Is the government jumping the gun on steel imports?

From 1 July, steel import quotas are due to be reduced by 60% and imports above those quotas will face a 50% tariff. While the changes are intended to support domestic steel production, they are expected to add further uncertainty to an already fragile construction supply chain.

Few in the construction industry dispute the importance of strengthening UK steel production. However, the timing of the new rules has raised concern among contractors and subcontractors about the potential impact on costs, procurement and supply resilience.

High energy costs for UK steelmakers continue to place pressure on domestic production, compounded by volatility linked to the conflict in the Middle East.

This could leave construction firms with little choice but to pay a higher price for steel products at a time when margins remain tight 

Together with the new tariff arrangements, this could leave construction firms with little choice but to pay a higher price for steel products at a time when margins remain tight across much of the industry.

Recent feedback from the BCIS Scottish Contractors Panel and BCIS Scottish Tender Price Assessment Panel reflected these concerns.

Panellists said that while supporting UK steel production may be the right long-term objective, the tariff changes are likely to increase cost pressures and that the domestic steel industry is not yet in a position to absorb a significant increase in demand.

Supply chain strains deepen

Even with strategic investment and policy support, including the planned introduction of the British Industrial Competitiveness Scheme next year, rebuilding UK production capacity is likely to take time given previous industry insolvencies and ongoing geopolitical and economic uncertainty.

In the meantime, steelwork firm closures continue to affect parts of the supply chain. Panellists cited the recent collapse of Scottish steelwork firms AIM Engineering & Fabrication Group and Hescott Engineering Company, both long-established regional suppliers, as examples.

According to panellists, the closures are expected to affect a number of tier one contractors that regularly used those suppliers.

Such administrations can create localised shortages, constrain delivery capacity and increase financial pressure further down the supply chain. Smaller firms and subcontractors operating under fixed-price contracts may be less able to absorb sudden increases in steel costs and therefore face a heightened insolvency risk too.

A policy with wider consequences

Ultimately, many stakeholders across construction appear less concerned about the principle of supporting the domestic steel industry than whether the sequencing of intervention measures is right.

Construction demand remains uneven and many firms are already managing inflationary pressures across other materials and activities.

Panellists reported conflict-linked cost increases across several energy-intensive materials, including aggregates, glass and aluminium, as well as fuel-dependent activities such as groundworks, cranage and excavations.

The bigger issue for construction businesses, their clients and the wider economy, is whether tariff changes trigger cost shocks. For example, many large-scale infrastructure schemes are heavily dependent on steel and remain central to the government’s wider economic growth ambitions. However, as programmes such as HS2 have demonstrated, increases in materials costs can contribute to redesigns, value engineering exercises and programme uncertainty.

Further uncertainty also lies ahead with the government’s planned introduction of the Carbon Border Adjustment Mechanism

Further uncertainty also lies ahead with the government’s planned introduction of the Carbon Border Adjustment Mechanism. While intended to prevent carbon leakage and support domestic steel, it could amplify inflationary pressures on an already strained supply chain.

The picture is not entirely negative. The government is considering transitional arrangements under which the new tariff would not apply to goods covered by contracts agreed before 14 March 2026 and imported between 1 July and 30 September 2026.

There may also be provisions allowing UK manufacturers to import certain steel for processing at a lower tariff rate. If implemented, these measures could help reduce the immediate impact on some businesses, although the detail and scope of any exemptions remain subject to confirmation.

At present, the current steel strategy still risks becoming a partially implemented solution with potentially long-lasting repercussions for both construction and the domestic steel sector it is intended to protect.

That is not to suggest there is an easier solution. Rebuilding domestic steel capacity while maintaining competitiveness, affordability and supply resilience is an inherently difficult balancing act. However, without some adjustments, the policy may struggle to deliver its intended outcome.

Dr David Crosthwaite is chief economist at the Building Cost Information Service (BCIS)