By: John O’Connell, chief executive
The TaxPayers’ Alliance has ever since its inception been a firm opponent of the nationalisation of British industry. Privatisation has certainly had its challenges. But the standard for success is not necessarily perfection - it’s improvement. And on that metric, privatisation has consistently delivered, producing a better, often cheaper, service for the customers of those industries at a much reduced cost to taxpayers.
Let’s take two of the most maligned examples of privatisation - water and the railways. These are both examples of industries privatised without the presence of competition,usually one of the key requirements for success. The criticism has been relentless - and some it warranted - but the reality is that both have taken massive strides since privatisation. In the case of water, investment has soared since privatisation, the amount lost to leakage has fallen and yet water bills have remained flat in real terms for decades. The perception that things are getting worse due to massive discharge of sewage has come about because over the last decade the number of overflow pipes being monitored has increased from about 5 per cent to 100 per cent.
On rail privatisation, despite the endless frustrations that passengers have with what is clearly still an industry performing below its potential, the situation is night and day compared to the 1990s when it was state run. The number of journeys taken per year surged by 119 per cent between 1996 and 2019, while passenger satisfaction has increased. Unfortunately, the preference of the franchise system over open access operators means the benefits of competition are not being realised in full - compare the prices on lines with multiple operators against those with single operators and this bears out. But the improvement has been significant.
The scepticism about the effective nationalisation of British Steel is therefore warranted. It is highly unlikely that ministerial control over the steel industry will engender any recovery at all, let alone a return to profitability. Remember, that not a single cabinet minister has experience running a business, let alone transforming one from loss maker to money maker. What’s more, a nationalised industry is more likely to become heavily unionised, with all the attendant issues that raises for delivering value for taxpayers.
But it is clear that steel is not the same as other goods. While Britain undoubtedly benefits from the ability to purchase significantly cheaper steel from abroad, dependency on imported steel does create national security concerns in a less secure geopolitical climate than we’ve been used to over the last few decades. This argument can be overstated - the production of steel does rely on imports itself, meaning the UK will never be completely self-dependent in this regard. But given geopolitical shifts, ministers would be right to be concerned about increasing dependency on steel exports.
The problem with the government and its relationship to steel, though, is that this is a mess partly, if not mostly, of their own making. There can be no hope of returning steel to profitability given the UK’s mad dash for net zero, a project which was pursued relentlessly by the last Conservative government and has been taken on with even greater vim and vigour by the current one. Steel is an energy intensive industry, meaning the stratospheric increase in energy prices that has been the consequence has been devastating for the bottom line. Deliberate decisions that have been driven by ideological zealotry have only piled on the pressure. Take the blocking of a new coking coal mine in Cumbria, due to environmental concerns. This means that the coal needed to continue generating steel in the UK has to be imported from abroad. Or the fact that the closure of blast furnaces - which create virgin steel - is a feature, not a bug, of net zero, with the current owners of British steel pledging to replace them with less carbon intensive electric arc furnaces. It was only in November 2023 that British Steel unveiled a £1.25 billion proposal to “decarbonise its operations.”
Then there is of course the very absurdity of propping up British steel only for it to be owned by a Chinese company, despite the fact that growing tensions in Asia is a reason why we may want a domestic steel industry in the first place.
Ultimately the situation as it stands, with the British government taking executive power but not formal ownership, is an absurd one and sets a dangerous precedent. Full nationalisation would likely be preferable in the short term, strange as that may sound. But to avoid crippling taxpayers, as well as the steel industry, it is vital that the government scraps the 2050 net zero target, and all of the legislation that underpins it. As well as boosting the economy overall, it opens the door to the cheaper energy prices that steel needs to survive. Indeed, if we want any industry to survive and thrive - from steel to high street cafes - we need to drastically cut the cost of energy.