British Steel was braced to fall into administration as early as Wednesday with thousands of jobs at risk, after talks with the government over an emergency £75m loan to keep it afloat appeared all but dead.
The company, its lenders and Whitehall were preparing for accountancy firm EY to be appointed as administrators as soon as Wednesday in the absence of a last-ditch rescue deal, according to people briefed on the situation.
One government figure confirmed that the talks were reaching their final stage and a ministerial statement was expected soon. Business secretary Greg Clark had come under “huge pressure” to help the group given that British Steel was such an “iconic” employer, the person said.
However, the government felt it was unable to overcome legal challenges concerning the loan in order for it not to fall foul of EU state aid rules, according to one person briefed on the situation. There was a sense of “it’s pretty much all over”, the person added.
British Steel had requested a £75m state bailout to stave off a crisis it blamed on a drop in orders caused by uncertainty over Brexit, just weeks after being awarded a £120m loan on commercial terms from the government to help it meet an EU environmental bill.
This has thrown into doubt the future of the business, which is the UK’s second-largest steelmaker with a workforce of 5,000 largely based at the vast Scunthorpe plant in north Lincolnshire.
Talks hit an impasse last week after ministers grew frustrated with the unwillingness of British Steel’s owner, the private equity fund Greybull, to put money on the table, according to several people briefed on the situation.
The originally requested amount of £75m had fallen to £30m, with the owner and its lenders poised to inject fresh capital into British Steel, according to Sky News, which first reported the preparations for insolvency.
Andrew Stephenson, business minister, said on Tuesday that the government would “leave no stone unturned in its support for the steel industry”.
Mr Stephenson said any assistance for the ailing company had to be on commercial terms so as to be in accordance with state aid rules. “Whether we take a stake or not, however it is done, it has to be done on a commercial basis,” he told MPs.
“The government has been willing to act,” he said, pointing to the £120m loan announced previously. He refused to comment further on the details of the live talks but said an update was imminent. “We can only act within the strict confines of what is possible under UK and EU law,” he added.
A failure of the company would be a body blow for the UK’s steel industry, which is still recovering from a severe crisis in 2016 that was triggered by a plunge in global prices for the metal. It would also strike at a foundation of the country’s manufacturing base and hurt Prime Minister Theresa May’s “industrial strategy”.
In addition to its own workforce, British Steel supports an estimated 20,000 jobs among suppliers. A person close to the company said the next instalment of monthly wages would be paid.
As negotiations with ministers and civil servants hit a wall last week, the company on Thursday said it had secured new funding from its lenders but that a “permanent solution” was still needed.
Alasdair McDiarmid, operations director for the Community trade union, said unless the government did more there could be “industrial devastation on a massive scale”.
“If a solution is not found, the taxpayer will end up picking up a bill in the hundreds of millions to clean up the industrial sites and repair these communities,” he added.
The Unite trade union urged ministers to consider nationalisation as an option if a deal was not struck between the government and Greybull.
Assistant general secretary Steve Turner said British Steel was “strategically important” and that it supplied 95 per cent of the UK’s rail tracks. “It is a national asset supporting UK plc that cannot simply be left to the market”.
British Steel was created in 2016 when Greybull acquired what was then the European long products division from the Indian conglomerate Tata, whose British assets include Tetley tea and the carmaker Jaguar Land Rover.
Greybull paid a token £1 for the lossmaking business and renamed it in honour of the former industrial titan. After a turnround started under Tata that included mass redundancies and cost cutting, the reborn British Steel returned to profit in its first 100 days of independence. But it has since suffered setbacks and swung into a small loss in 2017-18, the most recent year of available accounts.
The steelmaker initially requested state financial support after a delay to Britain’s departure from the EU led Brussels to temporarily suspend the allocation of carbon credits to UK companies. This left it facing a shortfall, so the government loaned it £120m so it could purchase the certificates, which are required to cover emissions.
Gill Furniss, shadow business minister, said: “The UK’s steel industry is critical to our manufacturing base, and protecting this industry should be of paramount importance to the government.”
EY and the business department did not respond to requests for comment. British Steel and Greybull declined to comment.