The collapse of British Steel Limited, with the potential loss of at least 5,000 jobs, has once again exposed deep fault lines in the government’s laissez-faire economic ideology and in Britain’s shareholder-centric model of corporate governance.

The government clings to its do-nothing approach, justifying its rejection of financial support, a bailout or public ownership of British Steel because these options would be illegal under the EU state-aid laws.

Yet the UK government conjured up billions of pounds to bail out banks through loans, guarantees and an extensive quantitative-easing programme. It brought the East Coast rail service and other lines back into public ownership. None of this was opposed by the EU.

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The government doled out millions of pounds worth of contracts to ferry companies, even the ones without any ferries, but is not bothered about rescuing British Steel and the economic and social infrastructure around it.

The British government is a major shareholder of Royal Bank of Scotland and could have used this to secure finance for BSL, but chose not to do so. Perhaps blaming the EU for domestic woes is part of the Conservative strategy to bolster its Brexit credentials, or perhaps it is just not concerned about deindustrialisation.

Where the government is clearly culpable is in failing to keep the operations of BSL under closer scrutiny. The company’s owner, Greybull Capital, a private equity concern, has a history of buying companies with a promise of resuscitating them, but then asset-stripping and closing them down. The same company’s purchase and closure of Rileys snooker halls and sports bars, Monarch Airlines and M Local convenience stores provides some evidence of its practices.

The shortcomings of the shareholder-centric model of corporate governance were fully exposed in the collapse of Carillion and BHS. One of the persistent myths is that if the interests of shareholders and directors are in alignment, that somehow leads to good governance. But shareholder and director interests were perfectly aligned at BHS, where Philip Green ran the company and his family held the shares. In the absence of board representation of other stakeholders, executives and shareholders got rich and supply-chain creditors, taxpayers and employees paid a heavy price.

There were no worker directors on the Carillion board to challenge the impulses to enrich shareholders through excessive dividends, or undeserved bonuses and pay of directors. Again, suppliers, taxpayers and employees paid a heavy price.

The same problems are being highlighted by the collapse of British Steel, with more complications added by the involvement of private equity and its opaque corporate structures. Information filed at Companies House shows that the total amount of share capital provided by Greybull to BSL is £1. This enabled it to control the entire board of directors. The directors kept the business afloat with loans, especially intragroup loans. These included a £154m secured loan from its ultimate controller, Jersey-based Olympus Steel 2 Limited.

Jersey does not levy corporation tax on profits made elsewhere and does not require companies to publicly file their accounts. The intragroup loan carried an interest rate of 9% + Libor. This arrangement resulted in BSL becoming liable for interest payments of £17m in 2017 and in 2018. Greybull also charged a management fee of £3m per annum. Interest payments qualify for tax relief and this would have enabled BSL to reduce its UK tax liability. The amounts received by its Jersey parent company would have been tax free.

Cash extraction on this scale completely constrained BSL’s ability to invest and remain competitive, and turned the 2017 pre-tax profit of £92m into a 2018 loss of £29m. Its cash balances shrank from £35m to £5.1m. In 2018, its board of directors collected £3,299,000 in remuneration compared to £2,007,000 in 2017. Despite the loss and plummeting cash, BSL secured a clean bill of health from Deloitte, its auditors. The firm collected £475,000 in fees from BSL and its parent company, including £66,000 for tax and other consultancy services.

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BSL is now in liquidation. Olympus Steel and various banks are likely to recover almost all of the loans due to them because they are secured creditors and in that capacity will rank for payment before any other creditor. Some £331m is owed by the parent company to unsecured creditors, including HMRC and supply chain creditors. They are unlikely to recover anything substantial.

Prior to the 2016 sale of BSL to Greybull, Tata Steel, with the cooperation of the pensions regulator, had safeguarded most of the pension rights of its employees. However, the 2018 accounts of British Steel Holdings Limited (BSHL) show the existence of a number of other pension schemes with a deficit of £46m. The fate of these schemes is not clear and the worst-case scenario is that employees would lose some of their pension rights.

BSL is another corporate disaster entirely made in the UK. Despite a string of similar scandals and collapses there has been no reform of corporate governance, insolvency, accounting, auditing or anything else. There is hardly any scrutiny of private equity and its devouring of businesses. None of this neglect can be attributed to the European Union. Rather it is all the consequence of an economic and business ideology which continually seeks to appease the financial industry and oppose the democratisation of business.

• Prem Sikka is a professor of accounting at the University of Sheffield