DEBT FINANCING. Liverpool Faces New Reality Amid Spending Cuts

Sept. 29 (Bloomberg) -- A month after taking office, David Cameron warned that no one would escape the spending cuts that lay ahead. Few cities will be hit harder than Liverpool, where the Labour opposition held its annual conference this week.
Built on Victorian-era free enterprise, the port city in northwest England now relies on government spending for more than a third of its jobs. Its 12.2 percent unemployment rate last year was among the highest in the country. Despite the regeneration of the area, welfare accounts for over a quarter of household income, the highest of any major U.K. city, according to Centre for Cities, a London-based research organization.
“Liverpool has a big job to do to adjust and it’s going to be difficult,” said Centre for Cities Interim Chief Executive Joanna Averley. “Some neighbourhoods are still very poor but they are working to see how they deal with the new economic reality.”
The fate of cities such as Liverpool is inflaming the political debate over Cameron’s 80 billion-pound program ($125 billion) of spending and welfare reductions to wipe out the budget deficit. Labour this week urged him to slow the pace of cuts as concern mounts that the world economy is sliding back into recession.
Even Ed Miliband, the Labour Party leader, offers little more hope to his party’s hosts. While attacking the severity of Cameron’s plan, he acknowledged in his speech to supporters on Sept. 27 that even if Labour wins the 2015 general election “we won’t be able to reverse many of the cuts this government is making.”
No Comfort
That’s little comfort to the seven former employees of Liverpool Mutual Homes, the company that runs the city’s housing projects on behalf of the local council, who lost their jobs last summer.
Among the men, who were holding up banners from the Unite labor union across the road from the company’s headquarters on a sunny autumn morning, was David Caddick, a driver on the team for 35 years. For most of that time, Caddick, 57, was a council employee until in 2000 his job moved to the first of a series of private companies. Their work was fixing up council-owned homes.
“Some of them have been used as drug dens, they’re uninhabitable,” he said. “1976 was the last time I was out of work. We survived the winter of discontent, the whole Thatcher term. We thought we’d been through the worst.”
Against a backdrop deepening global economic gloom, Cameron and Chancellor of the Exchequer George Osborne are pushing through cuts that dwarf even those implemented by Margaret Thatcher’s Conservative administration in the 1980s.
‘Highly Vulnerable’
The program will see more than 300,000 public-sector jobs eliminated by 2015 and deep cuts to welfare, including a three- year freeze of child-benefit payments and reductions in housing allowances. Liverpool is “highly vulnerable,” the city’s council said in a January report.
Centre for Cities estimates that Liverpool may lose as many as 7,900 public-sector jobs, or 2.3 percent of the workforce, with many more going in neighboring areas. Meanwhile, welfare cuts will equate to almost 200 pounds per person annually, the most of any major city, it said.
With business startup rates below the national average and poor levels of educational attainment -- a fifth of Liverpool’s residents possess no formal qualifications -- private companies may find it hard to make up for the loss of government jobs, said Clive Gawthorpe at accountants UHY Hacker Young in Manchester.
Three Graces
“It’s going to be very, very difficult,” Gawthorpe said. “There are some positive signs in the private sector but I don’t think it’s going to be enough.”
Today, Liverpool’s geography reflects its rise from a chief port for the Atlantic slave trade to a boom city of the industrial revolution. Neoclassical buildings erected early in the last century known as the Three Graces -- The Royal Liver Building, the Cunard Building and the former headquarters of the Mersey Docks and Harbor Board - on the waterfront are testament to a time when about 40 percent of England’s trade passed through the city’s docks.
For some, the riots that hit major English cities including Liverpool in August underline the potential for civil unrest as the spending cuts unfold. For the residents of Liverpool, they evoked memories of 1981, when rioting raged for more than a week in the Toxteth district of the city, less than two miles from the Cavern Club where The Beatles first performed 20 years earlier.
Trotskyite Militants
Liverpool earned a reputation for militancy during the 1980s when a Trotskyite faction led by Derek Hatton ran the city’s council and directly challenged the Thatcher government over its cuts. Although Hatton was expelled from Labour in 1986 for breaking party rules, he helped shape a perception of the party that kept it from winning an election for 18 years.
Attempts to reverse decades of economic decline gathered pace when Tony Blair returned Labour to power in 1997, transforming the waterfront, boosting retail and tourism and attracting investment from companies including Bertelsmann AG, Panmure Gordon & Co. Plc and ServiceSource International Inc.
Employment in Liverpool increased by about 12 percent in the decade to 2008 as alongside private job creation the government added almost 19,000 teaching, health care and administrative posts, expanding the city’s public-sector workforce by more than a quarter, according to the Liverpool Chamber of Commerce.
‘Unity and Purpose’
Recent data suggest the process of disinvestment is now well under way. Liverpool’s unadjusted jobless-claims rate climbed to 6.9 percent in August, compared with a U.K. average of 3.9 percent, according to the Office for National Statistics.
Not everyone is pessimistic. “The transformation over the last few years has been very significant and has done a lot to nurture investment so that Liverpool now has a lot of the assets a modern city needs,” said Ed Cox, director of the Institute for Public Policy Research North in Newcastle. “There is also a huge sense of unity and purpose in the city and that counts for a lot.”
Nearby the quayside conference center where Labour delegates end their get-together today, Roger Metcalf helps look after a 19th century church built to take care of Scandinavian migrants arriving in Liverpool. He says the area has undergone a renaissance and there is no going back.
“It much more pleasant now,” he said. “I would go out walking on my own in the city center nowadays. I wouldn’t have done 15 years ago.”

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