Giddy is not a word one would naturally associate with Rachel Reeves. She gives every impression of having been the sort of girl who dedicated many happy hours to re-arranging her pencil case. But giddy she appeared last week, announcing the opening of a new theme park in the international tourist hotspot of Bedford. Gone was the rictus grin and basilisk stare, replaced by the beams of a fan just informed that she had been given free tickets to a Sabrina Carpenter concert. The growth which has, so far in this administration, been mislaid, had been found down the back of Universal’s sofa.
Good news it was, but not that good – the reaction being sufficiently out of kilter with the event that it made your cynical author wonder how bad things really are. Should a relatively small announcement spark such an outpouring of joy, or has the government finally come to realise that by offering growth, a Green revolution and enhanced workers’ rights, it had promised three impossible things before breakfast (or at least the next election)? A drowning man can easily believe a passing piece of flotsam is a lifeboat until the next wave comes.
Just a few days later the giddiness was gone, the nation’s eyes turning to Westminster and a rare Saturday sitting which laid the trilemma bare: both Houses hastily recalled to nationalise British Steel. Or not. For the exact situation is fluid. Perhaps we will wake up some morning and discover we now own a steel company, perhaps that some friendly foreigner has bought it off us. All we can say for sure is that the government (as it often does) wanted to be seen to be doing something. Whether it actually wants to do something is another matter for another day. Piles of rubbish on Birmingham’s streets and the government controlling the steel industry – the arc of history may be long, but it currently appears to bend to the 1970’s…
As to whether we actually need a steel industry, I am reasonably agnostic. There are, I grant, defence arguments in favour (wooden ships no longer being the cutting edge of the naval cutlass), but a situation in which we are so denuded of allies that we can only rely on our own is a situation in which we have probably already lost. Future warfare will, in any case, require far more drones than Dreadnoughts.
We recently marked the hundredth birthday of The Great Gatsby which famously ends with the words, “So we beat on, boats against the current, borne back ceaselessly into the past.” And if generals always fight the last war, so too do politicians increasingly try to recreate the world of the past, steel carrying a symbolic weight far in excess of its economic weight. Much has changed since Britain was the world’s factory, not least the clothes seen in the Pathé newsreels which are our only remaining connection to the time. Cheap foreign labour in Japan, then Korea and now China undercut the West and environmental legislation, particularly in Europe raised costs yet further. We wouldn’t expect a boxer to triumph with both hands behind his back, but we appear to believe that Western industry can pull off a similar feat.
For, however nice having a steel industry may be, it is unlikely to be profitable. Years of decline have made the sector too small to reap any scale benefits, and high labour and energy costs mean it will never be the low cost supplier. That is, of course, before we add in the fact that the furnaces at Scunthorpe are ageing and need to be replaced. An ongoing multi-billion pound commitment (the plant is thought to be burning through c. £750,000 per day) may be your idea of a price worth paying to cosplay the 1950’s, I’m not convinced it is the best way of spending my taxes.
Accounting for about 0.1% of GDP, the travails of the sector may appear to be of rather less import than they are being given by the media and the government. But they shine a light on the core problem Labour faces, a problem it made for itself – progress towards one objective requires backsliding on others.
The new theme park will be made using British steel (assuming we still make it when spanner meets rollercoaster track), but given the nature of the industry the nation will have to subsidise its production, adding pressure to the strained public finances which will have to be passed on to the private finances on which growth depends. To make it (and industry more broadly) competitive and self-sustaining, we would need to reduce energy prices – but that would mean rolling back on environmental commitments or adding another layer of subsidy (funded again by others) to make renewables cost-efficient. Reducing labour costs by scrapping the minimum wage or paring back workers’ rights would contradict the new legislation expanding them, legislation which is already reducing hiring and thus future growth and tax revenue. But if both are left in place, they will reduce the growth the government claims to crave (the OBR notably declined to give any figures for the impact of the new employment legislation in its recent, downgraded forecast). By trying to have it all, the government risks having nothing.
To govern is to choose (apparently), and the government’s core problem is that it refuses to do so. If it wishes to have growth, it needs to remove the burdens it places on the economy, and let it do its job. If it wishes to build an environmentally-friendly workers paradise, it needs to accept that this will have impacts on growth, plan accordingly and pray to the almighty bond market. At the moment all it is doing is imitating Voltaire’s Dr Pangloss, stubbornly insisting that “Everything is for the best in the best of all possible worlds” as a never-ending cascade of disasters unfolds around it.
A chess-player, Ms Reeves will be familiar with the term zugzwang – a position in which a player only has bad moves available. But, by insisting she could reconcile the irreconcilable, that is where she finds herself. Still, she might get lucky…
Stewart Slater works in Finance. He invites you to join him at his website.
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(Photograph: Simon Dawson / No 10 Downing Street, OGL 3 <http://www.nationalarchives.gov.uk/doc/open-government-licence/version/3>, via Wikimedia Commons)
”Sabrina Carpenter”
Who? Never heard of her. I’m assuming it’s a ‘her’ as you can’t be too sure these days without doing a swift ‘Crocodile Dundee’ down the dunghampers to make certain. ;o)
We will never be able to compete with the low quality/ bulk production of steel made in China and India but Scunthorpe is a high quality steel producer so it has a fighting chance if, and it’s a big if, it had access to lots of cheaper energy than it has access to. Reform UK will scrap the Net Zero nonsense ensuring the nation has plenty of cheaper energy so if people elect sufficient Reform MPs and boot out the Net Zero zealot MPs there is a chance Scunthorpe could at least break even.
Suggest we keep Scunny Steel Production as a heritage theme park fuelled solely by that funny old black stuff that’s in ample supply nearby at Selby. Job done – next task please.
The argument about Scunthorpe is preposterous. We can’t have a self-reliant steel industry because we don’t have the coking coal or iron ore to sustain it. (Someone said O/L yesterday that we also don’t have coke ovens any more so we’d need not coking coal to be imported but actual coke. Is he right?)
Then today you tell me that the blast furnaces are anyway at the end of their lives. So that’s that – there seems to be no rational solution bar closing the works. Put otherwise, the government, under Our Great Helmsman, Sir Steir Badly, will opt for an irrational non-solution.
The red socialists seem determined to make the blue socialists seem less awful than they really were.