STRIPPED TEES

How Britain’s flagship ‘levelling up’ project turned into a scandalous giveaway

by Richard Brooks

IT WAS to be the UK’s largest regeneration scheme in decades, a model for regional devolution and the flagship post-Brexit freeport. But the redevelopment of the former steelworks on the south bank of the River Tees became little more than an unlawful, taxpayer-funded scheme to promote the political career of a Tory golden boy and vastly enrich a couple of local businessmen and their families, all hidden in a web of deception. In the process, it is financially imperilling a major regional development body and squandering the chance to revive one of the country’s most deprived but industrially promising areas.

This is how it happened…

TEN years ago, after a long decline brought on by competition from China and misguided industrial strategy at home, 175 years of steelmaking on Teesside came to an end. When the last operating plant, owned by Sahaviriya Steel Industries (SSI) of Thailand, closed, the austerity-era Conservative government refused to step in. Instead, business secretary Sajid Javid dispatched Lord (Michael) Heseltine to the area to survey what the grandee would call “a scene of desolation, a memory of industrial activity now gone”. He also, however, saw potential in a region that was “strategically placed, with road and rail access”, and which “sits alongside the deepest port on the east coast of the UK”. Heseltine’s 2016 report, Tees Valley: Opportunity Unlimited, recommended setting up a development corporation to take ownership of the former steelworks site and lead a green reindustrialisation.

The effort would be overseen by a new regional mayor and chair of the Tees Valley Combined Authority (TVCA), itself created as part of the Cameron government’s nod towards regional devolution. Thirty-year-old commercial lawyer Ben Houchen, a local Tory councillor (who confessed “I’m overconfident and talk a lot”), had been persuaded to stand for mayor by close friend and Stockton South MP James Wharton – who, as a junior minister, had also been instrumental in creating the new combined authorities. Houchen hadn’t expected victory in the “red wall”, but in May 2017, a promise to bring the ailing local airport back into public ownership had won over voters.

Decent proposal

That summer, narrowly re-elected prime minister Theresa May travelled up to Teesside and launched the South Tees Development Corporation (STDC), also chaired by Houchen. Within weeks it had produced its first “masterplan”, presenting a vision of sustainable regeneration for the 18 sq km area stretching from the outskirts of Middlesbrough in the southwest to the giant South Gare breakwater in the northeast. STDC would buy the old steelworks land, remediate parcels of it and lease them to new green companies. The rental income and business rates would go into an investment fund for further work in a virtuous cycle of redevelopment.

The site, said the plan, “could not be better located to capitalise on the unique selling point of excellent sea transport connectivity and the deepest port on the eastern coast of the UK”. One local businessman would tell the Eye, gesturing across the long river frontage, that it had the potential to be “a new Rotterdam”.

The project wasn’t without challenges, however. The steel industry’s tortured history since privatisation 30 years earlier had carved up the site, and regeneration on any scale was going to require some rationalisation.

Joint enterprise

Around half the area over which STDC’s writ extended belonged to two companies. Tata of India had 1,420 acres, having in 2007 bought what was once the original British Steel (it became Corus in 1999). Another 870 acres belonged to the UK arm of SSI, now in liquidation, which had bought Tata’s cast products business when it ceased operations in 2010. The rest belonged to other businesses, notably PD Ports, whose Teesport operation, surrounded by the former steelworks, was the seventh largest UK port by annual tonnage.

Houchen had little difficulty persuading Tata to sell its land for £12m. But acquiring the SSI land, effectively from the consortium of banks with charges over its assets, proved trickier. So in April 2019 the mayor issued a formal compulsory purchase order (CPO) enabling STDC to force an acquisition subject to examination by an inspector.

By this time, a couple of local businessmen were also sniffing round. In July, commercial property investor Chris Musgrave visited the South Bank area with his 22-year-old son, Joe, and three others. He was teaming up with residential property developer Martin Corney to exploit the riches the regeneration of Teesside might offer. By early December 2019, the businessmen had formed a new company, South Tees Enterprise Ltd. Within weeks, the men used this company to form a joint venture with STDC, which had not invited any other partnership bids. The new set-up would lead the regeneration, buy plots on the site and lease them to industry.

Exactly why Houchen signed up to this joint venture remains a mystery. The public justification centred on Corney and Musgrave’s fortuitous acquisition of a small interest in land belonging to Redcar Bulk Terminal Ltd (RBT), which adjoined the land Houchen needed to acquire through the CPO. The company owned 325 acres of land around its deep berth port but was short of cash since the closure of the steelworks it once served. After discussions with RBT managing director Garry O’Malley, at the end of November 2019 Corney and Musgrave agreed an option to lease a 70-acre strip from RBT. The deal provided RBT with a handy £14,000 a month and, so the official version went, made the land available for offshore energy-related business Corney and Musgrave were contemplating entering.

RBT had been owned jointly by SSI’s liquidators and the latest incarnation of British Steel. But after the latter went bust in May 2019, SSI’s liquidators were in effective control. This was presented as giving the Thai steel company – which had wealthy backers even if it was insolvent in the UK – new prospects. SSI could threaten the mayor’s CPO of its land by offering an alternative.

But Corney and Musgrave’s interest in a sliver of the RBT land could itself scupper SSI’s plans, ran the story. This gave them leverage over Houchen by enabling them to say they could persuade SSI to drop its objection to his CPO in return for their relinquishing their option over the 70 acres, which the steel company was said to want. The businessmen would do so if Houchen agreed to make them his joint venture partners in the regeneration scheme.

But the story doesn’t stack up, and the option appears to be a fig leaf to cover an inexplicably generous deal. The Eye was told by sources close to the process that the 70-acre option played no part in SSI’s thinking. The relevant area wasn’t crucial to its plans for the RBT land and, indeed, remains unused. And, in any case, SSI’s objection was very unlikely to block Houchen’s plans.

Although the mayor would insist that his lawyer, David Elvin KC, had advised (verbally, it turned out) that he would probably lose the CPO in the face of SSI’s objection, such defeats are rare – and unheard of for a project with such national political backing. Property experts told the Eye the idea of a defeat was fanciful. Indeed, the CPO inspector pointed out there was “no realistic prospect” of regenerating the area without compulsory purchase and that other landowners “do not have the resources or ability to deliver the necessary regeneration”.

The chronology of transactions suggests the deal was planned all along. Corney and Musgrave set up DCS Industrial Ltd, through which they would agree the RBT option, on 25 November 2019. The option was signed with RBT’s O’Malley four days later. The men were in touch with STDC within days, exchanging information about the site on 3 December and within a week informing STDC of the new company, South Tees Enterprises Ltd (now Teesworks Ltd), that would become the joint venture. All this was weeks before, on Houchen’s and his chief executive Julie Gilhespie’s accounts of the backstory, Corney and Musgrave first approached them with their offer.

Slippery deals

For whatever reason, Corney and Musgrave were certainly being favoured. At the same time, they were also chosen as joint venturers for the development of a £200m business park with the airport Houchen had proudly acquired in February 2019 for £40m.