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Siemens to pour pounds 1.1bn into 2,000 new UK jobs

Government lobbying and aid package win ships-to-chips investment for North Tyneside

Siemens, the German industrial giant, is creating up to 2,000 jobs at an unemployment black-spot in North-east England with the biggest single investment by a foreign company in the UK.

The investment of pounds 1.1 bn in a semiconductor factory, a deal brokered personally by Prime Minister John Major and his deputy Michael Heseltine, includes a substantial aid package from the government.

Siemens intends that the plant, being built near the former Swan Hunter shipyard on North Tyneside, becomes its worldwide centre for production and design of microchips for mobile telephones and smart cards.

As Mr Heseltine hailed the move as an example of Britain's competitiveness and talked of its importance to the trade balance, the German government warned that it could not continue to allow such large investments to go overseas.

The factory, built in two phases and due to come on stream in 1997, is part of a worldwide investment strategy by Siemens to take on its rivals, Toshiba and IBM, and double sales of semiconductors.

Siemens said several factors persuaded it to invest in Britain, including exchange rate concerns, availability and cost of labour, and grant aid.

The Department of Trade and Industry is providing pounds 30m in regional selective assistance, but the total package could be far more. Local authorities and agencies are providing funds, and English Partnerships, a government body, is working on preparing the site.

Mr Heseltine dismissed suggestions that the total aid amounts to some pounds 200m as "wildly high", but he refused to disclose a figure.

Referring to the outcry over last month's award of pounds 80m in aid towards Jaguar's pounds 400m investment in a car plant, Mr Heseltine said: "We learn from our mistakes, and are not going to reveal the size of the aid."

The grants will be closely scrutinised by the European Commission, which has become increasingly concerned about the way governments attempt to disguise what is illegal state aid. Mr Heseltine said he did not see any problems over approval.

The battle to win Siemens' investment was fiercely fought between a number of European countries, including Austria, Portugal, Spain, Ireland and Germany.

It is thought that the company had until four weeks ago decided to choose Austria, but last-ditch attempts were made by Mr Major and Mr Heseltine to woe Siemens' chairman, Heinrich von Pierer.

Mr Heseltine met the board at the company's Munich headquarters, and organised introductions to some of Britain's leading industrialists, who were told to extol the virtues of coming to the UK.

Negotiations between the Prime Minister and Mr von Pierer were even held at the Wimbledon tennis championships, where Mr Major is thought to have promised to increase the aid contribution.

That meeting pursuaded Mr von Pierer to go back to his board for further discussions, and the UK was due to have been chosen last Friday. But an eleventh-hour intervention from another country offering more money saw the meeting broke up without agreement, and a special board meeting was called for yesterday morning.

Mr Heseltine's role in winning the project was underlined by the fact that he made yesterday's announcement, not the Trade and Industry Secretary, Ian Lang.

Mr Heseltine said: "The Siemens plan is the largest single high-tech investment ever made in Britain and puts us at the forefront of world semiconductor technology.

"It confirms, too, that, as far as international mobile blue-chip investment is concerned, the UK is Europe's competitive base. The Siemens plant will make a substantial contribution to the balance of payments by providing pounds 200m in import substitution and pounds 700m in exports every year."

Siemens is anxious to expand overseas because the strength of the mark is hitting exports and labour costs in Germany are rising. Siemens estimates that an 8 per cent appreciation of the mark this year will cut about DM3bn (pounds 1.3bn) from the company's sales, while about 7.6 per cent will be added to wage costs.

Jurgen Gehrels, chief executive, said no single factor that clinched the deal for Britain. And he strongly denied that it was because the UK is a low-wage economy and not committed to the Social Chapter. "This is a long-term investment, and you cannot always assume that the mark will be high, or the pound low. We will be employing highly-skilled engineers, who are not cheap."

He said Siemens was attracted by the sheer size of the UK semiconductor market which is worth about pounds 3.5bn a year. "We want to be close to that market," he said.

The prospect of the North Tyneside industrial accent switching from producing ships to chips has been eagerly anticipated for weeks. Yesterday's announcement is another big boost for the whole region, coming within a year of Teesside's scooping of the South Korean Samsung project which will employ 3,200. Foreign investment has been a big part of the transformation.

Stephen Byers, Labour MP for Wallsend, the constituency in which the plant will be located, said: "After successive rounds of large-scale redundancies on Tyneside, today's decision will not just bring badly-needed jobs, but will give new hope to the area."

The semiconductor industry is enjoying a sales boom because of the increase in sales of mobile phones, and some analysts predict annual growth rates in the microchip business of as much as 15 per cent.

Siemens' chip sales have doubled to DM4bn over the past two years and now it plans to double them again as part of a worldwide strategy.

Up to DM500m will be invested at Villach in Austria, and DM100m at its Regensburg plant in Germany.