Rishi Sunak, UK chancellor, will apply tough “value for money” tests for any taxpayer-backed aid for the steel sector and other big energy users, after Boris Johnson supported a rescue plan in principle.
The prime minister on Monday insisted that the Treasury would look at a plan to “mitigate” the impact of spiralling gas prices on Britain’s energy-intensive industries, siding with business secretary Kwasi Kwarteng.
But Sunak remains highly sceptical about the case for providing state-backed loans for a wide range of companies, including steel, paper, glass, ceramics and fertiliser manufacturers, to help them through the winter.
Tensions between Kwarteng and the Treasury over the possible rescue plan surfaced on Sunday, forcing Johnson, who is on holiday in Marbella, to order the feuding departments to resolve the issue.
The Treasury said it was working through a support package suggested by Kwarteng as quickly as possible, but one government official said it would take “some time” to consider the proposals and a decision would not come immediately.
Steve Barclay, Cabinet Office minister, said on Tuesday that any help package would have to be looked at “in terms of what is value for money and what is proportionate”.
Barclay, a Treasury minister until last month’s cabinet reshuffle, told Times Radio any help would be conditional on a range of factors, including whether companies had hedged against rising gas prices.
He added: “Have they recently paid dividends? Are they paying big bonuses? We’ll need to understand the detail rather than just knee-jerk to a taxpayer response. It’s about balance and engagement.”
Sunak is trying to hold the line on public spending ahead of his Budget on October 27 and fears that whatever deal is agreed with energy-intensive companies could open the door for requests for help from other sectors.
Kwarteng’s proposal focuses mainly on offering state-backed loans, which could be worth hundreds of millions of pounds, depending on take up by industry.
Kwarteng’s team insist that the support will be aimed at viable businesses that should be able to repay any loans. “We can’t let them go to the wall because of high energy prices,” said one ally.
But Treasury insiders believe help should be limited. They noted that during the pandemic, when the government pumped billions of pounds into supporting the economy, the taxpayer only bailed out one individual company.
Celsa, a Spanish steelmaker with main sites in South Wales, received a state loan last year thought to have been worth about £30m, under a programme known as “Project Birch”.
Sunak’s team also believes that the market should be allowed to function wherever possible and that state intervention should be kept to a bare minimum.
The chancellor’s team pointed to the recent example of how a three-week state support package of about £20m to CF Fertilisers, a manufacturer of CO2, had been sufficient to help the company renegotiate contracts and keep operating.
Gareth Stace, UK Steel director-general, welcomed Kwarteng’s efforts to support the sector, but said “the key measure of success for this proposal is whether it places UK steel producers on a level playing field on energy costs compared to their European counterparts”.
The prospect of some targeted state-backed loans is unlikely to satisfy many of the larger energy-intensive companies, which have been lobbying for a generous package of support.