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Feb. 15 (Bloomberg) -- In northeast England, where the landscape is dotted with shuttered factories and long-dead coal mines from its industrial past, former policeman Ray Mallon is on the front line of austerity.
The mayor of Middlesbrough, a town of about 140,000 with Britain’s highest unemployment rate, is trying to save more than 52 million pounds ($82 million) in four years by cutting the cost of everything from mobile libraries to maintenance of public buildings and programs in schools. He says it may be asking too much, too soon as the U.K. flirts with a second recession in three years.
“The government is doing the right thing in focusing on the deficit, but it’s a little bit too intense,” Mallon, 56, said the day after delivering more than 90 budget revisions to the town’s council. “They’d be better off just taking their foot off the gas a little bit. It’s too intense, too quick.”
European towns like Middlesbrough are at the sharp end of the drive to lower debt with the biggest spending cuts and tax increases in a generation. The program places them at the forefront of the debate over whether the speed of the austerity risks pushing economies into recession.
Britain represents the largest government budget-reduction package in monetary terms of any of the European Union’s 27 members, based on figures from finance ministries compiled by Bloomberg. The country accounts for about a third of the budget cuts taking place in the 10 largest EU countries between 2010 and 2015, according to International Monetary Fund estimates.
Countries like Greece and Ireland, euro members ravaged by the debt crisis and recipients of international aid along with Portugal, are cutting more severely relative to the size of their economies, the data show.
“One of the things that is troubling is that austerity is raising fears of double-dip recession,” said Bill Dinning, head of strategy at fund company Kames Capital in Edinburgh. “The government wouldn’t suffer too much if it tried to boost economic activity. You can’t do it with austerity alone.”
Prime Minister David Cameron’s deficit-shrinking plan amounts to 107 billion pounds by April 2015 when adjusted for inflation. The cuts include road projects, caps to welfare payments, pensions and as many as 700,000 jobs. It also helped the U.K. retain its top, triple-A investment grade at rating companies, though Moody’s Investors Service said this week it may downgrade the country because of concern about the economy.
Britain’s government debt climbed above 1 trillion pounds for the first time last year. Gross domestic product shrank 0.2 percent in the fourth quarter, according to the Office for National Statistics. Bond markets meanwhile show investors are unconcerned, said Dinning. Borrowing costs, at 2.11 percent based on 10-year bond yields, are lower than oil-rich Norway.
Mallon joined the police in 1974 on his 19th birthday and rose to the rank of detective superintendent in 1996, pledging to decrease crime by 20 percent with a zero-tolerance policy that earned him the nickname “Robocop” and an invitation to New York City during the tenure of Mayor Rudy Giuliani.
Now Middlesbrough and the way Mallon deploys taxpayers’ money is a laboratory for the austerity debate.
The council’s cuts range from spending less on closed- circuit TV analysis to eliminating funds to deal with mental health issues in schools as well as savings on arts, the environment and drivers for the elderly.
Middlesbrough ranks among the worst 10 English municipalities for the proportion of people claiming social security payments, at 23.6 percent of the working-age population, and for those defined as economically inactive, at 33.2 percent, figures from the statistical office show. The unemployment rate was 15.1 percent, almost double the U.K. average, according to the data.
“Dealing with social deprivation is the prerequisite to economic vitality,” Mallon, who’s in his third term after first winning election in 2002 as an independent candidate, said in his office on Feb. 2. He had addressed councilors the evening before. “The prerequisite to dealing with the deficit is to get growth. Now clearly the government is finding that hard and that’s where the argument is.”
At the Joe Walton Community & Youth Club in the Berwick Hills area in east Middlesbrough, where there are the most deprived council wards in town, chats over 50 pence cups of tea are all about the threat of spending reductions.
The center, whose origins go back to 1906, runs clubs ranging from Zumba fitness dancing and boxing to cardiac rehabilitation and sexual health projects. The café is under threat, along with its five jobs, and the center is under review as to what it will be used for in future.
“It’s purely and simply down to budget cuts,” said Sven McLean, 59, who has been volunteering at the center for about 40 years and is a member of its management committee. “If it was to go, then my biggest concern is what happens to young people. Where do they go? There would be nothing.”
Helen Usher, 37, has been the receptionist at the center for the past 13 years. She also does the administration after the previous person in charge took voluntary redundancy last year, and now reckons everyone employed by the community center will be gone by the end of March.
“I’m absolutely gutted,” said Usher, perched behind her desk in the building above the Neptune swimming baths. “Even though the building is still going to be here, you’d walk past and say Joe Walton’s used to be there. I’ll need to look for another job, but like this I can’t make arrangements.”
Middlesbrough ranked least resilient to U.K. austerity cuts in a survey commissioned for the British Broadcasting Corp. when the spending review was announced in 2010 after Cameron’s Conservative-led coalition replaced the Labour Party in power.
While Usher is employed by the Joe Walton management board, the center gets money from the council, said Mallon, who wants to look at how it can generate more money of its own as he analyzes the changes in the local economy.
The northeast is the most dependent region on public-sector employment in England. Four of the seven council areas with the biggest proportion of employment in public administration, health and education are in the region, including Middlesbrough. It had 42.8 percent of employees in that sector.
Earlier this year, Mallon visited 11 Middlesbrough companies in two days, including car dealers and clothing stores employing people not dependent on the state.
“They were all saying the same thing: People have got the money, but they won’t part with the money because they haven’t got the confidence,” Mallon said. “They might not have the money in six months time.”
Lack of confidence in the economy is the biggest issue, said Rachel Anderson, head of member relations at the North East Chamber of Commerce in Middlesbrough.
Middlesbrough grew into a town after the Darlington to Stockton railway, the world’s oldest public passenger line, was extended in the early 1830s as mining boomed. A decade later, an ironworks opened to make rails for Britain’s burgeoning network. By the latter half of the 19th century, the town was producing steel later used to make the Sydney Harbour Bridge.
After World War II, Middlesbrough and surrounding areas on the Tees River became a hub for chemicals production before the demise of heavy industry and the town’s fortunes in the 1970s and 1980s. Chimney stacks still puff out white plumes across the skyline. Companies with plants in the region include Saudi Basic Industries Corp. and Dow Chemical Co.
“Up until now, we very much supported the government’s efforts to cut the deficit,” Anderson said over tea in her office at the chamber of commerce. “Where it becomes a little bit too deep is where it starts to damage the ability of the economy to recover.”
While the austerity measures won praise from the IMF, the National Institute for Economic and Social Research said in a Feb. 3 report the government should consider a stimulus. Jonathan Portes, director of the institute, said it should spend at least 15 billion pounds on infrastructure programs.
Anderson cited the cancellation of an upgrade to a stretch of the A1 road linking with the A66 just south. It was scrapped by the government following the spending review, the Highways Agency said on its website.
It’s not all doom and gloom, she said.
“A lot of companies, particularly the exporters, will tell you they’re having record years and doing very well,” Anderson said. “The issue we have is around confidence. It’s about perception rather than the reality.”
The regenerated central square in the town is home to the 14.2 million-pound, glass-fronted Middlesbrough Institute of Modern Art, opened in January 2007, and fountains that light up at night. Opposite are the neo-gothic town hall and its clock tower, along with the civic center and law courts.
At his office in the municipal complex, Mallon said the improvements in Middlesbrough have made people look differently at the town. They include the shuttering of dilapidated housing and investment in Middlehaven, a former dockyard area of the town along the Tees river where a new college and apartments were built over the past three years.
Middlehaven had the lowest life expectancy of any council ward in England and Wales, based on 2007 statistics, the most recent available. Men can expect to live until 64 or 65, at least 13 years less than the U.K. average, according to research published on the council’s website.
Now Mallon, with neat, combed back light grey hair and precise articulation of a man used to grilling criminals, is examining Middlesbrough’s future.
“The austerity cuts and the government intervention have made me look differently and more efficiently,” the former captain of the British water polo team said before heading to another meeting. “I could live with the government cutting us, but I just think it’s a bit too far.”
--With assistance from Andrew Atkinson in London. Editors: Tim Quinson, Mark Gilbert
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