Teesworks: Accountability and Scrutiny

Andy McDonald Excerpts

Wednesday 7th June 2023 Commons Chamber

[Andy McDonald (Middlesbrough) (Lab)]

Much of the debate has been targeted at me and there has been a request for details of allegations. I trust I will be given the opportunity to set those out.

I am grateful to my colleagues on the Labour Front Bench for giving this issue such prominence today. I want to start by paying particular tribute to Richard Brooks of Private Eye. Without his amazing forensic tenacity and persistent investigative journalism over many, many months, we would not be having this debate today. Similarly, Jen Williams of the Financial Times has gone to the trouble of conducting in-depth investigations and has raised many pertinent questions, and The Yorkshire Post so courageously refused to be bullied or silenced. The BBC and many others have taken note of these matters. It is reassuring that investigative journalism is alive and well.

It is a complex web that has been woven and it requires significant attention to try to understand what has gone on. I share the bewilderment of those on my Front Bench that the Secretary of State is determined not to request that the NAO investigate these matters in full.

The core background to this saga is founded in the painful post-privatisation collapse of steelmaking on Teesside, which came to an end in 2015. It has left a massive hole in the local landscape and economy. The Tees Valley Combined Authority was established in 2016 under the Chancellorship of George Osborne, when the Labour Tees Valley local authorities, hamstrung by austerity, agreed to set up the new body, principally to focus on economic development and regeneration, transport and skills, led locally by Councillor Sue Jeffrey, then the leader of Redcar and Cleveland, Dave Budd, then the elected Mayor of Middlesborough, and others. In May 2017, Ben Houchen was elected as Tees Valley Mayor and promised to bring back steelmaking to Teesside. Clearly that has not happened.

The South Tees Development Corporation came into being in August 2017, its principal task to assemble various pieces of land and bring them into public ownership to facilitate development, with the levering in of private investment a key element. People like Sir Alan Cockshaw, a most highly respected figure in the business world, Steve Gibson, the chair of Middlesbrough football club and Bulkhaul, and Paul Booth of Sabic all served on the STDC board and put in many hours of unpaid time—and, indeed, flew to Thailand at their own expense to further the negotiations with SSI’s creditors to free up and secure the land.

The plan of the original board for development of the site was to remediate one parcel of land, develop it, let it, and then utilise that income to fund the next parcel, and so on. In effect, the outcome would have been a sovereign wealth fund for Teesside. All that changed with Ben Houchen’s re-election in 2021. Those hard-working and generous board members were sacked by Ben Houchen and a new team brought in. While the funding was allocated from central Government—from the Department for Business, Energy and Industrial Strategy and the Ministry of Housing, Communities and Local Government—to be applied over three years from 2020-21 through to 2022-23, running into hundreds of millions of pounds, the Government made it clear that they were not in favour of sustaining an equitable public-private partnership beyond those committed moneys and that the private sector should take it on. So that was, and still is, the determinant ideology, and the end of any thought of a sovereign wealth fund for Teesside.

In the following rush, these concerning events have unravelled. It would seem that the private developers were very smart and in the right place at the right time. They seized on the opportunity when SSI got into financial difficulties and twigged that SSI was prepared to sell a particular asset in an attempt to assist in addressing its own financial woes. They secured an option to acquire a lease of some 70 acres of what was then SSI land not far from the Redcar bulk terminal. That was sold to Musgrave and Corney by SSI for some half a million pounds. In effect, they became the putative default partner in what was to manifest itself later as Teesworks Ltd.

Other parties were interested in partnering with STDC, but they had no chance. There was no tendering process or proper procurement; there was no competition. Any inquiry will need to explain how these property developers came to acquire this key part of the site when the Tees Valley Combined Authority was pressing for a compulsory purchase order to buy the entire site.

More interesting things then happened in 2019. Mr Musgrave formed DCS Industrial Ltd, which was the vehicle for his Teesworks shareholding, and what we now describe as the SeAH site was acquired by STDC through its subsidiary company, South Tees Developments Ltd, from the former occupant, Tata Steel, for £12 million. This is the site upon which SeAH, the South Korean wind turbine company, will house its factory. The construction of the South Bank quay was made possible with a £107 million loan to STDC from the Government’s UK Infrastructure Bank.

On 29 January 2020, Ben Houchen reported to STDC about the compromise of the compulsory purchase order process. But board papers reveal that in early 2020, STDC recognised the risks of getting into bed with Musgrave and Corney. Its business case for the taxpayer cash 18 months earlier noted the

“joint venture partners lack of experience on size, complexity and hazards associated with the South Tees site”

and the

“differing governance requirements between joint venture partner background and public sector requirement impacting procurement”.

Despite that, in March 2020 STDC formed Teesworks as a 50:50 joint venture with companies controlled by Chris Musgrave, Martin Corney and Corneys’s father-in-law Ian Waller, all of whom paid nothing for their shares. I trust that the right hon. Member for Middlesbrough South and East Cleveland (Mr Clarke) will correct the record as far as Mr Waller is concerned.

STDC stated at the time that the joint venture company, Teesworks, would pay market value for the land it elected to buy. That changed fundamentally a little later. In early 2020, options were given by STDC for Teesworks to acquire freeholds from STDC. In August 2021, Gary Macdonald, the director of finance at STDC, reported to the board that there was now only a five-year window for development, which meant that there had to be a quick use of Government funds and

“a transfer of significant risk and rewards”

to the joint venture partners

“to incentivise the required pace of delivery”.

Those are the very people that STDC had expressed such doubts about just 18 months before.

That all begs the question, what value for money assessments did BEIS, DLUHC or the Treasury perform on this project, into which such vast sums of public money have been sunk? We should be able to see the Green Book calculations for all the different stages, ranging from the initial 50:50 arrangements through to the change to 90:10 in favour of the JV partners. In November 2021, the shareholdings of Musgrave, Corney and others via their various companies were increased from 50% to 90%. Again, they paid nothing for that increase in their equity stakes. Remarkably, they then secured the major options to buy any parcel of land on the site. Presumably, the quid pro quo was that they would stump up when the public cash ran out. As STDC put it, the extra shares were

“in return for Teesworks taking on the future development of the site, together with the net future liabilities in preparing the site for tenants”.

The inquiry will need to see the details of the meetings between Houchen, Musgrave and Corney on all those matters. What did they discuss—and when—about the initial JV and the variation to a 90:10 split and the associated changes, such as options to buy land? Why were the share classes of Teesworks Ltd changed at the same time as the 90:10 split, meaning that no dividends have to be paid to the public sector, and can be paid only at the board’s discretion?

While the split was 50:50, the position was that Teesworks would pay market rates for the land it opted to buy. A freedom of information reply from STDC indicates that once the ratio was changed to 90:10, land acquired from South Tees Developments Ltd could be appropriated at a nominal sum of £1 an acre.

Teesworks did exercise its options to buy the freeholds constituting the SeAH site, but that was not known to the public until Private Eye revealed HM Land Registry’s entries dated 11 October 2022, showing that the river frontage, known as “new quay phase 1”, was transferred from South Tees Developments Ltd to Teesworks Ltd for the sum of £16.27, and VAT in the sum of £2.71. It also revealed further Land Registry entries dated 16 December, which show that a colossal parcel of industrial land known as “plot b south bank”, excluding the river frontage quay, was transferred from South Tees Developments Ltd to Teesworks Ltd for the stated sum of £96.79, excluding VAT.

Ben Houchen has said that the true consideration paid by Teesworks is actually £15 million, despite those Land Registry records saying otherwise. Apparently, the lower figures were adopted for tax reasons. If that is right, I am sure that His Majesty’s Revenue and Customs will have something to say about it, as might His Majesty’s Land Registry. If inaccurate or misleading figures are put on transfer documents, there are usually consequences. I hope the inquiry will examine those matters, as it should.

When will this mysterious £15 million be paid? In one of his many intemperate media rants, Mr Houchen claimed that the lands we are talking about have “never” been in the public sector, and that has been repeated here today. Really? Given the audit trail and what the Land Registry documents say, it is difficult to see how he could possibly sustain such an argument. I confess to feeling somewhat sorry for his officials, who have to sweep up behind him to sort out his inaccurate stories, but it still does not wash.

There then followed a series of transactions. Teesworks retained the freehold, but leased its 90-acre site to a private investor, now known to be Macquarie, the Australia-based global financial services company, for a peppercorn rent, for which Macquarie paid Teesworks a lump sum of £70 million to £80 million. In turn, TVCA, the taxpayer, leased the land from Macquarie, the investor, for an inflation-linked £3.65 million per annum for 40 years. TVCA then sub-let the land to SeAH for £4.3 million per annum. That means 90% of the £70 million to £80 million will be going to Musgrave, Corney, Waller and their associate Chris Harrison, who have 45%, 21%, 19% and 5% shares in Teesworks respectively. That is a staggering £65 million-plus instant payday for the Teesworks joint venture partners.

While Teesworks is the freeholder for both sites, a clause in the transfer agreements ensures that the publicly owned South Tees Developments Ltd retains responsibility for environmental liabilities arising from hazardous substances. So Messrs Musgrave and Corney are not, according to that document, liable for cleaning up the site. The concern is that these property developers, who have never engaged in anything comparable to this undertaking, have become rich beyond anyone’s wildest dreams, all with the benefit of public moneys and opportunities.

Then there is the scrap. There was an agreement between STDC and Teesworks that as the by-product of the clearance and remediation works on the site, the proceeds from the scrap metal would be shared. There are hundreds of thousands of tonnes of metal on the site—approximately 500,000 tonnes in all. Up to now, a total of £94 million of valuable equipment, metals and other materials have been taken off site, weighed or otherwise. The sale proceeds are shared between STDC and Teesworks, with around £45 million going to Musgrave, Corney et al. Does the Minister believe that that represents good value for the taxpayer, who only three years ago owned all the metal on the site? Can he explain what is happening to the rest of it, which is estimated to be valued at up to £120 million?

What was there by way of a tendering or procurement process? Again, as was revealed by Private Eye, running the scrap operation is a man called Orion Kotrri, who just happens to be married to Martin Corney’s daughter. Any inquiry will need to ask how Mr Kotrri was hired, what his qualifications are for the job, whether that job was advertised and who employs him. Incredibly, we have now seen footage of Ben Houchen on a “trade mission” to meet the Albanian Prime Minister and the Mayor of Tirana, along with Martin Corney and Mr Corney’s Albanian scrap metal dealer son-in-law. We need to understand why they were present, given the visit was billed as a trade mission about international co-operation in travel and education. What did Mr Corney and his son-in-law have to do with that?

And then there is security. There is a fire raging at Teesworks right now. My hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson) referred to the injury caused to the man who fell into the river, and let us not forget that two men died in the process of remediating the site. NE Security Ltd got the contract, initially worth £2.4 million, to protect the site, and then, a few months later, a further two-year contract worth £3 million. There are certainly some colourful characters involved, as has been reported by Private Eye, including those with a history of insolvency who owe HMRC £1.5 million, including an estimated £1.4 million to the anti-tax avoidance unit. Let us not overlook the proprietor’s son, who is in charge of health and safety on site, who has been given a prison sentence of 11 years and eight months for his part in running a drugs racket that stretched from Liverpool to Teesside. Both, of course, now have freeports. You could not make this up, Mr Deputy Speaker. It is the stuff of the movies.

Much criticism has been levelled at me for speaking up about these issues. I have to say to critics of my use of parliamentary privilege that they really must understand that I will not be bullied, and that the use of privilege in this place is cherished and should not be derided. It is an important part of our democracy, and it is there so that Members of Parliament can raise well-founded concerns—as I have demonstrated today and on previous occasions—without fear or favour. So I ask those critics to grow up. They may or may not be advocates of SLAPPs, but they should be careful about embracing the concept of lawsuits being used to censor and silence critics.

As for the charge of being anti-business or “talking Teesside down”—a charge that is regularly levelled against me and against the Labour party—it is nonsense. Since the day I first set foot in this place I have been advocating the advancement of green industries, along with my friend and neighbour, my hon. Friend the Member for Stockton North (Alex Cunningham). Not only are these industries critical to saving our planet; they are a key factor in bringing good, well-paid, secure, unionised jobs to Teesside, a region that desperately needs those jobs and is ideally placed, both industrially and geologically, to pave the way not only for hydrogen industries, but for carbon capture, utilisation and storage and so much more.

That is why the behaviour of the Tees Valley Mayor is so distressing. While my critics are still obsessing about me, I have to spell it out: businesses can read. Whether I say these things or not, these concerns are widespread, and if anything and anyone is undermining the confidence of investors, it is the reckless conduct of the Tories’ blue- eyed-boy in the north, Ben Houchen. If they really care about how public moneys are spent, and if they are truly as pro-business as they say they are, this Government must abide by their own declared strictures of “integrity, professionalism, and accountability”. They should wake up and smell the coffee, and join me in ensuring that these matters are fully investigated, and corrected, before it is too late, because if they do not, a Labour Government will.

[Several hon. Members rose—]

--- Later in debate ---

[Ashley Dalton]

It seems that quite a few of us believe that we should be looking far more into a wide range of these development corporations.

[Andy McDonald]

I am grateful to my hon. Friend for giving way on that point. Is she aware that the position of Middlesbrough Council was to say, “Give us the money, don’t give it to yet another self-appointed board under the tutelage of Ben Houchen”? Is she as amazed as I am that Ben Houchen has deliberately excluded PD Ports, the biggest employer and investor in the territory, from the consultation process? Does she not find that ridiculous?

[Mr Deputy Speaker (Mr Nigel Evans)]

Just before the hon. Lady responds, let me remind her that there is one more speaker to get in before 6.40 pm.