Labour demands full investigation into Teesside freeport project

Labour has written to the National Audit Office demanding a full inquiry into part of the UK’s biggest freeport following concerns raised over its value for money for the taxpayer.

Shadow levelling up secretary Lisa Nandy said on Tuesday “very serious questions” had been raised about the public finances of the Teesworks scheme, which is overseen by Ben Houchen, Conservative mayor for the Tees Valley.

The move follows an investigation by the Financial Times into allegations of cronyism, corruption, secrecy and poor value for money levelled at the project, which is aimed at regenerating Redcar’s huge former steelworks and forms a large part of the Teesside freeport in north-east England.

In her letter to the NAO, Nandy said: “I would urge you to launch a comprehensive investigation to establish the facts of this case and provide reassurance that the public interest is protected now and in the future.”

The 4,500 acre Teesworks project is the country’s largest brownfield site and is overseen by the South Tees Development Corporation, chaired by the mayor.

Under its original business plan, agreed with cross-party support locally in 2017, taxpayer funding was to clean up initial parcels of land, which would be leased out to new industrial tenants while remaining in public ownership.

Over 25 years that lease income, plus the proceeds from around £120mn worth of scrap metal, would gradually pay for further parcels to be cleaned up.

The mayor is facing increasing criticism, however, over a decision taken privately in 2021 that changed that model, resulting in 90 per cent of the project’s shares being handed to two local developers, in return for taking on the liabilities of the site, as well as half of the scrap proceeds.

Houchen has vehemently defended the transaction, arguing that it will lever in private funding to clean up the land and transfer risk away from the state.

However, hundreds of millions of pounds in taxpayer funding has been spent to date and so far the developers do not appear to have invested, while receiving at least £45mn in scrap dividends. That has led to allegations that the taxpayer has potentially been short-changed.

In her letter to the NAO, Nandy queried how much had been known in Whitehall about the equity transfer and said there appeared to have been “a worrying lack of effective safeguards to ensure value for money for taxpayers”. 

Although the NAO says it has no remit to audit local bodies, arguing it is a role for local auditors, Nandy highlighted an investigation it undertook 21 years ago into the Teesside Development Corporation, a similar regeneration body that was wound up in the late 1990s.

The investigation concluded that £40mn had been lost to the taxpayer as a result of poor value deals.

The NAO carried out an “informal” review of the Teesworks project last year, which looked solely at whether government grants were being used as intended. It found that they were.

It reiterated, in a statement issued prior to Nandy’s letter, that it holds “no remit” over the actions or decisions of the local public bodies involved in overseeing the scheme, the South Tees Development Corporation or the Tees Valley Combined Authority. It said its role was solely to look at the spending of central government money.

However, it said that because recent press coverage indicated that government grants may be extended into next financial year, it was now “likely to make further enquiries following our usual processes”. 

“This will involve liaising with relevant government departments and seeking to review relevant documents,” it said, adding that no decision would be made on whether to conduct a more detailed audit until those steps were complete.

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