The government has quietly signalled it will block a multimillion-pound payout to the owner of British Steel, sources close to the negotiations have confirmed. The move, described by one insider as a 'protectionist industrial play', threatens to unravel months of backchannel talks between the Treasury and the company's parent, Greybull Capital.
Documents leaked to this newspaper show that officials at the Department for Business and Trade have instructed the Insolvency Service to prepare legal grounds to refuse a dividend distribution to British Steel's holding company. The payment, worth an estimated £45 million, was due to be authorised under a restructuring agreement signed in 2020.
'They are playing a very dangerous game,' said a senior industry figure who has advised both Whitehall and the steelworks. 'Blocking a legitimate payout to a private equity owner sends a signal to every foreign investor in this country: your money is not safe here.'
The trigger appears to be a confidential memorandum from the Steel Council, an advisory body that reported directly to the Prime Minister's office in March. The memo warned that allowing the payout would 'expose the government to accusations of favouring financial engineering over industrial sustainability'. It further noted that British Steel's pension deficit had swollen to £280 million, a figure that the company disputes.
Greybull Capital acquired British Steel in 2016 for a nominal £1, inheriting a portfolio of debts and liabilities that had already claimed one owner, Tata Steel. Since then, the company has furloughed 700 workers, closed a furnace in Scunthorpe, and repeatedly asked for taxpayer-funded loan guarantees. The proposed payout, insiders say, was a reward for management's 'successful turnaround'.
But the turnaround has been anything but successful by the numbers. Production at the Skinningrove plant has fallen 12% since 2018. Meanwhile, the company's Chinese competitors have flooded the European market with subsidised steel, driving down prices by nearly a fifth. British Steel's own accounts show net losses of £67 million in the last financial year.
The government's intervention is unusual. Since the 1980s, Whitehall has rarely blocked a dividend payment to a private company, even one in distress. The last such case involved a state aid probe by the European Commission into Royal Mail in 2013. Now, with Brexit done, ministers appear willing to use their newfound regulatory freedom.
'This is a test case,' said a former Trade Minister who asked not to be named. 'If they succeed in blocking this payout, every private equity firm in the country will be on the phone to their lawyers. It rewrites the unwritten rules of corporate governance.'
The decision will not be made until after the summer recess, but the signal is clear: the Treasury is no longer content to be a silent partner in the steel industry. It wants a seat at the table, and it wants a say in where the money goes.
British Steel declined to comment for this story. A spokesperson for the Department for Business and Trade said: 'We do not comment on the affairs of individual companies.' But sources confirm that the letter from the Insolvency Service has already been drafted. The only question now is whether Greybull will sue.
And in the courts, the outcome is far from certain. Legal experts say the government's argument rests on a clause in the 2020 restructuring that made the payout conditional on 'sustained improvement in the company's financial health'. Whitehall now claims that improvement has not materialised.
Greybull's lawyers will argue that the clause is vague and that the company has met every target set by the government. They have already instructed barristers from a leading commercial chambers. The battle lines are drawn.
For the workers at British Steel, the feud between Downing Street and a private equity firm means one thing: more uncertainty. 'We just want to make steel,' one union representative told me. 'But every time we look up, there's another lawsuit, another threat, another delay.'
The protectionist move by Whitehall may win plaudits in the Labour heartlands, but it comes with a cost. As one City analyst put it: 'They are sending a message to investment. And that message is: stay away.'
