BUILDING LOCAL ADVANTAGE

BUILDING LOCAL ADVANTAGE Review of Local Enterprise Partnership area economies in 2014 1

CONTENTS CONTENTS 1 FOREWORD 2 EXECUTIVE SUMMARY 3 1. RECENT ECONOMIC PERFORMANCE 6 2. TRADE PERFORMANCE AND INTERNATIONAL CAPABILITY 30 3. COMPETITIVE BUSINESS LOCATION 37 4. CAPACITY FOR GROWTH 51 In separate documents: APPENDIX A: DATA TABLES AND METHODOLOGY NOTES 1

FOREWORD In this third annual report looking at the economic performance and characteristics of Local Enterprise Partnership (LEP) areas, it is clear that many local economies are now in a position to take advantage of the recovery and upturn in the economy. Local Enterprise Partnerships offer a business-led approach to local economic growth. All LEPs now have strategic economic plans, many of which are underpinned by sound evidence. This report provides an up-to-date analysis and comparison of LEP area performance to help complement the planning and research work that LEPs have undertaken. Growth in the global economy continues. The UK is now advantageously placed as a destination for foreign direct investment, as overseas investors seek to align themselves with market demand and operate in stable, secure business environments. All LEP areas can take advantage of this. Export performance is improving and the future looks promising. Many LEP areas have the capacity and capability to support an export-focused economy: most have high rates of exporting in their business communities and many have a significant proportion of businesses with tradable goods and services that can compete internationally on quality, sophistication and market leadership. This report clearly demonstrates the diverse range of opportunities and advantages within individual LEP areas, as well as their unique challenges. These challenges range from managing costs to creating jobs, increasing entrepreneurship and creating capacity for further growth. A resurgence in business investment is expected in the year ahead. Coupled with the opportunities arising from growth in the UK as well as overseas, and the skills and business capabilities within each LEP area, the signs are promising. Over the past year, many LEPs have invested in high quality plans and strategies for their local economies, providing a firm foundation from which they can respond to the opportunities ahead. 2

EXECUTIVE SUMMARY This is the third annual review of Local Enterprise Partnership (LEP) area economies. The analysis and information provided can help LEPs understand their growth dynamics and future economic challenges and opportunities. Overall economic performance and rebalancing With national economic recovery now in progress, LEPs are well positioned to identify and address opportunities and challenges for growth. As the UK s economic recovery strengthened over the past year, LEPs have extended their remit and influence. The UK economy grew by 1.8 per cent in 2013, and growth of between 2.4 and 2.7 per cent has been forecast for 2014. While the economy is now growing, recent rates of growth have been well below long term trends in all LEP areas. Although all LEP areas have demonstrated a recovery in economic output since 2008, none have yet returned to the rates of long term growth they demonstrated prior to the recession. However the long standing pattern of higher levels of economic growth, employment growth and workforce skills in the greater South East of England continues. Economic performance across LEP areas varies widely, with the highest GVA 1 per capita recorded as 37,200 in 2012, and the lowest at 13,000. 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. There has been a clear nationwide shift from public sector to private sector employment growth, but the balance between public sector job losses and private sector gains is uneven. 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. 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. 1 This refers to nominal GVA at current prices. 3

Local opportunities in the global economy Global growth continues, presenting new opportunities for LEPs both as recipients of inward investment and as exporters. The global economy is expected to keep growing at a rate of 3.2 per cent in 2014 and 3.4 per cent in 2015. Growth is likely to be strongest in fast-developing nations that represent billions of consumers, such as China, India and Nigeria. India s imports grew more than seven-fold between 2002 and 2012. LEP areas are in a prime position to benefit from foreign direct investment (FDI). As the top FDI destination in Europe, the UK offers proximity to market demand and a stable and transparent political, legal and regulatory environment regarded as the two most important location factors for FDI projects. Firms want to set up operations in regions with large and strong domestic demand. This leads them to Europe, the largest market in the world, with 11 of the world s 20 largest consumer markets. Over half of England s FDI projects were located in London in 2012/13, with Greater Birmingham and Solihull the next best performer. Foreign ownership of businesses and the employment in these businesses varies markedly. Thames Valley Berkshire had the highest share of foreign-owned enterprises in 2011, with 2.7 per cent of enterprises accounting for 26.1 per cent of employees. By contrast, foreign-owned enterprises only accounted for 0.3 per cent of businesses and 2.9 per cent of employment in the Heart of the South West LEP area. 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 2 suggests that exporting activity 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. Competitive 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. Seven of the top ten LEP areas for skills and qualifications are in or 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. 2 Harris, R (2013), Inward Investment and Exporting in the LEPs: Report to BIS, September 2013. 4

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. 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. Growth capability 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. 5

1. RECENT ECONOMIC PERFORMANCE Summary With the UK s economic recovery strengthening over the past 12 months, Local Enterprise Partnerships have extended their remit and influence further The UK economy grew by 1.8 per cent in 2013. Growth of between 2.4 and 2.7 per cent has been forecast for 2014. Economic output has improved in all LEP areas since the recession. There is a wide variation in economic performance among LEP areas, with (nominal) GVA per capita ranging from a high of 37,200 in 2012 to a low of 13,000. The recession and its aftermath have been disruptive. No area maintained its long term growth rates during and since the recession. There is no consistent relationship between recent rates of economic growth in LEP areas and long term growth rates. London had the highest rate of employment growth (7.3 per cent) between 2009 and 2012, followed by Buckinghamshire Thames Valley (2.1 per cent). Swindon and Wiltshire experienced the lowest rate, with a contraction of 6.3 per cent. Employment rose between 2009 and 2012 in only two LEP areas in Northern England, and this was marginal: Cheshire and Warrington and D2N2 both saw an increase of 0.1 per cent. At a national level, private sector jobs have increased by 401,500, more than offsetting the 240,800 public sector job losses. But there have been mixed results locally. In only 18 out of 39 LEP areas has a growth in private sector jobs offset public sector job losses. Manufacturing employment rose in 14 LEP areas between 2009 and 2012, but in the majority (25 areas) it contracted. There have been improvements in labour market conditions across England. Unemployment and economic inactivity have remained lower in many areas than would normally be expected five years after a recession. 6

1.1 LOCAL ENTERPRISE PARTNERSHIPS AND THE LEP NETWORK Since the publication of the last report in 2013, LEPs have extended their remit to provide Strategic Economic Plans (SEPs) for their local areas. LEPs have continued to mature, setting strategic objectives, forging wider partnerships, administering new funding arrangements and promoting enterprise zones. They have played an important role in assisting in other new local initiatives such as Local Transport Bodies. Several wider policy changes and devolved funding arrangements have been agreed, or are on the verge of being finalised. The government s City Deals initiative gives eight of England s largest cities new powers to tackle specific economic challenges. City Deals may be extended to a further twenty areas, so this policy will be of increasing importance for many LEPs. The Single Local Growth Fund has furthered the principle of extended powers and funding for comprehensive and coordinated local economic plans. The Heseltine Review reaffirmed that LEPs are the Government s chosen engine of local resource to transform their locality in the way our economy needs. On the basis of the SEPs, the government will devolve a greater proportion of growth-related spending by creating a single funding pot for local areas from April 2015. LEPs will also have a much more significant role to play in the management and deployment of EU funds. Each has developed an EU Investment Strategy to prioritise investments and ensure these reflect the interests of a broad range of partners, including civil society and higher education. With all of this in mind, this updated report reviews the growth performance of LEP area economies and the factors that influence this. It provides the latest information on the key economic, business, labour market and infrastructure indicators, and it is hoped that LEPs can continue to use this report as a resource to aid decision-making and strategic planning. LEP areas vary widely in terms of their size, economic specialisms, urban and rural composition. For example, there are large differences in the degree of rurality across LEP areas. In 2012, the percentage of people living in rural areas ranged from 60.7 per cent in Cornwall and the Isles of Scilly to just 0.1 per cent in the Black Country. Across England as a whole, 17.1 per cent of people lived in rural areas in 2012. In Cornwall and the Isles of Scilly and in Cumbria more than half the population is rural. Four areas are overwhelmingly urban, with more than 99 per cent of people living in urban areas: Black Country, London, Greater Manchester and Liverpool City Region. The LEP Network (www.lepnetwork.org.uk) is a gateway to news and information, and enables LEPs to come together to discuss issues of shared importance, engage with government and share knowledge and good practice. It helps LEPs self-serve with their troubleshooting, capacity-building and problem-solving needs. The LEP Network s core programme consists of events; electronic forums for regular communication; a monthly bulletin; and an annual benchmarking report of LEP area economies. 7

FIGURE 1.1: LOCAL ENTERPRISE PARTNERSHIP AREAS 8

1.2 SETTING THE NATIONAL CONTEXT: THE UK ECONOMIC RECOVERY RECENT UK ECONOMIC PERFORMANCE 3 The UK s economic recovery appears to have strengthened over the past six months. The latest estimate of Gross Domestic Product (GDP) indicated that output grew by 0.7 per cent during Q4 2013, as indicated in Figure 1.2 below. The Office for National Statistics estimated that the UK economy grew by 1.8 per cent in 2013. Several dynamic changes have cushioned the UK against worsening economic performance. The contraction in construction output during the downturn was mitigated by a large increase in public sector and infrastructure related construction activity (such as the Olympic venues and Crossrail). This effect has been reduced over the past two years, but construction output has instead been supported by a rise in private sector house building. One of the most surprising features of the UK economy during and since the recession has been the strength of employment. Unemployment has not peaked to levels consistent with previous recessions and employment has been sustained at higher than expected levels, reaching a historic peak in Q4 2013 with 30.15 million people in work in the UK. Comparing October-December 2013 with a year earlier, there were 396,000 more people in employment, 161,000 fewer unemployed people and 23,000 fewer people not in the labour force (economically inactive). After several years of stagnation, business spending and investment is showing signs of recovery. A resurgence of business investment is critical to productivity improvements and the long term economic growth rate. In the Bank of England s November 2013 Inflation Report, in Q2 2013, business investment was reported to have contracted. But more recently the Q4 2013 Office for National Statistics estimate of Gross Fixed Capital Formation (GFCF) indicated an increase of 1.3 billion (or 2.4 per cent) to reach 56 billion, compared with the previous quarter. Credit conditions have improved for larger corporations but not for small businesses. Improvements in credit conditions have been greatest for large corporations, which tend to have better access to non-bank finance than smaller companies. Small and medium-sized enterprises (SMEs), however, frequently lack access to capital markets and are therefore more dependent on banks for external finance. Median interest rates on new credit facilities to SMEs have fallen modestly overall since mid-2012. Surveys of small businesses reinforce the view that the cost of credit for SMEs is falling: for example, businesses responding to the Federation of Small Businesses (FSB) survey reported that, on average, their cost of credit fell between mid-2012 and Q2 2013 and continued to edge lower in Q3. Those surveys also suggest that the availability of credit has improved over the past year or so, albeit from a low base. These rates do not, however, capture the full cost of credit for SMEs, as they do not include the impact of fees or cashback deals. Furthermore, as lenders become more willing to extend credit to a wider pool of borrowers, falls in interest rates for some SMEs may be offset by banks charging higher interest rates to riskier ones. Household incomes remain under pressure. Following relatively strong growth in Real Household Disposable Income (RHDI) during the first year of the downturn (Q2 2008 to Q2 2009), RHDI has been broadly flat since Q3 2009, despite cumulative real GDP growth of 4.2 per cent over this period. The relationship between RHDI and GDP growth during a period of economic recovery appears broadly similar to previous experience. The proportion of household income spent on essential goods rose from 19.9 per cent in 2003 to 27.3 per cent in 2013. The proportion accounted for by gas and electricity increased from 1.8 per cent in 2003 to 3.1 per cent in 2013, despite very little overall change in the volume of household energy consumption. 3 Sourced from: Office for National Statistics, Statistical bulletin: Labour Market Statistics, February 2013; Office for National Statistics, Statistical bulletin: Gross Domestic Product Final Estimate, Q4 2013; Office for National Statistics, Economic Review, March 2013. 9

2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2014 Q4 BUILDING ADVANTAGE: FIGURE 1.2: UK QUARTERLY ECONOMIC GROWTH 2007-2013 1.1 0.6 0.5 0.5 0.7 0.7 0.2 0.6 0.4 0.1 0.6 0.0 0.6 0.4 0.7 0.8 0.7-0.1-0.9-0.7-0.3-0.5-0.1-0.5-0.3-1.8-2.6 Source: Office for National Statistics OUTLOOK FOR THE NATIONAL ECONOMY There is a general view that the UK economy is at last returning to modest levels of growth. As indicated earlier, the latest estimates suggest that the UK economy expanded by 0.7 per cent in Q4 2013 and business surveys point to similar rates of growth in Q1 2014. Improvements in the pace of growth during 2013 were supported by an increase in domestic demand. That reflects both an improvement in credit conditions for example, rates on new loans to households have fallen significantly over the past year and a reduction in uncertainty. The easing of these headwinds has supported consumer spending and helped to revive the housing market, as reflected by housing activity and prices increasing and housing investment rising robustly in the first half of 2013. Although capital expenditure is yet to increase, companies investment intentions have also improved on the back of reduced uncertainty and improved access to credit, as well as stronger prospects of demand. Large companies may benefit most from this expected revival of investment as, despite some improvement, small businesses still find it difficult to access finance. Demand has also increased worldwide since the start of 2013, and by more than most economists expected. This mainly reflects growth in the euro area, which has been slightly stronger than predicted. 10

The average of independent forecasters 4 suggests that the UK growth rate will be 1.8 per cent in 2013, 2.7 per cent in 2014, and 2.4 per cent in 2015, as presented in Figure 1.3. The most recent Office for Budget Responsibility forecast, in November 2013, projects 1.4 per cent growth for 2013, 2.4 per cent in 2014, and 2.2 per cent in 2014. FIGURE 1.3: MEDIUM-TERM ECONOMIC FORECASTS FOR THE UK 4.0 Office for Budget Responsibility (Dec 13) Average of independent forecasters (Feb 14) 3.0 2.4 2.7 2.2 2.4 2.0 1.8 1.4 1.0 0.0 2013 2014 2015 Source: Office for Budget Responsibility, Economic and Fiscal Outlook December 2013; HM Treasury, Forecasts for the UK economy: a comparison of independent forecasts, February 2013. 1.3 RECOVERY FROM RECESSION ARE LEP AREAS READY FOR GROWTH? THE PATH TO RECOVERY As Figure 1.4 demonstrates, within two years of the start of the recession in 2008, all LEP areas had demonstrated a degree of recovery in gross economic output (which does not account for inflation) consistent with or better than the national average recovery of pre-recession output. Thirty-three LEP areas demonstrated recovery after two years. Three (Dorset, Greater Manchester and West of England) recovered their pre-recession gross economic output one year after recession, while another three (Buckinghamshire, Liverpool City Region and Oxfordshire) experienced no reduction in gross output during or after the recession. It is remarkable that no LEP has lagged behind the national average in this regard. 4 HM Treasury, Forecasts for the UK economy: a comparison of independent forecasts, February 2014 11

FIGURE 1.4: MAPPING RECOVERY FROM THE RECESSION REBALANCING SCORECARD #1: ECONOMIC OUTPUT AND RECOVERY FROM THE RECESSION 0 LEP areas with no contraction in nominal (unadjusted) output during the recession (2008) +1 Early recovery of prerecession nominal (unadjusted) output (2009) +2 Recovery of pre-recession nominal (unadjusted) output after two years (2010) in line with the England average 3 LEP areas 3 LEP areas 33 LEP areas Buckinghamshire - Liverpool City Region - Oxfordshire Dorset - Greater Manchester - West of England Black Country - Cheshire and Warrington - Coast to Capital - Cornwall and the Isles of Scilly - Coventry and Warwickshire - Cumbria - D2N2 - Enterprise M3 - GCGPEP - Gloucestershire - Greater Birmingham and Solihull - Heart of the South West - Hertfordshire - Humber - Lancashire - Leeds City Region - Leicester and Leicestershire - Lincolnshire - London - New Anglia - North East - Northamptonshire - Sheffield City Region - Solent - South East - South East Midlands - Stoke and Staffordshire - Swindon and Wiltshire - Tees Valley - Thames Valley Berkshire - The Marches Worcestershire Note that nominal (unadjusted) output is higher than net output, which takes into account inflation. A local area could have positive growth in gross output but still have negative net output due to the offsetting effects of inflation. All national GVA and economic output figures are deflated they take into account price inflation and deflation into their calculations. LEP AREA ECONOMIES VARY CONSIDERABLY IN SIZE AND PERFORMANCE LEP area economies vary considerably in terms of the size of output and economic activity from London, with 309.3 billion of gross (unadjusted) output in 2012 to Cornwall and the Isles of Scilly, with 7 billion of gross (unadjusted) output. They also range from very large regions, such as the South East LEP area, worth 68.9 billion in gross output, to the large core cities of Greater Manchester ( 51 billion) and Greater Birmingham and Solihull ( 48.3 billion).the latest estimate of economic output per capita in 2012 presented in Figure 1.5 highlights some of the differences between LEP areas. London ( 37,200) and Thames Valley Berkshire ( 35,000) recorded the best economic performance per capita, followed by Enterprise M3 ( 25,300). At the other end of the scale are Cornwall and the Isles of Scilly, with an economic output per head of 13,000, and York, North Yorkshire and East Riding with 13,700. 12

FIGURE 1.5: ECONOMIC OUTPUT (GVA) PER HEAD IN 2012 (AT CURRENT BASIC PRICES) London Thames Valley Berkshire Enterprise M3 Coast to Capital Oxfordshire West of England Cheshire and Warrington Hertfordshire Buckinghamshire GCGPEP England Solent South East Midlands Gloucestershire Swindon and Wiltshire Coventry and Warwickshire Northamptonshire Greater Manchester Leeds City Region Leicester and Leicestershire Dorset Greater Birmingham and Solihull D2N2 Cumbria New Anglia South East Liverpool City Region Worcestershire Humber Heart of the South West Lancashire The Marches North East Tees Valley Lincolnshire Stoke and Staffordshire Sheffield City Region Black Country York and North Yorkshire Cornwall and the Isles of Scilly 25,300 24,900 24,900 24,700 24,200 24,200 24,100 23,400 21,900 21,400 21,300 21,100 20,800 20,500 19,400 18,900 18,900 18,100 17,900 17,800 17,400 17,200 17,200 17,100 16,800 16,600 16,500 16,300 16,300 16,300 16,100 16,100 15,800 15,500 15,300 15,000 13,700 13,000 37,200 35,000 Source: NUTS 3 GVA and Mid-year Population Estimates, Office for National Statistics. 13

FIGURE 1.6: GVA PER HEAD IN 2012, NUTS 3 AREAS (MAP) 14

RECENT GROWTH PATTERNS DO NOT REFLECT LONG TERM GROWTH TRAJECTORIES There is no consistent pattern between short-term and long-term growth performance. As can be seen in Figure 1.8, there are significant differences between each LEP area s long term economic growth rate and the most recent annual growth rates. For example, London has an average annual (unadjusted) economic growth rate of 5.1 per cent over the 15 years from 1997 to 2012, ranking first among LEP areas. However, its one-year growth rate for 2011 to 2012 was 2.0 per cent, and it ranked 13 th out of 39 areas. Hertfordshire, which ranks 20 th for its annual growth rate between 1997 and 2012, ranked fifth from 2011 to 2012. No LEP area maintained its long term average annual growth rates in the five years during and after the recession. Figure 1.9 presents another rebalancing scorecard this time comparing LEP area long term annual growth rates (1997-2007) with post-recession annual growth rates (2007-2012). The best achievers were London and GCGPEP, with pre-recession annual growth rates of 6-7 per cent, and post-recession rates of 3-4 per cent. There are a few LEP areas that experienced very high annual growth rates in the ten years preceding the recession, such as Cornwall and the Isles of Scilly and Sheffield City Region, but where growth during and since the recession has fallen dramatically. FIGURE 1.8: ANNUAL GROWTH IN ECONOMIC OUTPUT (GVA) 1997-2012 AND 2011-2012 (AT CURRENT BASIC PRICES) LEP Area 1997-2012 2011-2012 Rate (per rank Rate (per rank cent) cent) London 5.1 1 2.0 13 GCGPEP 4.7 2 2.7 9 Enterprise M3 4.5 3 5.7 2 Oxfordshire 4.5 4 2.8 8 Worcestershire 4.4 5 1.5 15 West of England 4.4 6 1.1 21 Cornwall and the Isles of Scilly 4.3 7-0.3 35 Dorset 4.3 8 1.4 16 Coast to Capital 4.2 9 6.0 1 South East Midlands 4.2 10 0.5 26 Liverpool City Region 4.2 11 2.3 10 Thames Valley Berkshire 4.2 12 1.3 17 Solent 4.1 13 3.2 6 Gloucestershire 4.1 14 5.5 3 Cheshire and Warrington 4.1 15 0.5 27 Greater Manchester 4.1 16 3.1 7 Buckinghamshire Thames Valley 4.0 17 1.0 22 North East 4.0 18 2.3 11 Sheffield City Region 4.0 19 0.8 25 Hertfordshire 3.9 20 3.3 5 South East 3.9 21 1.9 14 Northamptonshire 3.9 22-0.4 36 Leeds City Region 3.9 23 0.9 24 Heart of the South West 3.8 24 0.1 32 D2N2 3.7 25 1.3 18 New Anglia 3.6 26 0.3 31 Swindon and Wiltshire 3.6 27 0.3 30 Greater Birmingham and Solihull 3.6 28 0.4 29 York and North Yorkshire 3.6 29-1.0 39 The Marches 3.5 30-0.2 34 Tees Valley 3.4 31 0.0 33 Lincolnshire 3.3 32-0.7 37 Lancashire 3.3 33 2.0 12 Leicester and Leicestershire 3.3 34-0.9 38 Coventry and Warwickshire 3.2 35 3.6 4 Cumbria 3.2 36 1.0 23 Stoke and Staffordshire 3.2 37 0.5 28 Humber 3.1 38 1.1 19 Black Country 2.5 39 1.1 20 England 4.2 1.8 Source: NUTS 3 GVA estimates, Office for National Statistics 15

FIGURE 1.9: REBALANCING SCORECARD: LONG-TERM GROWTH VS. POST-RECESSION GROWTH REBALANCING SCORECARD #2: LONG TERM GROWTH VS. POST-RECESSION GROWTH RECESSION AND POST-RECESSION ANNUAL GROWTH RATE 2007-2012 2-3 per cent 1-2 per cent 0-1 per cent LONG-TERM ANNUAL GROWTH (NOMINAL, UNADJUSTED) RATE 1997-2007 3-4 per cent growth 1 LEP AREA Black Country 4-5 per cent growth 1 LEP AREA Buckinghamshire 4 LEP AREAS D2N2 Coventry and Warwickshire New Anglia The Marches 7 LEP AREAS Cumbria Lancashire Lincolnshire Tees Valley Stoke and Staffordshire Leicester and Leicestershire Humber 5-6 per cent growth 6-7 per cent growth 5 LEP AREAS Oxfordshire Enterprise M3 West of England Coast to Capital Liverpool City Region (The England average) 12 LEP AREAS Solent Dorset South East Worcestershire Gloucestershire Thames Valley Berkshire North East South East Midlands Hertfordshire Cheshire and Warrington Greater Manchester Northamptonshire 5 LEP AREAS Leeds City Region Greater Birmingham and Solihull Swindon and Wiltshire Heart of the South West York and North Yorkshire 2 LEP AREAS London GCGPEP 2 LEP AREAS Cornwall and the Isles of Scilly Sheffield City Region 16

FIGURE 1.10: ECONOMIC GROWTH 2011-2012 (MAP) 17

PUTTING RECENT TRENDS WITHIN THE CONTEXT OF HISTORICAL ECONOMIC PERFORMANCE A recent study 5 sponsored by the Economic and Social Research Council and conducted by Cambridge and Southampton universities has provided data and analysis of long-run growth across Britain s LEP areas since 1981. Figure 1.11 shows the variation in the growth of economic output across the local areas of Great Britain over the thirty years period from 1981 to 2011. In general, the fastest growth of output has been in the South of England although there are also some English LEP areas bordering with Wales that have done well and the effect of North Sea oil on North East Scotland is particularly noticeable. 1.4 RECENT EMPLOYMENT TRENDS FIGURE 1.11: GROWTH IN ECONOMIC OUTPUT IN UNITARY AND COUNTY Average Growth Output, 1981-2011 (%pa) Above 3.0 2.5to 3.0 2.0to 2.5 1.5to 2.0 Below 1.5 TOTAL EMPLOYMENT HAS GROWN IN ENGLAND OVER THE PAST THREE YEARS Between 2009 and 2012, employment in England grew by 0.7 per cent, as detailed in Figure 1.12. While employment fell sharply in public administration, construction and manufacturing, there were large gains in the business administration, health and professional/scientific/technical sectors. Employment prospects varied widely across LEP areas. BETWEEN 2009 AND 2012, EMPLOYMENT GREW IN ALMOST HALF OF ALL LEP AREAS Source: Gardiner, B, Martin, R, Sunley, P and Tyler, P (2014) Long-run growth evolutions across Britain s LEPs; some exploratory empirics. The highest level of jobs growth by far was in London (7.3 per cent), driven by growth in business administration, financial services and accommodation and food services. Other areas experiencing growth of 1 per cent or more were to the west of London (Buckinghamshire Thames Valley, Coast to Capital, Oxfordshire, Enterprise M3 and Thames Valley Berkshire) and in the West Midlands (Birmingham and Solihull and Coventry and Warwickshire). In LEP areas to the west of London, employment change by sector varied but, in general, growth in jobs in business administration, professional/scientific/technical, retail, and accommodation and food services outweighed heavy losses in construction, manufacturing and public administration. In the West Midlands (Birmingham and Solihull and Coventry and Warwickshire), there was particularly strong employment growth in the business administration and health sectors. 5 Local Long-Run Growth Evolutions Across Britain: Some Exploratory Empirics by Ben Gardiner, Ron Martin, Peter Sunley and Peter Tyler (2014). The research for this paper is part of an ESRC-funded project on How Regions React to Recession: Resilience, Hysteresis and Long Run Impacts (Grant ES/1035811/1). A copy is available from: http://www.geog.cam.ac.uk/research/projects/cger/ 18

EMPLOYMENT DECLINED ACROSS MUCH OF THE SOUTH WEST AND MOST OF NORTHERN ENGLAND. The only northern LEP areas to experience growth in employment were Cheshire and Warrington and D2N2 and this growth was marginal, at 0.1 per cent. Total employment fell most sharply in Swindon and Wiltshire (- 6.3 per cent), the Humber (-4.8 per cent), Heart of the South West (-4.2 per cent), and York, North Yorkshire and East Riding (-4.0 per cent). In south western England, the largest falls in employment were in the construction, transport and storage, wholesale, and public administration sectors. In the North West (Cumbria, Greater Manchester, Lancashire and Liverpool City Region), the biggest falls were in manufacturing, arts/entertainment/recreation and public administration. In Yorkshire and the Humber (Leeds City Region, Humber, Sheffield City Region and York, North Yorkshire and East Riding), retail, public administration, and accommodation and food services bore the brunt of job losses. In the north east (North East and Tees Valley), the largest falls in employment were in the public administration, professional/scientific/technical, and construction sectors. FIGURE 1.12: TOTAL EMPLOYMENT CHANGE 2009-2012 London Buckinghamshire Thames Valley Greater Birmingham and Solihull Coast to Capital Coventry and Warwickshire Oxfordshire Enterprise M3 Thames Valley Berkshire Solent Hertfordshire England The Marches GCGPEP Gloucestershire Stoke and Staffordshire South East Midlands D2N2 Cheshire and Warrington New Anglia Cumbria Liverpool City Region South East North East Northamptonshire Worcestershire Greater Manchester Black Country Leicester and Leicestershire Lancashire Tees Valley Cornwall and the Isles of Scilly Sheffield City Region Leeds City Region Lincolnshire Dorset West of England York, N. Yorkshire and E. Riding Heart of the South West Humber Swindon and Wiltshire -0.5-0.5-0.7-0.7-0.7-0.9-1.2-1.3-1.3-1.5-1.7-1.7-1.9-2.2-3.1-3.6-3.7-4.0-4.2-4.8-6.3 2.1 1.9 1.6 1.3 1.1 1.0 1.0 0.9 0.7 0.7 0.6 0.5 0.5 0.3 0.2 0.1 0.1 0.1 Source: Business Register and Employment Survey 2009, 2012, Office for National Statistics. 7.3 19

LONG-RUN EMPLOYMENT GROWTH Figure 1.13 shows the spatial growth of employment over the period. The pattern is somewhat different to that of output. Although there has been relatively strong employment growth in the South of England there has also been rapid growth in the East, parts of Yorkshire, Wales and particularly the area around Bristol in England. 1.5 REBALANCING LOCAL ECONOMIES TOWARDS THE PRIVATE SECTOR AND MANUFACTURING FIGURE 1.13: AVERAGE ANNUAL GROWTH IN EMPLOYMENT INLOCAL AREAS 1981-2011 Average Growth Emp. 1981-2011 (% pa) Above 1.00 0.66to 1.00 0.33to 0.66 0.00to 0.33 Below 0.00 INTRODUCTION Over recent years, much has been said and written about the need to rebalance the UK economy and its local economies away from public sector employment towards increased private sector employment; and from too much dependence on financial services activities towards expansion of manufacturing and internationally tradable activities. This section assesses how far LEP area economies have rebalanced over recent years. REBALANCING FROM PUBLIC TO PRIVATE At the national level, private sector job gains have more than offset public sector job losses. It is estimated that there were 240,800 public sector job losses in England between 2009 and 2012 and a gain of 401,500 additional private sector jobs. But this disguises a much more mixed picture at a local level, where there are major differences between LEP areas, particularly where large public sector employment losses have not been alleviated by private sector gains. Source: Gardiner, B, Martin, R, Sunley, P and Tyler, P (2014) Long-run growth evolutions across Britain s LEPs; some exploratory empirics. It is no surprise that the impact of public sector jobs cuts should vary between areas. Public sector employment is diverse and covers activities such as local authorities; higher education and research institutions; and national administrative centres such as the Department for Work and Pensions offices in the North East and the Met Office headquarters in The Heart of the South West. Public sector employment centres also tend to be large and geographically concentrated, exacerbating the local impact of cuts. 20

LEP AREA PERFORMANCE: FROM PUBLIC TO PRIVATE Between 2009 and 2012, total public sector employment fell in 36 out of 39 LEP areas. It rose in three areas: Cumbria (+800); London (+2,600); and Gloucestershire (+400). The total fall in public sector employment has been significant in several areas, including Leeds City Region (-20,500); South East (-18,300); Liverpool City Region (-12,700) and North East (-12,500). The largest reduction in percentage terms occurred in Cornwall and Isles of Scilly (-14.1 per cent) and Dorset (-13.6 per cent). The critical questions for many local economies include: is the local economy still more dependent on public sector employment than average? and have private sector gains offset public sector job losses? Figure 1.14 is a scorecard which summarises the progress of LEP areas in rebalancing from public to private sector employment. Eight LEP areas continue to depend more on public sector employment than the national average (19.3 per cent), including D2N2 (22.2 per cent of all employment in 2012); Cumbria (23.5 per cent); Lancashire (22.8 per cent); Liverpool City Region (25.0 per cent); North East (25.9 per cent); Sheffield City Region (25.1 per cent); and Tees Valley (25.0 per cent). Of these, only D2N2 has experienced private sector employment growth (+8,200) at a level that has offset public sector job losses (-6,900). There were also nine areas (Black Country; Dorset; Greater Manchester; Heart of the South West; Humber; Leeds City Region; South East; West of England; York, North Yorkshire and East Riding) with average shares of employment in the public sector, but which experienced greater public sector job losses than private gains. In 12 LEP areas, public sector job dependence and losses have been much less significant. Their share of total employment in the public sector was lower than the England average, and private sector gains have offset public sector losses. Five LEP areas had average shares of total employment in the public sector, with public sector job losses offset by private sector gains. In six areas the share of employment in the public sector was lower than average, but not enough private sector jobs were created to offset public sector losses. In sum, rebalancing from the public to private sector has been successful (or was not much of an issue to begin with) in 24 LEP areas. In 15 LEP areas, however, dependence on public sector employment is still higher than average, and gains in private sector employment have not offset public sector losses. 21

FIGURE 1.14: MAPPING PUBLIC AND PRIVATE EMPLOYMENT SHARE AND GROWTH FROM 2009 TO 2012 REBALANCING SCORECARD #3: FROM PUBLIC TO PRIVATE? PROGRESS IN REDUCING DEPENDENCE ON PUBLIC JOBS DEPENDENCE ON PUBLIC SECTOR JOBS High - Over 22% of total employment is in the public sector Average - between 19 and 22 % of total employment is in the public sector Low - Less than 19% of total employment is in the public sector + Private job gains have exceeded public losses (2009-2012) 1 LEP AREA D2N2 5 LEP AREAS Gloucestershire; Greater Birmingham and Solihull; Solent; Stoke-on-Trent and Staffordshire; The Marches 12 LEP AREAS Buckinghamshire Thames Valley; Cheshire and Warrington; Coast to Capital; Coventry and Warwickshire; Enterprise M3; Greater Cambridge & Greater Peterborough; Hertfordshire; London; New Anglia; Oxfordshire; South East Midlands; Thames Valley Berkshire Public job losses greater than private gains (2009-2012) 6 LEP AREAS Cumbria; Lancashire; Liverpool City Region; North East; Sheffield City Region; Tees Valley 9 LEP AREAS Black Country; Dorset; Greater Manchester; Heart of the South West; Humber; Leeds City Region; South East; West of England; York, North Yorkshire and East Riding 6 LEP AREAS Cornwall and Isles of Scilly; Lincolnshire; Leicester and Leicestershire; Northamptonshire; Swindon and Wiltshire; Worcestershire 22

REBALANCING TOWARDS MANUFACTURING EMPLOYMENT Manufacturing jobs are most significant in Northern England and the Midlands as a percentage of total employment. In 2012, manufacturing accounted for over 14 per cent of jobs in Cumbria, Humber, Black Country, Lincolnshire, Leicester and Leicestershire, and The Marches. Manufacturing employment is least significant in London and surrounding areas. In 2012, manufacturing accounted for just 2.5 per cent of all jobs in London, and between 4 and 7 per cent in Coast to Capital, Thames Valley Berkshire, Enterprise M3 and Hertfordshire. There has been little progress nationally in stimulating employment growth in manufacturing in recent years. Progress among LEP areas has been mixed. Across England, manufacturing employment continued to contract (by 3.5 per cent, or 71,300 employees) between 2009 and 2012. The share of employment in manufacturing has also fallen. In 2012, only 8.5 per cent of England s employees worked in the manufacturing sector, down 0.2 per cent on 2011 and down 0.4 per cent on 2009. While the national trend is stable or declining, there is evidence of employment growth in manufacturing in 14 LEP areas. The highest rate of manufacturing employment growth between 2009 and 2012 was in Greater Cambridge Greater Peterborough, with 2.9 per cent growth (+2,000), followed by 2.8 per cent growth in Gloucestershire (+1,000) and 2.7 per cent in Leicester and Leicestershire (+1,600). There were significant manufacturing job losses in Lancashire (-15.0 per cent, or -13,700 employees); Liverpool City Region (-14.8 per cent, -7,600); Thames Valley Berkshire (-13.9 per cent, -4,200); and Greater Manchester (-13.8 per cent, -15,400). Figure 1.15 provides a rebalancing scorecard for manufacturing employment in LEP areas. It shows that manufacturing jobs make a higher contribution to total employment than the national average in 17 LEP areas. Overall, 11 LEP areas saw manufacturing employment growth of more than 1 per cent between 2009 and 2012. During the same period manufacturing employment contracted in 24 LEP areas. 23

FIGURE 1.15: MANUFACTURING EMPLOYMENT PRESENCE AND CHANGE IN EACH LEP AREA, 2009 TO 2012 REBALANCING SCORECARD #4: TOWARDS MANUFACTURING? GROWTH IN MANUFACTURING EMPLOYMENT 2009 to 2012 MANUFACTURING AS SHARE OF TOTAL EMPLOYMENT Contracting manufacturing employment has contracted Modest growth up to 1 per cent High growth above 1 per cent High - above 10.5 per cent of total employment 8 LEP AREAS D2N2; Leeds City Region; Heart of the South West; North East; Cumbria; Worcestershire; Black Country; Lancashire 2 LEP AREAS Sheffield City Region; Lincolnshire 8 LEP AREAS GCGPEP; Gloucestershire; Leicester and Leicestershire; Humber; The Marches; Stoke-on- Trent and Staffordshire; Northamptonshire; New Anglia Medium - 2 per cent above or below the England average of 8.5 per cent (i.e. between 6.5 and 10.5 per cent) 13 LEP AREAS Cornwall and Isles of Scilly; South East; Buckinghamshire Thames Valley; Dorset; Greater Birmingham and Solihull; Tees Valley; Swindon and Wiltshire; West of England; Coventry and Warwickshire; Enterprise M3; Cheshire and Warrington; Greater Manchester; Liverpool City Region 2 LEP AREAS Hertfordshire; York, North Yorkshire and East Riding 3 LEP AREAS South East Midlands; Oxfordshire; Solent Low - 6.5 per cent of total employment or below 3 LEP AREAS London; Coast to Capital; Thames Valley Berkshire 24

1.6 THE LEGACY OF RECESSION: UNEMPLOYMENT AND WORKLESSNESS THE NATIONAL CONTEXT Although recession had an impact on increasing unemployment rates, unemployment has fallen almost continuously during 2013, as indicated in Figure 1.16. In July 2012 to June 2013, the unemployment rate across England fell by 0.3 per cent to 7.8 per cent. England s economic inactivity rate has fallen to its lowest recorded level. From July 2012 to June 2013, the percentage of people not in work and not seeking work fell by 0.8 per cent to 22.5 per cent, the lowest level since data was first collected (July 2004 to June 2005). The biggest reduction was in the number of working-age people who were economically inactive due to being retired (-112,400). This is likely to have been driven by the rise in the state pension age for women. There were also large reductions in those who were inactive due to being long-term sick (-75,200) or students (-43,700). FIGURE 1.16: OFFICIAL UNEMPLOYMENT RATE (16+) IN ENGLAND 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 Source: Annual Population Survey, Office for National Statistics. Long-term unemployment has continued to rise nationally, mainly reflecting changes to the benefits system. In November 2013, 31.2 per cent claimants had been claiming unemployment-related benefits for more than 12 months, up 3.3 per cent on a year earlier and up 13.6 per cent on two years previously. The sharp increase in the share of longterm unemployment over the past two years partly reflects the movement of people who were formerly claiming Incapacity Benefit onto Employment and Support Allowance and Jobseekers Allowance (JSA). The rate of youth unemployment has declined. In the year to November 2013, the percentage of JSA claimants aged 18-24 in England fell by 1.9 per cent to 25.4 per cent. This was the lowest rate for 11 years. With just over 251,000 claimants aged 18-24, this was the lowest number of young claimants for six years. The incidence of unemployment and worklessness is more prominent in the North of England and Midlands. Of the seven LEP areas that ranked within the bottom ten for at least three of the four worklessness indicators described above, all were in the North of England and Midlands. UNEMPLOYMENT IN LEP AREAS Since the publication of the last report, labour market conditions have improved across England, although the improvements have not been universal. Thames Valley Berkshire now has the lowest unemployment rate of all LEP areas, at 4.5 per cent, followed by Cumbria (4.9 per cent), Dorset (4.9 per cent) and Heart of the South West (5 per cent), as shown in Figure 1.17. In Stoke-on-Trent and Staffordshire, unemployment was at its lowest for five years. Despite falling very slightly, Tees Valley continues to have the highest unemployment rate of all the LEP areas, at 12.9 per cent. Greater Birmingham and Solihull, the Black Country, the Humber and Sheffield City Region all have high unemployment rates of 10 per cent or more. 25

In the year to June 2013, the unemployment rate fell in 22 LEP areas. The areas with the fastest declines included Stoke-on-Trent and Staffordshire (-1.9 per cent), North East (-1.7 per cent), Lancashire (-1.3 per cent) and Gloucestershire (-1.3 per cent). Unemployment rose in 15 LEP areas. These increases were mostly marginal. But in three areas, unemployment rates rose by more than 1 percentage point: Oxfordshire (2.7 per cent), Greater Birmingham and Solihull (1.4 per cent) and Cornwall and the Isles of Scilly (1.1 per cent). In both Oxfordshire and Greater Birmingham and Solihull, unemployment rates rose to their highest since July 2004 to June 2005. Oxfordshire had the lowest unemployment rate of all LEP areas, at 3.6 per cent, from July 2011 to June 2012. One year later this had jumped to 6.3 per cent (the 15 th lowest of 39 LEP areas). FIGURE 1.17: OFFICIAL UNEMPLOYMENT RATE, 16+ (PER CENT, JULY 2012 - JUNE 2013) Thames Valley Berkshire Cumbria Dorset Heart of the South West Gloucestershire Enterprise M3 Worcestershire Hertfordshire York, North Yorkshire and East Riding Buckinghamshire Thames Valley Solent Stoke and Staffordshire GCGPEP Cornwall and the Isles of Scilly Oxfordshire Swindon and Wiltshire New Anglia Coast to Capital Lancashire Cheshire and Warrington Coventry and Warwickshire South East Midlands Northamptonshire West of England South East The Marches England D2N2 Lincolnshire Leeds City Region Leicester and Leicestershire London North East Greater Manchester Liverpool City Region Sheffield City Region Humber Black Country Greater Birmingham and Solihull Tees Valley 4.5 4.9 4.9 5.0 5.2 5.3 5.3 5.4 5.4 5.8 5.8 5.8 5.9 6.3 6.3 6.3 6.4 6.6 6.6 6.7 6.9 6.9 7.0 7.2 7.4 7.4 7.8 8.0 8.2 8.5 8.5 8.9 9.0 9.4 9.5 10.0 10.2 10.9 11.7 12.9 Source: Annual Population Survey, Office for National Statistics. 26