over vaccine supplies have bolstered arguments to increase industrial self-sufficiency, though the UK will still need to import raw materials such as coking coal and iron ore. 

The strongest argument, however, is the imperative to clean up the steel industry. Producers complain that it is the UK’s green initiatives that make the industry uncompetitive: energy prices for business are much higher than many other countries in Europe. This is an argument for keeping domestic steel capacity: reducing emissions at home is pointless if goods are imported from countries with lower environmental standards instead.

Nevertheless, the government cannot have an open-ended commitment to keeping lossmaking facilities open. It must find a buyer who can run the plants sustainably, both financially and environmentally, or use them as part of a state-sponsored bid to invest in clean steel and bring concepts from the laboratory to the field. The government may find it wise to revive elements of its recently jettisoned industrial strategy. The risk, otherwise, is that it simply continues a cycle of bad ad hoc bailouts in persistently underperforming industries.

Either way, the price for any support should be Gupta’s exit — the government rightly rejected his call for a £170m bailout, citing concerns over the group’s opaque structure. Nationalising the assets does not mean saving the company, which if it cannot stand on its own two feet has failed. Shareholders should not expect to get anything back and creditors will have to go through a bankruptcy process — according to documents seen by the Financial Times, the company’s UK assets have an estimated equity value of negative $800m. The state, if it values the assets, can buy them for their proper price.