This article is more than 1 year old

This article is more than 1 year old

The trade body for steelmakers has rubbished claims that British Steel could be more easily saved if the UK were outside the European Union and warned that the turmoil of a no-deal Brexit could further damage the industry.

The intervention, from UK Steel’s director general, Gareth Stace, comes as the government faces a race against time to find a buyer for British Steel, which collapsed into insolvency last week, putting 5,000 jobs directly at risk and endangering thousands more in the supply chain.

Stace said the organisation was “naturally cautious about entering into political debates” but that the industry needed to “establish the facts as they relate to our sector”.

Want to save the UK steel industry? Brexit isn’t the answer | Gareth Stace Read more

Writing for the Guardian days after the Brexit party leader, Nigel Farage, blamed the EU for British Steel’s difficulties, Stace said: “There have been claims in recent days about the ability of the UK government to use state aid more extensively to support the steel industry once outside the EU.

“Most importantly, this disregards the fact that the UK steel sector has no interest in operating under the support of state subsidies (we are vociferous critics of this practice in places such as China), and ignores a number of other important technical points.”

He said the UK would “remain restricted” from offering bailouts after Brexit under rules laid down by the World Trade Organization, adding that any free-trade agreement signed with the EU would also include state aid curbs.

“I must also debunk any idea that Brexit will provide steel with greater trading opportunities,” said Stace.

He said a growing list of free-trade deals signed by the EU with other countries was already providing British steelmakers with zero-tariff access to overseas buyers, a benefit under threat due to Brexit.

Quick guide What went wrong at British Steel? Show Hide What plans does Jingye have for British Steel? Jingye's financial profile is relatively opaque, but the company is expected to pledge investment worth £1bn over the next decade. A person briefed on Jingye's thinking said the company wanted to preserve as many jobs as possible, but could not say how many of the company's 4,000 workers would keep their jobs. British Steel accounts for a third of UK production, so is seen as a key national asset in many quarters.

What went wrong at British Steel? When Greybull Capital bought British Steel in 2016 it promised great things. The private equity firm pledged to invest £400m and within months it was boasting of a return to profit and a bright future ahead. Three years later it collapsed. In a letter to staff, the British Steel chief executive blamed weak market demand, high raw material prices, the weakness of sterling and uncertainty over the outcome of Brexit discussions. Who is Jingye? Jingye emerged as the most likely owner after talks with Ataer, a division of the Turkish military pension fund Oyak, fell through in October. Founded in 1988 by a former Communist party official, Li Ganpo, the Chinese conglomerate has hotel and retail interests. However, steelmaking, which it started doing in the early 1990s, is now its primary focus: its Chinese mills produce about 15m tonnes of steel a year, exporting to 80 countries. How much is Brexit to blame? It is not the only factor in the crisis, but it is important and will remain crucial even if Jingye buys British Steel. Steel contracts are typically agreed well in advance of the product being delivered. As things stand, the UK is due to leave the EU on 31 January after another delay, and the terms of that separation are yet to be agreed, meaning British Steel’s overseas customers do not know what tariffs will apply to steel they buy from the company. Sources close to the company said orders from customers in the EU and further afield had dried up as a result. Is the whole UK steel industry in trouble? The UK steel industry has been in decline for some time because of a variety of factors such as overcapacity in EU steelmaking and Chinese state-subsidised firms flooding the global market with cheap product. An industry that employed 323,000 people in 1971 now employs less than a tenth of that, at 31,900. The closure of the Redcar steelworks in 2015 was a significant blow to the sector and left the UK with only two blast furnace steelworks: Scunthorpe and the Tata Steel-owned Port Talbot in south Wales.

He added that the EU has been instrumental in introducing measures to safeguard producers in the region from foreign suppliers flooding the market with cheap, subsidised products.

In 2016 the then prime minister, David Cameron, and then business secretary, Sajid Javid, were criticised for opposing the EU’s efforts to scrap rules seen by some in the industry as providing protection against Chinese steel dumping.

“In short, I must be honest in stating that Brexit cannot realistically improve the situation for the steel sector but it has the potential to cause a great deal of harm,” said Stace.

“The number one priority to improve the outlook for steel, and the wider manufacturing sector, is to secure a withdrawal agreement as soon as possible, ending this uncertainty and avoiding the turmoil of a no-deal Brexit.”

Labour warned that the Tory leadership race had increased the chances of the UK leaving without a deal, putting steelmakers in greater danger.

Gill Furniss, Labour’s shadow minister for steel, said: “None of the potential candidates for the Tory leadership have shown any interest in defending our steel industry.

“Several of the leading contenders are determined to let the UK crash out of the EU with no deal, which would have disastrous consequences for the industry, workers and their communities.

“Labour will take action on energy costs, business rates and ensure supporting UK steel is at the heart of our industrial strategy, and we are calling on the government to take a public stake in British Steel to secure its long term future.”

Stace also called for measures to help the industry that he said were “already in the government’s gift.”

Could the government step in to save stricken British Steel? Read more

They include relief on “sky-high” energy prices and business rates, which he said were as much as 10 times those experienced by competitors elsewhere in the EU.

The trade body has previously called on the government to increase the amount of steel it buys from UK producers from 43% at present.

British Steel went into insolvency last week after the government said it would be unlawful under state aid rules to agree to the company’s request for a £30m loan on terms that were not commercial.

The government’s official receiver, a state employee who is overseeing its insolvency, is trying to find a buyer for part or all of the business and is understood to have just weeks to do so.

If no buyer can be found, there is a risk that the Scunthorpe steelworks, which employs the bulk of the company’s 5,000 people, could close.

The site is one of two in the UK that make steel from scratch using a blast furnace, a process considered crucial for supplying the military and the construction industry, as well as customers such as Network Rail, which gets 97% of its track from the company.

The wealthy investors behind Greybull Capital, the private equity firm that controlled British Steel when it collapsed, are expected to be called before a select committee inquiry into its failure.