Lost jobs from steel crisis could cost UK government £4.6bn

A loss of up to 40,000 jobs from Tata Steel UK and the supply chain, as previously estimated by IPPR, could cost government a total of £4.6bn in tax revenue and benefits and reduce household spending in the economy by £3bn, over 10 years

Following the decision by India’s Tata Steel to sell all or part of its UK business, IPPR looked at the potential job losses at the plants themselves and in the supply chain, in the event that no buyer can be found. Further research now shows the effect this might have on the government’s finances and the economy.

If the UK loses 40,000 jobs this year from Tata Steel plants and their suppliers, the cost to government in 2016/17 could be £0.8bn, or £2.2 million per day. This reflects lost revenue from income taxes and VAT, and additional benefit payments. Over the course of ten years this could come to a cumulative total of £4.6bn. In addition, the economy will also suffer from a drop in spending from affected households by £0.5bn in 2016/17, worth a cumulative total of £3bn over ten years.

Alfie Stirling, IPPR Research Fellow, said:
“The effects of plant closures on the UK could be very serious indeed. Our new analysis shows that there is significant fiscal and economic cost to inaction, which the government must take account of when considering its options for Tata Steel.

“It is of the upmost importance that the government recognise that the UK economy is more resilient when we retain a more diverse industrial base. The steel crisis acts as a reminder that we need to work harder to embed our core material producers into supply chains around strategic sectors like car-manufacturing and aerospace engineering.”

ENDS

Contacts

Sofie Jenkinson, s.jenkinson@ippr.org / 07981023031

Tim Finch, t.finch@ippr.org / 07595920899

Notes to Editors

IPPR’s report ‘Strong Foundation Industries: How Improving Conditions For Core Material Producers Could Boost UK Manufacturing’ was published on Thursday 24th March on: http://www.ippr.org/publications/strong-foundation-industries

1. Figures for supply chain job losses are based on IPPR analysis of ONS multipliers derived from 2010 ‘supply and use’ tables. Figures for employment are based on full-time equivalent jobs. Estimates of job losses down the supply chain are based on the assumption that output will fall as a result of job losses at the plant. As with all multipliers, these estimates will be subject to a margin of error. Further, these estimates do not take account of the fact that some people and suppliers will find business elsewhere, and that some affected suppliers and jobs will be located outside of the UK. They therefore represent estimates of gross job losses, not net.
2. Figures for the cost to government have been estimated using average pay in the basic iron and steel sector of £35.6 thousand per annum, and for manufacturing as a whole at £31.5 thousand per annum, and include lost revenue through income tax, employer NICs, employee NICs and VAT, as well as additional payments through JSA and ESA WRAG group.
3. Figures for lost household spending power have been estimated using our calculation of total lost income net of taxes and the Bank of England’s estimate for the average marginal propensity to consume after a negative income shock of 0.64 per cent.
4. Cumulative figures are based on the assumption that 60 per cent of lost jobs will be replaced by new jobs over the course of ten years. Current estimates for the coal industry suggest that it took 23 years for 60 per cent of jobs lost in the 1980s to be replaced in other industries. We assume that the creation of new jobs is linear across time, such that 60 per cent of those made unemployed are back in employment after ten years. All cumulative figures have been discounted at 3.5 per cent per year to reflect net present day values in line with recommended HM Treasury methodology set out in The Green Book.