Revival of Britain's Northeast Tests Government

11.10.2012 -

Tracts of bare ground dot the vast Wilton chemical complex, a reminder of long-demolished plants that bear ghostly witness to the industrial decline of the world's first manufacturing nation.

Just over 20 years ago, 12,000 people worked at Wilton on the banks of the River Tees in northeast England. Today, 4,000 remain. Back in 1862, Prime Minister William Gladstone marvelled at the might of next-door Middlesbrough, calling it the 'infant Hercules'. The iron, steel, shipbuilding and mining industries of the northeast are now a shadow of what they once were.

The northeast has the highest unemployment rate and the lowest household incomes in the UK. Life expectancy is among the lowest in the country. Reviving the region is an important test for government plans to reduce Britain's dependence on financial services and the prosperous southeast.

Empty offices blight the hollowed-out city of Middlesbrough, where you can park for three pounds a day - perhaps a tenth of the cost in London. A television show in 2007 said it was the worst place to live in the United Kingdom.

Yet look more closely and there are signs of regeneration.

Offshore engineering is booming as energy companies extend the life of North Sea oil and gas fields. Teesside is building its first oil rig in a decade. Jobs are being created in renewable energy.

Things are also stirring in the giant's chemistry set that is Wilton. A subsidiary of Lotte, a South Korean conglomerate, is more than doubling polyethylene production, creating 350 jobs. A 300 million pound ($480 million) bioethanol refinery reopened last week after a year in mothballs.

"I don't like to talk about green shoots, but we're optimistic," said George Ritchie, a senior manager at Sembcorp, a Singapore company that bought the Wilton complex in 2003. "The site has declined. We've been through a torrid time. But things are probably better than they have been in the past five years."

Underlying strengths

Stan Higgins, head of the North East Process Industry Cluster, said his chemical industry group had identified 62 projects across the region with an investment potential of as much as 10 billion pounds.

How much of that money materialises is crucial to a part of Britain down on its luck. Direct Line, the insurance company about to float on the stock market, has announced the closure of a call centre in nearby Darlington with the loss of 500 jobs.

But the northeast has some strong building blocks. It is Britain's only net-exporting region, thanks to chemicals, pharmaceuticals and cars. Nissan, whose plant in Sunderland is the largest in Britain, is working round the clock and is creating 3,000 direct and indirect jobs to build two new models.

Hitachi of Japan has signed a 4.5 billion pound contract to build 92 inter-city trains at a new factory not far from where railway engineer George Stephenson revolutionised the design of early steam locomotives when he built the 'Rocket' in 1829.

"At that level things are very positive. But on the next rung down, you have small businesses that are struggling if they're not in the right sector, if they've not got an established supply chain to sell into or if they're dependent on consumer spending or construction," said James Wharton, the Conservative member of parliament for Stockton South.

With a parliamentary majority of just 332 votes, Wharton knows how important it is to revive confidence in the economy in time for the 2015 general election.

Faded towns, faded hopes

An earlier Conservative prime minister from Stockton, Harold Macmillan, confidently declared in 1957 that "most of our people have never had it so good".

Try telling that to Alex Cook, 23, whose construction qualifications from a local college have failed to land him a job beyond working in bars for the past five years.

Right now Cook is drawing unemployment benefit. In return, he is working part-time for six weeks at Argos, a catalogue-based retailer, in the hope that the experience will lead at least to a Christmas job.

"I'm just scrambling for anything I can get that will give me a chance," he said in the faded working-class seaside town of Redcar. "There are no jobs up north. Nothing going."

That's not quite true.

Redcar is home to a huge steel works that once employed nearly 30,000 people but closed in 2010. It was bought by Sahaviriya Steel Industries, a Thai firm, which restarted steelmaking in April. Local joy knew no bounds.

In an insight into the shift in global economic power, almost all the steel slabs made by the 1,800-strong work force are being shipped to Thailand.

Redcar is also getting a 75 million pound seafront renovation, and wind turbines will soon sit atop a row of concrete pillars being built offshore.

But the town is visibly tired, its main shopping street lined with discount stores, payday lenders and charity shops.

"The government could do more for the town," Cook said. "Our shops have been hit hard. If you stay open for business here for more than three or four months, you're lucky."

Blame the banks

Teesside's headache is that the problems it faces are structural and not just of the cyclical sort that might be alleviated by, say, a government U-turn to reduce its budget deficit more slowly - a step more and more economists recommend.

A common complaint is that credit is hard to come by, but banks could be retrenching for a long time as they adapt to tougher regulations and capital requirements.

Francis Brown, a 110-year-old metal-bashing company in Darlington, is growing fast thanks to offshore engineering orders, but managing director Jamie Brown said his plans to expand are under threat because he cannot borrow to buy premises next door.

"The financial support we were used to is nowhere like it used to be," said Brown, whose family firm employs 110 people. "Banks aren't willing to take on any risk whatsoever."

"The businesses we talk to are struggling to get working capital," said Jonathan Gold, director of Rivers Capital Partners, a venture capital company based in Newcastle.

The credit crunch extends to housing.

Ian Cook, a real-estate agent in Guisborough, said home prices across Teesside had dropped 20 % since 2007. But banks were reluctant to lend in case of a further decline, shutting first-time buyers out of the market.

Lost generation of skills

The second big structural problem for Teesside is that, ironically in an area of high unemployment, many companies cannot find the skilled workers they need, be it graduate engineers or highly qualified tradesmen such as welders.

"We have a massive shortage of people across the board, and that is the biggest hurdle for us and for the industry," said Jake Tompkins, managing director of Modus, a firm in Darlington that makes underwater robots.

Tompkins, incidentally, said he was confident of being able to borrow 18 million pounds to double his fleet of remotely operated subsea vehicles to 12.

As the region's biggest employers, chemicals giant ICI and British Steel deliberately used to train far more apprentices than they needed so that smaller firms in their supply chains could always find trained workers.

But both firms are now defunct, and smaller companies have been either unwilling or financially unable to fill the gap, which keeps widening as older workers retire. In effect a generation of craftsmen has been lost.

"Apprenticeships are the foundation stone for the future. I'm pushing water uphill to try and get firms to take on apprentices," said Ritchie, the Sembcorp manager.

Higgins, the head of the Nepic chemical-processing industry group, estimates the skills shortage in his sector in the northeast alone at 16,000. But he said the issue was a national one: Britain now offers 100,000 technical apprenticeships a year, just a quarter of the total in 1989, he said.

Factories and faculties

More positively, industry has started to cooperate more with local universities and colleges to tackle the problem.

"The commitment to technical, vocational training is going to be vital to our area to retain and attract investment," said Tom Blenkinsop, who represents Middlesbrough South in parliament for the opposition Labour party - also with a slender majority, of 1,677.

Graham Henderson, the genial vice-chancellor of Teesside University, speaks more like a businessman than an academic. His ambition is to run Britain's "leading employer-facing university".

Business account managers in each of the fast-growing university's schools work with local companies on everything from the content of degree courses to corporate training needs and research and development.

"Give the client what he wants," said Henderson.

His enthusiasm typifies a resilient region proud of its industrial heritage. But the canny folk from the northeast know they face a long climb back.

Glenys Pashley, director of higher education at Darlington College, said Teesside was in bad shape.

"It's going to get worse before it gets better for another four or five years," she said.