Awm glynn jones 30-06-10 coventry conference pdf

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  • 1. The West Midlands Economy A review of Achievements & Challenges 10th Regeneration Management Research Network Dr Glynn Jones Head of Economics & Strategy Wednesday 30th June 2010
  • 2. The West Midlands: a review of achievements & challenges 1. The recession & its impact on the region 2. Regional economic performance 3. Future outlook for regeneration 4. Key challenges 1
  • 3. 1. The Recession & its Impact on the Region i. Global Recession ii. Regional Impact iii. Social & Spatial Considerations
  • 4. The nation has experienced a very deep recession, extending over six quarters ……. Source: ONS, UK Output, Income & Expenditure, February 2010 Notes: Q4 2009 GDP was revised up from +0.1% up to 0.4%; Q1 2010 up from 0.2% to 0.3% Estimates of the recession have been revised downwards from 6% to 6.3%. 3
  • 5. Which is by far the deepest recession experienced in the post-war period ‘Recession’ = two consecutive quarters of negative economic growth 1973 / 74 1980 / 81 1990 / 91 2008 / 09 Q3 -0.8 Q1 -0.8 Q3 -1.2 Q2 -0.1 Q4 -0.2 Q2 -1.8 Q4 -0.6 Q3 -0.9 Q1 -2.4 Q3 -0.3 Q1 -0.1 Q4 -1.8 Total -3.4 Q4 -1.2 Q2 -0.3 Q1 -2.6 Q1 -0.5 Q3 -0.4 Q2 -0.7 1975 Total -4.6 Total -2.6 Q3 -0.3 Q2 -1.7 Total -6.4 Q3 -0.2 Total -1.9 Source: ONS, GDP Quarter Growth, 2009 4
  • 6. The West Midlands has seen the sharpest drop in output of all the English regions over the last year.... PMI Output (12-month average) PMI Output (seasonally adjusted) 60 West Midlands PMI Index (50 = no change on previous month) Yorkshire & 55 Humber East Midlands 50 South East 45 East England 40 South West North East 35 North West UK 30 West Midlands London 25 40 45 50 55 PMI (50 = no change on previous month) Source: Markit Economics / AWM February 2010 5
  • 7. And for much of the recession the region has seen some of the highest rates of unemployment, peaking at over 10% Source: ONS Labour Market Statistics, March 2010 6
  • 8. Whilst the level of notified redundancies has eased since early 2009, since 2010 they have again begun to rise Source: Jobcentre Plus, March 2010 7
  • 9. The impacts have especially affected the region’s older urban communities, where deprivation is already high… Source: NOMIS, JSA Claimant Count, February 2010 8
  • 10. And in terms of social groups has impacted especially on younger people and those with no qualifications Source: Labour Force Survey, 2009 9
  • 11. There is particular concern around the impact on young people, with the risk of longer-term effects...... Youth Claimant Proportion (Jan 2010) 18% 16% urban core economies Claimant Rate (aged 18-24) 14% 12% 10% 8% 6% 4% 2% 0% Source: NOMIS, JSA Claimant Count, February 2010 10
  • 12. Especially given the strong evidence linking (long-term) unemployment with poor health • Higher mortality Percentage Poor Health • Poorer general health, somatic complaints, longstanding illness, limiting longstanding illness • Poorer mental health; more psychological distress; minor psychological/ psychiatric morbidity, suicide • Higher medical consultation, medication consumption and hospital admission rates 11
  • 13. 2. Regional Economic Challenges i. Regional economic trends ii. Industrial structure iii. Skills & productivity
  • 14. Regional GDP per head dropped dramatically in the early 1980s - stabilising - then deteriorating in the late 1990s.... Note: GDP and GVA data are NOT directly comparable GDP = GVA + taxes on products - subsidies on products Source: Office of National Statistics 13
  • 15. With the West Midlands experiencing the lowest average annual growth in GVA per head (2000-2007) of any UK region 14
  • 16. Equally, regional unemployment peaks in recession at higher level; but since late1990s has not returned to national rate 18 16 UK West Midlands 14 East Midlands Regional Claimant Count Rate (%) North East 12 South East 10 8 6 4 2 0 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Source: ONS, Regional Claimant Count Rates 15
  • 17. Underlying this poor performance are ‘structural vulnerabilities’ including dependence on low-tec manufacturing..... West Midlands - Proportion of Manufacturing FTEs to all FTEs Sandwell Walsall Stoke on Trent Herefordshire Dudley Worcestershire Telford and Wrekin Staffordshire Shropshire  Low-Technology Wolverhampton  Medium-Low West Midlands Technology Birmingham  Medium-High Technology England Warwickshire  High-Technology Coventry Solihull 20% -20% 15% -15% -10% 10% 5% -5% 0% 5% 10% 15% 20% Source: Annual Business Inquiry 2006 16
  • 18. And a significantly higher proportion of the working age population without qualifications compared to the UK Working Age Population with No Qualifications 30 % of working age population with 25 no qualifications 20 15 10 5 0 Source: Labour Force Survey, 2008 17
  • 19. Data on export values further underlines the poor presence of high value sectors & dominance of ‘mature’ industries Export Value by Sector, Year Ended Q1 2009 Unclassified Transport Infrastructure Textiles & Furnishings Telecommunications & Broadcasting Equipment High GVA sectors Security Recreational & Leisure Goods Paper, Printing & Packaging Oil & Gas Metals & Minerals IT & Electronics Household Goods Healthcare & Medical Equipment Giftware, Jewellery & Tableware Food & Drink Environment Engineering (electrical & mech inc. Aerospace) Energy Creative & Media Industries Clothing Chemicals Building Biotech & Pharmaceuticals Automotive Agriculture 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 Export Value (£, thousands) 18
  • 20. Collectively this may help to explain why the region’s private sector has the lowest proportion of ‘high-growth’ firms...... Proportion of businesses (10+employees) Proportion of manufacturing businesses that are high-growth (2005-08) (10+ employees) that are high-growth (2005-08) 8 6 7 Percentage of manufacturing firms 5 6 UK % of all firms Percentage of all firms 4 UK % of all manufacturing firms 5 4 3 3 2 2 1 1 0 0 Source: NESTA 2009 from the ONS Business structure database High growth firms are defined by the OECD as a firm with an average employment growth rate exceeding 20% per annum over a 3 year period and with 10 or more 19 employees at the start of the period.
  • 21. And why the region’s private sector has been contracting in contrast to the position in all other UK regions Source: Annual Business Inquiry 20
  • 22. Shift-share analysis suggests the private sector has created 74,500 fewer private sector jobs than statistically ‘expected’…. Source: Work Foundation / Annual Business Inquiry, 2009 Notes: Shift/share analysis is a technique used for retrospectively decomposing employment change in a region. The shift-share model says that growth in the study area’s employment is a function of: The study area’s share of national growth. The ‘industrial mix’ 21 change in activities. And the ‘shift’ change of activities toward/ away from the study area.
  • 23. Whilst major investments have been made by AWM to diversify the economy, significant challenges remain Ansty Park Manufacturing Technology Centre – World class R&D site – Joint EMDA / AWM investment to requiring major public / encourage R&D private investment – Partners include Loughborough, – Complex infrastructure issues Birmingham, Notts Uni plus TWI Ltd – Hoped that TATA will locate – Major companies signed up : Rolls- their European R&D Centre Royce, Aero Engine Controls and here Airbus in the UK – AWM investing £40 million+ – Industries benefiting: aerospace, to help create an estimated automotive, energy, electronics 5,000 high value, technology assembly, and heavy duty driven jobs construction equipment companies 22
  • 24. 3. Future Outlook for Regeneration i. Economic Outlook ii. Threats & Opportunities iii. Changing organisational context
  • 25. Forecasts for 2010 suggest growth of just over 1.2% with commentators talking of a ‘jobless recovery’ ..... Average of Medium-Term Independent Forecasts “It is possible we will have a 3 quarter when GDP falls, but I 2.5 don’t think it will be a double dip. I would be surprised if we go Forecasts GDP Growth (%) 2 back to recession but I think 1.5 recovery will be bumpy and 1 fragile” 0.5 Kate Barker 0 Bank of England MPC, March 2010 2010 2011 2012 2013 2014 Source: HM Treasury, Forecasts for the UK Economy: a comparison of independent forecasts, May 2010 24
  • 26. And there remains considerable uncertainty about the timing and strength of recovery GDP projection based on market interest rate  Recent improvements are still expectations and £200 billion asset purchases being boosted by remaining stimulus measures  Export recovery remains patchy  Impact of public spending cuts to come  Financial institutions are redressing their balance sheets, with impacts on lending  Many businesses are choosing to save rather than invest due to uncertain outlook Source: Bank of England Inflation Report , May 2010 25
  • 27. A major uncertainty concerns the impact of cuts in public spend set out in the Spending Review Framework • Current UK deficit of 11.5% or £156bn • Coalition appears likely to adopt a split of 80:20 – 20% tax rise possibly through rise in VAT – 80% reduction in public spending • Spending on health and overseas aid to be protected • Will try to limit the impact on the most vulnerable in society and on regions heavily dependent on the public sector • Protect spending that generates high economic returns • Estimated that UK public sector job losses of 725,000 • Equivalent to 13% of total public sector jobs (5.7 mn) 26
  • 28. This will precipitate a ‘second-wave’ of redundancies in the public sector which is increasingly shedding labour Notified Redundancies (Jan-Mar 09) Notified Redundancies (Dec - Feb 10) 29% 3% 56% 32% 21% 39% 4% 8% 6% manufacturing 2% services construction public other Source: Jobcentre Plus, Notified Redundancies, February 2010 Note: ‘Other’ includes Agriculture & Fishing and Energy & Water 27
  • 29. % of employment in Public Sector 0 5 10 20 25 30 35 40 45 15 North… Tamworth Solihull Stratford-on-… Cannock Chase Source: Annual Business Inquiry, 2008 Wychavon Rugby Warwick Redditch Sandwell Lichfield East… Walsall Great Britain & West Midlands Average = 27% Staffordshire… Wyre Forest Herefordshire Malvern Hills South… Newcastle-… Nuneaton and… Telford and… Public Sector Employment England Great Britain West Midlands Dudley Coventry Shropshire Bromsgrove Wolverhampton Stoke-on-Trent Worcester Birmingham Within the region there are a number of economies that are Stafford 40% particularly vulnerable to expected public sector redundancies 28
  • 30. As previously noted there are also concerns around youth unemployment & those with low skills Source: Department for Work & Pensions, Opportunity for All Indicators, 2007/08 29
  • 31. Looking forward it will be critical to assist private sector growth (to fill the gap) & especially ‘high growth’ firms • Most firms experience modest growth - the number which decrease in size is similar to the number that increase • Focus on high-growth companies is critical: – represent just 6% of UK firms employing 10+ people – account for more than half the growth in jobs – The majority are at least 5 years old (ie. its not just about start-ups) – Few start-ups experience high growth in their first 10 years – Occur in ALL sectors of the economy • Interventions that target firms with high growth potential are likely to be more efficient than general support for all SMEs • Focus on quality, not just quantity Source: NESTA 2009 Note: The highest % of growth firms reflect trends in the economy & 30 are highest for financial & business services & lowest for manufacturing
  • 32. There will also be opportunities arising from ‘replacement demands’ even in sectors where employment is declining Working Futures Projections West Midlands 2007-2017 250 Replacement Demands 200 Net New jobs Employment Change (000s) 150 100 50 0 -50 Source: IER Working Futures, 2008 31
  • 33. The organisational context for delivering regeneration will also undergo significant change • RDAs to be abolished in the Autumn • LEPS will be Local Authority & Business led, covering : – Employment and skills – Transport and planning – Regeneration (including physical regeneration) – Some element of enterprise support (but relatively limited) • The models for LEPS have not yet been detailed • Not clear whether there will be full regional coverage • None of the BIS functions RDAs currently perform seem to fit into the LEP model 32
  • 34. 4. Key Challenges 1. Economic structure
  • 35. Some challenging issues for some challenging times Regeneration Context Regeneration Agenda • Macro-economic context 1. Achieving a rebalanced appears fragile – economy economy ? may settle at lower level 2. Creating sufficient jobs for : • Impact of public sector job • those without qualifications cuts on private sector output • younger people • Continuing uncertainties around position of PIIGS 3. Major skills issues • Economy remains ‘deeply 4. Future funding for major unbalanced’ – n/s divide physical renewal schemes • Continuing shift to (smaller) 5. Concerns around social & more highly skilled economy spatial inequalities • Major organisational change 34