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Jon Excell
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The Engineer
Forgemasters saga raises concerns over coalition business policy
The news that Sheffield Forgemasters has suspended work on its giant nuclear-industry forge press marks a new low in a saga that continues to raise more questions than it answers.
Did the government really cancel its £80 million loan for the press because it simply couldn’t afford it? Would Lord Mandelsen’s cheque really have bounced? What role, if any, was played by Yorkshire businessman, Tory donor, and opponent of the loan Andrew Cook? And, as Nick Clegg has suggested, did Forgemasters only seek public funding in the first place because it didn’t want to dilute its own shareholdings?
But perhaps the biggest question of all is why have no private investors stepped forward to rescue a project which apparently has so much going for it?
When the loan was cancelled in June most misgivings over the government’s short-sightedness were tempered by the confidence that investors, spotting an opportunity missed by ministers, would step in to make up the shortfall.
Why have no private investors stepped forward to rescue a project which apparently has so much going for it?
The worrying fact that this hasn’t happened could mean a number of things: either the project is not as good as it sounds or private investors are as cagey as ministers. Perhaps they simply don’t understand the sector, or have been poorly briefed on the potential significance of the project.
Of all of these options, we would suggest that the first is the least likely. To help avoid economically and potentially socially catastrophic global energy shortages the world needs more nuclear reactors. If you want new reactors, you need new pressure vessels. And the Forgemasters press would have made the UK one of a tiny handful of places able to build these components.
Whatever the reason, the unpalatable truth seems to be that private investors are no more willing than government to invest in a key area of the UK’s future manufacturing base. And this adds some flesh to the bones of Labour’s warning that by pulling away state support too soon you risk halting economic growth.
But the Forgemasters fiasco looks set to rumble on a little longer yet, and with business secretary Vince Cable this week pledging to work closely with the firm when the future of public funds becomes clearer this autumn, there might just be final twist in the tale.
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Readers' comments (19)
Robert Lederman | 28 Jul 2010 9:38 am
Re: Forgemasters' Gov't Loan etc.
Today's issue of your newsletter has an article detailing a venture capital investment of 14myn into a waste-to-energy company.
This demonstrates that money is there for worthwhile investments. Therefore, either the initial government decision was poorly analysed, or private money will be forthcoming, provided that Forgemasters can make a business case that goes beyond the nonsense of "maintaining a critical presence for the future" etc.
Sincerely,
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B Chapman | 28 Jul 2010 12:16 pm
I think this was the first bad move this new goverment have made, they talk about supporting industry and at the first chance they get they fail. This is disgracefull, Forgemaster should be supported and helped to compete in this key market given all the nuclear plants that are planned through out the world. After all it was loan that was wanted not a gift.
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Anonymous | 28 Jul 2010 12:21 pm
If it is money then cancel Polaris updates and save billions. Kissing butt with the Americans seems more important than improving this country's production, export, capabilities. BP are also suffering with the clean up costs, how much did the USA pay for clean up of their disaster in India a few years back? This Gov't wants to learn to face up to the USA.
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Anonymous | 28 Jul 2010 12:48 pm
It seems to me that a UK company like Forgemasters would eventually be paying more tax and employing more people if they were given the loan by the government. Longer term the loan would be repaid and the UK would see a share of the profit. It is most likely foreign investors will step in and the tax man will see little of the rewards.
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Anonymous | 28 Jul 2010 12:52 pm
This episode has clearly demonstrated that all the talk of supporting the UK manunfacturing industry is nothing more than hot air.
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mr fox | 28 Jul 2010 12:56 pm
The financial markets in the UK are largely technologically illiterate and irredeemably short-termist in perspective. The Forgemasters opportunity is too long-term and will not sit well on their quarterly assessments around which their remuneration is based. This would not happen in Germany or France and no prizes for guessing where our relative industrial performance sits against these two nations. The UK needs a fundamental attitude change to what is best for the nation as a whole and not what is best for the ignorant suits in the City of London.
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Julian Warwick | 28 Jul 2010 1:00 pm
The government will only provide loans and grants to business as "funding of last resort". If private sources could plug Forgemaster's funding gap, then the company would not have received an offer of a Government loan - it would have breached the Government's own additionality rules. The withdrawal of the loan offer indicates the Government's lack of commitment on state funding for British engineering. Banks are worth rescuing, but UK engineering and manufacturing are on their own.
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Anonymous | 28 Jul 2010 1:29 pm
Shame on the Conservatives, UK plc can't survive on service industry alone. Back UK manufacturing and UK jobs.
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Paul Hinsley | 28 Jul 2010 1:46 pm
I agree with Mr Fox it would never happen in France,Germany or indeed Japan. I am old enough to remember what happend to south yorkshire under the Thatcher government. This area is desperate for manufacturing regeneration. But what can we expect from a coalition with no understanding of manufacturing and it's fundamental effect on the ecconomy. The same thing is going to happen in the West Midlands with the closure of the Advantage West Midlands organisation being cancelled. There are many people who are going to regret the way they voted in 2010
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George Noon | 28 Jul 2010 1:50 pm
Could it be as you suggest in your article that the investment opportunity is not as copper bottomed asit would first seem, therefore private investors are not going to get killed in the rush.
Lets be honest there have been many instances where the government has given loans to sure fire profit making job creating projects only for them to go sour when it comes to making it work.
Possibly the solution to the problem is for the government to give some sort of loan guarantee to participating investors.
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