AMID rising calls for the Government to save steelmaking on Teesside, business editor Andy Richardson looks at the the pros and cons of a bail-out.

FOR:

IT SAVES JOBS

Parts of Teesside are blighted by the highest jobless rates in the country that are more than twice the national average. Closure of the works, and the knock on effect at local suppliers, could lead to an estimated 9,000 people losing their jobs, creating an unemployment black spot, hammering confidence, and adding to the welfare bill.

STATEGIC IMPORTANCE

The government is determined to build what it has called a ‘Northern Powerhouse’ with businesses and infrastructure capable of challenging the economic dominance of London. Redcar iron and steel works has the second largest blast furnace in Europe. Letting it close would lead to further questions about the Government’s commitment to ensure Teesside is integral to its powerhouse plans.

THE BANKS WERE BAILED OUT SO WHY NOT THE STEEL INDUSTRY?

Labour and the unions have cited government intervention during the financial crisis, when billions of pounds of public money was used to prop up failed lenders many which had dangerously overstretched themselves, as a precedent that should be followed. Similarly, the east coast rail line was taken into public ownership and run profitably following the collapse of the National Express franchise in 2009.

THE TAXPAYER WILL FOOT THE BILL ANYWAY

Should SSI fail it could be taxpayers who pick up the costs of redundancies and cleaning up the site. Clean up costs could run to hundreds of millions of pounds. Unions argue a better use of public money would be to keep the plant running or offer financial guarantees that help tide it over this difficult period.

AGAINST:

IT WOULD BREAK STATE AID RULES

EU members must adhere to rules about state aid which are in place to ensure private companies aren’t given a competitive advantage from the state. Both France and Italy have supported their steel firms with state aid, but in the Commons last week, business minister Ann Soubry said the British government would not follow suit, “because we cannot complain about other people breaking state aid rules if we are doing it ourselves. I would much rather go to the European Union with clean hands so that we can say. We’re abiding by the rules, so now you have to abide by them, too,” she said.

SSI IS A PRIVATE BUSINESS

Thailand’s SSI bought the Redcar site from Tata as part of a long term plan to have a full service steel business, with an iron and steel plant on Teesside and mills in Bangkok. The initial costs of buying the plant and restoring it to operation were considerable, but the long-term aim was to run profitable businesses both here and in Thailand. At the heart of SSI’s problem is the falling cost of steel globally which is far below what the company expected when it restarted production in 2012. A free marketeer would argue that SSI must stand on its own feet and compete in the market or suffer the consequences.

HELPING SSI WOULD SET A DANGEROUS PRECEDENT

If the Government provides financial support for SSI it would set a precedent for other companies to ask for a bail-out when they encounter difficulties. The Coalition government offered modest amounts of cash for firms – for example through its regional growth fund – but this had to be matched by cash from the companies themselves, and was to be used to create jobs and support growth. There are no signs the Conservative government will be more generous.