A traditional backbone and foundation for the UK economy, the steel industry has been on a steady decline following privatisation; falling from approximately 320,000 staff to fewer than 18,000 in the 40 year period. The overall production of steel has dropped to 12m tonnes, which represents only a small proportion of global steel production. Following the Tata steel announcement to sell off their UK operation, the sector now sits at a major crossroads as it eagerly awaits Government intervention to support the sector and avoid the potential widespread unemployment it could create in the local economies. Let’s consider some of the factors and implications that this may have to the UK construction sector.
Firstly, let’s consider where UK demand for steel is coming from. The recent budget announcements by George Osborne highlighted that there is a huge appetite for infrastructure investment; with HS2, Crossrail 2, Trans-Pennine tunnel, Hinckley Power station and many more projects being seriously considered. The HS2 steel contracts alone will be for more than 2m tonnes and with a potential pipeline of over £300bn on infrastructure for the next 5 years, it’s fair to say that there is sufficient demand for steel in the UK (and that’s without even considering the building sector). Despite this, the sector faces real pressure on price from overseas suppliers, largely in China, who often supply steel at a loss just to generate some revenue for their overproduction, and the UK steel producers are simply uncompetitive.
So should we be procuring UK steel rather than using an internationally produced equivalent? The obvious and easy answer should be yes. There would be great social implications for the wider UK economy, with higher employment and more money kept in circulation to be spent with other businesses. The business secretary has already proposed to change procurement regulations for these social impacts to be considered for all new projects. Whilst this is a good first step, the important issue for construction companies, who already face cost inflation through the national living wage and subcontractor inflation, is to prevent these projects from becoming unprofitable. For many businesses already squeezed to a 2% net margin there must be more done to allow the UK steel industry to be competitive on price and affordable to businesses. From a recruitment and macro employment perspective, one of the most important aspects is to ensure that these major infrastructure projects are progressed and built. This will provide critically important experience for sector leaders and enable senior managers to improve their credentials whilst allowing future talent to flourish rather than being lost to other sectors. The industry already faces challenges bringing in new talent so the sector must work to retain talent where possible.
With this in mind, every measure must be taken to improve the UK steel industry and to integrate it further with the major construction projects to provide jobs, security and remain a sense of national identity during a period when the topic is particularly politicised.
George Dobbins is an Associate Consultant in the Infrastructure & Built Environment Practice.