John Redwood: In the absence of a clear plan to improve an industry, nationalisation is doomed to fail

Sir John Redwood is a former MP for Wokingham and a former Secretary of State for Wales.

Saturday 12 April saw a constitutional revolution. The Labour Government rammed through in a single day a Bill that overturns company and international law, giving unprecedented powers to a Secretary of State to intervene in the work and management of a private sector foreign company operating in the UK. As the company is Chinese, it may well have support from the Chinese state.

The Steel Industry Act 2025 gives the Business Secretary powers to override the established management and owners of the business in numerous important ways if he believes they may discontinue some or all of their operations.

He can demand information. He can also buy things, arrange contracts, enter agreements, appoint officers of the company, exercise functions of management as he sees fit, offer loans, stop disposals, and make payments to specified persons. #He does this in the name of the company he does not own, and of which he is not a director. Any director, owner, or employee who seeks to prevent him commits an offence and could end up with a fine or two years in prison.

It is difficult to know how the directors, managers, and owners of such a business can proceed if the Secretary of State decides they may not use their assets as he sees fit and starts to use these wide-ranging powers.

What would courts make of who is responsible should litigation result from the outcomes? What is the position of counterparties trading with the business, who might be told by the company they are not in full control of their own affairs?

My main concern is with taxpayers. The Act says when the Secretary of State spends taxpayers’ money on buying materials or paying salaries, this will be a debt the company incurs to the British state.

But what if the owners walk away and refuse to honour the debts? What if the company says to the British Government that they need to pay most of the bills to keep the assets in use?  What if they say they cannot afford the costs the government incurs in their name?

There is no easy way to come to a fair view of what debts the company owns and needs to repay, and what costs the Secretary of State incurs which the company may dispute or try to walk away from.

The basic truth is government can only hope for a better outcome if it can do a deal with the current owners and managers and achieve with them a unity of purpose. Fighting a long battle, between a management that wishes to shut assets down to avoid losses and a government that wants to keep assets in use whatever the cost, will not be good for anyone involved and is unlikely to have a happy ending. (Maybe the lawyers will be pleased, as there could be plenty of lawsuits to sort out the damage.)

I want to see the Scunthorpe blast furnaces and the rolling mill survive. But I do not welcome the idea of nationalisation. After all, the steel industry was nationalised in 1967; taxpayers paid large sums to invest in five integrated works around the UK, only to spend the next decade discussing which ones to close as they never had enough demand for all the capacity they installed.

Nationalizing the business will not suddenly make it profitable. Steelmaking in the UK has been destroyed by ultra-high energy costs, carbon taxes, and cheap Chinese competition. Government needs to tackle these issues to retore demand and profitability.

The Government needs to agree the orderly exit of the Chinese company, assuming they do not wish to continue and cannot afford the losses. It could offer £1 to buy all the assets, leaving the Chinese company with the past debts and losses. The company would be spared redundancy and other closure costs, and the state would have free assets to try to trade them better.

Ministers should then put the assets out to tender to see which company or interest would take the plant on, keeping the blast furnaces open, and at what price. If the Government wishes to persist with its ultra-high-priced energy policy, then the auction is likely to require a statet subsidy to offset some of the excessive government-imposed cost.

If the Chinese company will not strike a realistic deal, then the Government may decide to use its draconian powers to nationalise it anyway. It may then end up in disputes about compensation and allocation of inherited debts and losses; this may also result in disputes with the Chinese government.

When I chaired a large-quoted industrial group, I was responsible for a rolling mill. It was profitable, and did a good job selling product and controlling costs. I always put safety and employee engagement top of the list of necessities, and regarded high standards of customer service and high quality of product as crucial.

I do not think the current Secretary of State has any experience of running large factories. He should listen carefully to those who do, as the Government needs to avoid disasters at a dangerous place of work and to help the business find the extra customers it needs to make the numbers work. Its costs will only be realistic if the government gets energy prices down.

The Government should have sorted out ownership first, seeking the orderly exit of the Chinese from the steel works if they have decided to quit. Their way there may well be big rows about how to run the furnaces, who pays the bills and who has a plan to make virgin steel and sell it successfully. The Secretary of State gave Parliament no plan, no budget, no vision of success.

Merely taking the current business over without change will burden taxpayers with huge losses and maybe a lot of legal headaches – and just delays the sad day when the UK can no longer make its own new steel.