Tata Steel has signed the much awaited grant funding agreement with the UK government, securing a £500 million package and paving the way for transition to a greener steel making future that also promises to turn around the loss-making British business.

The deal with Tata Steel was agreed upon in a meeting between UK Prime Minister Keir Starmer, business and trade secretary Jonathan Reynolds, chancellor Rachel Reeves and Tata Sons chairman N. Chandrasekaran on Tuesday and announced by Reynolds in the House of Commons on Wednesday.

The Labour government described the GFA as a ‘better deal’ that puts workers of Port Talbot, Wales, at the heart of the agreement, even as unions Community and GMB described the ‘deal is not something to celebrate’.

The Tory government, led by former PM Rishi Sunak, had agreed to a £500 million package a year ago but it could not sign the GFA in the face of opposition from the Unions who decried a loss of 2,800 jobs as a result of the transition from blast furnace operation to electric arc furnace.

A change in the government following the general election in July had put a question mark on the transition funding. With the GFA now in place, Tata Steel said it can now proceed ‘at pace’ with the project that would also call for £725 million fresh investment from the Indian company.

T.V. Narendran, managing director of Tata Steel, 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.”

Basic engineering is now complete, and equipment orders will be placed shortly for the EAF, the company said, adding that plans are progressing to close BF4 and the wider heavy end operations at Port Talbot by September, with supply chain arrangements in place to serve customers through the transition period until the EAF is commissioned. The site work is expected to start in July 2025 and it would take about three years to make the EAF operational.

While the scrap-based, electric fired furnace will cut UK industrial carbon emission by 8 per cent, Tata Steel hopes the transition will also bring the British business to profitability, which has eluded the Indian parent for many years since the acquisition in 2007.

While on the face of it, the ‘better deal’ does not appear to be much different from what the Tories had proposed, the Labour government claimed workers are set to benefit more. The Telegraph had reported that 2,114 workers have shown interest in the voluntary redundancy programme launched by Tata Steel, after the company offered an improved financial package.

Tata is offering a minimum redundancy payment of £20,000 to employees leaving the business. Employees who choose to leave will be paid 2.8 weeks earnings for each year of service, up to a maximum of 25 years.

Secretary Reynolds also informed Parliament that Tata Steel will leave 385 acres at Port Talbot for sale/transfer where new industries can come up. He also said the GFA has a clawback clause that allows the government to cut back funding if Tata fails to secure 5,000 jobs post transition.