Athey Consulting’s latest report for the LEP Network, released to LEPs on 31 March 2014, reveals a series of insights for local economies in England. The overall message is one of confidence and capability across the Local Enterprise Partnership area economies, but that the scale of challenges differ. Whilst all LEP areas have maintained employment and lower unemployment than would normally be expected after a recession, both the long and short term economic growth and performance of southern England is very apparent in the report – with local areas demonstrating serious long term growth in economic output, employment and productivity – with low unemployment. More positively, labour market conditions have improved across England and in most LEPs. Total UK employment is at an all-time high. Unemployment and economic inactivity in many areas have remained lower than would normally be expected five years after a recession.
This is the third edition for the LEP Network that Athey Consulting has been involved in – leading the research and authorship for the 2012 and 2014 report; and editing the 2013 report.
The report and associated resources are available at the following links below:
BUILDING LOCAL ADVANTAGE: REVIEW OF LEP AREA ECONOMIES 2014 REPORT (PDF)
APPENDIX A: DATA TABLES AND METHODOLOGICAL NOTES (EXCEL WORKBOOK)
MAPS USED IN THE REPORT (PORTRAIT AND LANDSCAPE VERSIONS) (ZIP FILES) MAPS VOLUME 1 and MAPS VOLUME 2 (split between two files due to file size)
North-south disparities continue
However, growth in southern England also means more expensive business locations, even if seven of the top ten LEP areas for skills and qualifications are in or surrounding London. Many other areas of the north now have growing skills, and available premises at a lower cost compared to the south. And business capability in terms of competing on quality rather than cost – is uniformly spread across all the LEP areas. Whilst Greater Manchester now takes on the mantle of Britain’s second city, and can draw on a massive skilled labour market; London seems to be an almost entirely different economy to the rest of the country – and this shows up on many measures used such as earnings and economic growth.
Work in progress: rebalancing local economies
The ambition of ‘rebalancing’ the economy has seen mixed success. The regional divide in economic performance has continued. Since 2009 only two LEP areas in the North of England experienced positive jobs growth, and even then, the growth rates were very modest, at 0.1 per cent. London had the highest rate of employment growth between 2009 and 2012 at 7.3 per cent, followed by Buckinghamshire Thames Valley (2.1 per cent). Swindon and Wiltshire LEP area experienced the lowest rate, contracting by 6.3 per cent.
Only 18 of the 39 LEP areas succeeded in offsetting public sector job losses through private sector gains. At a national level, private sector employment in England has grown by 401,500 jobs since 2009, while 240,800 public sector jobs have been lost. However, the picture at LEP area level has been very mixed, and these aggregate totals do not tell us anything about the type and quality of jobs created.
The third aspect of rebalancing, the promotion of manufacturing, has failed to reverse long-term trends of decline. Manufacturing employment has grown in 14 LEP areas, but fallen in 25. More LEP areas saw job losses rather than gains in manufacturing jobs between 2009 and 2012.
Growth fundamentals
The report highlights some of the fundamental factors needed for economic growth. One of these fundamentals is that for high rates of economic growth, local economies need a growing workforce. Five LEP areas projected significant workforce growth between 2011 and 2021: London (+610,500); South East (+104,900); Leeds City Region (+75,500); South East Midlands (+74,900); and Coast to Capital (+55,600). Liverpool City Region’s working age population is projected to contract by 40,900 over this period.
UK is foremost destination for FDI – for now
The UK continues to be one of the foremost destinations for FDI in the world. Investors are now choosing to locate where there is access to large markets and a stable political and legal system. For the moment, they are choosing to locate in the UK. Could this be put at risk by the uncertainties over EU membership?
World exports continue to grow, but LEP area economies vary greatly in their exporting activity and ability to increase exports.
According to the World Trade Organisation, world exports grew by a value of 12 billion US dollars in the decade from 2002 to 2012. A recent survey suggests that exporting activity in manufacturing industries is mixed among LEP areas, with the lowest rates among businesses with ten employees or more in a range of sectors including manufacturing and financial services found in Cumbria (16 per cent), and the highest in Swindon and Wiltshire (51.5 per cent). Export rates are largely determined by the industrial profile of the area. Employment in export-intensive industries ranges from a relatively high 15.9 per cent in London to 11.9 per cent in Coast to Capital.
Different LEP areas have different offers as competitive business locations
To benefit from global growth, areas need to attract investors through a combination of good value workspace and a skilled workforce with affordable labour costs. The LEP areas in Southern England can offer high skills and a lot of commercial floorspace, but this is at a price compared to locations in the North of England. Some LEP areas in the North of England, Midlands and South West show signs of increasing skills and qualification levels in their workforce coupled with lower earnings. Property values are lower and there have been significant increases in commercial floorspace.
The highest skilled workforces are in the areas in and surrounding London. Oxfordshire has the highest proportion of high-skilled employment, with 39.2 per cent of people employed in Level 4 occupations. Five areas have performed particularly well over the past year, ranking within the top ten for improvements in at least three out of four key skills measures: Coventry and Warwickshire; Cumbria; New Anglia; Northamptonshire; and Worcestershire.
High skills contribute to high earnings, overall wealth and economic output. As would be expected, there is strong correlation between the skills levels of jobs in an area and the average workplace salary. In London and surrounding areas, as well as in Oxfordshire and western England, above-average employment in Level 4 occupations is reflected in above-average workplace salaries.
Combining high skills with lower average earnings – a competitive offer. Four LEP areas offer a competitive combination of good access to highly qualified workers with relatively lower average labour costs: Greater Cambridge and Greater Peterborough; York, North Yorkshire and East Riding; Cheshire and Warrington; and Gloucestershire.
Commercial property markets have strongly local characteristics. Rateable values of commercial office space and factory space vary widely. Many LEP areas have increased their office floor space considerably over the past ten years while offering relatively low rateable values.
Assessing the capability for growth in LEP areas
As well as being attractive to investors, local economies need to nurture home-grown innovation and entrepreneurship. As in previous years, Buckinghamshire Thames Valley recorded the highest rate of entrepreneurship. It had 57 enterprises per 1,000 residents in 2012, and was closely followed by London (53) and Enterprise M3 (52). The business population grew in more than half the LEP areas in the five years between 2007 and 2012.
The leading local economies for innovation and knowledge include Greater Cambridge and Greater Peterborough with an average of 44.9 patents per 100,000 residents from 2007 to 2011, followed by Oxfordshire (34.8 patents per 100,000 residents), and Thames Valley Berkshire (21.2).
The knowledge economy is strong in several LEP areas. In London 31 per cent of employment is in the knowledge economy. The figure for Thames Valley Berkshire is 29.3 per cent, followed by Oxfordshire (27.9 per cent), West of England (22.2 per cent), Enterprise M3 (22.7 per cent), Buckinghamshire Thames Valley (21.2 per cent) and Cheshire and Warrington (20.1 per cent).
High- and medium-technology manufacturing is strong in several areas. In Gloucestershire 6.9 per cent of employees work in these sectors, followed by Coventry and Warwickshire (5.4 per cent), Greater Cambridge Greater Peterborough (5.1 per cent), and North East (5.3 per cent). Worcestershire, D2N2 and Humber all register 4.9 per cent of employees in these sectors.
In many LEP areas a sizeable proportion of businesses compete on quality, sophistication and market leadership. These are the qualities needed to drive innovation, productivity and exporting. In 38 out of 39 LEP areas, 40 per cent of firms or more had very high or high product market strategies, meaning that they compete on service, sophistication and leadership rather than simply on price.
Formal training by employers varies by LEP area. In 2013, Thames Valley Berkshire had the highest rate of employer-led training, with 57 per cent of establishments undertaking formal training activity. The lowest rates were in Cornwall and the Isles of Scilly, Cumbria and The Marches, all at 44 per cent.
For high rates of economic growth, local economies need a growing workforce. Five LEP areas projected significant workforce growth between 2011 and 2021: London (+610,500); South East (+104,900); Leeds City Region (+75,500); South East Midlands (+74,900); and Coast to Capital (+55,600). Liverpool City Region’s working age population is projected to contract by 40,900 over this period.
The overall verdict
Its nice to see recovery has been cemented across most of our local economies, and that many LEP areas have some sources of competitive advantage. However, what is more concerning is the lack of change in fundamental economic structures to put England back on sustainable economic footing. There has been little evidence of a significant rebalancing towards manufacturing. Despite widespread capability in terms of product market strategies and export intensive sectors; the UK’s export performance has, until recently, been disappointing.
In other words – whilst progress has been made, there remains so much more to do to restructure, rebalance and grow our local economies in England. Over to you, LEPs!
