With the recent closure of the last active blast furnace in Port Talbot, Nathan Critch and Darcy Luke explore how the end of traditional steel making in the UK will affect regional economic policymaking, devolution, industrial productivity and the Green Transition.
The recent closure of the last active blast furnace in Port Talbot by Tata Steel is an issue that sits at the centre of several converging issues of distinct importance to the UK, particularly in terms of the ongoing productivity puzzle with which UK policymakers are grappling and the ongoing devolution agenda, both nationally and regionally.
The closure of the second blast furnace at Port Talbot after 70 years of active service, has cost nearly 3,000 people their jobs and marked the end of traditional steel making in the UK. For many, the closure signifies the nadir of steel manufacturing in Britain as a whole. For over fifty years, British steelmaking has been in decline. At its peak of production and employment in the early 1970s, steel manufacturing employed over 300,000 people and produced around 28.3 million tonnes of steel. By 2014, employment had fallen to 34,500 (around 0.1% of total UK employment) and production had fallen to around 9 million tonnes. That said, despite employment falling to a tenth of its peak, output had only fallen by about half over the same period, reflecting a significant increase in the productivity of the sector.
In many respects, the life of the steel industry in the UK is a microcosm of the British economy more generally, and manufacturing in particular. Wholesale privatisation, along with increased exposure to substantial global competition has meant that the sector has declined in size, employment and output. That said, whilst manufacturing employment has reduced since the 1970s, the productivity of manufacturing has continued to increase. Between 1998 and 2019, manufacturing had one of the highest productivity growth rates in the UK. That said, the share of manufacturing in the economy decreased the most sharply (from 16.1% to 9.7%). Due to this decline, the UK economy suffered a productivity penalty of around half a percentage point per year over the period. Compared to economies like China, where manufacturing has been responsible for massive productivity gains, the lack of scale of UK manufacturing prevents the sector from converting its high relative productivity to overall economic prosperity. And with the closure at Port Talbot, the UK will now be the only country in the G7 that cannot manufacture steel from scratch, meaning an increased reliance on expensive imports.
Tata Steel, the Indian-based firm which owns the steel manufacturing plant at Port Talbot, has stated that the closure of the final blast furnace in the town is to make way for the future. The company plans to bring electric arc furnaces online which will not only significantly reduce the carbon emissions of the plant, but also increase productivity. However, the first electric arc furnace will not be brought online until 2027 at the earliest and, when it does come online, it will mean significantly fewer jobs.
All of this points to a difficult trade-off that is often not present in discussions about productivity; namely, that increases in productivity often come at the expense of jobs. Historically, this has certainly been true for British industry. Regional inequalities which continue to define the spatial inequalities of contemporary Britain are themselves a result of rapid deindustrialisation throughout the 1970s and 1980s, which saw industries offshored whilst economic growth became concentrated in financial and service sectors. Those left unemployed by deindustrialisation often found their route back into the labour market by way of low skilled, low paid jobs in non-tradeable sectors, which has resulted in a seemingly permanent productivity deficit in the once industrialised areas of the country outside of London and the Southeast.
This raises serious issues for policymakers. In the search for the solution to the productivity puzzle, the problem of unemployment has often taken a backseat. However, the ‘geography of discontent’ which has reared its head electorally in recent years, is fuelled by the dislocation of millions of Britons from traditional structures of employment and the prevalence of underemployment in previously industrialised areas. These left-behind places are often the price paid for a rush towards productivity and serve as a cautionary tale for policymakers who only ‘pick the winners’ without due consideration for the consequences. This takes on added weight in the context of a need for a green transition. Again, Tata Steel – in defending its closure in Port Talbot – pointed towards the very real need to achieve net zero carbon emissions. However, if a green transition comes at the expense of employment, then very serious questions about the viability of this transition come into focus.
The situation in Port Talbot also throws into stark relief some difficult political tensions. In the face of the regionalised political discontent we allude to above, politicians in Whitehall have increasingly drawn a link between the comparative centralisation of decision-making power and resource control within Britain’s political system and high levels of regional economic inequality. Policymakers have therefore increasingly turned to place-based politics and devolution as remedies.
The rationale underpinning these moves is simple: the creation of regional political organizations gives these regions a proper voice who can properly advocate for regional interests and who are strategically placed to use the powers devolved to them to pursue an economic agenda that best fits the needs of that region. The creation of the Welsh Assembly in 1998 is no different in this regard. Created as part of a raft of devolution initiatives on the part of the New Labour government, the Welsh Assembly was framed as a means of driving economic ‘regeneration’ and a means of spreading ‘economic prosperity throughout Wales’.
Though its powers and its independence from central government were modest, the Welsh Assembly has gradually amassed greater powers as devolution has continued to unfold. However, the devolution agenda in Britain has also been subject to criticism on the basis that regions have still not been sufficiently empowered, that there has been a lack of a coherent long-term vision for Britain’s regions, and that devolution and regional economic development has seen significant policy and institutional churn.
The Port Talbot situation highlights further tensions inherent within the devolution agenda regardless of scope, vision and institutional stability, regarding the relationship between central and regional governments in responding to powerful economic headwinds, and the ability of the latter to have a meaningful role in driving change. Throughout the negotiations regarding Port Talbot, the Welsh government has had clear priorities, calling for ‘the retention of primary steelmaking in Wales’ and the continued operation of one of the blast furnaces, which it saw as ‘central to Welsh economic interests’. However, negotiations with Tata steel have primarily been driven by central government.
The Labour government in Wales’s hopes for a more central role in and a greater influence over negotiations hinged on the result of the 2024 General Election. Under the Conservatives, the Labour government in Wales had suggested it had been frozen out of negotiations with Tata. During the election campaign, Labour leader Keir Starmer suggested Labour would take a different approach to negotiations over the future of the steelworks and would ‘fight for every single job’. Yet, in the end, though the deal struck by Labour will ‘deliver improved redundancy terms and a skills package for employees’, the deal represents only a modest improvement on the one achieved by the previous government. This brings an end to the hopes of both the Welsh government and trade unions that use of blast furnaces would continue in some, albeit reduced capacity in Port Talbot.
The Welsh government, for its part, has focussed its recent efforts on offering support packages for businesses in supply chains affected by the Tata’s transition to electric arc steelmaking. Whilst this demonstrates a positive role for the Welsh government in the regional economy, it also suggests a role with clear limits as a body which can react to and seek to mitigate the effects of economic headwinds, but which lacks the power and influence to meaningfully alter their direction. The change of government in Westminster meanwhile, has failed to deliver significant change in Port Talbot, and has forced the Welsh government into a position of defending a deal which is to a large extent the same as one they criticised.
More radical solutions, which would have given the Welsh government a much more central role in Port Talbot’s economic development have been proposed. Plaid Cymru in particular, had raised the prospect of the Welsh government ‘explore options for the compulsory purchase of the plant while future options for greening steel production – including through replacing coal with green hydrogen – are developed’. However, whilst the cost of an alternative compulsory purchase plan has not been calculated, it is worth noting that the whole of the Welsh government’s economic development budget totals £527 million, only marginally more than the amount the UK government has agreed to pay Tata as a subsidy as part of the current plan. This exposes the potential limitations of current capacity in local and regional government, with local and regional bodies generally working within conditions of only limited fiscal devolution and extensive budget gaps (especially at the municipal level in Wales), further hamstringing their ability to support transformative regional and local economic agendas.
Dr Nathan Critch and Dr Darcy Luke are Research Associates at The Productivity Institute at the University of Manchester, both working on the 'Institutions and Governance' theme. You can follow them on X at @Nathan_Critch and @DarcyLuke1990.