Tata Steel to shed 1,500 jobs as building slumps

Tata steel raised alarm about the prospects for Britain's construction industry yesterday, warning that demand from the sector was set to remain below pre-recession levels for the next five years.

The grim prediction was accompanied by sweeping cuts at Tata's steel-making plant in Scunthorpe, which will result in 1,200 jobs being lost. It also plans to cut another 300 jobs at its factory in Redcar, on Teesside.

The cuts are being blamed on losses at Tata's long products arm, which counts the construction industry as a key customer. "The decline in some major markets, particularly the construction sector, has been a key factor," Tata said. "Demand for structural steel in the UK is only two-thirds of the 2007 level and is not expected to fully recover within the next five years."

The company also blamed the pressure posed by incoming carbon laws. "EU carbon legislation threatens to impose huge additional costs on the steel industry," said Karl-Ulrich Kohler, chief executive of Tata Steel's European operations.

"Besides, there remains a great deal of uncertainty about the level of further unilateral carbon cost rises that the UK Government is planning."

Tata's warning comes on the heels of official data showing that construction output in the first three months of the year fell 4 per cent in quarterly terms. Although the figures were questioned by industry bodies, conditions are set to stay challenging. The Construction Products Association, for instance, said that while its latest survey was at odds with the official figures, the "expectations for the year ahead are largely negative as the public sector retrenches and private sector sentiment remains weak".

Noble Francis, the economics director at the CPA, said the longer-term picture was clouded by the Government's austerity drive, which is set to adversely affect work emanating from the public sector.

CPA forecasts suggest that public sector construction work – including schools, hospitals, public housing and repair and maintenance work – will decline by 26 per cent by 2013. But while the private sector will help to offset these declines in due course, the overall market will remain hamstrung until 2013. Even then, overall construction output is expected to remain broadly flat, with real growth only expected a year later, in 2014.

Mr Francis said that while Tata's moves were partly motivated by regulatory challenges, the impact on steel-making was clear. "Steel is used considerably in the private commercial offices and retail markets, which have suffered sharp falls since 2008," he added. "Although these sectors are expected to recover over the next few years, increases are expected to be offset by the effects of sharp falls in public sector capital investment."