Mersey upbeat

riving into Liverpool from the north you pass the shell of the old Tate & Lyle sugar factory, a symbol of the trade on which the great port was once built. It stands now like something on a film lot, a facade with

sides only half complete. All around is the desolate landscaping typical of this city which has buried its past beneath a neat covering and which has only just begun the task of creating something new. In the city centre, scaffolding seems everywhere to cover its Victorian and Georgian buildings. Liverpool is a work in progress, as much today as it was in the Lowry cityscape of development and dereliction featured in the new exhibition, "Urban", which next week reopens the Liverpool Tate Gallery. It has been closed for almost a year, undergoing a major refurbishment to double its size in response to the large number of visitors - 9 million in the first five years, treble the number anticipated.

A sense of dynamic change is all around. Some lament it. In the Everyman Theatre, the current production, Caravan, by a 26-year-old Liverpudlian writer, Helen Blakeman, is set against the background of the city's two- year- long dockers' strike, which recently ended with the capitulation of the sacked strikers. The play concludes with a scene which shows that the bleak future belongs to the scabs who broke the strike. It is a future with which the rest of the country made its unhappy compromise a decade ago.

Elsewhere, too, Liverpool is coming to terms with the present. By Old Haymarket, Fiona Woodward, an architect in her early thirties, is managing a project to refurbish a large warehouse. Its Victorian iron roof trusses - pieces of engineering more splendid even than those of the new Tate extension in the Albert Dock - will provide character to the loft conversions the city's young professionals are snapping up as quickly as they can be completed. The company she works for, Urban Splash, was founded in 1993 by Tom Bloxham. Today, at 33, Bloxham is said to be worth more than pounds 2m and his property company is transforming the old city, converting its industrial buildings into restaurants, bars, offices and loft apartments. It is even inventing new public spaces - such as the showpiece Concert Square, created from an old car park, and now surrounded by chic coffee shops, a photography gallery and a Japanese noodle bar among its various restaurants.

"It was the artists who first saw the potential of the warehouses," says Jayne Casey, sometime lead singer with the punk band Big in Japan, now in her forties, who fronts the city's leading night-spot, Cream. From small beginnings as "a club for like-minded people" in the early Nineties, Cream now has 1,000 people a night coming by coach from as far away as Inverness and Kent. Recently, 35,000 people attended a Creamfield festival in Winchester, and simultaneous Cream nights were held in Argentina, Brazil, Athens, Dublin, Glasgow and Liverpool.

"The city was built on a merchant culture. The merchants of corn, sugar and slavery have gone. But we are the merchants of style, exporting it around the world," Casey says fiercely. The evidence of the Cream phenomenon is indisputable. The club has seeded the Seel Street area with chichi bars. And in a recent survey, 70 per cent of the incoming first-year students at John Moore's University cited the club as their prime reason for choosing Liverpool. It is big money - those students spend pounds 40m a year in the city. Small wonder the university includes Cream on its day tours for potential students.

John Moore's is also a scene of transformation. The former Liverpool Polytechnic has, as one local businessman put it, "rebranded itself in the most amazing way", refurbishing many city centre buildings, including the grand edifice of the North Western Hotel by Lime Street Station, which stood dilapidated for years and has now been converted into a massive hall of residence.

There is much yet to be done. Liverpool still has an unemployment rate higher than the national average and the highest council tax in the UK. Bill Maynard, who was for 18 years a development officer in the council's chief executive's department before leaving in frustration two years ago to join Urban Splash, says the council is not yet comfortable building partnerships with the private sector. Areas such as Kirby, Huyton and Toxteth are still dogged by the kind of poverty which allows Liverpool to qualify - alone among English cities - for Objective One funding, which the European Union makes available to its most deprived regions. Fashionably stark city-centre bars, with London prices, might seem to offer little for the victims of that deprivation. But at Cream, Jayne Casey strongly disagrees. The entertainment sector now provides three times as many jobs as the old manufacturing sector did, she says.

The city's main designer fashion outlet, Wade Smith, trades on how aspirational Liverpudlians are. The boss, Robert Wade Smith, talks of Liverpool's unfailing eye for the latest trends. "I first noticed it when I worked for Adidas in the late Seventies," he says. "I discovered that our Liverpool outlet - though only one of 25 throughout the UK - accounted for almost a third of our total sales. There is a much higher tendency here for people to spend what they have quickly." It is what the city's new alternative rock and dance radio station, Crash FM, which launched last month, describes to its advertisers as a youth market of "free-spending individuals who are culturally aware and very aspirational".

"You used to have to leave Liverpool to succeed," says Crash FM's founder, DJ Janice Long, who herself once left for London and Radio 1. "Now bands like Cast and Space can stay. And people are coming back. The infrastructure is here now - management, support services and even studios such as Parr Street, where last month Echo and the Bunnymen and the Spice Girls recorded the World Cup anthem."

"Liverpool has always had an arrogance," says the film and TV director Chris Bernard, whose Letter to Brezhnev was set in the city. He is now working up a new BBC series, called World's End, set among the trendies of the regenerated city centre. "But there was something defensive about it. That has gone now. What you are seeing here is confidence." Whether the city is ahead of the game, or merely catching up with the rest of the country, we might leave for the Liverpudlians to decide

`Urban' opens 23 May and runs until April 1999.

Captions: A city born again out of its Victorian splendour: main photograph, the Victorian Liver Building, reflected in the glass of Liverpool's ferry terminal, the Pierhead. Opposite: the Liverpool Tate Gallery, in the redeveloped Albert Dock, which has doubled in size to cope with the volume of visitors. Below right: the interior of the new top-floor gallery space. Below, far right: You Are in a Car (1996), painted wood, by Julian Opie, one of the exhibits in the Tate's new `Urban' exhibition featuring artists' responses to the effects of urbanisation in the 20th century

The `Urban' exhibition features artists from Britain, continental Europe and America, in various media including painting, sculpture and photography, with works taken from the National Collection of Modern Art. Top: Finsbury Square (1995), oil on canvas, by Lisa Milroy. Above: Abstract Painting (c1951-52), oil on canvas, by Ad Reinhardt

Top: Study for The City (1909-10), oil on canvas, by Robert Delaunay. Above: Lipsticks in Piccadilly Circus, London (1966), drawing on paper, by Claes Oldenburg. Above right: Spinning Round (1961), oil on canvas, by Jean Dubuffet.