This steel deal is a quick fix which highlights flaws rather than solving them (2025)

If you’re going to disrupt the first rays of spring recess for Labour MPs across the land by hauling them back to Westminster, agreeing a de facto nationalisation to save the Scunthorpe steelworks from shutdown at the hands of its Chinese owners is the reason least likely to provoke opposition.

After all, an itch towards nationalisation as the go-to solution to the managerial and strategic problems of British industries still sits deep in many Labour bones. It’s captured in the late Geordie folk singer Alex Glasgow’s droll “Socialist ABC” song of the 1970s: “N is for nationalisation / Without it we’d crumble and fall.”

For decades, that attachment was whittled away by the argument that, in the era of cheap Chinese steel and high energy costs, globalising the supply of steel worked out best of the available options. The result has been the crumble and fall of an asset whose strategic value is now more glaring in an era of Russian threats, launching a quest for autonomy in critical industries and a recognition that tariff wars have made reliance on investors who can come and go (and in Jingye’s case, doing so while threatening an imminent shutdown of blast furnaces) unattractive.

“Everything has changed,” is the Keir-era motto to cover swithering on welfare thinking, non-dom soaking and now, a readiness to embrace state-ownership of the struggling Scunthorpe works. It was there that only last year Starmer, who has blown hotter and colder in his general enthusiasm for nationalisation than an underperforming furnace, most recently backed away from this solution, concluding that “businesses are best run by businesses”.

This has turned into one of those Keir-isms which has a lot of small print and exemptions, and Scunthorpe is a mighty one. For all of the unanimity on the need to “do something” in the Commons on Saturday, detail of what follows from the legislation is hazy.

On that detail rests much of the government’s reputation and that of Jonathan Reynolds – a man now amping up the job of Business Secretary into one of the most impactful in the government by dint of being the senior trusted partner with the US on tariff negotiations, while also putting in a weekend shift sorting out UK steel.

Few could cavil at Reynolds’s work ethic and methodical way of explaining the reasoning so far – in a Cabinet that can feel a bit cruiserweight in a heavyweight ring, he is turning into one of the most reliable performers on issues of high impact. Still, that will not conceal the paradoxes and tensions of this quick fix. Handing over a struggling steel company to a British government which has skin-tight finances and keeps telling us that the future is about growth and innovation (rather than bailing out battered industries) is only the first step of the puzzle.

The question of the actual cost to the taxpayer and the length of that commitment follows fast. When unions – and workers in Scunthorpe – celebrate the new deal as saving jobs, this might not be a forever-promise: for one thing, it fits badly with the government’s broader aim (in its 2024 manifesto, if more quietly since), to embark on a rapid transition to “green steel”.

The latter is produced by pivoting from the coke-hungry blast furnaces to replacement ones which work by creating an electric arc between graphite electrodes. This was the “transition” imposed by Tata Steel to stem losses at the Port Talbot plant which has ended up with a workforce of over 2500 cut to circa 500. So the government has ended up having to issue support packages to workers who lose their jobs as a result of a change in production that the net zero quest demands. Realistically, for all the teeth-gnashing nostalgia, we will not return to mining more (dirty) coke at scale and that is a good thing for the environment, with or without net zero. But fewer workers will be employed by the end of this change.

I watched the prequel to this story growing up in the east of County Durham, the same county as Reynolds, who will have had his political formation watching the fallout of this deindustrialisation up close too. Additionally he is part of a political machinery, guided by Downing Street philosopher-king and Chief of Staff Morgan McSweeney, which is hyper-sensitive to Reform UK’s entry into the northern heartlands. Nigel Farage’s call for more and faster outright nationalisation shows how protean the challenger party on the right of UK politics can be when it finds a topic that plays on its mixture of resentments and national concerns, and the May local elections look like a Reform v Labour warm-up bout for the next general election in many heartland seats.

Pretty soon then, Labour has to be clearer about whether it has a realistic idea of who it might sell the Scunthorpe works to, or whether this is a “Hotel California” nationalisation – hard to check out from, and draining on the public purse. A lot of MPs will have got a taste for the present plan and will redouble calls to take over other struggling industries, which is exactly what cost-conscious Treasury officials worry about watching the Scunthorpe moment.

Meanwhile, China remains an opaque area of policy: a central plank of Reeves and Starmer’s response to a more difficult trading relationship with the US, with strengthening ties (the chief of the defence staff, Tony Radakin, I notice, has been on a visit this week rather quietly). The broader plan of dialling down tensions, and perhaps persuading the Chinese leadership to cool it a little on spying on royals and the more aggressive cyber-attacks it sponsors, is ongoing.

But one big China-UK project has just failed and no agreement was encouraged by China’s ultimate industrial bosses to save it; a reminder that there is not always a sound return on the investment of being nice to Beijing. As a result, the government is back in the steel business, but hardly on the blithe terms it indulged in pre-election: that a modest amount of money spent on switching over methods of production would produce a “win-win” for the industry, its international backers and workers. This pleasant reverie has melted fast in the white heat of multiple crises.

The result is a return to the national way of conducting sensitive enterprises. Setting it up to succeed, in a global trade compact both intensely competitive and more fraught than it has been for many decades, is another matter altogether – yet another job for the industrious Mr Reynolds.

Anne McElvoy hosts the Politics at Anne and Sam’s daily politics podcast