Ministers are all set to initiate a consultation to allow the UK government cut of billions of pounds from the long-term liabilities of the British Steel pension fund. UK business secretary, Sajid Javid has proposed changing the annual uplift in pensions provided to members of the £15bn scheme from the RPI inflation index to CPI.
Once approved, the move would cut an estimated £2.5bn from its long-term liabilities and reduce its deficit, estimated at £485m, thus preventing it from falling into the Pension Protection Fund, the state pensions lifeboat. The scheme’s deficit is one of the factors making Tata Steel’s UK assets, put up for sale in March, less attractive to buyers. Mostly welcomed, the idea has however prompted concerns in the Treasury and Department for Work and Pensions as it would also involve legislative changes setting a precedent for hundreds of other pension funds.
What pinched is the fact that the proposal also requires a change to the 1995 Pensions Act, which forbids trustees from reducing payouts promised to members. Pension consultant John Ralfe said, "This is the most extraordinary government document I have ever read. It is telling us that ministers are willing to change the law for one particular company in one particular set of circumstances."
UK steelworkers marched through London last week calling for government action to preserve their industry. Most of them still wait for Tata Steel to provide some insight regarding their future. The trade unions representing present and former steelworkers have reportedly backed the deal. While the current workforce will certainly end up with smaller cuts than if the pension is forced to resort to the Pension Protection Fund, it could have malign consequences for British workers as a whole if it is allowed to become a general rule. Companies throughout the economy, particularly those with owners finding them hard to sell because of the cost of pension obligations, will start seeing how they can follow suit.
Meanwhile, with a slew of potential bidders willing to takeover the doomed plant, the Indian company's top executives who met in Mumbai recently, refused to speak out on the matter. Executive Director Koushik Chatterjee poured water on speculation saying new concessions could persuade it to keep hold of its UK operations. He said the Indian company remained focused on securing a sale. "At all points in time we have been working very closely with the British government. The premise of the conversation is how to make this into an orderly transaction. At this point, let's focus only on the sale process."
Earlier this month, Tata Steel had announced it had received seven expressions of interest to acquire the firm's UK business. The company released a statement saying all seven have been "immediately taken forward" to the next stage of the sale process, which involves inputs from the British government. Among the frontrunners are, Indian-origin businessman Sanjeev Gupta's Liberty House and a Excalibur Steel UK Limited, a management buyout (MBO) team of former Tata Steel staff who are backed by the Welsh government.
