In the first of two articles, Ray Mallon, who stepped down last week after 13 years as Middlesbrough’s directly elected mayor, talks to Chris Lloyd about surviving a financial storm

MIDDLESBROUGH is changing. The banners hanging down from the lamp-posts proclaim it. They flap in the Boro breeze, revealing pictures of new buildings: a £50m sports and technology park, a £30m university campus, a £20m college science unit, a £19m restoration and business development at Acklam Hall, a £12m hotel, 7,000 new homes...

And only last week, Middlesbrough changed its leader. Directly elected mayor Ray Mallon handed over the chains of office after 13 years of running the town and of being the Tees Valley’s loudest voice. You might expect him to be bullish about the pace of the change during his tenure.

“We built the mima art gallery, we’ve got the Temenos sculpture, we built the new sports village, we are now building more houses in Middlesbrough than ever before,” he begins, listing the changes “but actually that is all insignificant because the best thing I did was in April 2008, sat in this office, I became convinced we would be in a recession – economic, banking and social – by the end of the year, and so we had to derail projects, slow everything down, negotiate a new course around the coming financial storm.”

If nothing else, Mr Mallon is frank. Other leaders after a decade in power would talk up the changes to create a legacy for themselves. Mr Mallon, head on, takes on his big failure: the controversial project, begun in 2005, to demolish nearly 1,500 houses in the Gresham area and rebuild them. With about 500 houses pulled down, it was the biggest casualty of the derailing as the money ran out.

“It was a big flagship project,” he says. “For every 100 houses that we bought and demolished, it cost us £10m, which came from the Government’s Housing Market Renewal Fund. I could see that would go at the stroke of a pen. It is easy to go forward but sometimes you have to put your foot on the brake.”

Warming to his theme, he turns to the other big casualty of the slowdown, a £32m casino and leisure complex. “I’m convinced it will occur,” he says, “but it is down to the timing – it is like the footballer who has to time his run to head the ball into the net.”

The financial storm for local government that mystic Mallon predicted broke on October 20, 2010 – he remembers the date – when the newly-elected Chancellor, George Osborne, unveiled his comprehensive spending review, pledging to return sanity to the public finances by slashing £81bn – 19 per cent – from public expenditure.

“Within in an hour, I was making a speech saying these cuts are too quick, too deep and they are savage,” says Mr Mallon, who is not affiliated to a political party. “I stated that then and I stand by it.”

In the five years since, Middlesbrough council has made 700 of its 6,000 staff redundant. It has lost at least £70m of its annual working budget of £236m, with another £70m to be pared off by 2020.

“At the moment, 53 per cent of our budget is spent looking after vulnerable adults and children in care, a statutory responsibility,” he says. “We have 365 kids in care, mostly due to neglect, and every 16 cost us £1.2m-a-year.

“By 2020, at least 73 per cent of our budget will be spent on those two areas, which is why I’ve been beating the drum for so long about the disproportionate effect of cuts on places like Middlesbrough and the North-East.

“Five of our 23 areas are in the top one per cent of the greatest social deprivation in the country. We have working population of 88,000 but at any one time we have between 21,000 and 23,000 people on benefits.

“I don’t think many Conservative cabinet ministers really understand what social deprivation looks like. They went beyond the pale when they took the Working Neighbourhood Fund, which was dealing with social deprivation issues, off us. I could cope with the £70m cuts, but when we lost £8.9m from that fund, it was the final straw. “

Mr Mallon feels his main legacy is that he has put a strategy in place to cope. Councils' income is from four sources: council tax, charges and fees, business rates and formula grant from the government which is partly worked out per head. But Middlesbrough’s population has fallen by 20,000 in the last 40 years, meaning the council has lost £8m-a-year in revenue.

“Austerity is here to stay,” says Mr Mallon. “We are not going to get more money from any government, so we have to become more self-sufficient. The strategy is simple. We build more houses, get more council tax in, get more population, get more formula grant, get more money for the services that we need for our young and our elderly.”

To that end, Middlesbrough plans to build 7,000 homes in the next 15 years – the biggest programme for 50 years. Last year, it built 785, of which a quarter pay Band D council tax or above – the most lucrative for the council.

“We now have £500m being invested in Middlesbrough,” says Mr Mallon, restarting the list of changes. “There’s a new Sainsburys by the Riverside stadium, and around the Transporter bridge it’s one big building site. There’s lots going on – we built a record number of houses in the last year.

“We’ve got more than green shoots of recovery now - we’ve got flowers coming through. But sometimes you have to batten the hatches down, to slow up. So the best thing I did was say no.”