Trouble in Teesside: a Tory rising star and a divisive property deal

When the 140-year-old steel industry in Teesside finally collapsed in 2015, it swept away 3,000 jobs and, with them, a political and economic anchor in the north-east of England.

Two years later an ambitious young Conservative mayor, Ben Houchen, stepped into the resulting vacuum, promising that a public-private partnership would attract a new wave of industrial companies to the site of the former steelworks.

His plan was backed by a Tory government that saw Houchen as its poster child for resuscitating former industrial areas of the country — and hoped to appeal to a disenchanted north-east electorate who had voted Labour for generations.

Yet Houchen’s attempt to revive what is Europe’s biggest brownfield site is now the subject of a fierce political row. The mayor’s political opponents have accused him of cronyism after a 90 per cent stake in the company operating the vacant steel site was transferred to two local developers, Chris Musgrave and Martin Corney, without any public tender process.

Houchen says the involvement of the two developers has been vital for the success of the government’s most prominent “levelling up” project, transferring risk, including clean-up costs, to the private sector. An investment by a South Korea wind farm manufacturer is just one sign of progress, he claims.

However, while companies controlled by Corney and Musgrave have earned at least £45mn in dividends from the project in the past three years, there is no evidence they have invested in it to date. Seven people formerly closely connected to the project have also told the Financial Times of concerns relating to governance and accountability.

Speaking in parliament, Andy McDonald, Labour MP for neighbouring Middlesbrough, accused Houchen in April of “industrial-scale corruption” because of the highly favourable terms on which the joint venture is now allowed to purchase publicly-owned land on the site.

The fate of the Teesside redevelopment has important implications for British politics because the project has played a prominent role in the Conservative party’s efforts to forge a post-Brexit economic strategy.

For many in the party leadership, Houchen and his plan have become a model for how a more activist government can provide economic answers in the former industrial areas of the country where people voted strongly to leave the EU.

Some experts in public sector auditing and state aid believe a full National Audit Office inquiry is needed to establish the exact details of transactions involving the project.

Steve Bundred, former chief executive of the Audit Commission, a public body that examined local government entities before being disbanded in 2015, says the evidence “calls for a full and thorough investigation by the National Audit Office and the public accounts committee, as the situation now appears far remote from the business case originally agreed with government”.

“It seems that a very valuable public asset has been secretly disposed of, without any real benefit to the taxpayer, while securing lucrative gains for developers,” says Bundred, who was a Labour politician before becoming a public official.

Houchen disputes this, arguing that the site had been costing the taxpayer £20mn a year in upkeep before the joint venture was established.

“The suggestion that we’ve given away a site worth millions is demonstrably untrue,” he says. “If it wasn’t for this public-private partnership . . . we wouldn’t be able to look people in the eye and say we’re creating thousands of good-quality, well-paid jobs for local people.”

Two-stage property deal

The final owner of the vast plant overlooking the Tees estuary in Redcar was Sahaviriya Steel Industries (SSI) UK, the subsidiary of a Thai steelmaker.

When the plant closed down in October 2015, the solution that soon emerged was to redevelop the area through an urban development corporation, which would bring together both business people and local officials. The board members are recommended by Houchen, who is also the chair.

The new body, called the South Tees Development Corporation, began in 2017 to pull together 4,500 acres of industrial land from different owners, including the site of the former steelworks. The Conservative government promised hundreds of millions of pounds in taxpayer funding for the project.

By late 2019, however, the plan was foundering. The three Thai banks who were SSI UK’s main creditors objected to the government’s plans for compulsory purchase of the site.

It was at this point that the two local property developers, Musgrave and Corney, stepped in.

Golfers play next to the steel furnace in Redcar. The final owner of the vast plant overlooking the Tees estuary was Sahaviriya Steel Industries UK, the subsidiary of a Thai steelmaker © Ian Forsyth/Getty Images

Musgrave, who was awarded an OBE in 2019, had worked his way up from being a Hartlepool market trader to become one of the area’s richest men, including through the development of nearby Wynyard Park, a mix of luxury housing and light industrial units.

Corney has built a string of housing developments across the region and already had a number of joint ventures with Musgrave. His stepfather, Ian Waller, is a donor to Houchen.

In a complex two-stage process, the two developers ended up with a 90 per cent stake in the project without ever going through public bidding.

In 2019, DCS Industrial, a new company owned by both Musgrave and Corney, purchased a three-year option to lease part of the Redcar bulk terminal, a site adjacent to the former steelworks that was also ultimately owned by SSI. They bought the option from the local operator of the land, RBT Ltd.

Musgrave and Corney then proposed a deal involving the former steelworks. According to board papers for the South Tees Development Corporation, they offered to rescind their new option for the adjacent property so that SSI’s creditors had a site they could develop for their own commercial plans. In return, SSI would hand over the huge steel site.

South Tees Development Corporation says this deal prompted SSI and the Thai banks to withdraw their objections to the compulsory purchase order. The corporation’s lawyers had advised it would lose its compulsory purchase attempt without such a deal, it says.

Not everyone agrees. One person who was closely involved with the process believes that the land swap deal was never needed.

“Anyone who followed the process at the time could have seen the corporation was likely to win the compulsory purchase order. So to many people, this last-minute deal made no sense,” the person says.

Either way, a deal was struck, which resulted in the steel site being taken into public ownership by the new South Tees Development Corporation.

In return for their role in securing the site, the South Tees Development Corporation awarded companies owned by Musgrave and Corney a 50 per cent stake in the joint venture that would operate the project — a share transfer that took place without any public tender.

The new operating company, which was eventually named Teesworks Ltd, controlled the entire 4,500-acre site and its assets — including 500,000 tonnes of scrap metal. It was also given the option to buy up any parcel of land on the site at a market rate.

A freeport hand

In 2021, the region received a potential shot in the arm from Westminster.

Rishi Sunak, who was then chancellor, announced that Teesside was to host the biggest freeport in the country.

Freeports — designated low-tax, low-regulation border zones — were one of the government’s big ideas for trying to capture the benefits of Brexit. The new freeport in the north-east would take in both the steel site and Teesside airport.

Ben Houchen stands in front of a map of the Teesside Freeport. The mayor has been accused of cronyism over the transfer of a stake in the company operating the area’s steel site without public tender © Charlie Bibby/FT

The announcement prompted the South Teesside Development Corporation to fundamentally change its business model, according to documents obtained under Freedom of Information laws by the magazine Private Eye, which has reported extensively on the project.

At an August 2021 meeting, the board agreed to transfer another 40 per cent of the joint venture’s shares to DCS Industrial, meaning Musgrave and Corney now owned 90 per cent of the project.

The equity transfer was ostensibly to help pay for the clean-up of parts of the site, but it also granted the joint venture more generous terms.

The original plan had earmarked public funding to clean up parts of the site. Those parcels would be leased out bit by bit, generating income over the following 25 years that would be gradually reinvested into cleaning up more parcels of land.

But freeport status brought with it time-limited tax breaks. So to allow investors to benefit from them, land clearance was needed “much more quickly than was originally envisaged”, the corporation said in board papers.

South Tees Development Corporation believed further capital would be required. However, debt financing was unavailable because of the potential clean-up costs and Musgrave and Corney had the right to block the introduction of new shareholders. So the board opted to transfer more equity to the two developers.

In return for now holding 90 per cent of the shares, the companies controlled by Musgrave and Corney would take on the costs of decontamination. But the agreement placed no obligation on the developers to invest in the land, identifying only an “incentive” to do so.

A further deal the following month also changed the terms on which Teesworks Ltd could buy up parcels of public land. It was now priced at £1 an acre, instead of market rate.

One of the corporation’s original board members, Middlesbrough football club owner Steve Gibson, distanced himself from the new structure.

“The original business model was what I wanted,” says Gibson, pointing out he had left the board by summer 2021. But, he adds: “Things do change and you change your approach as the facts change.”

The increase in the developers’ stake to 90 per cent only became public knowledge four months later, in December 2021, when it was disclosed in a filing to Companies House. Anna Turley, the former Labour MP for Redcar, says she “couldn’t believe her eyes” when she came across it.

“There had been nothing in the public domain about this,” she adds. “As far as the public were aware, the site was owned by the mayoral development corporation.”

The Treasury appears to have had no prior knowledge of the 2021 share transfer, responding in a Freedom of Information request to say it held no records or correspondence on it.

Middlesbrough football club owner Steve Gibson, an original member of the South Tees Development Corporation, distanced himself from a new business structure concerning the Teesside site © Richard Sellers/PA

According to emails received under a Freedom of Information from the Department of Business, Energy and Industrial Strategy, which has responsibility for the project within government, one official only became aware of the deal via the media in January 2022, expressing “concern” and “surprise. An official at the department’s office in the north-east responded that he had received “verbal” assurance locally that the deal was value for money.

Houchen has consistently defended bringing in the two developers, pointing to the forthcoming arrival of the South Korean wind farm manufacturer SeAH as evidence of the project’s success.

Without the involvement of private investors, he says, “we would not have touched a single part of the steelworks, we wouldn’t have landed a single investment, we would not be seeing construction under way”.

However, one green steel investor who approached Teesworks says he walked away due to concerns about the joint venture’s expertise.

“The experience that they were claiming to have had in developing large-scale industrial projects was severely lacking,” he says, adding that it was “so far off the mark of what it takes to get a major steel project up and running that I just told my team ‘this is amateur hour, it’s not going to happen’.”

South Tees Development Corporation said that it “did not recognise” the criticism, highlighting that the private sector partners had previously developed the former Basell chemicals site at nearby Wilton International and Kent’s Discovery Park.

“We’d consider this shows the claims are demonstrably false,” it said.

Teesworks Ltd said that Musgrave and Corney had been “key” to attracting the South Korean wind farm investment which had previously “destined for Hull or abroad — Teesside wasn’t even in the running”.

“It is fair to say that the site would still have been an industrial wasteland if it had not been for the actions of the corporation, Musgrave and Corney,” it said.

All politics is local

One of the reasons the political controversy around the Teesside project is becoming so fierce is the region is a key political battleground ahead of a general election which will take place over the next year.

Teesside is at the centre of the so-called red wall of seats in the north and Midlands that switched from Labour to the Conservatives for the first time in 2019. Boris Johnson was an enthusiastic supporter of Houchen, who two years earlier had unexpectedly beaten Labour to the mayoralty and who shares the former prime minister’s pugnacious approach to politics.

Andy McDonald, Labour MP for Middlesbrough, in parliament in April accused Houchen of ‘industrial-scale corruption’ over the Teesside steel site © Peter Byrne/PA

Amid increasing attention on the project, the political atmosphere in the region has become more toxic. Following a parliamentary exchange on the issue last week, Houchen took to social media to call McDonald, the Labour MP who has criticised him, a “self-centred coward”. He added: “Smears from Labour and their cronies have caused investors to think twice about their investment in our area.”

Criticism of the Teeside project has largely focused on two areas — money and transparency.

Sales of scrap metal from the site have raised £90mn, half of which has been retained for investment by the development corporation. The other £45mn has been paid out to Musgrave and Corney’s companies in dividends.

The taxpayer has so far invested more than £260mn, as well as providing a £107mn public loan to build a new quay.

However, there is no evidence in company accounts and public documents that Musgrave and Corney have invested any of their own money in the project.

The FT asked South Tees Development Corporation and Musgrave and Corney how much they had invested since March 2020 and how much investment was forecast for this financial year. Neither responded directly to the question.

Teesworks says that Musgrave and Corney have taken on the remaining liabilities of the site — which one survey cited by the South Tees Development Corporation valued at £483mn.

“It is easy for the ignorant and mischievous to state that Musgrave and Corney have put no money into the site, but the context is far more complex,” Teesworks said. “Only a fool would take on the ‘up front’ costs of £482.6mn for the remediation of the site, together with the other responsibilities for such a challenging site, without government support.”

Aside from the project’s finances, critics also complain about the secrecy that has surrounded its broader decision-making. Seven people formerly involved in the project said they had left with serious concerns about governance.

One former board member of a local body tasked with providing oversight said they had got “really frustrated turning up to meetings to find the big agenda item simply wasn’t discussed”.

“If I tried to open it up, I was shut down because Ben [Houchen] had sorted it out behind closed doors beforehand,” they added.

The Tees Valley Combined Authority, the local government for the region and the parent entity of the development corporation, said the mayor does not have the authority to make “decisions by himself” about the project.

Then chancellor Rishi Sunak and Houchen at the Teesside Freeport in 2022. Teesside is at the centre of the ‘red wall’ of seats that switched from Labour to the Conservatives for the first time in 2019 © Ian Forsyth/Getty Images

Asked why both share transfer decisions were taken entirely in private, the Tees Valley Combined Authority said this was because the issue was commercially confidential. It said the Information Commissioner had “reviewed” its position on information release and had “upheld our stance”.

However, the Information Commissioner said it had “not issued any decision notices on the matter of the commercial interests of the Teesworks site”.

Teesworks Ltd said it was best to treat the Labour MPs criticising the project “with the contempt they deserve”. 

The government said “any allegations of wrongdoing” were “false” and that private sector investment and a joint venture were “always a core part of the approved business case for the site”.

Send in the auditors?

No national audit body has ever undertaken a full review of the share transfer deals.

The National Audit Office, following a complaint from McDonald, took a narrow, “informal” look at how government grants were being used on the scheme. It found the corporation’s own paperwork indicated the money had been used “as intended”. 

Houchen then claimed “every single document, contract, advice, email and every other piece of paper relating to Teesworks” had been reviewed, giving the entire freeport “a clean bill of health”.

The NAO denied that, telling the FT at the time that it had not carried out “an audit or review” into the project, or the development corporation, or the combined authority, stressing that was not its role.

It later said it contacted Tees Valley Combined Authority “to request the correction of statements by the Mayor” about its review of funding for the project.

George Peretz KC, a public law specialist with particular expertise in state aid, regulatory issues and competition, says a “full investigation by the National Audit Office” is now needed to check whether assets had been transferred “at an undervalue”.

“There are a number of consequences if that is so, including subsidy control issues,” he says.

The mayor has recently set up two further development corporations in Middlesbrough and Hartlepool, meaning Teesside now hosts three of the four such bodies outside of London.

In 2002 the National Audit Office found that a previous development corporation in Teesside in the 1980s and 1990s had wasted £40mn through below-value land deals, partly due to poor governance and secrecy.

John Tomaney, professor of urban and regional planning in the Bartlett School of Planning, University College London, says there are now also “clear problems with the accountability and transparency of the mayoral model on Teesside”. 

“To some extent,” he adds, “history is repeating itself.”

Articles You May Like

Oklahoma Turnpike Authority prevails in Open Meeting Act lawsuit
Privacy-focused Aleo blockchain gets new wallet as mainnet launch approaches
Why America’s economic policy muddle matters
Military briefing: Russia has most to gain from Ukrainian dam breach
Asia equities follow US higher after debt ceiling vote triggers gains