UK spending watchdog should probe Teesside freeport project, say MPs

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Levelling up secretary Michael Gove should order the UK’s public spending watchdog to investigate the finances of the controversial Teesworks regeneration project, a cross-party group of MPs said on Friday.

The House of Commons business select committee said that issues raised by an independent review this year into the use of taxpayer’s money at the former steelworks site in Redcar, on Teesside in north-east England, were serious enough to justify a full probe by the National Audit Office.

In January a damning independent review into the project issued 28 recommendations around governance and finance, and warned there were insufficient checks and balances in place to protect value for the taxpayer.

Teesworks is the largest regeneration site in the country and since 2021 has been part of the biggest freeport. Overseen by Conservative mayor Ben Houchen, it has become highly controversial due to concerns about transparency, governance and the role of private developers.

Gove wrote to Houchen asking him to respond to the independent review’s findings but he did not call in the NAO. Houchen has promised to respond by September.

The committee, which was conducting a wider probe into plans by the government to set up freeports across the UK as part of its strategy to improve regional economies, said: “The secretary of state . . . must direct the National Audit Office to scrutinise the expenditure of public funds associated with Teesside freeport.”

The MPs said the watchdog’s probe should be extended to the development corporation and combined authority overseeing the scheme locally, both of which are chaired by Houchen. 

Ordering a probe by the spending watchdog would recognise the “flagship status” of the freeport, “address the gravity and breadth” of the concerns raised by the review and “extend scrutiny beyond the limited remit” its authors had been given, the committee said.

An NAO inquiry would also “assure the public taxpayers’ money has been disbursed appropriately and legally”, it added.  

The spending watchdog’s remit limits it to probing central government expenditure. Only Gove, as the relevant secretary of state, could instruct the watchdog to investigate other areas of public spending.

The Teesworks project is intended to regenerate the vast brownfield site in Redcar that was left behind by the collapse of steel manufacturer SSI in 2015. Houchen has headed up the project, which has received £560mn in public investment since he was elected mayor of Tees Valley in 2017. 

In August 2021, as the mayor looked to accelerate development to take advantage of its new freeport status, he struck a deal with two local businessmen that saw them take ownership of 90 per cent of the project’s development vehicle, Teesworks Ltd.

The committee said this deal should be renegotiated. “On the face of it,” it said, the deal “has the potential to significantly increase the financial returns” available to the now privately owned company and “conversely to reduce the proceeds realised by the public”.

There is also a “plausible scenario” that the public sector is left with stranded liabilities, added the committee, due to there being no investment obligations placed on the developers.

Teesworks Ltd accounts show that profits tripled in the year after the deal was done, while it remains unclear how much the developers have invested.

Houchen earlier this week described the deal as “fantastic”, adding: “I stand by the decision I took.” 

The government said in a statement that Gove had commissioned the independent review “which found no evidence of corruption or illegality”, adding: “It is not the National Audit Office’s role to audit or examine individual local authorities.”

Houchen did not immediately respond to a request for comment.