The Government has unveiled a “new and improved” deal to help the transition to a greener way of producing steel at the country’s biggest steel plant.

Ministers said workers at Tata Steel’s giant site in Port Talbot, south Wales, will get improved redundancy terms and the offer of a skills package.

Around 2,800 jobs are still set to be lost as a result of the shutdown of blast furnaces and switch to using an electric arc system of production.

The government confirmed it will contribute £500 million to the transition, but said investment can be clawed back if the company does not retain 5,000 jobs across its UK business after the change.

This deal does what previous deals failed to do – give hope for the future of steelmaking in South Wales

Ministers said Wednesday’s “new and improved deal” goes much further than the previous government’s agreement, including a minimum voluntary redundancy payout of £15,000 for full-time employees plus a £5,000 ‘retention’ payment and offering paid-for training.

Business and Trade Secretary Jonathan Reynolds said: “Port Talbot has always been and will always be a steelmaking town. This deal does what previous deals failed to do – give hope for the future of steelmaking in South Wales.

“Steel is fundamental to the UK’s economy, sovereignty and communities, but previous government inaction has blighted the steelmaking industry.

“That’s why this Government is taking strong action through a new deal and strategy which will reverse the industry’s stagnation and set out a long-term vision for a bright and sustainable future.

“We know that a cleaner, greener future for UK steelmaking is vital to the industry’s long-term economic stability.

“The road ahead is not without its challenges but our steel strategy will set forth a positive vision for the future of the industry, backed by our manifesto commitment to £3 billion of government investment.”

Tata will close the remaining blast furnace at Port Talbot by the end of the month in readiness for switching production with a new electric arc furnace which needs fewer workers.

The company says it has offered its most generous voluntary redundancy package ever for a restructure of this size.

While this is a very difficult time for Tata workers, their families and the community, this government is determined to support workers and businesses in our Welsh steel industry, whatever happens

Employees who choose redundancy will be paid 2.8 weeks’ earnings for each year of service, up to a maximum of 25 years.

The deal with Tata was agreed on Tuesday in a meeting between the Prime Minister, the Business and Trade Secretary, Chancellor Rachel Reeves and Tata’s chairman Natarajan Chandrasekaran.

Ministers said it was the beginning of the government’s ambitions for the industry, adding it was the start of a “bright future” that harnesses industrialisation and decarbonisation.

Secretary of State for Wales Jo Stevens said: “This improved deal secures the immediate future of Port Talbot steelworks, lays the foundations for future investment and enhances protections for the workforce across South Wales, all without further cost to the taxpayer.

“As well as negotiating a better deal than the previous government, we have already released millions of pounds of funding from the Transition Board to support businesses and workers in Port Talbot and across south Wales.

“While this is a very difficult time for Tata workers, their families and the community, this government is determined to support workers and businesses in our Welsh steel industry, whatever happens.”

Charlotte Brumpton-Childs, GMB national officer, said: “Since the election the Government has had extensive discussions with Tata and has strengthened investment assurances.

“Tata has now given binding commitments to work quickly to invest and unlock further investments.”

Conservative inaction and disdain have resulted in wholly avoidable job losses

A joint statement from the Community union and the GMB said: “This deal is not something to celebrate, but with the improvements the unions and the Government have negotiated it is better than the devastating plan announced by Tata and the Tories back in September 2023.”

Unite general secretary Sharon Graham said: “The two-stage government commitment to provide serious funding for steel in South Wales is vital for local communities and the long-term future of the steel industry.

“The last government was quite frankly asleep at the wheel.

“The present crisis is a direct result of it failing to invest in the UK steel industry and allowing the companies involved to rundown their operations and let them fall into disrepair. Conservative inaction and disdain have resulted in wholly avoidable job losses.”

Tata said the investment at Port Talbot was the largest in the UK steel industry for decades.

Tata will invest £750 million, and with the £500 million from the Government, the £1.25 billion project will secure steelmaking in Port Talbot and preserve 5,000 jobs, the company said.

The new assets will reduce the UK’s industrial carbon emissions by 8%, and Port Talbot’s by 90%.

With the UK Government’s critical support, this complex and ambitious transformation of Port Talbot has the potential to make the plant one of Europe’s premier centres for green steelmaking

Equipment orders will now be placed for the electric arc furnace (EAF) at Port Talbot.

T V Narendran, Tata Steel chief executive, said: “With the UK Government’s critical support, this complex and ambitious transformation of Port Talbot has the potential to make the plant one of Europe’s premier centres for green steelmaking.

“I would like to thank the UK Steel Committee and various departments of the UK and Welsh governments for their support in reaching this agreement.

“We now look forward to the efficient and speedy execution of the EAF project.

“We will also continue our work with the Transition Board and the UK and Welsh governments to enable this project to be a catalyst for economic regeneration and job creation in South Wales.”

Tata added it was working with the authorities to apply for planning approvals by November 2024, with a view to starting large-scale site work around July 2025.

The EAF is expected to be operational within three years.

To ensure that their significant investment yields returns for our nation, Government must now also deliver the right business environment

UK Steel director general Gareth Stace said: “The steel sector wants to remain a pillar of the UK’s economy and today’s grant funding agreement between Tata Steel and the Government means our steel sector can have a brighter future.

“£1.25 billion is one of the biggest investments we’ve seen in the history of the nation’s steel sector.

“We now have a Government that understands the issues facing our industry and crucially is committed to taking decisive action and today it has done just that.

“To ensure that their significant investment yields returns for our nation, Government must now also deliver the right business environment.

“Steel businesses need competitive electricity prices, access to good quality steel scrap, and fair competition from international trade.”

Paul Morozzo, senior campaigner at Greenpeace UK, said: “This is an improvement on the previous government’s proposals but unfortunately it doesn’t yet do enough to protect jobs and this country’s ability to produce green steel.

“We urge the Government to heed the warnings of the past and invest fully in industries of the future.

“Tackling the climate crisis presents a huge opportunity to create good sustainable jobs, unlocking new economic opportunities for communities all over the country.”