A ‘Britain for Europe’ campaign protester and her dog, dressed in a coat made of the European Union flag, stand alongside an anti-Brexit poster outside the Supreme Court in London, U.K. (Photographer: Simon Dawson/Bloomberg)

Brexit Region Lives With Alarming Echoes of the Past

(Bloomberg) -- People in the hardy suburbs of Newcastle, home of the bank where Britain’s financial crisis began, have become used to living on the brink.

They lost two icons in quick succession just over a decade ago, when the Tyne River shipyards that were a cornerstone of the Industrial Revolution finally succumbed to global competition, and when lender Northern Rock collapsed—a full year before the demise of Lehman Brothers in 2008. An era of government spending cuts then compounded the misery in an area of England with some of the highest dependency on the state for jobs and welfare.

Brexit Region Lives With Alarming Echoes of the Past

Now Britain’s decision to leave the European Union could be about to inflict another shock. With food prices rising, wages struggling to keep up and the Bank of England again raising interest rates, the number of people seeking help to manage their debt is surging—with alarming echoes of the past.

“A large number of people are living right at the edge,” said Mark Almond, director of the Citizens Advice Bureau for the area of North Tyneside. It’s part of a network of charities with advisers across the country. “The reality is if you don’t have enough money to pay your electricity and gas, to pay the rent and feed your family, no matter how optimistic you are, that’s a problem.”

The northeast of England illustrates the precarious position facing many parts of the U.K. just six months before the country is due to leave the EU. The banking system is more regulated, but the financial crisis risks coming full circle for many households vulnerable to another downturn.

It also reflects the paradox at the heart of Brexit, that many of the areas which voted strongly to leave the EU—and the northeast is one of them—risk being hit hardest. 

Bank of England Governor Mark Carney on Thursday was said to have warned ministers of the potential calamity nationwide should Britain fail to agree an orderly departure from the EU.

Brexit Region Lives With Alarming Echoes of the Past

Nationally, the economy is growing more quickly and data this week showed better-than-forecast wage increases. But the pace of expansion was at the bottom of the Group of Seven industrialized nations last year. Real incomes remain lower than before Newcastle-based Northern Rock became Britain’s first domino to fall when it suffered the first run on a U.K. bank for more than a century and it was taken over by the government in 2008.

Debt charities warn that the situation is particularly acute in swathes of England’s north and midlands, many former industrial heartlands where austerity measures to repair Britain’s finances after the crisis hit disproportionately.

“Whole families, whole districts, whole towns are feeling abandoned and there’s not much to fix it on the horizon,” said Ian Gibson, who was a non-executive director at Northern Rock when it ran out of money. “If you’re on 40,000 pounds ($52,000) and you go down to 34,000, it’s going to be tight. But if you’re on 20,000 and you go down to 18,000, then you’re effectively insolvent.”

Brexit Region Lives With Alarming Echoes of the Past

In the northeast, gross weekly pay is almost 10 percent below the U.K. average, while it has the highest proportion of economically inactive people in Britain. It also has the lowest level of savings and investments in England and was the only area outside London where house prices fell in June.

The perception among locals is that the region is ignored by the capital 280 miles (450 kilometers) to the south. If it were in the U.S., it would be prime territory for Donald Trump, and the resentment over neglect and poorly paid jobs was given an opportunity to explode with the vote to leave the EU.

Brexit Region Lives With Alarming Echoes of the Past

“Since 2008, it’s been shocking, it’s been about just keeping your head above water,” said Austin Burdon, 57, who has run a barber shop in the Newcastle suburb of Wallsend for 29 years. Business taxes and costs have risen, but businesses can only charge what local people can afford, he said. “We lost all the shipyards and all the industry. We take every day as it comes.”

Brexit supporters say any short-term pain will be more than made up by long-term prosperity as Britain forges its own trade deals. It will also set its own policy on immigration, a key catalyst in the vote to leave the EU, to only allow the most-skilled workers into the country.

But in the meantime, companies will withhold investment, according to Gibson, who started his career in the auto industry and ran Nissan Motor Co.’s U.K. business when the Japanese carmaker built its plant near the northeast city of Sunderland in the 1980s. The factory is one of the region’s biggest employers and was built specifically to sell vehicles into the EU.

Rival Jaguar Land Rover sounded the alarm this week when its chief executive said a bad Brexit deal would put tens of thousands of jobs at risk and cost the company more than 1.2 billion pounds a year.

“Brexit is more damaging than the financial crisis, and the damage will be more lasting,” Gibson said. “It was a 10-year fix after the financial crisis, but now with Brexit it will get worse for a generation. We just doubled the load and doubled the period.”

The northeast may be hit just as its economy is getting going again. When a Bloomberg News reporter visited Wallsend a decade ago as the area plunged into the financial crisis, streets were full of for-sale signs, household clearance businesses were doing a roaring trade and Almond at the Citizens Advice Bureau spoke of the fallout from subprime lending.

Brexit Region Lives With Alarming Echoes of the Past

The loss of Northern Rock, though a national lender, was felt especially hard locally. Its foundation spent millions of pounds on projects and on helping disadvantaged people in the area. It even sponsored the Newcastle United soccer team.

These days there are pockets of new housing, cafes and a proliferation of “vaping” outlets—it’s definitely 2018 rather than 2008. The usual places to get quick cash and discount stores do dominate, but that’s the norm on British high streets struggling with the onset of online shopping and the squeeze on wages.

Dominic O’Sullivan, a 52-year-old electrician, is worried Brexit will derail that. When Northern Rock failed, he lined up with 40 to 50 people to withdraw his 1,500 pounds of savings from the branch in Wallsend. He managed to get half of it in one go.

Now he thinks the local economy is improving and “going in the right direction,” he said, though he knows he’s one of the lucky ones in the recovery. Two flats he purchased for 25,000 pounds were bought by a compulsory purchase order for redevelopment for 130,000 pounds, he said.

“At the moment just looking at the work, it’s crazy how much I’ve got on,” he said, his van parked on the High Street outside a former Northern Rock branch that’s now a charity shop. “This time two years ago it was absolutely dead. I don’t know what’s going to happen now.”

Brexit Region Lives With Alarming Echoes of the Past

The British economy has recovered what it lost during the crisis years, and the most recent figures show consumer spending during the warm summer months boosted the annual growth rate to 2.4 percent.

The Bank of England and Financial Conduct Authority have also tightened rules for some mortgage lending and stepped up oversight of short-term credit known as “payday loans.” One such lender, Wonga—also a former shirt sponsor of Newcastle United—collapsed last month.

But the concern is that high levels of household debt remain. “There are a lot of needles in the red and we don’t have the safety nets that we had,” said Peter Tutton, head of policy at the StepChange debt charity.

Consumers now owe more than 200 billion pounds in unsecured credit—equal to almost 3,000 pounds per person. Meanwhile, the savings rate has fallen to the lowest on record as they eat into more of their pay to cover living costs. The central bank has raised rates twice over the past year.

Governor Carney is said to have told senior government ministers on Thursday that borrowing costs would probably rise if the U.K. tumbles out of the EU without a deal. A fall in the pound and higher tariffs would push inflation higher, making it harder for the bank to cut rates to support the economy.

Brexit Region Lives With Alarming Echoes of the Past

“For lower income households the problem is less they’re taking on loads more debt, and more their incomes are so bad that they are then struggling to pay the bills they’ve got,” said Torsten Bell, who was special adviser to Alistair Darling, the politician in charge of Britain’s finances during the crisis.

While Bell doesn’t expect another financial crash, he warned that “people have had their incomes squeezed by the post-Brexit inflation shock, and you’re seeing people borrowing a bit more to get through that.”

The bottom line is that just like a decade ago, people don’t have any room for error, according to Almond. Those seeking help from his team never mention Brexit, he said. They may have voted for it, but they’re more concerned about paying the bills and keeping their social security benefits than the daily political noise from London.

Brexit, he said, is now “the elephant in the room.”

©2018 Bloomberg L.P.