Douglas Hansen-Luke was Parliamentary Candidate for Walsall North last May, and advises and consults with government sovereign funds on best practice asset allocation and impact investing.

The first lines of this article were composed in Dubai shortly after Sanjeev Gupta left for Britain with a potential rescue bid for Tata Steel.  The Gulf, like Port Talbot, is being buffeted by the forces of international supply and demand.  Over the past 18 months, oil prices have fallen from $140 per barrel to around $40 today.  Despite being the biggest producers in the world, the governments of the Gulf have been unable to control the price of oil.  As high-cost, bit-players in a global industry, it is inconceivable that the British government or any one producer can beat the market – and only the most charlatan of politicians will argue otherwise.  Yet, as this article outlines, there is a way to ensure the survival of independent British steel-making without nationalisation or subsidy.

Tata is one of the world’s most successful companies.  A huge player in India with a history of nearly 150 years, Tata has already proved itself in the UK with its turnaround of Jaguar Land Rover.  If it can’t make a go of British steel-making, it is unlikely that others will be any more successful.  And referencing the British car industry is important.  The nationalisation of British Leyland didn’t save the industry: that took more than 30 years, and an acceptance that only competitive advantage will ensure long-term survival.

Subsidising losses at the rate of £365 million per year doesn’t even stack up on a cost-benefit basis.  There are 15,000 jobs at risk so, assuming every job is lost and the workers all remain unemployed, that equates to an annual subsidy of £24,333 per worker.  Taxpayers already fund assistance for the unemployed at a far lower cost, so why contemplate a far more expensive nationalisation?

A string of senior military personnel and others have proposed nationalisation so that Britain can retain an independent steel production capability.  Britain has been isolated before and, as an island nation, we are especially vulnerable to blockade and encirclement.  Frederick the Great said that an army marches on its stomach, but it surely needs steel for its weapons and transport.

Of course conflict and blockade are low probability events, but the first duty of any sovereign nation is to protect its borders.  Our Armed Services and Trident absorb two per cent of our GDP every year.  As a young man during the 1980s and early 1990s, I joined the Army on a number of training exercises.  Facing the threat of advancing Soviet forces, the conventional wisdom was that the majority of the Army and its equipment would be overrun or destroyed within the first weeks of active fighting – a forecast based on British experience of both the First and Second World Wars.

Without an independent steel-making capacity, Britain would have no means to sustaining any long-term military conflict.  We’re already spending £45 billion every year on defence, so to increase that by just 0.8 per cent to build a stockpile and preserve an independent steel making capacity has a strong logic.

Yet there is another way.  After the oil price shocks of the 1970s, the US instituted a strategic reserve of oil.  Currently valued at $27 billion, this reserve is estimated to give America a 115 day buffer against blockade or high prices, allowing its economy time to adjust to any future energy supply threats.

Could we not do something similar for steel in Britain?  A significant order now from the Government for all our future military needs (aircraft, ships, tanks and armoured vehicles) would give Tata Steel a full-order book for years to come.  If this wasn’t sufficient to ensure a viable business, then factor in a realistic reserve for the military to replenish losses in battle, and add that as well.

To ensure that we remain within agreed global anti-subsidy rules, the Government should pay the market price for the steel purchased and it should be for genuine need as defined above.  It is unlikely that the EU would challenge a procurement process paid for at market price and, even if this were insufficient to keep Tata, there would be many other buyers interested.

Instead of our Foreign Secretary kow-towing in China or our Business Secretary flying the world for buyers, let us take our destiny into our own hands.  The Government nationalised the banks in a heartbeat, and rightly so, because of the systematic risk they posed to our entire economy.  Defence and independence are not immediate threats, but they are no less important.  To build a strategic reserve, save 15,000 jobs and maintain free-market principles would not be a bad first year’s work for Britain’s smartest Business Secretary in years.