This article is more than 1 year old

This article is more than 1 year old

British Steel is seeking emergency funds from the government, blaming politicians’ failure to strike a Brexit deal for a crisis that leaves one of the UK’s last two blast furnace steelworks – and 4,500 staff – facing an uncertain future.

The company, which owns the Scunthorpe steelworks, is in rescue talks with its lenders over a £75m rescue package that is understood to be at risk of falling apart unless the government contributes.

British Steel blamed “Brexit-related issues” for its difficulties, with one source saying orders from increasingly anxious customers in the European Union had “dried up”.

The government is thought to have drafted contingency plans after lenders to the company, which is owned by private equity group Greybull Capital, said they would consider putting it into administration if no money was forthcoming.

The crisis at British Steel comes less than a fortnight after the government provided it with an emergency £120m loan to cover a bill from the EU for its carbon dioxide emissions.

The Department of Business, Energy and Industrial Strategy said it could not comment on speculation about its role in any rescue talks.

However, a British Steel spokesperson said: “The uncertainties around Brexit are posing challenges for all businesses including British Steel and we are holding constructive discussions with our stakeholders on how to navigate them.”

The spokesperson said the company was in talks about “a package of additional support to assist the company address broader Brexit-related issues, while continuing with its investment plans”.

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The Scunthorpe steelworks is one of the last two left in Britain along with Port Talbot in south Wales, after the Redcar facility on Teesside closed in 2015. It supplies steel for customers including Network Rail and supports 22,000 jobs in its supply chain, on top of 4,500 direct employees.

Sources close to British Steel said ongoing uncertainty about future tariffs on steel exports had proved to be the “worst possible outcome”.

British Steel’s customers typically sign contracts long in advance of delivery and, with the new Brexit date of 31 October approaching, have turned to rival steel suppliers where costs are certain.

About 70% of British Steel’s products are exported to either the EU or Turkey and North Africa, markets affected by Britain’s trading relationship with Europe.

The source said these markets had dried up, particularly since February when it became clear that a Brexit deal was not going to be finalised by 29 March.

Lenders to British Steel, which include the PNC and ABN Amro banks, are understood to be concerned that orders will remain stagnant until Brexit uncertainty is cleared up, meaning a cash injection is required to support the firm in the meantime.

The company and its lenders are understood to have asked the business department to contribute to a £75m funding package. If the government does not participate, lenders will consider placing parts of the business into administration.

“There’s every hope it won’t come to that,” the source said, adding that the company had lenders’ support as things stood.

Labour and trade union Unite rounded on the government over Brexit uncertainty, as well as the impact of energy costs and business rates on the steel sector.

The shadow steel minister, Gill Furniss, said: “The Conservatives have failed to secure a steel sector deal that would address long-standing issues such as high energy costs, and their threats of a no-deal Brexit has caused great uncertainty for the sector.”

Tony Brady, the national officer for the Uniteunion, said: “Brexit is hitting sales and creating uncertainty not just for British Steel, but for the wider industry. At the same time, high energy costs are leaving steelmakers competing with their European competitors with one hand tied behind their backs.

“Ministers need to support the wider steel industry with help on business rates and high energy costs, while securing a Brexit deal that secures a customs union and continued tariff-free frictionless trade. The government must also put UK steel at the heart of major infrastructure and ensure projects like the Royal Navy’s new feet solid ships are built in the UK using UK steel.”

Nic Dakin, the Labour MP for Scunthorpe, said: “The complete mess the government has made of leaving the EU is putting jobs and livelihoods at risk in our area.”

The crisis at British Steel comes three years after it was rescued by Greybull, which bought it for a nominal sum of £1 after Indian conglomerate Tata pulled out.

Greybull pledged to invest £400m and rebranded the Tata operation by reviving the British Steel name in a deal that appeared to have secured the company’s future. Within months, the company reversed a salary cut for staff and predicted a return to profitability.

The investment group supposedly specialises in reviving distressed companies but failed to save Monarch Airlines and was criticised during the collapse of electricals retailer Comet.

• This article was amended on 17 May 2019. An earlier version referred to Scunthorpe as “one of the UK’s last two steelworks”. We have added “blast furnace” to that description.