THE so-called Cold War peace dividend claimed another 650 jobs yesterday as tank manufacturers Vickers announced it was closing its factory in Leeds.

Production of the new Challenger 2 battle tank will now continue solely at the company's Newcastle factory. The 650 job losses will be drawn from both sites.

The redundancies had been expected for some time, but there was shock yesterday at the Leeds closure. Some analysts thought that Newcastle was more at risk.

It led to claims that the company had spared Newcastle after pressure from the Government because the North-east had already suffered substantial job losses.

This was immediately denied by the company, which said it had not discussed its plans with the Government and said costs were lower in Newcastle.

Vickers's Leeds site employs 650 people, with 635 at Newcastle. The plan is for 450 jobs to go at Leeds by the end of 1999 and 200 at Newcastle.

A further 40 jobs are to go at Vickers Bridging, which employs 128 at Wolverhampton.

Although the Leeds factory will close next year, the company said part of the site and workforce would be retained to create a service centre for vehicle upgrading, maintenance and testing.

The timing is embarrassing as it comes only the day after Prime Minister Tony Blair, on a visit to the North-east, announced that rapid response units would help workers affected by mass lay-offs.

However the Department for Education and Employment said yesterday that such squads were not set up yet, and therefore could not help Vickers.

The Leeds factory is the latest casualty of the declining worldwide defence market since the ending of the Cold War.

It is also unlikely to be the last, as defence contractors across Europe undergo a painful rationalisation process in order to keep up with the Americans.

The Royal Ordnance factories are also bracing themselves for job losses. Owners British Aerospace said yesterday that business there remained difficult and was subject to a major review.

The global defence figures are stark. In 1992, global defence sales were worth #29.2bn. By 1996, that had shrunk by a third to #19.4bn, leaving the industry with massive surplus capacity.

At the same time, defence production in the United States is becoming increasingly concentrated in the hands of a few giant corporations.

Europe's response is slower. There are still more than 40 defence contractors in Europe compared to just 14 in the United States.

Last July, Defence Secretary George Robertson, and his counterparts from Germany, France, Sweden, Spain and Italy signed a letter of understanding to promote greater integration of their defence sectors.

A series of mergers across Europe is now seen as inevitable if the industry is to have the muscle to stand up to the might of the Americans.

Progress towards a more integrated industry has been hampered because of the high degree of state control in France, but few analysts doubt that it will happen - and with it will come more closures and job losses.

''Further rationalisation is inevitable,'' said Mr Paul Beavier of Jane's Information Group.

Barr & Stroud in Glasgow, part of the Pilkington Optronics group, supplies the imaging equipment for the Challenger, but says it is unaffected by the Leeds closure.

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