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Tata Steel is set to cut 1,500 jobs at sites in the North of England.

The Indian steel giant has proposed cutting 1,200 jobs in Scunthorpe and 300 in Teesside at its Long Products division, which Tata says is loss-making due to falling demand for steel.

The firm also said it would invest £400m in the division over the next five years to help turn it around.

Tata is one of the biggest steel makers in the world, with operations in 26 countries.

In 2010, the company, which employs more than 80,000 people worldwide, recorded a turnover of $22.8bn (£14bn).

The firm said demand for structural steel in the UK was only two-thirds of the level seen in 2007 and "is not expected to fully recover within the next five years".

As a result it proposed closing or mothballing parts of the Scunthorpe plant.

"We are proposing to take these actions only after going through an inclusive consultative process that involved very careful scrutiny of the Long Products business performance," said Karl-Ulrich Kohler, chief executive of Tata Steel's European operations.

He said the company would do "everything we can to provide [employees] with support and assistance".

However, the government said that the £400m investment being made by Tata showed confidence in the direction in which the economy was going.

"It's encouraging to see that they don't see this as something they shouldn't invest in at all," said Business and Enterprise Minister Mark Prisk.

"Their commitment of £400m shows that they have confidence in this over the longer term."

But Nick Dakin, Labour MP for Scunthorpe said that government policies had made things harder for Tata.

"The actions of the government certainly haven't helped in taking investment out of construction in the local economy and raising the spectre of carbon taxes coming in earlier in the UK than in other parts of Europe," he said.

Unions said the job losses would have a major impact on local communities.

"This is a real blow for the region," said Unite's national officer Paul Reuter.

"We have already demanded that there should be no compulsory redundancies and we believe that this should be possible to achieve."

George Dunning, leader of Redcar & Cleveland Borough Council, also said the job losses on Teesside would represent a "bitter blow" for the local economy.

However, he said the council, along with Jobcentre Plus, would do all they could to support those affected.

"We have a strong track record of responding swiftly to precisely this kind of situation," he said.

North Lincolnshire Council, which covers Scunthorpe, is also setting up a taskforce and pressing the government to make sure that the development of the Marine Energy Park on the South Humber Gateway takes place as quickly as possible.

Council leader elect Liz Redfern said she was "shocked and dismayed by the news".

Tata has recently announced a number of investments in its Scottish and Welsh plants, including an £8m investment at its Clydebridge plant near Glasgow and a £53m investment at its Port Talbot plant.