City meltdown turns to a chill wind in the North

Families living in London and the South-east have pulled in their belts a notch, shopping less at Waitrose and more at Lidl. But in Sunderland and the North-east, there is real suffering. Emily Dugan reports

As workers emerged from the gleaming, glass-clad offices of Lehman Brothers, clutching their chattels in cardboard boxes, Britain quailed, fearful the UK economy was about to collapse around our ears.

But while the perfect storm of the credit crunch, rising bills and stalled house prices now blowing through the UK economy is expected to devastate City jobs, so far it is doing its worst damage several hundred miles north of Lehman's Canary Wharf offices.

To date, the South has pulled its belt in a notch or two: fewer people shopping at Waitrose, more at Lidl. But the London-based media fanfare surrounding the opening last week of Westfield, Europe's biggest inner-city shopping centre, suggested a surreal unwillingness to acknowledge the coming storm. Some 250 miles to the north, in Sunderland, the picture is very different. The downturn is hitting hard, and with crushing effect.

Mark Cassidy and his wife, Nicola, moved from Scunthorpe to Sunderland with their three children, after Mark was offered a major contract as a joiner. He had been told there were lots of building projects coming up in the city, but when they arrived the project he was hired for was abandoned. Now there is no work at all.

"Everything's come to a grinding halt," he explains. "All the cranes are still there, but there's just no building going on. I've no idea what to do... my wife left her job to move up here. Christmas is round the corner, and we're thinking, how are we going to get money for presents? I've been applying for other work, but I don't know anything else, apart from wood."

Sunderland experienced something of a renaissance in the New Labour boom years. Despite suffering major job losses in the Eighties and Nineties following the decline of the ship building and coal industries, the situation was improving. In the past decade, it had the fastest-growing economy in the north-east, had secured a great deal of private and public investment, and seen unemployment fall.

But now all this good work has come to a halt. Last week, Nissan announced cuts for shift workers, as production slowed, threatening some 800 jobs. The blow followed September's round of redundancies at Northern Rock, which left 1,300 in the North-east without jobs overnight – most of whom were based at the bank's Sunderland call-centre. CitiFinancial also let 400 staff go at the end of the summer, and now the Inland Revenue is planning to cut 800 jobs, as two Sunderland offices that moved from London as part of a regeneration plan face closure.

Between July and September, the number of people claiming Jobseeker's Allowance leapt by 11 per cent – one in 13 is unemployed – and a further rise is expected. And even those in work are struggling against the rising cost of food and fuel. Average weekly earnings in the North-east are £400 – the lowest in the country.

The received opinion among the chattering classes suffering job losses in the financial sector is that the South of England is at the front line of the credit crunch. This could not be further from the truth.

Neil Lee, senior researcher at the Work Foundation think tank, said: "Places like Sunderland are going to experience a lot of pain in the credit crunch; more so than London and the South-east because they never caught up economically. Sunderland has had something of a resurgence. But this crisis will show that it's a shallow foundation. A lot of northern cities will feel the pain of the crisis, which has not been of their own making."

Clare Jose, a money advice worker at the Citizens Advice Bureau in Washington, says the service has been inundated with people who have found themselves out of work in the past few weeks. "We've had a major influx of people saying they've lost their jobs, especially from Northern Rock. They're struggling to find work, but there's nothing to be had," she says. "We're seeing 30 new people coming to our drop-in service each day, and the problems don't stop with people who have been made redundant. It's also those who can't get overtime any more and then can't pay their debts."

Glenn Robinson, 40, is one of hundreds of workers at the Nissan car factory who have bowed to pressure from bosses and taken next year's holiday allowance, while a fortnight's freeze on production continues. Passing his new-found free time in the New Tavern in Washington, he says workers are worried about what the future will hold if Nissan hits hard times. "They've cut right down on production and it doesn't look good. I've been there 10 years, so I'm feeling pretty secure; but I wouldn't want to be one of the temporary staff now. Around a third of the staff are temporary and they've said they'll be the first ones hit."

Danny Dorling, professor of human geography at Sheffield University, says that, far from being a southern problem, the credit crunch is likely to be felt far worse in the north: "Things have gone well for affluent people in the South, so the downturn will come as a bit of a shock, but the first casualties are always in the northern cities and poorest areas. "If you look at the what's provided in the North – such as call-centre and warehouse work, and branches rather than headquarters – these are all easy to cut. The North-South divide is widening. It will all unravel in the next few months."

Since the regional development agency One NorthEast began work on the city's economy in 1999, it has claimed much success. But the region is now struggling to hold on to the leaps it made, as the global market gets tougher. "In the past 10 years, Sunderland has undergone some fairly large-scale foreign and indigenous investment and had been on a steep upward curve," explains Ian Williams, director of business and industry at One NorthEast. "But investments have slowed ... and we've seen numbers claiming Jobseeker's Allowance. We know there are tough times ahead."

For many, the tough times are here. Susanne Harrison was on maternity leave last Christmas when the Pyrex factory she had worked in for seven years closed. The 25-year-old now has to support her baby daughter, Millie, by herself and has found it impossible to find work. "Half the factories have closed and it's really hard to get a job." As she pushes her daughter through The Bridges, the city's glittering shopping centre, she can only look at what's on sale. "It's a struggle to buy the things we need. I'm just trying to get through each day."

Fight to survive: 'You don't have your hair cut if you need food'

Reza Mohammed looks over the polished chrome and leather of his deserted hair salon in Sunderland High Street. The 30-year-old moved from Iran in 2001 and set up shop three years ago when the city's economy was booming. Back then, there seemed to be a market for a luxury salon, but now the neighbouring shops are bookies and pound stores, and his profits are down 20 per cent from last year.

"It's a very scary time. At the end of the month I can see I'm not making the profit I used to. I've had to drop my prices by 20 per cent, which is making it hard to balance the books.

"I'd say about a third of my clients have been made redundant this year: everyone's talking about it. There are plenty of hairdressers in Sunderland and lots of competition. If people are struggling and other salons are offering haircuts for £12, they'll go there. If I survive until next year, then I think I'll be OK, but this is a very bad period.

"I've still got my regular clients, but now they only come every few months. People don't concentrate on having a haircut when they're trying to pay bills or get food."