Why Nationalisation of British Steel will fail: Bepi Pezzulli Makes the Case for Smarter State Support Through Preferred Equity—Stabilising Industry Without Sacrificing Market Discipline.
When Chinese ownership meets British indecision, the result is a perfectly avoidable catastrophe wrapped in a Union Jack.
The slow implosion of British Steel’s Scunthorpe plant is less an industrial accident than a policy failure in slow motion—one that threatens not just 2,700 jobs, but the UK’s ability to manufacture steel from scratch.
Jingye Group, the Chinese firm that acquired British Steel in 2020 with fanfare and vague promises, has now announced the closure of Scunthorpe’s blast furnaces and steelmaking operation. It claims losses of £700,000 a day, and rebuffed a £500m transition package from the government, holding out for double that. This puts an end to 135 years of steel production in Scunthorpe and leaves Britain, uniquely in the G7, without domestic capacity to turn raw materials into steel.
The implications extend well beyond Lincolnshire. Without primary steelmaking, the UK becomes entirely reliant on imports for a product critical to defence, infrastructure, transport and energy. The fantasy of “sovereignty” rings hollow when you can’t produce your own tanks or pylons. The collapse also threatens to hollow out Britain’s manufacturing base further, reduce regional economic resilience, and leave critical supply chains at the mercy of foreign powers—one of which is, incidentally, the vendor in this case.
Yet nationalisation, the knee-jerk fix favoured by Labour, is not the answer. It is costly, slow, and usually politically compromised.
Yet nationalisation, the knee-jerk fix favoured by Labour, is not the answer. It is costly, slow, and usually politically compromised. Nor would it address the management incompetence and poor investment incentives that brought Scunthorpe to the brink in the first place. A better path exists: the UK state should step in as a preferred equity investor, providing capital with a guaranteed return but no voting rights. This would give the plant breathing room without distorting corporate governance.
Preferred equity is a hybrid financial instrument that combines characteristics of both debt and equity. It sits above common equity in the capital structure but below debt, offering fixed dividends that resemble interest payments, typically cumulative. These shares carry no voting rights, preserving control for private shareholders while insulating the government from operational interference. For the recipient firm, preferred equity strengthens the balance sheet without triggering debt covenants or increasing leverage ratios, improving creditworthiness. For the taxpayer, it promises a defined return and a clear exit strategy, avoiding the open-ended liabilities of full public ownership.
To further de-risk the intervention, the preferred equity could be paired with a call option, allowing the company or a new investor to redeem the shares after a defined period at a pre-agreed price. A government put option could also be considered, exercisable under specific triggers (e.g. persistent underperformance or change of control), transferring the preferred stake to a designated strategic buyer. These instruments add flexibility and protect public funds, ensuring that the capital injection is temporary, conditional, and monetisable.
But the money should come with strict strings attached: a new, high-calibre board made up of turnaround specialists, steel operators, and financial professionals with a mandate to run it as a commercially viable business, not an industrial monument. The injection should be accompanied by rigorous performance benchmarks, cost controls, and an end to the illusion of green steel transition.
There is precedent for this. During the 2008 financial crisis, the U.S. Treasury injected capital into Citigroup and General Motors through preferred equity instruments. Citigroup received a $20 billion preferred equity investment under the Troubled Asset Relief Program (TARP), alongside a loss-sharing arrangement on toxic assets. The shares carried an 8% dividend and were later converted to common equity as part of the exit plan. GM received over $49 billion, of which $2.1 billion was structured as preferred stock, with the government also taking a common equity stake. In both cases, the Treasury maintained arm’s-length governance, installed new boards and management teams, and exited profitably in staged disposals once the companies stabilised. The preferred equity structure offered immediate balance sheet relief and investor confidence while ensuring taxpayers were compensated with interest-like returns.
The model proved that it is possible to rescue large employers while maintaining market discipline.
Scunthorpe does not need just a flag. It needs cash, conditions, and competence.
Bepi Pezzulli is a Solicitor of the Senior Courts of England and Wales specialising in Governance as well as a Councillor of the Great British PAC.
Website: www.bepipezzulli.eu
Bepi tweets at @bepipezzulli
