Government plans to award cash grants for innovative steel projects have been scrapped, with ministers instead prioritising emergency support for struggling steelworks.
The decision marks a significant change in direction for the government’s £2.5bn steel industry plan, which was originally expected to include a competitive process allowing companies to bid for investment funding. Officials now say businesses will still be able to access money through the National Wealth Fund, but those bids will need private co-financing and will compete against other sectors such as energy and manufacturing.
Focus shifts to rescuing struggling plants
The Department for Business and Trade (DBT) confirmed that the abandoned grant competition will be replaced by targeted financial support aimed at stabilising the UK’s loss-making steelworks. Ministers say the focus is now on creating a “competitive business environment” and helping Britain’s remaining steel plants return to profitability.
The UK’s steel sector has been under intense pressure from high energy prices, global oversupply, and rising tariffs, with four of the six main steel firms currently relying on government aid. Downing Street continues to regard maintaining domestic steel production as a matter of national security.
Labour had pledged to spend £2.5bn on steel as part of its election manifesto, with the new steel strategy due to be published next month. However, much of the budget has already been diverted to cover emergency measures — including the government’s takeover of British Steel in Scunthorpe and financial support for Speciality Steels UK (SSUK) in South Yorkshire.
Government: ‘Funding still available’
Chris McDonald, the steel minister, told the BBC that the government remains committed to supporting the sector. “We’re still providing a huge amount of support to the steel industry — from help with energy prices to procurement,” he said. “Investment funding is still available, but the private sector will need to determine which opportunities they want to pursue.”
The National Wealth Fund, launched last year, holds up to £27.8bn for industrial and clean energy projects. Some of that funding is expected to go towards steel, with the first successful projects likely to be announced next month.
Industry fears and new challenges
The government’s decision follows warnings from UK Steel, the industry’s main trade body, that the sector faces an “existential threat” after the European Union unexpectedly announced a 50% import tariff on British steel.
Officials also remain concerned about the fragmented nature of the UK’s steel industry. Senior DBT figures have privately supported a potential merger of Britain’s main producers, though they acknowledge such a move would require agreement from current owners.
Meanwhile, the government’s takeover of British Steel’s Scunthorpe plant — after accusing Chinese owner Jingye Group of attempting to shut its blast furnaces — has already cost taxpayers nearly £250m. Efforts to find a new buyer have stalled after Jingye demanded hundreds of millions of pounds to relinquish control.
In contrast, SSUK, part of Sanjeev Gupta’s Liberty Steel empire, is seen as a more attractive prospect for sale, having already shifted towards greener electric arc furnace technology.
Other major players have also received state aid — including Tata Steel, which secured a £500m package to transition to low-carbon production, and Sheffield Forgemasters, which was nationalised in 2021 to safeguard critical defence capabilities.
