TheChek News Flow

Sheffield was once the UK’s centre of steelmaking. Now a rising tide of defence spending promises revival

Inside an anonymous grey industrial shed in Sheffield on the site of a former steelworks, Britain’s newest gun factory is taking shape. By the spring it will be building parts for BAE Systems’ M777 howitzer, a lightweight artillery piece whose production has been restarted thanks to surging demand from Ukraine. 

The large titanium components to be made here were ordered by the US Army but are expected initially to be sent to refurbish M777s in Ukraine. BAE expects contracts for whole guns to follow.

Sheffield was built on manufacturing and was for decades the centre of the UK’s steel industry. Long renowned for cutlery production, its factories were vital to Britain’s efforts in the second world war. But production collapsed in the 1980s and the city struggled to recover.

While it boasts a large university population and a thriving cultural sector, Sheffield has not seen the transformational regeneration of Leeds or Manchester. A new hub for advanced manufacturing has sprung up, pulling in companies such as Rolls-Royce and Boeing, but productivity in South Yorkshire is still lower than the national average. Deprivation and economic inactivity remain high in the neighbourhoods that once made up the city’s industrial base.

This year, South Yorkshire was one of the regions selected to benefit from a £250mn “Defence Growth Deal”, part of the government’s new Defence Industrial Strategy, with the aim of building on the area’s existing expertise in advanced engineering. But the hope that a “defence dividend” will help boost productivity faces challenges, including questions over how many local jobs will actually be created at these high-tech facilities. It is also not clear how the additional defence funding will be allocated to different projects.

BAE chose Sheffield for its new factory because the city “stood out due to its manufacturing heritage, the ecosystem that’s around here — it’s got world-class education and universities”, said John Borton, managing director of BAE Systems Weapons Systems UK. 

Borton said Sheffield also offered a ready-made location so BAE could “mobilise at pace” — the company did not have to build a facility itself but has leased a new 94,000 sq ft shed as part of a £25mn investment. The new factory will create 200 new high-skilled jobs while supporting 60 businesses across the UK supply chain.

Among BAE’s suppliers is Sheffield Forgemasters. One of Britain’s oldest companies, which can trace its origins back to the 1750s as a small blacksmiths forge, the steelworks struggled to compete with the rise of cheaper international producers. Forgemasters was nationalised four years ago to secure the supply of parts vital to the Royal Navy’s ships and submarines. 

Its vast site straddling the river Don is now benefiting from a government-funded 10-year £1.3bn recapitalisation plan, enabling investment in facilities including a new machining hall, as well as 3D printers and increased automation. The aim, said chief executive Gary Nutter, was to double productivity. He added that despite an initial bump in headcount as part of the transition to being state-owned, he did not expect the facility to add more jobs in the long term due to the rate of staff retirement.

Gareth Barker, Forgemasters’ chief operating officer, who started at the company in the early 1990s as an apprentice, credits the new investment for a greater sense of “stability and security”. “For the first time,” he said, “we can have conversations about what the future looks like”.

Ben Morgan, chief executive of the Advanced Manufacturing Research Centre, set up as part of the University of Sheffield in 2001, believes the city can leverage its traditional strengths. 

Part of the centre’s role, Morgan added, was in supporting businesses by talking to organisations including the British Business Bank and the National Wealth Fund to help companies secure funding “and to make sure they spend it on the right equipment that is going to give them the capacity and the capability to deliver”.

One company hoping to benefit from the arrival of BAE in the area is Advanced Manufacturing (Sheffield) Ltd, a specialist in manufacturing high-quality precision parts. Spun out of the AMRC in 2008, AML employs 100 people and is targeting £13mn in turnover next year. 

Gareth Morgan, managing director, said the company was “positioning itself to be ready” to benefit from any work that might flow from the large defence contractors as well as from the recapitalisation of Forgemasters.

Securing investment, however, especially in the early stages of building a company, has not always been easy. AML this year attracted funding from Taiwan’s Walsin Lihwa, which now controls 38.8 per cent of the company.

“It’s been very hard to attract investment,” said Morgan. “It seems to me the debt markets, the capital markets, are hugely supportive of digital and software . . . but very reluctant to invest in hard tech, the capital-intensive bit of factory growth.”

The problem is visible in east Sheffield, where coal mines have been replaced by sprawling ecommerce distribution centres run by companies such as Amazon and clothing retailer PrettyLittleThing.

Gwilym Pryce, an economics professor at the University of Sheffield, said that the city had been “trapped in a ‘low-skill, low-wage’ equilibrium”, which had led to a “brain drain”.

He added that Sheffield’s businesses “operate with thin margins, preventing them from investing in new technology or higher wages”. 

However, Pryce told the Financial Times he was optimistic about the government’s push for an increased defence industry presence in the region. “A long-term investment could anchor broader industrial renewal, particularly if it strengthens links between key players like Forgemasters, BAE Systems and the University of Sheffield AMRC.”

Minesh Parekh, a Labour councillor for Sheffield, however, was sceptical that the defence investment would translate into a meaningful economic uplift. “There are far better ways to spend that money, particularly in Sheffield, which is one of the most economically unequal cities in the UK,” Parekh said. “This is a city that needs better public transport and a better health service.”

Other news:

Gapping up
In reaction to earnings/guidance:

Other news: