The government’s plan to nationalise British Steel may be necessary to safeguard a strategically important industry, but the financial implications for the wider construction sector and the economy should not be underestimated.
David Crosthwaite, chief economist at the Building Cost Information Service (BCIS).
The core challenge remains that UK steelmakers continue to face some of the highest energy prices in Europe.
In an attempt to address this, the government has committed to compensating eligible energy-intensive industries (EIIs), including steel producers, under the EII Network Charging Compensation (NCC) Scheme for charges associated with using the national electricity grid.
From April 2026, eligible businesses became entitled to 90% compensation. However, the major drawback is that payments will not be received until after April 2027.
This timing coincides with the government’s plans to increase the EII Support Levy from April 2027 to fund the NCC scheme.
The fact that further meaningful financial support for domestic steel production is still at least 12 months away is concerning, particularly given the Department for Business and Trade spent £377 million between April 2025 and January 2026 to keep British Steel’s Scunthorpe site operational.
The issue is not whether the government can afford its intervention to nationalise British Steel, but whether it represents a sensible, long-term economic strategy.
On the surface, bringing British Steel into public ownership offers greater security for both jobs and the UK’s capacity to produce virgin steel domestically. Had a private investor taken control instead, there was a real risk of a repeat of last year, when Jingye considered shutting down the site’s blast furnaces amid claims of substantial losses.
Moreover, with energy markets and global trade conditions remaining volatile, maintaining a secure domestic steel industry could provide some insulation against spikes in imported steel costs.
That said, the proposed nationalisation appears to be driven more by political considerations than by economic fundamentals.
Alongside persistently high electricity prices, domestic steel producers are also facing rising labour costs.
Wage growth across the wider economy continues to trend upwards, reinforced by increases to the National Minimum Wage and National Living Wage introduced in April, adding further pressure to operating costs for steel businesses.
At the same time, the steel industry faces heightened competition from overseas competitors. Contractors understandably prioritise the most cost-effective materials available.
This is especially true in the current environment, where firms face elevated and increasingly unpredictable cost pressures, weak demand conditions and a shrinking pipeline of new work opportunities, all of which are a burden on margins.
While imported steel can still offer cost advantages, its competitiveness remains vulnerable to global trade volatility, shipping disruption and wider procurement risks, which can quickly shift pricing dynamics.
The main caveats to the demand outlook would be a sharp rise in imported steel prices as a result of continued disruption in the Strait of Hormuz, or the government’s proposed changes to tariff quotas for steel imports.
Neither development, however, guarantees a significant uplift.
The cost impact of disruption in the Strait of Hormuz depends heavily on the duration and severity of geopolitical unrest, while the tariff quota proposals are already under review ahead of their planned implementation in July.
Ministers are reportedly reconsidering the policy, which would introduce tighter import quotas and 50% tariffs on certain imports, following concerns from the construction sector over steel availability and the impact on project costs.
Either way, the government is taking a risk with its steel strategy.
Failing to intervene would risk undermining domestic steel security and weakening an industry viewed as strategically important to the UK economy. Conversely, the current approach risks placing even greater pressure on contractor margins in an already difficult trading environment, particularly if protectionist measures push material costs higher.
There is also the longer-term concern over investor confidence.
Nationalising British Steel may create uncertainty among prospective private investors by reinforcing the perception that, while investment in the UK is welcome, government intervention could ultimately override private ownership when assets become strategically sensitive.
Given the importance of construction activity to UK GDP growth, protecting the wider industry’s resilience and ability to withstand ongoing economic volatility arguably represents the greater priority.
The unresolved challenge for policymakers is therefore finding a realistic balance between preserving domestic steel production and avoiding further cost pressures that could damage construction output, investment and wider economic growth.
By David Crosthwaite, chief economist at the Building Cost Information Service (BCIS).
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