The jobs have been at risk since March when Tata Steel announced it was putting its UK business up for sale amid losses of more than £1m a day. The decision sparked a political crisis as the government scrambled to secure the future of the plant. Port Talbot is one of only two sites in Britain that makes steel in blast furnaces.
There are 4,000 steelworkers at Port Talbot and thousands more at other Tata Steel sites across the country. However, the rescue plan could still fall apart if the UK workers reject changes to their pension arrangements. The Indian company is yet to confirm how it will fund their existing benefits – with the scheme at risk of entering the Pension Protection Fund, which would result in a 10% cut to members’ benefits. The British Steel pension scheme (BSPS) has liabilities of more than £15bn and 130,000 members.
Tata Steel wants to shut the final salary pension scheme and replace it with a less generous defined contribution scheme. Steel workers will vote on the plan in the new year, although union leaders and trustees for the pension scheme have given it their backing.
In exchange for overhauling the pensions, Tata Steel has committed to production at Port Talbot and its other sites. This includes a guarantee that two blast furnaces at Port Talbot will remain in operation for at least five years, £1bn will be invested into the business, and the company will try to avoid compulsory redundancies for five years.
The company has agreed the package with the Community, GMB and Unite unions after months of negotiations.
Roy Rickhuss, the general secretary of Community, said: “The past year has been incredibly difficult for steelworkers and their families. When Tata announced in March that they planned to sell the steelworks, no one knew if they would have a job by Christmas. This proposal would secure jobs for years to come and bring serious investment not just to Port Talbot but to steelworks across the UK.”
Tata Steel warned that the industry was still under pressure and the UK business faced a battle to become sustainable. The company remains in talks with German rival ThyssenKrupp about merging their European steel operations.
Koushik Chatterjee, group executive director, said: “These are unprecedented times for the steel industry globally with multiple risks including global economic uncertainty, slow manufacturing growth and currency volatility which continues to present significant challenges to the business.
“There is much more work to be done to make Tata Steel UK more financially sustainable, but I am confident that all stakeholders will do all they can to try to ensure that the company will be able to achieve its plan in the coming months and years.
“The proposed changes to future pension provision and other employment terms are necessary to derisk the company and help achieve long-term sustainability. We are also working separately on a necessary structural solution for the British Steel pension scheme fund.”
The announcement was welcomed by politicians, including the local MPs who have led the campaign to secure the future of Tata Steel UK.
Stephen Kinnock, MP for Aberavon, which includes Port Talbot, said: “The production, jobs and investment elements of this deal represent a historic victory for pragmatic trade unionism, and for the power of united and concerted campaigning by steelworkers, steel communities, and steel MPs.
“But let’s be clear: this deal has been struck in spite of, not because of, the government. The government only began to engage with the steel industry when it became a public relations disaster for them.”
However, he warned there were serious questions and concerns about the pension scheme.
The government is understood to be cautious about celebrating the announcement until the pension changes are approved by workers. It has U-turned on plans to change the law so that Tata Steel can restructure the scheme by moving it into a new vehicle and shifting the annual inflation-linked increase in benefits to a lower CPI measure rather than RPI. Instead the government will now not interfere in the restructuring and will leave it to Tata, pension trustees and the Pensions Regulator.
Greg Clark, the business secretary, said: “This is an important step forward in achieving a sustainable long term future for steel making at Port Talbot. The government will continue to work with all parties in achieving this shared goal.”
Pensions experts warned that Tata Steel had done little to tackle the deficit and existing liabilities already in the scheme.
John Ralfe, a pension consultant, said: “Tata Steel is making annual cash contributions for new defined-benefit pension promises of 11.5% of salary versus 10% for the replacement defined-contribution scheme, so closing the defined-benefit scheme saves virtually nothing for the company.
“Because major disposals have reduced Tata Steel’s creditworthiness, the pension trustees should demand higher deficit contributions, so the total annual cash contribution could easily go up. Closing the defined-benefit scheme does nothing to address the existing £15bn of liabilities.”
The trustees said the scheme was very likely to enter the PPF unless the deficit was reduced. The deficit was measured at as much as £700m earlier this year but has reduced to around £50m owing to movements in government bond yields and the fall in the value of sterling.
Allan Johnston, chairman of the trustee board, said: “Options for separating BSPS [the pension scheme] from Tata Steel were outlined in the Government’s consultation document in May. All of these options required closure of the BSPS to future accrual.
“The trustee is in constructive discussions with Tata Steel, HM government and the Pensions Regulator about the options in the consultation.
“Although the trustee was not involved in the negotiations between Tata Steel and the trade unions about closure of the BSPS, today’s announcement is an important step towards achieving the best possible outcome for the scheme and its members.
“The trustee remains confident that the assets it holds are more than enough to pay the proposed modified benefits, which would be a better outcome than PPF compensation for the vast majority of members.”
guardian.co.uk © Guardian News and Media Limited 2010