Tees Valley Economic Assessment 2018

CONTENTS

Section 1: Introduction 3 Section 2: Executive Summary 4 Section 3: Area Profile 9 Section 4: Economic Growth and Productivity 18 Section 5: Business Growth 39 Section 6: Research & Development, Innovation and Energy 51 Section 7: Education, Employment and Skills 60 Section 8: Transport & Digital Infrastructure 93 Section 9: Place and Culture 105 Section 10: Performance Gaps and SEP 2016 Baselines 116 Bibliography 118

Section 1: Introduction

The Tees Valley Economic Assessment is the core statistical document related to economic development in Tees Valley. It is based upon data and analysis in relation to key areas that contribute towards growth in our economy including:

o Economy and Productivity (economic conditions, the business base and key sectors); o Skills and Labour Market (attainment, employment and future demand); and o Growth Enablers (connectivity, education, place and culture).

The Economic Assessment is updated annually. It reflects the priorities in the Tees Valley Strategic Economic Plan and in 2019 will inform the development of the Tees Valley Local Industrial Strategy.

The Economic Assessment will also provide an evidence base for funding submissions to the Tees Valley Investment Plan and help to inform local authority assessments, Local Plans and other policy and strategy documents.

Data is presented for Tees Valley wherever possible and where appropriate includes analysis at Local Authority level. When available, performance is benchmarked against the North of England and nationally.

As well as drawing on national datasets, the Economic Assessment also includes data and analysis from the Tees Valley Business Survey. 411 business completed the survey in 2018, providing information about business performance, skills requirements and supply chain innovation. Details are provided in the relevant sections of the Economic Assessment.

The remainder of the report is structured as follows:

o Executive Summary o Area Profile o Economic Growth and Productivity o Business Growth o Research & Development, Innovation & Energy o Education, Employment & Skills o Transport & Digital Infrastructure o Place and Culture o Performance Gaps and SEP 2016 Baselines o Bibliography

Section 2: Executive Summary 2.1 . Economic Challenges

Headline metrics for Tees Valley:

 Total population in 2017 = 672,500  Working age (16-64) population in 2017 = 415,600  Economically active population aged 16-64 in 12 months to June 2018 = 299,200  Economically inactive population aged 16-64 in 12 months to June 2018 = 110,800  Employment (employed residents aged 16-64) in 12 months to June 2018 = 280,300  Jobs (people employed within Tees Valley) in 12 months to June 2018 = 279,400  Number of businesses in 2018 = 17,230  Economic output / Gross Value Added (GVA) in 2017 = £13.1bn  Productivity in 2017 = £30.50 per hour

Tees Valley covers over 300 square miles. It is located on the North East coast, and comprises the five Local Authority areas of Darlington, Hartlepool, Middlesbrough, Redcar & Cleveland and Stockton on Tees. It is highly urbanised, with 90% of the population living in urban areas.

The Tees Valley economy has well established strengths in Chemical & Process, Energy and Advanced Manufacturing. There are also emerging strengths in Digital, Business & Professional Services and the Logistics sector, which are playing an increasing role in the region’s economy. These priority sectors are supported by a number of key assets in the region, including:

 Cost effective sites and premises, with significant opportunities for development at the 4,500 acre South Tees Development site, and further potential at the region’s seven Enterprise Zones.  Teesside University – described by former Secretary of State for Business, Innovation and Skills, Dr. Vince Cable, as ‘Britain’s best university for working with business’.  National centres of excellence including the Centre for Process Innovation (CPI) and National Horizons Centre (specialising in training for UK bio-science), the Materials Processing Institute (MPI) and The Welding Institute (TWI).  A major East Coast rail hub at Darlington providing fast north-south connections across the country.  The port of Tees and Hartlepool - the largest exporting port in England, providing a critical gateway to world markets for the Tees Valley industrial platform.

The Tees Valley labour market and wider economy suffered a difficult 2016 following the closure of the SSI steelworks in 2015, resulting in around 4,000 job losses at SSI and across associated suppliers and contractors. Whilst the local economy recovered somewhat through 2017 and into 2018, its relative performance remains well below national levels and rates and the region experiences some persistent economic challenges.

Key economic messages for the Tees Valley include:

 Labour demand issues, including the relative lack of Tees Valley jobs. Additionally, Tees Valley has consistently recorded some of the highest economic inactivity and unemployment rates in the country. However, economic output per job is close to national averages and 4

above the North of England average, demonstrating that there are well paid and productive jobs in the region with the opportunity for further growth.

 Tees Valley has significant sectoral strength and relatively high employment in a number of higher productivity sectors such as Chemical & Process, Energy & Circular Economy and Advanced Manufacturing. Construction sub-sectors including civil engineering and specialised construction are also well represented.

 The area has a relatively aged population profile and, as with many other areas, an ageing population. There has been slow population growth over recent years, below national increases and future projections suggest that labour supply constraints will increase i.e. potential for there to be a lack of enough local workers in the future.

 A key constraint on the Tees Valley economy is the relatively small size of its private sector, reflected by its low business density at less than two-thirds the size of the UK average. Assuming that the Tees Valley public sector broadly mirrors national public sector trends, this means that Tees Valley private sector growth has to significantly out-perform UK private sector growth just to keep up with aggregate UK GVA growth rates.

 The Tees Valley is home to the single biggest development opportunity in the UK in the form of the South Tees Development Corporation. This significant opportunity means that Tees Valley’s private sector business and economic growth potential is amongst the greatest in the country.

2.2 Key metrics

The following bullet points highlight some of the key metrics underpinning the above key messages. Chart 10.1 in Section 10 shows how a number of these metrics translate in terms of gap to reach national performance rates.

 Economic output across Tees Valley, measured in terms of Gross Value Added or GVA, stood at £13.1bn in 2017. Tees Valley GVA per capita was £19,512 or 71.5% of the UK rate. However, the Tees Valley’s high levels of economic inactivity provide significant scope for increasing GVA per capita greatly. Any paid work undertaken by those residents previously economically inactive will increase GVA per capita.

 Productivity – GVA per hour worked – was £30.50 in 2017, second highest of all North of England LEPs and at 90.5% of the UK rate, far closer to the national average than the GVA per capita measure. The GVA per hour worked indicator is the best measure of an economy’s underlying productivity and removes employment rate, economic inactivity, demographic, and commuting considerations that are present within GVA per capita. This again highlights that whilst Tees Valley has relatively low numbers of jobs, the jobs it does have are amongst the most productive anywhere in the North of England.

 Enterprise – the number of business enterprises located in Tees Valley – stood at 17,230 in 2016. This total represents 64.5% of the UK rate for enterprises per resident population aged 16 to 64. Business density is a key challenge for Tees Valley going forwards. However, with historical sectoral strength in those sectors where fewer but larger firms tended to

predominate e.g. traditional heavy industry, the ongoing diversification of the economy can only help to close the present enterprise gap.

 Throughout the past three years, the Tees Valley employment rate has been broadly matching its pre-recession highs observed during the mid-2000s. However, with 280,300 Tees Valley residents aged 16 to 64 in employment in the year to June 2018, the Tees Valley employment rate of 68.4% remains significantly below the UK rate of 74.9%.

 Local demand for highly skilled workers remains robust and there is currently high job demand for skilled IT professionals, engineers, teachers and nurses in particular.

 The skills levels of residents can present a challenge in meeting labour demands, Tees Valley residents are less well qualified than many other parts of the country. In terms of Degree/Level 4+ qualifications in 2017, the area needs an additional 34,300 residents qualified to that level to match the UK rate.

 Tees Valley primary schools perform above the national average with high quality schools and above average key stage 2 results. However the quality and performance of Tees Valley secondary schools is below national average.

 Commercialisation, in terms of the proportion of firms introducing either a new or significantly improved product or service between 2012 and 2014, stood at 18% in Tees Valley compared to the LEP average of 22%. However, amongst those Tees Valley firms that do innovate, higher than average proportions of sales were derived from innovative products or services – an indicator of short-term success of firms’ innovation. This implies that interventions to encourage Tees Valley firms to innovate are likely to generate greater returns than in some other parts of the country.

 Tees Valley is a strong exporting region and one of the few areas of the country to run a trade in goods surplus i.e. an export value higher than the import value. In 2017, Tees Valley goods exports totalled £3,162m with imports at £2,956m, a surplus of £206m.

 Congestion is less of a problem in Tees Valley than in many other areas. Tees Valley average ‘A’ road speeds are significantly quicker than other metropolitan areas in the North of England and are also well above the national average.

 The relatively low cost of living in the Tees Valley helps boost the quality of life. With average wage rates far closer to the national average than house prices, Tees Valley has some of the most affordable homes in the country. Average housing rental costs also account for a significantly smaller share of wages than nationally.

2.3 Tees Valley SWOT assessment

The table below provides a SWOT assessment for the Tees Valley:

Strengths Weaknesses Underlying aggregate productivity one of the Sluggish economic growth with an increasing highest of the northern LEPs and also well output gap. represented in relatively high productivity sectors such as Energy & Circular Economy, Chemical & Some of the country’s highest economic Process and Advanced Manufacturing. inactivity rates – closely correlated with relatively low levels of health and well-being Strong recent GVA trend growth in broad sectors – and stubbornly high unemployment rates such as Construction and Professional, Scientific when compared to other areas. and Technical activities. Lowest business density rates in England. Tees Valley is one of the few areas to run a trade in goods surplus and is supported by England’s Lack of business churn with enterprise start- largest exporting port with strong links to up rates constrained by lack of demand. northern Europe and considerable potential for expansion around the world. Lack of jobs and the lowest jobs density in England. Above average Tees Valley performance across primary school level. The quality and performance of Secondary schools is below average. Staff costs and other business overheads such as office rental costs are amongst the most price School performance varies between Local competitive in the country. Authorities with pockets of under- achievement in both primary and secondary Major East Coast rail hub at Darlington providing at a local level. fast north-south connections across Great Britain. Growth constrained by recent employment Relatively low levels of traffic congestion. growth being skewed towards low pay, low skill occupations. Attractive and affordable towns, countryside and coast. Low cost of living generally. Negative external perceptions of Teesside and lack of awareness re Tees Valley.

Variable housing stock and relatively low house prices. Opportunities Threats The single biggest development opportunity in the A relatively aged population profile and a UK in South Tees Development Corporation. shrinking workforce aged 16-64, exacerbated by significant out-migration of younger Tees Valley has an extensive supply of affordable residents together with low levels of in- and easily accessible employment sites. migration generally.

As a region with some of the most affluent and the Potential growth constraints from labour and most deprived areas of the country in close skills shortages. proximity, great potential exists for boosting economic efficiency and growth through the Over-reliance on a small number of high reduction of inequality. productivity sectors, often with a stagnant or

declining employment base and relatively Potentially large economic benefits of a clean restricted new job opportunities. energy and circular economy approach to industrial production supported by strong local Lack of high growth and scalable companies. innovation assets and a workforce with up-to-date technical expertise. Branch plant economy in Chemicals and Processing industries is impacting negatively Build on Tees Valley’s already strong position as an on R&D spend and local innovation. exporting region. Increasing signs of international trade Increasing demand for innovation in products and protectionism. Uncertainty around the UK’s services. future trading relationships with the EU and beyond. Extending the economic benefits of transport investment with new developments at Darlington, Industrial base highly sensitive to the cost of Middlesbrough, Eaglescliffe and Billingham rail electricity in particular. stations and a new Tees Crossing.

Increasing leisure and visitor market, including outdoor and cultural tourism.

Continued promotion of the affordability of Tees Valley as a place to live, work and invest in.

Section 3: Area Profile

The following section provides a geographical overview of Tees Valley, taking into consideration, the urban/rural split in terms of population, relative settlement size, the location of key enterprise zones and the emerging demographic profile of the region.

A focus on geography is particularly important in the Tees Valley Strategic Economic Plan, which calls for capital investment to be focused in urban settlements and enterprise zones. This seeks to maximise economic impact and encourage social inclusion. By understanding our geography, we can develop initiatives and plan for developments that play to our region’s strengths, including our natural assets, and address areas of challenge.

Key messages

 Tees Valley is a predominantly urban area, covering five distinct town centres.  Tees Valley has a wide range of extensive development sites, opportunities and financial incentives including the Mayoral South Tees Development Corporation and Special Economic Area, together with eight Enterprise Zones.  The Tees Valley total resident population stood at 672,500 in 2017 – the smallest Combined Authority in terms of total population numbers. However, in terms of the wider economic catchment area population, around three million people live within an hour’s drive of Tees Valley – on a par with the population of other urban areas in the North of England such as Greater Manchester and Leeds City Regions.  The Tees Valley can be defined as a functional economic area with close to 9 in 10 local jobs filled by Tees Valley residents and similarly close to 9 in 10 local residents employed within Tees Valley i.e. relatively small and balanced levels of in and out-commuting.  The population of Tees Valley has grown in recent years, albeit this has been at a slower rate of growth than levels seen nationally. The majority of the increase in our population size can be attributed to an ageing population.  Compared to national averages, Tees Valley has a relatively aged population profile. There is a smaller than average labour force - Tees Valley has relatively more residents aged 65+ and relatively fewer aged 16 to 64 compared to the UK. Projections indicate that this trend is set to continue, with population growth driven mainly by those over retirement age in the next two decades. However, decreasing numbers of 16 to 64 residents will be offset to a degree by ongoing increases in the State Retirement Age.  There is a risk that these demographic trends lead to skills shortages as highly skilled staff leave the workforce.  The region has relatively poor levels of health impacting negatively on the pool of available labour supply.  Tees Valley international net in-migration fell sharply (down 43%) in 2017 and both in and out international migration rates are less than half that observed nationally.  Migration between Tees Valley and other parts of the UK is also relatively low with rates significantly below many areas in the South of England but broadly similar to some other North of England Combined Authority areas.

3.1. Geography

Covering over 300 square miles and located on the North East coast, Tees Valley comprises five local authority areas including: Darlington, Hartlepool, Middlesbrough, Redcar & Cleveland and Stockton- on-Tees. The area is illustrated below:

The Tees Valley region represents 1.2% of the population of England and 0.6% of the English land mass; it is highly urbanised, with 90% of the population in urban areas. Around one third of the total population is concentrated in the five main town centres with the remaining population located in the suburbs, in smaller settlements, or rural areas. Figure 3.1 compares the urban/rural composition of the Tees Valley area:

Figure 3.1. Rural/Urban split of Tees Valley area

As a major settlement with a growing service industry, Stockton-on-Tees is the largest of the Local Authority areas in employment and population terms. It is home to Teesdale Business Park and the International Foundation College located at Durham University’s Queen’s Campus. Stockton’s sectoral strengths include Chemical & Process, Advanced Manufacturing, Energy & Circular Economy and Construction.

Middlesbrough is a large industrial town located close to the Port of Tees and the home of Teesside University. Healthcare is a significant sectoral strength in the town.

Darlington, a market town, with its position on the East Coast mainline, provides the principal gateway rail station for Tees Valley as well as Durham Tees Valley Airport. Sectoral strengths are Advanced Manufacturing, Healthcare, Energy & Circular Economy and Digital.

Redcar and Cleveland, which contains the coastal town of Redcar and is historically associated with the steel and chemicals industry has the third largest population. It has a broad range of sectoral strengths including Chemical & Process, Raw Materials, Energy & Circular Economy, Advanced Manufacturing, Logistics and Creative, Culture & Leisure.

Hartlepool is the smallest Local Authority in both population and employment terms. It is home to Hartlepool Port, has strong historic links to the maritime industry and sectoral strengths in Chemical & Process, Energy & Circular Economy, Advanced Manufacturing and Healthcare.

3.2. Enterprise Zones

There are a wide range of cost-effective sites and premises across Tees Valley, with eight Enterprise Zones totalling 425 hectares and providing a range of financial incentives to companies choosing to locate in the region, as well as simplified planning and super-fast broadband. The list of enterprise zones includes:

Business Rate Relief Enterprise Zones:  Northshore, Stockton-on-Tees;  Central Park, Darlington; and  Middlesbrough Historic Quarter.

Enhanced Capital Allowance Enterprise Zone Sites:  South Bank Wharf and Prairies, Redcar & Cleveland;  New Energy & Technology Park, Stockton-On-Tees;  Wilton International, Redcar & Cleveland;  PD Ports Redcar; and  PD Ports Hartlepool

3.3. South Tees Development Corporation

The South Tees Development Corporation (STDC) is the first Mayoral Development Corporation outside of London. It has been set up to promote the economic growth and commercial development of Tees Valley by converting assets in the South Tees area into opportunities for business investment and economic growth.

The STDC area covers approximately 4,500 acres of land to the south of the River Tees, in the Borough of Redcar and Cleveland, and includes former SSI steelworks site as well as other industrial assets. The area benefits from river access and includes the deep-water port.

Figure 3.2. South Tees Development Corporation area

The purpose of the STDC is to further the economic development of the area through physical regeneration, social regeneration and environmental regeneration so that it becomes a major contributor to the Tees Valley economy, bringing the SSI site, and other underutilised land in the area, back in to economic use. By attracting private sector investment the STDC will secure additional, high quality jobs for the people of Tees Valley and provide a safe environment for the workforce.

A new Special Economic Area (SEA) will soon be established across South Tees Development Corporation site after an announcement by Chancellor Philip Hammond in the 2018 Autumn Budget. The UK’s first SEA will give the Development Corporation board the powers to retain business rates to reinvest in developing more of the site, reducing the ask of local taxpayers.

The Chancellor has also pledged up to £14million to be used to prepare a specific parcel of land for development and to enable the two major metals projects, following a business case submitted to Government by the Development Corporation Board this month. This would take Government’s total commitment on the site in the past year to £137million. The SEA is expected to be approved by Parliament this year, with work set to start early next year to get the land ready for the projects.

3.4. Demography The mid-2017 population of Tees Valley is estimated to be 672,500, with a total of three million people living within an hour’s drive of the area. Figure 3.3 illustrates the overall population change in Tees Valley over the last 26 years.

Figure 3.3: Total resident population in Tees Valley, 1991-2017 Key Findings:

 There has been an upward trend since the turn of the millennium of the population size of Tees Valley.

 This population growth of 3% has still lagged below that in the North of England (8%) and England

Source: ONS Population Estimates as a whole (13%).

Whilst the population of Tees Valley is predominantly White British (93%), Tees Valley is home to a small Black and Minority Ethnic (BME) community with Middlesbrough having an ethnic make-up that more closely reflects the national picture (86% of Middlesbrough’s population is White British compared with 80% of England’s).

Health levels have improved across Tees Valley, however they remain lower than in the country as a whole. Of the working age population, 16% have a long term illness, compared with 13% nationally and 15% in the North of England. Tees Valley also has a higher percentage (7%) of the working age population on long term sick compared to the North East of England (6%) and Nationally (5%).

Of the overall Tees Valley population 130,400 people are aged 0-15 (19% of population), 415,550 people are aged 16-64 (62% of population), and 126,500 people are aged 65 and over (19% of population) which matches the national breakdowns. Table 3.1 compares the demographic profile of Tees Valley to England as a whole:

Table 3.1. Demographic profile, Tees Valley and England Description Tees Valley England Population (2017) 672,500 55,619,400 Population projection (2027) 679,300 58,778,700 Population projection (2037) 680,600 61,116,800 Geographical coverage (hectares) 79,400 13,027,800 Population density 8.5 4.3 Birth rate 1.2% 1.2% Death rate 1.0% 0.9% Life expectancy (2015-17) 79.3 years 81.4 years Healthy life expectancy (2015-17) 59.3 years 63.6 years International in-migration rate 0.4% 0.9% International out-migration rate 0.2% 0.5% Internal in-migration rate 3.8% n/a Internal out-migration rate 3.9% n/a Median age 40 39 Population growth rate 0.2% 0.6% Sources/notes: ONS mid-2017 population estimates, ONS 2016-based population projections, Census 2011. Tees Valley life and healthy life expectancy are simple averages of district estimates, ONS. Rates are a percentage of population in mid- 2017.

3.5. Migration Migration flows are relatively low in Tees Valley compared to many other parts of the country. Whilst this does result in a more stable population, it does exacerbate the Tees Valley’s relatively aged population profile as migrants tend on average to be younger people.

After peaking in the year to mid-2016, and reflecting national trends with both decreasing immigration and increasing emigration, net in-migration to the Tees Valley fell sharply during 2017. International in-migration was lower across all five districts with Middlesbrough seeing the greatest decline of 560 when compared with 2016. In total, Tees Valley international net in-migration was down by 1,110 on the year from 2,560 in 2016 to 1,450 in the year to mid-2017, a 43% decrease. Compared to England as a whole, Tees Valley international in and out migration rates were less than half that observed nationally. Rates were highest in central London, Oxford and Cambridge and large cities across the country.

Aggregate net migration into Tees Valley was down by over 60% from 1,870 in 2016 to 720 in 2017. Net in-migration was lower in every borough of Tees Valley except from Redcar & Cleveland which saw a rise from 290 to 610 in 2017. This was driven by an increase in net in-migration from other parts of the UK. After seeing migration add to its population in 2016, Middlesbrough returned to its typical position of seeing net out-migration to other parts of Tees Valley and the UK. Migration had a neutral overall effect on Darlington in 2017. Stockton continued to see the largest net in-migration numbers from other parts of Tees Valley, particularly from Middlesbrough. Finally, with the number of births matching the number of deaths in Hartlepool in the year to mid-2017, the borough’s overall population increase of 170 was entirely down to net in-migration.

Mirroring international migration rates, Tees Valley internal in-migration and out-migration rates (from and to other parts of the UK) were also relatively low compared to many other parts of the country. Taking an average of district rates shows Tees Valley internal migration rates (3.8% for in- migration and 3.9% for out) to be similar to both Liverpool and Sheffield Combined Authority areas, a little lower than Greater Manchester (4.6% for both in and out-migration) and typically lower than many areas in the South of England including Cambridgeshire & Peterborough CA (6.8% in-migration, 6.7% out) and London (7.5% in-migration and 8.7% out).

Figure 3.4. Net migration flows, Tees Valley districts, year to mid-2017

Source: ONS

3.6. Population Projections

The Tees Valley population is projected to continue its long term growth seen since the start of the millennium of approximately 1,000 per year until 2020, growth is then projected to slow both locally and nationally reaching around 680,600 by 2036.

Figure 3.5: Projected total resident population in Tees Valley, 2018-2036 Key Findings:

 The Tees Valley population is projected to increase by 1% over the next 10 years (to around 679,400 by 2027) compared to a 5.7% increase nationally and a 3% increase across the North of England.

 Over the next 20 years (2037) the population is expected to increase by 1.2% compared to a 10% rise nationally and a 5% rise across the North of England. Source: ONS Population Projections

Although there is projected growth in the following 20 years, growth is not expected in all age groups. Figure 3.6 shows the age make-up of the Tees Valley population in 2017 and then projected make-up in 2027 and 2037:

Figure 3.6: Demographic Projections

2017 2027 2037

Source: ONS Population Projections Currently (ONS mid 2017) 0-15 year olds make up 19% of the population. This number is expected to peak in 2023, with an extra 4,400 children projected to be in this age group, therefore we can expect growing pressures on secondary school places. The working age population (16-64s) is predicted to be almost 23,000 lower in 20 years’ time, from 62% of the total population in 2017 to 57% in 2037.

Figure 3.7: Population estimates and projections by age group1

Source: ONS Population Projections

1 Age capped at 85 due to missing ONS data after this age group prior to 2001 16

There will be an increase in the proportion of over 65s with the percentage of population over the retirement age expected to grow from 19% in 2017 to a quarter of the population in 2037, this coupled with the fall in working age population will bring skills shortages when experienced and highly skilled staff leave the workforce. There will also be implication on health services as pressures increase. 3.7. Area Profile SWOT analysis The table below shows a SWOT analysis of the region:

Strengths Weaknesses There are a wide range of cost-effective sites and Health levels in Tees Valley remain lower than premises across Tees Valley, with eight Enterprise in the country as a whole. The number of Zones providing a range of financial incentives to people with a long term illness is above companies choosing to locate in the region, as national average. well as simplified planning and super-fast broadband. Life expectancy and particularly healthy life expectancy are significantly lower than national rates. Opportunities Threats Tees Valley contains the South Tees Development The population growth in Tees Valley is Corporation (STDC) – the first Mayoral projected to slow after 2020, with the growth Development Corporation outside of London, and rate much lower than national. often cited as the single biggest development opportunity in the UK at the current time. STDC The Tees Valley has a rapidly ageing was set up to promote economic growth and population and declining working age commercial development by converting assets in population / labour force. There is a risk of the South Tees area into opportunities for skill shortages when experienced and highly business investment and economic growth skilled staff leave the workforce with an added implication on health services. A new Special Economic Area (SEA) will soon be established in Tees Valley across the STDC site The number of 0-15 year old Tees Valley with the power to retain business rates to residents is expected to peak in 2023, with reinvest in developing more of the site, reducing extra pressures expected on primary and the ask of local taxpayers. secondary school places.

Following the vote to leave the EU in 2016 and reflecting national trends, there has been a sharp drop in net migration into Tees Valley over the last year.

Section 4: Economic Growth and Productivity

The following section provides a summary of the Tees Valley economy in terms of Gross Value Added (GVA), productivity and trade. Sectoral breakdowns are identified where feasible and comparisons made against national and local indicators where appropriate. The section seeks to determine the degree of the Tees Valley productivity gap and identify its constituent parts.

Economic growth is an important indicator of wealth creation and economic performance. A key target in the Tees Valley Strategic Economic Plan is to raise productivity. In addition, productivity is the primary focus of the Tees Valley Local Industrial Strategy, due for completion in 2019.

Key messages

 Whilst Tees Valley economic output contributed £13.1 billion to the UK economy in 2017, the region has a significant productivity challenge, particularly in relation to GVA per head of population. At £19,512 per annum, Tees Valley GVA per capita was some 71.5% of the UK rate in 2017, representing a Tees Valley GVA gap of £5.2 billion. This gap has increased by 50% in real terms since 2009.  However, despite the relatively poor performance of Tees Valley based on GVA per capita, the region fares much better on GVA per hour worked and GVA per job. Tees Valley GVA per hour worked was 90.5% of the UK rate in 2017 whilst GVA per job was 88.3% - both rates being broadly around English LEP medians and above North of England LEP averages.  The Tees Valley economy recorded real terms growth of £60m in 2017 – a 0.5% increase on 2016. However, this is significantly below the UK’s growth rate of 1.9% and also the North of England’s 1.5% increase.  During the 2008/09 recession Tees Valley GVA fell less sharply than the UK, with other parts of the country that had relatively larger private sectors perhaps quicker to cut employment during the downturn. However, this in turn meant that the Tees Valley was slower to recover post-recession. Because of the Tees Valley’s relatively small private sector, it retains a dependency on the public sector with Public Administration, Education and Health all accounting for a larger share of the economy than is the case nationally.  In real terms the Tees Valley economy is the same size in 2017 as it was before the recession in 2007. It is also the same size now (2017) as it was post-recession in 2011 and a little smaller (down 1.8%) compared to the recent high point in 2015 before the SSI closure.  Tees Valley has relatively high employment concentrations in some higher than average productivity sectors and sub-sectors, particularly within the Chemicals/Process, Advanced Manufacturing, Construction and Energy/Circular Economy sectors.  Tees Valley is a strong exporting region and exported close on £3.2 billion of goods during 2017, equivalent to around 24% of Tees Valley GVA. This proportion is well above the UK rate 18% and the North of England average of 17%.  Reflecting the area’s strength in Chemicals, 37% of goods exported in Tees Valley & Durham are from this sector, compared to 17% nationally.  Service exports are growing faster in the North East than nationally.  The 2018 Tees Valley Business Survey found that almost one-third of local businesses have plans to increase their level of export sales over the next year.

4.1. Total GVA

Office for National Statistics GVA statistics are now published in real terms i.e. adjusted for inflation and are now consistent with other economic measures such as the quarterly headline estimates of real UK Gross Domestic Product or GDP.

Aggregate economic output (as measured by GVA) from Tees Valley amounted to £13.1bn in 2017, a 0.5% real terms increase on 2016. This compares to real terms increases of 1.9% nationally and 1.5% in the North of England as a whole. Tees Valley GVA accounts for 0.8% of England’s total GVA (0.7% for the UK).

However, Tees Valley GVA per capita was just 71.5% of the UK rate in 2017. This equates to a Tees Valley output gap of £5.2 billion – the additional level of economic output required in Tees Valley to match the UK GVA per capita rate.

As an approximate measure of productivity, GVA per capita is dividing a workplace-based numerator (GVA) by a residence-based denominator (residential population). This means that this measure does not account for people commuting into and out of a region and significant commuting flows can lead to highly distorted results. Also, by including all the residential population (including children, pensioners and others not economically active) and not just those who are in employment, the denominator includes residents who are not directly contributing to GVA i.e. those residents not in employment.

In real terms the Tees Valley economy has broadly flat-lined over the past decade. Tees Valley GVA in 2017 was almost identical to that observed in 2007 as shown in Figure 4.1 below.

Figure 4.1. Real terms GVA index (1998 = 1), Tees Valley and UK

Source: ONS

This means that the Tees Valley GVA gap has increased by 50% in real terms since the 2008/09 recession when the 2009 GVA gap stood at £3.5bn in today’s prices. The GVA per capita index has now fallen for eight consecutive years from 79.9% of the UK rate in 2009 to its present 71.5%.

Figure 4.1 also shows how well the Tees Valley economy was performing up to the mid-2000s, outstripping UK growth rates (between 1998 and 2005 Tees Valley GVA increased by 29% compared to the UK’s 22%), and highlights how the UK economy has recovered since the 2008/09 recession whilst the Tees Valley economy has largely stagnated. The UK economy, driven largely by employment growth rather than productivity growth, grew by 20% between 2009 and 2017 whilst the Tees Valley grew by just 3% over this time.

The reasons for this divergence in growth trajectories are numerous but can be largely attributed to a relative decline in the performance of Tees Valley’s labour market. Underlying Tees Valley productivity in terms of both GVA per hour worked and GVA per job are broadly unchanged in relation to the UK over the past decade (as shown in Section 4.2 below) so while these underlying structural productivity challenges remain, it is the relative deterioration in the local labour market that has been the main factor constraining the Tees Valley economy in recent years. Issues negatively affecting the Tees Valley labour market include relatively few jobs and slow employment growth, persistently high rates of economic inactivity, poor health and well-being, benefit dependency and a shrinking workforce combined with a rapidly ageing population and a relatively high old age dependency ratio. 4.2. Productivity

Gross Value Added (GVA) per hour worked provides a preferred measure of productivity. This measure removes employment rate, economic inactivity, demographic and commuting considerations with GVA per capita and work pattern issues with GVA per job. The relative performance of productivity looking at GVA per capita, GVA per filled job and GVA per hour worked are outlined in Figures 4.2 and 4.3 below. The figures presented in Figures 4.2 and 4.3 below are the official smoothed estimates. Smoothing helps address the significant year on year volatility issues present at smaller geographies. Whilst official productivity estimates are not published for the North of England geography, TVCA has derived unsmoothed estimates for the North of England as outlined in Key points below.

Figure 4.2. Tees Valley productivity indices, 2017 Key points – 2017 estimates (UK = 100) Tees Valley GVA per head of resident population (per capita) at £19,512 was 71.5% of the UK rate (£27,298) in 2017. It was closer to (87.2% of) the North of England average of £22,381.

Tees Valley GVA per filled job at £47,960 was 88.3% of the national rate (£54,330) in 2017. The unsmoothed Tees Valley estimate (£47,930) was around 0.9% above the unsmoothed North of England average of £47,497.

Tees Valley GVA per hour worked at £30.50 was 90.5% of the UK rate (£33.60) in 2017. As for GVA per job, the unsmoothed Tees Valley estimate (£30.20) was a little higher (0.7% above) the unsmoothed North of England average of £30.00.

Tees Valley’s underlying productivity (GVA per hour worked) was only 9.5% below the national rate in 2017. Numerous factors have an impact on aggregate GVA per hour worked including, company profitability, resource allocation and absorptive capacity, skills mismatches and wage rate differentials, workforce well-being and occupational and industrial employment structures.

In 2017 and at £30.50 per hour, Tees Valley GVA per hour worked ranked second highest of the North of England LEPs behind Cheshire and Warrington with £35.00. Figure 4.3. Historical comparison of Tees Valley productivity indices, 2004 to 2017 Key points  The Tees Valley GVA per capita index has drifted lower since the 2008/09 recession from almost 80% in 2009 to 71.5% in 2017.

 Tees Valley GVA per filled job has remained at or around 88% of the UK rate since 2004.

 Tees Valley GVA per hour worked has been broadly steady at close on 91% of the UK rate for the past decade.

4.3. Sectoral GVA

This section examines the most recent five year Tees Valley GVA trends across 17 broadly defined ONS sectors. The charts are listed in descending order of GVA contribution in 2017 and provide an indication of relative GVA contribution and trend performance. All these charts are presented in real terms (2016 prices) i.e. adjusted for inflation.

Table 4.1 breaks these 17 sectors down by sub-sector for 2017 and provides an indication as to that sector’s relative share of total Tees Valley GVA as compared to that sector’s share nationally.

Sectors accounting for the same share of total GVA as nationally are said to have a location quotient (LQ) of 1. Those with a higher share have a higher LQ and those with a lower share a lower LQ. Overall Tees Valley GVA makes up 0.7% of UK GVA but in those sectors with an LQ of over one this proportion is higher. The Tees Valley sub-sector that contributes the highest proportion of UK GVA is the one with the highest LQ i.e. Manufacture of petroleum, chemicals and other minerals with 1.9% of the UK GVA total for that sub-sector.

Key points

 Manufacturing remains the largest sector with Tees Valley GVA of more than £1.8bn in 2017. After falling back in 2013 and 2014, the Manufacturing sector has recorded three years of modest growth.  Public sector GVA across Public Administration, Education and to a lesser degree Health has drifted lower in recent years.  Construction and Professional, Scientific & Technical activities are growing in terms of GVA contribution.  Smaller sectors such as Accommodation & Food and Administration & support services are also exhibiting GVA growth. 21

Tees Valley sectoral GVA trends – Chart i.

Tees Valley sectoral GVA trends – Chart ii.

Tees Valley sectoral GVA trends – Chart iii.

Tees Valley sectoral GVA trends – Chart iv.

Sub-sectoral GVA Table 4.1 below examines the 17 broad sectors in the above graphs by sub-sector and compares the relative GVA contributions of those sub-sectors to national rates.

Table 4.1. GVA and GVA location quotient (LQ), 2017 (Source: ONS) GVA (£m) LQ (UK=1) Agriculture, forestry and fishing; mining and quarrying 190 0.86 Manufacturing 1,867 1.41 - Manufacture of food, beverages and tobacco 188 0.94 - Manufacture of textiles, wearing apparel and leather 44 0.81 - Manufacture of wood and paper products and printing 92 0.95 - Manufacture of petroleum, chemicals and other minerals 802 2.64 - Manufacture of basic and fabricated metal products 280 1.84 - Manufacture of electronic, optical and electrical products 53 0.50 - Manufacture of machinery and transport equipment 265 0.93 - Other manufacturing, repair and installation 142 1.17 Electricity, gas, water; sewerage and waste management 509 1.45 Construction 840 1.02 - Construction of buildings 293 0.90 - Civil engineering 206 1.20 - Specialised construction activities 341 1.06 Wholesale and retail trade; repair of motor vehicles 1,237 0.91 - Motor trades 311 1.28 - Wholesale trade 212 0.47 - Retail trade 715 1.07 Transportation and storage 571 1.01 - Land, water and air transport 385 1.15 - Warehousing and transport support activities 101 0.72 - Postal and courier activities 86 0.94 Accommodation and food service activities 323 0.82 - Accommodation 46 0.44 - Food and beverage service activities 277 0.96 Information and communication 741 0.87 - Publishing; film and TV production and broadcasting 25 0.11 - Telecommunications; information technology 716 1.14 Financial and insurance activities 543 0.58 - Financial service activities 393 0.70 - Insurance, pension funding and auxiliary financial activities 150 0.40 Real estate activities 1,637 0.91 - Real estate activities, excluding imputed rental 543 0.99 - Owner-occupiers' imputed rental 1,094 0.88 Professional, scientific and technical activities 766 0.76 - Legal and accounting activities 178 0.52 - Head offices and management consultancy 85 0.49 - Architectural and engineering activities 241 1.17 - Research and development; advertising and market research 197 1.12 - Other professional, scientific and technical activities 54 0.61 - Veterinary activities 11 0.44 Administrative and support service activities 434 0.68 - Rental and leasing activities 66 0.50 - Employment activities; tourism and security services 178 0.68 - Services to buildings and landscape activities 62 0.78 - Office administration and business support activities 126 0.77 Public administration and defence 717 1.19 Education 842 1.10 Human health and social work activities 1,479 1.55 - Human health activities 1,082 1.52 - Residential care activities 177 1.64 - Social work activities 220 1.63 Arts, entertainment and recreation 163 0.85 - Creative, arts, entertainment and cultural activities 18 0.22 - Gambling and betting; sports and recreation activities 143 1.29 Other service activities 237 0.84 - Activities of membership organisations 79 0.76 - Repair of computers, personal and household goods 10 0.36 - Other personal service activities 148 0.99 Activities of households 26 0.54 All sectors 13,122 1.00 24

4.4. Sectoral productivity estimates

The bubble chart below (size of bubble represents approximate Tees Valley employment level) shows Tees Valley’s key sectors in terms of labour productivity rate (GVA / employment) and employment concentration (that sector’s share of total employment in Tees Valley as compared to the UK). Data robustness issues mean only national level key sector and sub-sector labour productivity rates are presented here. Aggregate UK all sector labour productivity in this analysis comes in at around £50,000 p.a.

The two sectors with the highest average rates of productivity (over £75,000 p.a. and shaded gold) and also high levels of Tees Valley employment concentration (location quotient more than one) are Chemical & Process and Energy & Circular Economy. Sectors with high productivity but low employment concentration are Biologics and Digital. However, it should be noted that productivity levels across both Biologics and Digital sectors may be somewhat over-estimated in this analysis but for different reasons.

Biologics Energy/Circular

Economy

RATE

Digital Chemical and

Process PRODUCTIVITY Construction

Advanced Manufacturing

Professional Logistics & Business Services

EMPLOYMENT CONCENTRATON

Source/notes: UK Creative 2016 ONS ABS and Culture & BRES employment Leisure estimates (excluding unregistered self- Healthcare employment). TVCA

Firstly, in the case of Biologics, SIC codes may not provide a true measure of employment (because of SIC definitional issues) with only Manufacture of medical and dental instruments and supplies (a medium/high productivity sub-sector) registering significant employment levels in Tees Valley. Manufacture of Pharmaceuticals is one of the highest productivity sectors of all but does not register significant employment within Tees Valley.

Secondly, in the case of the Digital sector, productivity is likely to be over-estimated because of the nature of the employment. A greater prevalence of self-employment and other flexible working patterns means that total employment in the sector is likely to be under-counted, therefore leading to an over-inflated estimate of productivity (GVA / total employment).

Tees Valley has a great number of workers employed in medium/high productivity (£50k to £75k p.a. and shaded silver) sectors such as Construction, Advanced Manufacturing, Logistics and Professional & Business Services. Of these, Advanced Manufacturing also has a particularly high employment concentration. Note here than Construction productivity, to perhaps an even greater degree than Digital, is likely to be significantly over-stated because of the extensive levels of self-employment in the sector.

Creative, Culture and Leisure covers a wide range of sub-sectors across all levels of productivity. However, with employment somewhat more concentrated in a number of lower productivity sub- sectors it has an overall productivity rate in the low/medium (£25 to £50k and shaded bronze) category, a little below the all sector average.

Finally, Healthcare whilst seeing high levels of employment concentration, demonstrates low levels of productivity (under £25,000 p.a.).

Further analysis of sectoral productivity will be undertaken to develop the Tees Valley Industrial Strategy. 4.5. Sub-sectoral productivity

The following analysis examines the ten sectors outlined above in more detail. Key sub-sectors in terms of employment contribution are listed for each sector. Results are presented by four broad productivity groupings as follows:

 High productivity – Over £75,000 p.a. per job  Medium/High productivity – Between £50,000 and £75,000 p.a. per job  Low/Medium productivity – Between £25,000 and £50,000 p.a. per job  Low productivity – Under £25,000 p.a. per job

In addition, the sector strength column identifies those sub-sectors as having relatively high concentrations of employment within Tees Valley as compared to nationally (Source: EMSI). Those sub-sectors having relatively high jobs numbers in Tees Valley (employment location quotient of more than one) are highlighted in green. Those sectors that have relatively low numbers of jobs are shaded red.

Each sector is now examined separately starting with the four high productivity sectors: Energy and Circular Economy – key points

 High employment concentration across all key sub-sectors  Circular Economy focused sub-sectors are jobs rich with a mixture of high and medium/high productivity rates  Energy focused sub-sectors account for fewer jobs but are high productivity Energy and Circular Economy key sub-sectors summary, 2016

High productivity sub-sectors (over Medium/High productivity Approximate Sector strength £75,000 p.a.) (£50,000 to £75,000 p.a.) employment (LQ > 1) Y/N Renting & leasing of engineering 2,200 Y machinery and equipment Machinery and related repair 1,200 Y Electricity production 900 Y Water collection and supply 400 Y Waste treatment and disposal 400 Y Extraction of crude petroleum 300 Y Source: ONS, ABS. EMSI Chemicals and Process – key points

 High employment concentration across all key sub-sectors  Chemicals manufacture is a high productivity sector and employs a large number of workers  Plastics is a medium/high productivity sector and a significant employer Chemicals and Process key sub-sectors summary, 2016

High productivity sub-sectors (over Medium/High productivity Approximate Sector strength £75,000 p.a.) (£50,000 to £75,000 p.a.) employment (LQ > 1) Y/N Manufacture of chemicals and 4,400 Y chemical products Manufacture of plastic 1,100 Y products Manufacture of refined petroleum 300 Y products

Associated sub-sector: Mining of 800 Y chemical and fertiliser minerals* Source: ONS, ABS. EMSI. Note: *Technically not defined as part of the Chemicals & Process sector, ‘Mining of chemical and fertiliser minerals’ is included here as a significant associated sub-sector strength in employment terms. Productivity for this sub-sector is proxied as the high productivity and broader ‘Other mining and quarrying’ sub-sector. Digital – key points

 Significant employment levels in high productivity sub-sectors Telecoms and Computer programming/consultancy driving high overall Digital sector productivity  Employment concentration in high value Telecommunications sub-sector  Lower levels of employment in other Digital sub-sectors

Digital key sub-sectors summary, 2016

High productivity sub-sectors (over Medium/High productivity Approximate Sector strength £75,000 p.a.) (£50,000 to £75,000 p.a.) employment (LQ > 1) Y/N Telecommunications* 3,000 Y Computer programming and 2,200 N consultancy Manufacture of computers 600 N and electronic products Motion picture projection 200 Y activities Source: ONS, ABS. EMSI. Note: * Local Contact/Call Centres – technically part of Professional & Business Services (PBS) – are often officially recorded under the patent company’s Telecommunications SIC code. This tendency acts to over-report local level Digital sector employment and under-report local level PBS employment. Biologics – key points

 SIC codes struggle to capture the scale of emerging sectors such as Biologics  Reflecting SIC code issues, high productivity sectors such as Pharmaceuticals are not identified within Tees Valley  The medium/high productivity Manufacture of medical instruments sub-sector accounts for a similar proportion of total employment as nationally (LQ≈1) Biologics key sub-sectors summary, 2016

High productivity sub-sectors Medium/High Low/Medium Approx. Sector (over £75,000 p.a.) productivity (£50,000 to productivity employ- strength £75,000 p.a.) (£25,000 to ment (LQ > 1) £50,000 p.a.) Y/N Manufacture of medical 300 LQ≈1 and dental instruments and supplies Manufacture of n/a N pharmaceutical products and preparations Manufacture of irradiation, n/a N electromedical and electrotherapeutic equipment Research and n/a N experimental development on biotechnology Source: ONS, ABS. EMSI

The four Medium/High productivity sectors are: Advanced Manufacturing – key points

 High employment concentration across all key sub-sectors  Engineering consultancy the largest sub-sector in employment terms with Machinery and metal structures and Scientific R&D and technical activities other significant employers  Majority of sub-sectors Medium/High productivity but Scientific R&D and technical activities productivity only Low/Medium

Advanced Manufacturing key sub-sectors summary, 2016

Medium/High productivity sub- Low/Medium productivity Approximate Sector strength sectors (£50,000 to £75,000 p.a.) (£25,000 to £50,000 p.a.) employment (LQ > 1) Y/N Engineering consultancy services 6,400 Y Machinery and metal structures 4,100 Y manufacture Scientific R&D and technical 4,000 Y activities Manufacture of iron, steel and piping 1,300 Y Manufacture of motor vehicle parts 800 Y Manufacture of engines and turbines 700 Y Source: ONS, ABS. EMSI Construction – key points

 Overall a marginally higher employment concentration than nationally but with a high concentration in the specialised construction sub-sector and a relatively low concentration in the construction and completion of buildings sub-sectors  The Construction sector is a major employer with significant levels of employment across many construction sub-sectors  Construction is a medium/high productivity sector with the majority of its sub-sectors within or close to this productivity range. However, with self-employment rates in the sector approaching 50%, there may be, as highlighted earlier, some under-reporting of total employment and therefore over-stating of productivity level. Construction key sub-sectors summary, 2016

High productivity sub- Medium/High productivity Approx. Sector strength sectors (over £75,000 p.a.) (£50,000 to £75,000 p.a.) employment (LQ > 1) Y/N Electrical, plumbing and heat 3,400 Y installation Roofing, scaffolding and other 2,400 Y specialised construction Construction of buildings 2,100 N Construction of civil engineering 1,400 Y projects Building completion and finishing 1,100 N Construction of roads 900 Y Site preparation and test 200 Y drilling Source: ONS, ABS. EMSI

Logistics – key points

 A lower employment concentration than nationally but with high concentrations in Road & rail freight and Wholesale of machinery and supplies  Productivity varies widely in the sector but there is relatively more employment in low/medium productivity sub-sectors such as Road & rail freight and Warehousing & storage  Within Specialised wholesale, metals and chemicals do have slightly higher employment concentrations than nationally and together account for around 600 jobs Logistics key sub-sectors summary, 2016

High productivity Medium/High Low/Medium productivity Approximate Sector sub-sectors (over productivity (£50,000 (£25,000 to £50,000 p.a.) employment strength £75,000 p.a.) to £75,000 p.a.) (LQ > 1) Y/N Road and rail freight 3,300 Y Warehousing and storage 2,400 N Wholesale of 2,300 Y machinery & supplies Specialised wholesale 2,000 N incl. metal & chemicals Transportation 1,900 LQ≈1 support services Wholesale of 1,300 N household goods Postal and courier activity 1,300 N Wholesale of food and 1,000 N beverages Transport via 100 Y pipeline Source: ONS, ABS. EMSI Professional and Business Services – key points  A significant sector in overall employment terms but with lower employment concentration across most sub-sectors than nationally  Only Call Centres accounts for a relatively higher share of employment than nationally  Productivity levels differ widely within this sector with significant employment numbers in sub-sectors across all levels of productivity Professional and Business Services key sub-sectors summary, 2016

High productivity Medium/High Low/Medium Low Approximate Sector sub-sectors (over productivity (£50,000 productivity productivity employment strength £75,000 p.a.) to £75,000 p.a.) (£25,000 to (under (LQ > 1) £50,000 p.a.) £25,000 p.a.) Y/N Financial services 5,700 N and related Employment 4,900 N agencies and similar Building and 3,900 N landscape services

Legal and accounting 3,800 N activities Management 2,600 N consultancies and head office activities Call Centres 1,500 Y Private security 800 N activities Veterinary 300 N activities Source: ONS, ABS. EMSI

Tees Valley’s Low/Medium productivity sector is: Creative Culture and Leisure – key points

Key points

 A wide-ranging sector encompassing both high and low employment sub-sector concentrations  Overall employment levels are high but the top two sub-sectors in terms of number of jobs are Low productivity and the third and fourth are Low/Medium productivity.  With greater employment levels observed in relatively lower level productivity sub-sectors this impacts negatively on the sector’s overall productivity rate Creative Culture and Leisure key sub-sectors summary, 2016

High Medium/High Low/Medium Low productivity Approximate Sector productivity productivity productivity (under £25,000 employment strength sub-sectors (> (£50,000 to (£25,000 to p.a.) (LQ > 1) £75,000 p.a.) £75,000 p.a.) £50,000 p.a.) Y/N Restaurants 7,700 N Beverage serving 6,700 Y activities Sports and 5,100 N recreation Hotels and similar 1,900 N accommodation Housing 1,800 Y Association real estate rental* Gambling and 1,300 Y betting Taxi operation 600 Y Travel agents & 500 N tour operators Architectural 300 N activities Libraries and 200 Y archiving Source: ONS, ABS. EMSI. Note: *DCMS include the high productivity sub-sector Housing Association real estate rentals in their definition of Tourism.

Tees Valley’s Low productivity sector is: Healthcare – key points

Key points

 A key sector for Tees Valley in terms of high numbers of employees and high employment concentration  Both Hospital activities and Residential care sub-sectors account for relatively higher levels of employment than nationally  Reflecting the labour intensive nature of the sector, Healthcare as a whole has Low productivity levels with all three sub-sectors similarly recording Low productivity rates Healthcare key sub-sectors summary, 2016

Low productivity (under £25,000 p.a.) Approximate Sector strength employment (LQ > 1) Y/N Hospital activities 22,100 Y Residential care 9,100 Y GPs, dentists and other human health activities 5,600 N Source: ONS, ABS. EMSI

4.6. Trade

Tees Valley is one of the few areas of the country to run a trade in goods surplus. We have an export value higher than our import value. In 2017, Tees Valley goods exports totalled £3,162m with imports at £2,956m, a surplus of £206m.

Export trade with EU countries was £1,777m whilst those to non-EU countries totalled £1,385m. EU goods imports were £1,528m and those from non-EU countries totalled £1,428m.

In 2017, the number of Tees Valley firms exporting to the EU was 1,232 and to non-EU countries 1,172. Regionally, there were 3,377 North East firms exporting to EU countries, 2,636 to non-EU countries and 4,290 exporting firms in total. This implies that 4 in 10 North East exporting firms trade with both EU and non-EU countries, the highest proportion of any region or country in the UK (national average rate 28%). Assuming a similar proportion for Tees Valley implies a total of around 1,700 exporting firms locally in 2017.

Tees Valley & Durham total exports in goods was £4,841m in 2017 i.e. Tees Valley accounted for almost two-thirds of sub-regional exports (and nearly one quarter of total North East exports of £12.9bn). Figure 4.4 below shows goods exports, imports and net exports by the top ten destination countries for Tees Valley & Durham’s goods exports.

Figure 4.4. Top 10 goods export destinations, Tees Valley & Durham, 2017, £ millions

Source: HMRC Regional Trade Statistics

Germany received the greatest value of goods exports from Tees Valley & Durham at £692m in 2017, representing 14% of all Tees Valley & Durham exports. The Netherlands was the second highest export destination with the USA third. These ten countries accounted for 65% of all Tees Valley and County Durham export trade and 59% of imports. 4.7. Sectoral goods exports

Chemicals & related products (£1.79bn) together with Machinery & transport equipment (£1.65bn) accounted for over 70% of Tees Valley & Durham’s total goods exports. Manufactured goods were the other major contributor at £863m. These three sectors were also instrumental in delivering the trade in goods surplus observed across Tees Valley and County Durham. Net trade across these sectors contributed £1.28bn to the local economy whilst the remaining sectors saw a £1.05bn deficit. This resulted in an overall £232m surplus with Tees Valley contributing £206m and County Durham the remaining £26m.

Figure 4.5. Tees Valley and County Durham, goods exports by sector, % of total, 2017

Source: HMRC Regional Trade Statistics

Reflecting the area’s particular strength in Chemicals (37% of total Tees Valley & Durham goods exports), nationally Chemicals & related products accounted for just 17% of exports and at the North East regional geography only 22% of exports were Chemicals.

Regional figures provide a sub-sectoral breakdown of the broader sectors identified above. Within Chemicals & related products (NE exports £2.79bn in 2017) the highest sub-sectoral exports was Organic Chemicals at around 30% of the sector. Essential oils & perfume materials; toilet preparations etc. accounted for 17% with Plastics in primary & non-primary forms together was 16% of the total. Chemical materials & products n.e.c. accounted for around 11% as did Dyeing, tanning & colouring materials and also Medicinal & pharmaceutical products.

34% of Tees Valley & Durham’s exports were ‘Machinery & transport equipment’. This compared to the UK’s 40% and the North East region’s 57%.

At the North East regional level the Machinery & transport equipment (NE exports £7.42bn in 2017) sector is dominated by Nissan and the Road vehicles sub-sector (62% of the sector) at £4.61bn of exports with £3.20bn of this destined for the EU. Other key sub-sectors include General Industrial Machinery and Power generating machinery both with 10% of the sector’s exports, Electrical machinery, apparatus and appliances at 8%, Specialised industry specific machinery with 6% and Other transport equipment accounting for 2%.

Exhibiting sectoral strength similar to Chemicals, relatively more of Tees Valley & Durham’s exports were classed as ‘Manufactured goods’ than nationally. 18% of Tees Valley & Durham’s exports were made in this sector in 2017 compared to 9% nationally and 10% in the North East as a whole.

At the North East regional level Manufactured Goods (NE exports £1.32bn in 2017) sector is dominated by metal manufactures. Non-ferrous metals accounted for 41%, Iron & Steel 19%, and Manufactures of metal n.e.s. 17%. Paper & paperboard manufactures totalled 8% with Non-metallic mineral manufactures at 6%. Textiles 4%, Rubber manufactures 3% and Cork/wood and leather manufactures 2% accounted for the remainder of regional exports in this sector. 4.8. Regional services exports

Service exports estimates are now available down to the regional level. Whilst the North East region accounted for around 3.9% of UK goods exports with £12.9bn in 2017, it also contributed some £4.2bn of services exports (in 2016) or 1.7% of UK services exports. However, service exports are growing faster in the North East than nationally. Since 2011 service exports grew by 33% nationally compared to the North East region’s growth of 51%.

Figure 4.6. Services exports by functional category, North East England, 2016

Source: ONS

4.9. Tees Valley Business Survey

The Tees Valley Business Survey 2018 reported that 32% of local businesses have plans to increase their level of export sales over the next year.

Figure 4.7: Import locations Figure 4.8: Export locations

Key Findings - Importing:

 90% of Tees Valley businesses purchase at least some of their goods or services from within Tees Valley, this can be broken down into: o 9% purchase all of their goods/services from within Tees Valley. o 31% purchase up to three quarters o 19% purchase half; and o 32% purchase less than a quarter.  94% of Tees Valley businesses purchase at least some of their goods or services from within the rest of the UK.  52% of businesses purchase at least some of their goods/services from outside of the UK but within the EU.  36% of businesses purchase at least some of their goods/services from outside of the EU, of these over half (53%) purchase their goods/services from the USA, with a further 15% from China.

Key Findings – Exporting:

 92% of Tees Valley businesses sell their goods or services to companies within Tees Valley, this can be broken down into: o 15% sell all of their goods/services to companies within Tees Valley. o 24% sell up to three quarters o 19% sell half; and o 35% sell less than a quarter.

 93% of Tees Valley businesses sell least some of their goods or services to the rest of the UK.

 54% of business sell least some of their goods/services to outside of the UK but within the EU.

 45% of businesses sell at least some of their goods/services to outside of the EU, of these 42%

sold their goods/services to the USA.

Figure 4.9: Barriers to accessing new supply chains/exporting Key Findings – Exporting:

 17% of Tees Valley Business have cited lack of management time to pursue opportunities as a barrier to accessing new supply chains/exporting.  14% of businesses state it is not part of their business plan.  13% have found difficulty in finding overseas customers/partners.  10% cite legislation/standards as a barrier.

4.10. Economic Growth and Productivity SWOT analysis

The table below shows a sectoral SWOT analysis of the region:

Strengths Weaknesses Existing strengths in relatively high productivity Slow overall GVA growth and an increasing sectors such as Energy & Circular Economy GVA gap (based on GVA per capita). (including Nuclear) and Chemicals & Process. Underlying labour market participation Particular strengths in the medium/high issues are the largest contributor to the productivity Advanced Manufacturing sub-sector area’s low GVA per capita and sluggish Engineering Services and also Construction’s Civil economic growth rate. engineering and specialised construction sub- sectors. Over-reliance on a small number of high productivity sectors, often with a declining Strong recent GVA trend growth in certain higher employment base and relatively restricted value broad sectors such as Construction and new job opportunities. Professional, Scientific and Technical activities. Business view: A strong exporting area reflecting Manufacturing The top three barriers faced by firms looking GVA strength in Chemicals and Metal to access new supply chains or export were: manufactures goods exports in particular. i. Lack of available management time Regionally, the highest proportion of exporting ii. Such activity not part of the firms that trade with both the EU and the rest of business plan and the world. Difficulties in finding overseas customers or partners. Business view: The vast majority of Tees Valley firms trade outside of the region with 93% of businesses selling to other parts of the UK. Opportunities Threats Potential for significant growth in emerging high Increasing levels of trade protectionism productivity sectors e.g. Biologics and Digital. across the world, particularly in key non-EU markets such as USA and China. Significant aggregate GVA growth would flow from only marginal productivity improvement in Continuing uncertainty in the economic employment rich sectors such as Healthcare and environment impacting negatively on Creative, Culture and Leisure. aggregate business investment.

Great potential for diversification of supply chains Business view: and developing the capacity of firms to increase Over half of Tees Valley firms dependent on exports. imports from the EU.

Business view: Almost one-third of local businesses have plans to increase their level of export sales over the next year.

Section 5: Business Growth

Supporting business growth is critical to Tees Valley, to diversify the economy, increase productivity and create job opportunities. Creating an environment that is the best place to start and grow and business is identified as a key foundation of productivity in the UK Industrial Strategy, and will also form a core element of the Tees Valley Local Industrial Strategy. This section seeks to determine just how dynamic and sustainable Tees Valley’s business sector presently is.

The Tees Valley Strategic Economic Plan prioritises support for more business start-ups, developing high growth potential businesses and supporting key growth sectors.

While the retention and development of priority sectors remain vital to the competitiveness of the Tees Valley, future economic growth will be driven in large part by the existing and future business base and its ability to expand, innovate, diversify and access supply chain opportunities.

Key messages

 Tees Valley now has the lowest business density rate of any English LEP area with 2018 recording the first fall in the overall number of Tees Valley businesses since 2011. However, within this, we do have a strong number of high growth firms, with numbers mirroring national rates (6.3% of all firms in 2017).  Despite the small fall in aggregate business numbers, business stock in some sectors grew faster than nationally, including: Creative Culture & Leisure; Professional & Business Services; Chemical Process; and Biologics.  A resilient business base – Tees Valley business survival rates compare relatively favourably with national rates. However, this metric can also be viewed less positively. High levels of business churn i.e. both high start-up rates and high death rates, are a strong indicator of a vibrant economy with high levels of entrepreneurial activity.  The number of enterprise start-ups in Tees Valley increased to 2,263 in 2017 – a 2% increase compared to 2016 but well below the national increase of 9%. In addition, the Tees Valley business birth rate fell below the death rate for the first time since 2010.  Just 7.4% of Tees Valley firms demonstrated productivity growth between 2014 and 2017, one of lowest rates of any LEP.  Typical Tees Valley SME turnover is significantly lower than SME turnover nationally or across the North of England as a whole.  Across Tees Valley there are high concentrations of Advanced Manufacturing, Chemical & Process, Energy & Circular Economy and Healthcare businesses in particular.  The Tees Valley economy can be characterised as a ‘branch plant’ economy and has the highest proportion of multi-site enterprises of any LEP area.  The North East has the highest proportion of foreign-owned business in the UK. On average, foreign-owned firms tend to have higher skilled workforces, pay more and be more productive than domestically owned firms.

5.1. Business Density

There were 17,230 enterprises in Tees Valley in 2018, down a little (270 lower) on the year before (17,500). Within this fall there were 110 fewer companies and 175 fewer sole traders/partnerships. Nationally, the total number of enterprises was broadly unchanged. This means that Tees Valley 39

now has the lowest business density rate of any LEP area, with just 415 enterprises per 10,000 working age residents in 2018 – 65% of the UK rate (643). This represents an enterprise gap of around 9,500 businesses compared to the UK. Whilst Tees Valley is closer to the North of England average rate of 542, this still represents a Tees Valley to North of England enterprise gap of over 5,000 firms.

Branch plant economy and foreign-owned businesses

Branch plants i.e. plants operating as an individual site of a multi-plant enterprise, are a feature of the Tees Valley economy. There are both positives and negatives associated with a branch plant economy. On a positive note, they bring the potential for business flexibility, which can play an important role in supporting local employment levels, contribute to rapid short-term growth following targeted investments e.g. foreign direct investment or through meeting increased demand during sharp sectoral upturns e.g. in the oil & gas sector. However they can also occupy a relatively low position in the company supply chain and concentrate on lower value production activities, with little investment in R&D.

The relationship between total local business units – individual sites belonging to an enterprise – and total enterprises can be used to proxy an area’s concentration of ‘branch plants’. Tees Valley has the highest proportion of any LEP area of these local units compared to the number of enterprises. There were 21,960 individual local unit sites in Tees Valley in 2018, compared to 17,230 enterprises – a ratio of 1.27:1. The equivalent North of England LEP average ratio was 1.20:1 and the UK ratio was 1.17:1.

Additionally, the North East of England has highest proportion of foreign-owned businesses in the whole of the UK. Around 3,600 or 4.7% of North East firms were foreign-owned in 2016 compared to just 3.6% in the UK as a whole. Research indicates that foreign-owned manufacturing firms have significantly higher labour productivity than domestically owned manufacturing firms and that labour productivity improves faster over time and faster with age in foreign-owned firms. In line with productivity differences, the proportion of skilled workers and wages across all skills levels within the workforce are higher in foreign-owned firms. Therefore, the region’s higher prevalence of foreign-owned firms allied to its high concentration of Advanced Manufacturing firms is likely to be acting to increase Tees Valley’s aggregate productivity rate.

5.2. Sectoral Composition

The table below examines how the number of enterprises has changed over the past year in sectoral terms. Whilst the majority of priority sectors saw modest increases, Advanced Manufacturing saw the greatest fall in both numerical and percentage terms, driven in large part by a 340 fall in the number of firms operating across Engineering consultancy and Scientific R&D / technical activities. Reflecting challenging conditions in associated manufacturing industries this broad sub-sector also saw significant falls nationally.

Table 5.1. Number of enterprises by sector, Tees Valley and UK, 2017 and 2018

Tees Valley UK 2017 2018 %change 2017 2018 %change Advanced Manufacturing 3,095 2,790 -9.9 179,050 171,575 -4.2 Biologics 20 25 25.0 3,615 3,750 3.7 Chemical and Process 75 80 6.7 8,660 8,740 0.9 Construction 2,175 2,215 1.8 319,090 330,755 3.7 Creative, Culture & Leisure 2,355 2,415 2.5 383,510 390,185 1.7 Digital 745 750 0.7 230,305 232,630 1.0 Healthcare 555 515 -7.2 78,435 70,840 -9.7 Logistics 1,000 950 -5.0 189,440 188,350 -0.6 Energy & Circular Economy 390 385 -1.3 47,525 47,910 0.8 Prof. and Business Services 2,820 2,840 0.7 559,210 555,685 -0.6 Other Manufacturing 430 415 -3.5 65,410 65,855 0.7 Other Public Services 645 625 -3.1 92,460 83,895 -9.3 Raw Materials & Agriculture 480 475 -1.0 148,840 150,230 0.9 Other Private Services 2,705 2,745 1.5 363,255 369,030 1.6 All sectors 17,500 17,230 -1.5 2,668,805 2,669,435 0.0 Source: ONS, NOMIS, UK Business Counts – enterprises. Estimates are rounded to the nearest 5.

However, it is worth noting that for smaller geographies such as for the Tees Valley, the sectoral breakdown estimates and the year on year change in particular (outlined in Table 5.1 above) should be viewed with caution because of volatility around considerations such as multiple businesses registered at a single address, umbrella companies and virtual offices. Indeed, both the sector classification and location of individual businesses reflect the management company / virtual offices’, rather than that of the individual business itself.

Other sectors observing some decline included Logistics with a fall of 50 firms in ‘Freight transport by road’ and Healthcare which saw 20 fewer General medical practice activities e.g. GPs and 15 fewer Other human health activities (not performed by hospitals, doctors or dentists) e.g. occupational therapy and chiropody.

Sectoral firm concentration

The Tees Valley business base has relatively more firms concentrated in certain sectors than the national sectoral business distribution might suggest. This is shown in Figure 5.1 below where the sectors have a location quotient (LQ) or more than one. Those sectors where the Tees Valley has an under-representation of businesses compared to the UK have an LQ of less than one.

Despite the decline in the number of Tees Valley Advanced Manufacturing enterprises, this sector still has by far the highest concentration of firms in the country – over two and half times (253%) that of the UK average, with Coventry & Warwickshire LEP second at a distant 169% of the national rate.

Figure 5.1. Business enterprises – Tees Valley Location Quotients

Key findings

. Tees Valley has relatively more enterprises than the UK in the following sectors: o Advanced Manufacturing o Chemical and Process o Energy & Circular Economy o Other Public Services o Other Private Services o Healthcare o Construction o Biologics

Source: ONS, NOMIS, UK Business Counts – enterprises 5.3. Scale of enterprises

Whilst the Tees Valley business base broadly reflects the national picture in terms of size measured by number of employees, there are some slight differences.

Tees Valley has relatively few micro firms employing fewer than ten employees but somewhat higher rates of sole proprietors (18.3% are sole traders in Tees Valley compared to the UK’s 16.9%). There are relatively more of those firms employing ten or more employees as shown in the graph below.

Figure 5.2. Percentage of stock of registered business enterprises by number of employees, Tees Valley, North of England and UK, 2018

Key findings

. Tees Valley was home to 17,230 registered businesses in 2018 . 88.0% of Tees Valley businesses employed fewer than 10 employees . 17,150 SMEs make up 99.5% of all enterprises in Tees Valley

Source: ONS, NOMIS, UK Business Counts – enterprises

In terms of firm size measured by turnover, Tees Valley has relatively more of those micro firms with lower levels of annual turnover. This distribution of enterprises means the average annual turnover of a Tees Valley SME is around 5% lower than either of the UK or North of England rates.

Figure 5.3. Distribution of registered business enterprises by turnover band, Tees Valley, 2018

Key findings

. Tees Valley has relatively high numbers (61.1% v 55.1% in UK) of registered smaller businesses with annual turnover of between £50,000 and £200,000. . There are fewer of the smallest micro-enterprises (under £50k) in Tees Valley (12.7% v 16.3% in UK) and also slightly fewer firms with turnover of £200k plus.

Source: ONS, NOMIS, UK Business Counts – enterprises

Estimates of unregistered businesses are available at the regional level and these suggest there are around one fifth more unregistered firms than registered firms across the UK.

In 2018 and across the North East of England there were some 325 registered large firms, of which 80 were registered in Tees Valley (2,080 in the North of England and 10,220 in the UK as a whole). Regionally, SMEs account for larger proportions of employment and turnover than nationally. Whilst large firms make up just 0.1% (UK and North also 0.1%) of all North East businesses (registered plus unregistered), large North East firms account for 34.5% (UK 39.7%, North 37.3%) of total employment and 42.9% (UK 48.4%, North 47.5%) of aggregate turnover.

Figure 5.4. Contribution of different sized businesses to total stock (registered and unregistered), employment and turnover, North East, at start of 2018

Key findings

. Including unregistered businesses, small firms make up 99.2% of all firms in the North East, account for 50.9% of total employment and 36.6% of aggregate turnover. . BEIS & ONS estimate that there are more unregistered firms without employees (55% of total) than registered employers (25%) or registered firms without employees (20%). Source: BEIS/ONS Business Population Estimates for the UK and Regions 2018 43

5.4. Start-ups and growth

Whilst official business birth and death rates (ONS Business Demography in the figure below) are very broadly in line with national rates, these rates are calculated using the existing business stock as the denominator.

Figure 5.5. Business birth and death rates, 2017

Key findings

. The Tees Valley business enterprise birth rate was 12.4% in 2017, below both the UK (13.1%) and the North of England (13.9%) rate in particular. . The Tees Valley business death rate was 13.0%, the first time the death rate has been above the birth rate since 2010.

If, as for business density, the resident adult population is used as the denominator, then birth and death rates, as for business density, come in at only around two-thirds of UK rates.

Enterprise survival rates broadly reflect business birth and death rates with Tees Valley business survival rates generally slightly above national rates as shown in Table 5.2 below. These relationships have tended to persist over time. Note that Business Demography survival rates, whilst useful for determining the average lifespan of enterprises generally, are less useful at comparing entrepreneurial activity across geographies. In this regard, it could be argued that areas with both high birth rates and high death rates – and associated high business churn rates – are the most entrepreneurial e.g. London. Table 5.2. Business survival rates, Tees Valley and UK

Rate % Births 2012 Births 2013 Births 2014 Births 2015 Births 2016

TV UK TV UK TV UK TV UK TV UK 1 year survival 93.2 91.3 95.4 93.5 93.2 92.2 93.2 89.7 92.6 91.5

2 year survival 77.0 73.9 77.7 75.1 76.7 75.8 71.8 71.3 - -

3 year survival 61.4 59.4 63.4 60.9 59.4 61.2 - - - -

4 year survival 51.8 50.4 51.7 51.2 ------

5 year survival 43.9 43.2 ------

Source: ONS, Business Demography

Nationally, the following sectors typically exhibit the highest business birth rates. These sectors have significant business concentrations in Tees Valley.

UK business birth rates, 2017

Transport & storage (including postal) 18.5% Business administration and support services 17.7% Retail 15.5% Accommodation & food services 15.3% Construction 14.1%

Enterprise Research Centre (ERC) UK Local Growth Dashboard 2018

The number of business start-ups in Tees Valley grew by 50 on the year to stand at 2,263 in 2017.

 2,263 start-ups in Tees Valley in 2017  2,213 start-ups in Tees Valley in 2016

The 2% increase in Tees Valley start-ups in 2017 has well below the national increase of 9%. Across the range of growth metrics identified by ERC, the Tees Valley generally performs relatively poorly as summarised in the table below.

Table 5.2. Summary of ERC local growth dashboard metrics.

Tees Valley rates UK rates Estimates to Estimates to LEP ranking Estimates Estimates 2016 2017 2017 to 2016 to 2017 UK-owned firm births per 33 start-ups 34 start-ups 32/38 46 start-ups 50 start-ups 10,000 population per 10,000 per 10,000 per 10,000 per 10,000 population population population population 3 year survival rate of UK- 54.6% 54.7% 32/38 53.7% 54.7% owned firms born in 2014 (and surviving to 2017) Survivor firms (born<2014) 6.9% 5.5% 33/38 6.7% 7.5% with £1-2m turnover in 2014 scaling to £3m+ in 2017 High growth firms (HGF) 6.6% 6.3% 17/38 6.1% 6.3% incidence rate (OECD definition 20% average annual growth) 2014/17 Small HGF incidence rate (add 1.5% 1.2% 28/38 1.7% 1.5% at least 8 employees in 3 years) 2014/17 HGF incidence rate (revised n/a 13.8% 31/38 n/a 15.0% OECD definition 10% average annual growth) 2014/17 Firms with productivity growth n/a 7.4% 36/38 n/a 8.4% (both turnover and employment up with turnover up at a faster rate) 2014-17 Source: ERC. LEP ranking 1 = highest, 38 = lowest

Scale-up businesses

The Scale-up Institute produce a LEP level analysis of scale-ups as part of their Annual Scale-up Review, the latest update for 2018 being produced in November 2018. The key metrics from the 2018 Review (2016 estimates) for Tees Valley are 230 scale-up firms (down from 240 in 2015) employing around 18,300 people (up from 14,500 in 2015) with a total turnover of £1.8bn (£3bn in 2015). Additionally, the average annual change in Tees Valley scale-ups has fallen from 1.4% between 2013 and 2015 to just 0.4% for 2013-16, the second lowest rate of all the LEPs and well below the LEP median increase of 3.6% p.a.

To qualify as a scale-up a firm must start with at least ten employees and demonstrate growth of 20% p.a. over a three year period in either employee numbers, turnover or both. The breakdown of this sub-division for Tees Valley is as shown in the Venn diagram below.

195 scale-ups 60 by both 95 scale-ups by by turnover employee and turnover employee growth growth growth

The Scale-up Review also identifies Tees Valley as a LEP area that ‘Needs improvement’ in both ‘Scale-up Density’ and ‘Scale-up Trends over time’. It presents these metrics as per the chart below for each of the five Tees Valley local authority areas.

Chart 5.1. Scale-up Growth for Turnover / Employment, Tees Valley districts, 2013-2016

D’ton Stockton R&C Hartlepool M’bro Hartlepool D’ton Stockton R&C M’bro

As shown in the chart above, four of the five Tees Valley local authorities have a below median density of scale-ups measured by employment growth (excepting Hartlepool) and all five below median density on turnover.

Additionally, three of the five local authorities (Stockton, Darlington and Middlesbrough) are below the median in terms of improving the density of scale-ups in their community for both employment and turnover.

The review concludes that whilst productivity is boosted by scale-ups across all parts of the country and across all sectors, the proportion of Tees Valley scale-ups growing in terms of both employees and turnover is only around one-quarter of total scale-ups (60 out of 230 Tees Valley scale-ups), and even lower at closer to just one-fifth nationally.

5.5 Tees Valley Business Survey 2018

The Tees Valley Business Survey 2018 asked a number of questions around business growth, including questions on performance over the past year and anticipated future performance. Over 400 firms responded and an overview of responses relating to business growth is summarised below.

Figure 5.6: Performance over last year Key findings

. The past 12 months have seen a rise in investment in new products/services and turnover, amongst other things. . Falls have been seen in Profit margins and turnover in particular.

Figure 5.7: Factors that helped to drive growth Key findings

. Developing existing skills in the business was cited as the largest factor to help drive growth.

Figure 5.8: Expected performance over next year Key findings

. 63% of local employers expect turnover to increase over the next year. . Over half (52%) expect UK orders to increase and just under half (49%) expect a rise in investment in new products/services.

Figure 5.9: Obstacles to growth Key findings

. 44% of local employers state that finding suitably skilled people is a barrier to growth. . 33% of employers cited Cash Flow as an obstacle to growth and 29% stated Access to finance and Government Policy was an obstacle. . Uncertainty over Brexit was a common issue in the comments of this question.

5.6. Business Growth SWOT analysis

The table below shows a sectoral SWOT analysis of the region:

Strengths Weaknesses Significant strength in both existing and emerging sectors, Persistently low aggregate particularly medium/high productivity sectors such as business density, low start-up Advanced Manufacturing and high productivity sectors such rates and relatively fewer firms as Chemical & Process, Biologics and Energy & Circular growing quickly or demonstrating Economy. productivity improvement.

Despite a small fall in aggregate Tees Valley business Tees Valley has a below average numbers, certain sectors grew faster than nationally in density of scale-up firms and those business stock terms in 2018. These included business it does have exhibit both lower numbers rich sectors such as Creative, Culture & Leisure and employment and turnover growth Professional & Business Services, the established Chemical & rates than nationally. Process sector and the emerging Biologics sector. Business view: The proportion of Tees Valley high growth firms is close to A small balance of Tees Valley the national rate. firms reported declining profit margins over the past year. Business view: Over 4 in 10 businesses attributed growth over the past year to increases in the skill levels of their employees. Opportunities Threats Sectors exhibiting some of the strongest sectoral start-up Greater prevalence of relatively rates nationally include Tees Valley strengths such as Road low value enterprises combined and Rail Freight within Transport & storage and Call Centres with a lack of business churn. This within Business administration and support. impacts negatively on productivity, creates barriers to entry and Relatively low levels of SME turnover, perhaps reflecting a constrains market opportunity for greater prevalence of ‘life-style’ companies than some other new start-up firms. areas, does provide significant scope, given the appropriate support, for both business and economic growth. Continued lack of domestic demand and concerns over future Greater prevalence of high productivity foreign-owned trading arrangements. manufacturing firms combined with the area’s branch plant economy offers great potential for boosting aggregate With particular strengths in productivity rates through investment in and development outward-facing Advanced of a higher skill/higher pay/higher quality Tees Valley labour Manufacturing and Engineering force and business premises offer. services support, the Tees Valley is particularly sensitive to Potentially large scale pent up demand for refocusing and fluctuations in global trading increasing business investment significantly once the conditions and oil price change. country’s relationship with the EU is clear. Business view: Business view: Uncertainty over Brexit is a Almost two-thirds of firms expect to increase turnover in commonly cited generic obstacle 2019 with around half forecasting higher domestic orders to growth for local businesses. and half planning to continue to increase investment in new The most commonly cited specific products or services. obstacles were skllls, cash flow and access to finance. 50

Section 6: Research & Development, Innovation and Energy

This section provides a summary of the Tees Valley R&D, Innovation and Energy environment and compares metrics with other LEPs, regions and the country as a whole. It seeks to determine the role of innovation in the region and how this innovation impacts on productivity.

Innovation is central to the future growth and competitiveness of the Tees Valley economy and sits at the core of productivity ambitions. The Tees Valley is an example of continued reinvention and ranks relatively highly on innovation indicators such as collaborating for innovation, process change and sales of innovative products or services.

Tackling climate change and legally binding carbon reduction targets are a challenge for energy intensive industries in the Tees Valley. However, our energy intensive economy also creates an opportunity to be part of the solution, be developing and deploying new energy technologies and approaches.

Innovation linked to the circular economy (in particular, the application of industrial symbiosis to the chemical and process sector) is essential to ensuring the Tees Valley economy maintains its competitive advantage, to evolve and grow.

Key messages

 R&D expenditure across the Tees Valley business base is relatively low compared to other parts of the country. However, the latest regional data for 2017 suggests the North East demonstrated the fastest rate of business expenditure on R&D (BERD) growth in the UK, increasing by almost a quarter from 2016 to 2017.  Regionally, North East businesses spend relatively more on R&D compared with nationally in the Mechanical Engineering, Chemicals and Services sectors.  A very small percentage of firms claim R&D Tax Credit relief. However, with 1% of local firms making a claim in 2015-16, the rate in Tees Valley was broadly similar to the national average.  Tees Valley typically scored below the LEP average across a range of innovation indicators. It did however score relatively well on the indicators: ‘Collaboration for Innovation’ and ‘Process Innovation’. These metrics reflect the area’s broad strength as a ‘demonstration’ region (rather than a ‘research intensive’ region) with particular strengths in technical testing e.g. testing the validity of emerging close to market technology.  Tees Valley is well above the LEP average for Graduate start-up businesses, typically generating innovative products or processes, and linking research specialisms with research opportunities.  Driven by industrial closures, CO2 emissions have more than halved in the Tees Valley over the past decade.  The 2018 Tees Valley Business Survey found that 58% of businesses undertook research, development or innovation in the last 12 months.

6.1. Innovation in Tees Valley firms The Enterprise Research Centre has updated their benchmarking innovation in local areas report originally published in 2015. The new report (published May 2017) includes refreshed and additional

benchmarks based on the UK Innovation Survey 2015. The latest edition includes new indicators for organisational innovation and covers each of the 39 English LEP areas. The graphic below shows what proportion of Tees Valley firms reported innovation activity for each indicator during 2012 to 2014.

New business Product and service practices 23% Engaged in R&D innovation 18% New methods of 17% Sales of innovative work organisation Design investment products or 21% 11% services 32% Marketing Collaboration 29% Process innovation innovation 20% 17%

The Tees Valley generally ranks a little below the average LEP on the innovation indicators but with three notable exceptions (blue text in the above graphic).

Firstly, 29% of Tees Valley firms were involved in collaboration for innovation (joint 10th highest LEP), a benchmark strongly correlated with work-reorganisation (21% of firms) for which Tees Valley recorded an average score (median or 20th LEP).

Additionally, 17% of Tees Valley firms undertook process change, joint 13th in this survey but down on the 2nd place rank observed in the previous survey. Process innovation is also strongly correlated to collaboration.

Finally, and relating solely to innovating firms in the Tees Valley, 32% (14th highest) of these innovative firms’ sales were derived from innovative products or services i.e. new or significantly improved.

Table 6.1. Tees Valley, lowest, median and highest LEP innovation scores

Lowest LEP score Median LEP score Highest LEP score Tees Valley score New business 17% 28% 38% 23% practices New methods of 11% 21% 28% 21% work organisation Marketing 11% 17% 27% 20% innovation Engaged in R&D 12% 19% 31% 17% Design investment 8% 13% 20% 11% Collaboration 17% 25% 39% 29% Product and 14% 22% 34% 18% service innovation Sales of innovative 9% 31% 45% 32% products/services Process innovation 8% 16% 26% 17%

The spider chart below summarises the latest innovation benchmarks and where Tees Valley ranks amongst the LEPs. The black line indicates the Tees Valley score and rank.

6.2. R&D tax credits

R&D tax credits are a tax relief designed to encourage greater R&D spending, leading in turn to greater investment in innovation. Their take-up is an indicator of innovation activity. The chart below shows that there is a concentration of companies registered in London and the wider south east of England. The North East accounted for 1,370 claims (3.5% of total UK claims) totalling £80m (2.3% of total UK amount claimed). Note that these 2016-17 are provisional and partial and liable to upward revision next year.

Figure 6.1. Registered office regional analysis of R&D tax credit claims, 2016-17

Source: HMRC R&D Tax Credits Statistics, September 2018

Sub-regional R&D tax credit statistics are now also available for 2015-16. Of the identifiable 930 claims (out of a North East regional total of 1,400) at local authority level 165 were identifiable as Tees Valley claims. This represents around 1% of Tees Valley firms, matching the UK rate.

6.3. Smart Specialisation Hub indicators for Tees Valley

The Smart Specialisation Hub (SSH) has analysed the innovation capabilities of LEP areas. This section identifies two of the most appropriate measures with regard to Tees Valley.

Innovation in Business and Industry

SSH have derived BERD (Business expenditure on Research & Development) estimates at the LEP level for 2015. BERD in terms of Tees Valley spend per FTE (Full-time equivalent worker) was £292 in 2015, 38% of the LEP average rate of £774 per FTE. The Tees Valley performs better when compared to the North of England LEP average of £507 per FTE, at 58% of this rate. However, Tees Valley BERD per FTE is estimated to be above that for a number of other North of England LEP areas including the North East LEP, Greater Manchester and Sheffield City Region.

Regionally, 2017 estimates are now available through ONS. North East BERD was up from £308m in 2016 to stand at £384m in 2017, an increase of almost a quarter (24.7%). This was the highest rate of increase of any region or country of the UK. Nationally, BERD was up 4.9% on the year. Chart 6.1 below summarises North East BERD spend by broad sector.

Chart 6.1. North East BERD by broad sector, £ millions, 2017

Key findings

 The three largest sectors in terms of BERD spend in the North East were Services (£139m), Chemicals (£100m) and Mechanical Engineering (£47m).  These three sectors, plus Construction and Other manufacturing all accounted for higher proportions of total BERD than was the case nationally.

Intellectual Property Office (IPO) data provides a degree of granularity for business innovation by observing data on patents across technology sectors. This provides an indication of the discovery or production of a new or improved process or technology. London is excluded from this analysis because of the concentration of patents registered at London HQs. Tees Valley ranks as the top LEP in Organic Fine Chemistry technology with 15 inventors on patents between 2015 and 2017. There were also 10 inventors on patents in Basic Materials Chemistry over the same period, placing the Tees Valley third highest LEP for this technology. In total there were 106 inventors on patents across the Tees Valley between 2015 and 2017 with the Chemical Engineering technology accounting for the largest number of Tees Valley inventors on patents with 16.

Research and Business Interaction in Innovation

Graduate start-ups are businesses set up by university graduates typically generating innovative products or processes and linking research specialisms and business opportunities. With 163 active start-up enterprises (that have survived for three years) founded by graduates who studied in Tees Valley, this puts the area well above the LEP average of 114 such firms (Source: HEBCI 2015/16).

The latest data for 2016/17 identifies 143 active start-ups founded by Teesside University graduates, the 12th highest of all the universities in the United Kingdom and the best in the North East.

6.4. Tees Valley Business Survey

The 2018 Tees Valley Business Survey found that 58% of businesses undertook research, development or innovation in the last 12 months. Tees Valley businesses have accessed information to develop new/innovative products or business practices through a variety of methods shown in Figure 6.2.

Figure 6.2: Access to information to develop new/innovative products or business practices Key Findings:  The most popular methods of accessing information were from customers, conferences/exhibitions, competitors or other businesses and existing employees

Source: Tees Valley Business Survey 2018

Figure 6.3: Access to information to develop new/innovative products or business practices Key Findings:

 51% said that they developed innovation activities with clients/customers.

 A quarter worked with competitors or other businesses and suppliers.

 30% had not developed any innovation activities.

Source: Tees Valley Business Survey 2018

71% of Tees Valley Businesses did not access funding to support innovation activities. The main reasons for not accessing funding were:

 The processes often being time consuming and complicated  Unaware of what support is available  Not required for the business  The business does not meet the criteria  The amount of funding available is not enough

16% of Tees Valley Businesses stated that assistance for research, development and innovation was an obstacle preventing their business from growing, while 7% of businesses said that their ability to develop new products and processes was seen as an obstacle to growth. 24% of businesses indicated that investment in research and development was needed to make their company more competitive.

Figure 6.4: Percentage of research and development activities over the last year Key Findings:

 32% of businesses increased research and development activities over the last year.

 51% of businesses research and development activities remained stable, with 4% experiencing a decrease.

Source: Tees Valley Business Survey 2018

Tees Valley Businesses provided a similar response when asked about their research and development activities in the forthcoming year as illustrated in figure 6.5.

Figure 6.5: Percentage of research and development activities over the next year Key Findings:

 37% of businesses anticipate an increase in research and development activities in the next year.

 47% of businesses expect research and development activities to remain stable, with 6% expecting a decrease.

Source: Tees Valley Business Survey 2018

6.5. Energy

Tees Valley CO2 emissions per capita have fallen sharply in recent years – see Table 6.2 below – but are still almost double that of both the North of England and the UK average rates. This reflects the energy intensive nature of the business base in Tees Valley. Managing these emissions whilst continuing to support the Energy and Circular Economy sector will be a key focus for the region going forward.

Table 6.2. CO2 emissions per capita (tonnes) 2005 2014 2016 Tees Valley 25.0 19.6 10.2 North of England 12.9 8.8 5.9 UK 8.7 6.1 5.4 Source: BEIS, 2018

Impact of Industry closure in Tees Valley

Carbon emissions in the Tees Valley have reduced by over 58% since 2005, primarily due to industrial closures. For example, in the local area, Redcar and Cleveland had a 61% decrease in emissions due to the closure of SSI between 2015 and 2016. The North East region as a whole has experienced the largest percentage decline in emissions of any part of the UK over the past decade because of these type of closures as shown below.

Industrial cost of energy

Larger companies in the UK typically have the highest energy costs in the EU15 at close on double the average energy cost across Europe, significantly constraining international competitiveness.

Accessing low cost, low carbon energy will strengthen productivity and competitive advantage of the energy intensive industries concentrated within Tees Valley.

Carbon Capture and Storage

Deployment of Carbon Capture and Storage for industry in the Tees Valley offers significant opportunity not only to reduce emissions locally, but could contribute 15MtCO2 or more reductions 58

annually, or 75MtCO2 per carbon budget period for the UK. The Committee on Climate Change recognise the work that has been progressed by the Teesside Collective and have repeatedly concluded that Industrial CCS is necessary if the UK is to meet its legal obligations under the Climate Change Act 2008.

Tees Valley is ideally placed to generate significant economic growth and substantial CO2 savings simultaneously through the implementation of CCS, the development of CCU and related technologies and through building on other sub-sectoral strengths such as Energy from Waste, Biomass and Biofuels. 6.6. Research & Development, Innovation and Energy SWOT analysis

The table below shows a SWOT analysis of the region:

Strengths Weaknesses Strong innovation assets including centres of Relatively low levels of business expenditure excellence and innovation centres. on Research & Development.

Wide-ranging strength across Circular Economy Branch plant economy impacting negatively sub-sectors including Energy from Waste, Biomass on the capacity to take forward innovation and Biofuels. within Tees Valley.

Up-to-date technical expertise across existing Relatively poor performance across many workforce and through local technical training innovation metrics suggests significant provision. scope for further investment across all aspects of the Tees Valley innovation High levels of graduate start-ups, with innovative ecosystem. products and services. Business view: Business view: Over 7 in 10 Tees Valley businesses did not Over half of Tees Valley firms reported that they access funding to support innovation developed innovation activities with customers. activities. Opportunities Threats Geography and geology allied with existing High cost of energy, particularly electricity. industrial infrastructure places the Tees Valley as the ideal location for the development of low Lack of critical SME business mass in many carbon generation, offshore wind and CCUS. sectors associated with significant constraints on firms’ innovation absorptive Large scale energy storage – Tees Valley produces capacity. over half of the country’s hydrogen. Present political uncertainty impacting on Business view: FDI and collaborative working on Science The most popular methods of accessing and Innovation. information in order to develop new or innovative products or business practices were: Business view: i. From customers 3 in 10 local firms had not developed any ii. Conferences/exhibitions innovation activities. iii. Competitors or other businesses and iv. Existing employees

Section 7: Education, Employment and Skills

Education, Employment and Skills are key drivers in the local economy. They have an important role to play in improving workforce productivity and boosting earning power for all. Access to an appropriately skilled and qualified workforce is required to meet the growth needs of existing businesses and is an important factor for businesses considering where to invest. Having the right skills mix also helps to boost levels of economic activity and ensure that residents are able to access local employment opportunities.

A skilled workforce is therefore a fundamental requirement for the Tees Valley to maximise its economic potential, overcome challenges, support the creation of 25,000 jobs and meet the significant replacement demand needed over the next decade. There is also a need for businesses to sustain current activities through better workforce planning and skills development.

This section seeks to determine whether the Tees Valley has a functioning labour market and how the area’s labour market performance impacts on productivity.

Key messages

 Tees Valley primary schools are above the national average with high quality schools and above average key stage 2 results. However the quality and performance of Tees Valley secondary schools are below national average.  Although Tees Valley has good quality Further Education and skills provision, performance is below average with a high number of young people NEET (Not in Education, Employment or Training).  Participation in Higher Education is slightly above national average, however performance is below average, and graduates are increasingly likely to move out the area to find employment. The number of residents with higher level skills is below average and the number of residents with no qualification has risen over the last year.  Teesside University is described as the UK’s leading higher education institution for working with business and received the Queen’s Anniversary Prize for work at world- class level in the field of enterprise and business engagement  The introduction of the Apprenticeship Levy has had a negative impact on the number of residents starting an apprenticeship both locally and nationally.  Tees Valley has sectoral strengths in a number of key sectors including Chemical and Process, Raw Materials and Agriculture, Advanced Manufacturing and Healthcare and there is currently high job demand for skilled IT professionals, engineers, teachers, nurses, carers and administrative staff.  Local employers are reporting skills shortages with skills. IT, Construction, Education and Manufacturing are the most sought after.  Wages are lower than average. Although this is attractive to investors, it can discourage workers from remaining in the area. Whilst the cost of living in the area remains competitive, the amount of disposable income available to households in Tees Valley has seen the largest decrease of all Combined Authorities over the last year.

 Tees Valley has a high number economically inactive, in particular those who are long term or temporarily sick, In addition Tees Valley consistently has a lower than average job density with a higher than average number of residents unemployed. Despite this, unemployment has halved over the past 5 years.  There are 133,000 jobs that may need filling by 2024, including 17,000 new jobs and 116,000 replacement jobs, with over a half requiring high level skills. There will still be high demand for intermediate and lower level skills, particularly in replacement jobs.

 The 2018 Tees Valley Business Survey found that 74% of Tees Valley business had recruited staff over the last year.

7.1. Educational Attainment a. Primary Attainment There are currently 204 state funded primary schools in Tees Valley. Figure 7.1 illustrates that in general Tees Valley primary schools are above the national average with high quality schools and excellent performance. However primary school deprivation is above average with 20% of pupils eligible for free school meals compared to 15% nationally.

Figure 7.1: Percentage reaching expected standard in Key Stage 2 for reading, writing and maths Key findings:

 Tees Valley continues to remain above the national average in Key Stage 2 results with 68% of Tees Valley primary school students reaching the expected standard or above in reading, writing and maths in 2018, compared to 65% nationally. This has increased by 13% over the last two years from 54% in 2016, compared to an 11% rise nationally.

 88% of Tees Valley primary schools Source: Department for Education are rated as good or outstanding by Ofsted compared to 87% nationally. However this has reduced over the last 2 years from 91% in 2016 whilst nationally the percentage has only

reduced by 1 percentage point.

Secondary Attainment There are 43 secondary schools in Tees Valley. 52% are rated as good or outstanding by Ofsted, compared to 75% nationally. Almost half are rated as “requires improvement” or “inadequate” by Ofsted. Secondary school deprivation is above average with 19% of pupils’ eligible for free school meals compared to 12% nationally. Figure 7.2: Average Attainment 8 score per pupil Key Findings:

2 1. The average Attainment 8 score per pupil in 2018 was 44% compared to 46.5% nationally. This varies from 42% in Hartlepool and Middlesbrough to 47% in Stockton.

2. Average Attainment 8 scores have fallen by 2.6 percentage points over the last 3 years from 46.6% in 2015 to 44% in 2018. Nationally figures have dropped by 2.1 percentage points from 48.6% to 46.5%.

3. 62.5% of Tees Valley secondary pupils Source: Department for Education achieved a 9-4 pass in English and Maths in 2018, compared to 64.2% Figure 7.3: Percentage achieving 9-4 pass in English and Maths nationally. This is an increase of 1.5 percentage points over the last year whilst nationally levels have increased by 5.1. 3 4. The average Progress 8 score for Tees Valley secondary school pupils in 2018 was -0.27 compared to -0.14 for the North of England.

2 Source: Department for Education3

2 Attainment 8 is a measure of a pupil's average grade across a set suite of eight subjects. Once calculated, this Attainment 8 score is compared to the average Attainment 8 score of all pupils nationally with the same prior attainment at KS2 in order to calculate a pupils Progress 8 score. Figures are for state schools only. 3 Progress 8 measures a student's progress between Key Stage 2 and Key Stage 4 across eight key subjects. The average Progress 8 score of all secondary schools nationally is 0. Schools with a Progress 8 score of below -0.5 are not achieving the minimum standard expected by the Government. A score of +0.5 of above shows that pupils in that school are making well above the expected level of progress.

b. Further Education Tees Valley has six further education colleges (Darlington, Hartlepool, Middlesbrough, Redcar & Cleveland, Stockton Riverside and The Northern School of Art) and four sixth form colleges, along with a number of schools that contain a sixth form college. The six Further Education colleges offer a range of education and training courses, including apprenticeships and full-time and part-time provision.

92% of 16-17 years olds in Tees Valley were in Education or Training in 2016 compared to 91% nationally. This has increased by 2 percentage points over the last 3 years which mirrors national trends.

Figure 7.4: Average point score per A Level entry Key Findings:

 88% of Tees Valley’s further education and skills provision is rated as good or outstanding by Ofsted compared to 82% nationally.

 Tees Valley has an average point score per A-level entry of 30.8 in 2018 compared to 31.8 nationally. However the gap has narrowed slightly and Tees Valley has seen an increase of 1.6 since 2016 compared to an increase of 1.4 nationally.

Source: Department for Education 88% of Key Stage 5 pupils entered or remained in education or employment after completing their qualification, compared to 89% nationally. This has remained steady over the past 2 years both locally and nationally. Figure 7.5 illustrates that Tees Valley has a higher than average number of 16- 17 years olds known as NEET (Not in Education, Employment or Training).

Figure 7.5: Percentage of 16-17 year olds known to be NEET Key Findings:

 3.8% of 16-17 year olds are known to be NEET in Tees Valley in 2017/18, compared to 2.7% nationally.

 This has fallen 0.9 percentage points over the past 3 years from 4.7% in 2014/15, compared to a 0.7 drop nationally.

Source: Department for Education

c. Higher Education Higher Education provision in Tees Valley is focused on Teesside University and Durham University (Queens Campus), with FE colleges also offering HE courses. Teesside University is described as the UK’s leading higher education institution for working with business and received the Queen’s Anniversary Prize for work at world-class level in the field of enterprise and business engagement. Ex-Business Secretary Vince Cable, stated that Teesside University is “one of the best universities for business in Britain.”

18.8% of 18-29 year old Tees Valley residents were in higher education in 2016/17, compared to 18.2% nationally. This has dropped from 22.9% in 2011/12, a drop of 4.1 percentage points compared to a 1.9 drop nationally.

Figure 7.6: Percentage of 20-29 year olds gaining undergraduate or postgraduate qualifications Key Findings:  7% of Tees Valley Higher Education students aged 20-29 obtained an undergraduate or postgraduate qualification in 2016/17, compared to 8.7% nationally.  This figure has remained fairly steady both locally and nationally over the past five years.

Source: Higher Education Statistics Agency (HESA) 51% of Tees Valley Higher Education students4 gained their undergraduate or postgraduate qualification at Teesside University, an increase of 2% since 2014/15. 14% of qualifications gained by Tees Valley Higher Education students were obtained at Russell Group universities. 5

Figure 7.7: Undergraduate and Postgraduate qualification by Key Sector 2016-17

Key Findings:

 Qualification in Health Care accounted for 33% of all undergraduate and postgraduate qualifications in 2016/17.  The second largest sector for take up of qualifications is the Other Services6 sector with 31% of all passes.

Source: HESA

4 Students whose permanent residence prior to starting study was within Tees Valley

5 The Other Services sector includes qualifications gained in Education, Social Studies, Languages, Historical and philosophical studies, Architecture, Building & Planning, Forensic & Archaeological Sciences and Astronomy and Agriculture. Education qualifications make up over half of Other Services qualifications

d. Graduate retention and employment 73% of Tees Valley graduates who obtained a higher education qualification in 2016/17 were in some form of employment or due to start employment six months after graduating, compared to 77% nationally.

59% of graduates found employment within Tees Valley with 73% finding employment within the North East region. However this figure has reduced each year for the past five years from a high of 69% in 2009/10, showing that graduates have become increasingly likely to move out of the Tees Valley for employment.

Figure 7.8: Percentage of employed graduates by industry sector – 2016/17 6 Key Findings:

7  The Other Services industry sector has consistently employed the most Tees Valley graduates over the past five years, with 34% of Tees Valley graduates finding employment in this sector in 2016/17.  Half of the employment in the Other Services sector is in the Education sub sector (50%), with a further 25% in Wholesale and Retail Trade.

2 Source: HESA

Of the 73% of graduates who were in some form of employment or due to start employment six months after graduating 78% were in Professional employment7. Almost a quarter (22%) were in non-professional roles (assumed non-graduate) six months after graduating, compared to 26% nationally. This rises to 25% for those who found employment specifically within Tees Valley. This suggests there are fewer graduate level jobs available in Tees Valley. Figure 7.9 shows the top industry sectors for non-graduate jobs.

6 The Other Services industry sector includes Education, Wholesale and retail trade; repair of motor vehicles and motorcycles, Public administration and defence; compulsory social security, Other service activities, Agriculture, forestry and fishing and Water supply, sewerage, waste management/remediation activities.

7 Professional employment includes the SOC codes 1 – Managers, directors and senior officials, 2 – Professional Occupations and 3- Associate professional and technical occupations

Figure 7.9: Non-graduate jobs by industry sector – 2016/17

Key Findings:

 The majority of these jobs are in: o Wholesale and Retail – sales assistants and retail cashiers o Accommodation and Food – bar staff, waiters and kitchen assistants o Education – childcare providers o Health Care – caring personal service roles

Source: HESA

Figure 7.10 illustrates the mismatch between graduate supply and demand. Tees Valley contains a number of easily accessible employment sectors, such as Retail and Food with graduate underemployment linked to sector demand. Graduates who gained qualifications in sectors with current low demand often end up filling this gap, it is no reflection of the quantity or quality of available higher education subjects.

Figure 7.10: Graduate Underemployment

The 2018 Tees Valley Business Survey found that 29% of employers took on a graduate employee in the last year.

Figure 7.11: Recruitment of graduate employees Key Findings:  93% of Tees Valley businesses would recruit a further graduate employee.  Of those that stated they would not recruit a further graduate employee, cost and lack of experience were cited as the main reasons.

Source: Tees Valley Business Survey 2018

71% of Tees Valley businesses have not taken on a graduate employee. Figure 7.12 illustrates the reasons cited for not taking on a graduate employee.

Figure 7.12: Reasons for not taking on a graduate employee Key Findings:

 59% said that no roles were available requiring graduate skills.  Almost a quarter (22%) said that they cannot afford to take one on, followed by concerns around graduates having the right skills (12%).  12% didn’t have the time to support a graduate and 11% lacked knowledge around the process or support available to

Source: Tees Valley Business Survey 2018 businesses.

A number of employers further explained that graduates in the area do not have the necessary skills required for their business, examples given were lack of local architecture degree courses and computer programming courses often being dated.

It was also highlighted that employers prefer employees to have experience and some said they prefer to train and recruit apprentices instead. Some employers stated that they found graduates un-prepared for business and lacking the work ethic required.

7.2. NVQ Skills Levels Over the last year there has been a fall in the percentage of working age population with qualifications across all levels whist the percentage of working age with no qualifications has risen. Figures 7.13 to 7.15 illustrate the change over the last 5 years. Key Findings: Figure 7.13: Percentage of working age population qualified to  30% of the Tees Valley working age population NVQ Level 4 and 3 were qualified to at least a level 4 in 2017, compared to 38.6% nationally with very slight change both locally and nationally over the last year. Over the last 5 years the Tees Valley percentage has increased by 5 percentage points, compared to a rise of 4.4 percentage points nationally.

 50% are qualified to at least a level 3 compared to 57% nationally. This has fallen by 2.7 percentage points over the last year compared to a rise of 0.3 nationally. Over the Source: ONS, Annual Population Survey last 5 years this has risen by 3.6 percentage points compared to a 4.1 increase nationally. Figure 7.14: Percentage of working age population qualified to NVQ Level 2 and 1  69% are qualified to at least a level 2 compared to 75% nationally. This has fallen by 4.1 percentage points over the last year compared to an increase of 0.4 nationally. Over the last 5 years the percentage has risen by 1.8 percentage points compared to an increase of 2.9 nationally.

 80.5% are qualified to at least a level 1 compared to 85.4% nationally. This has fallen by 3.3 percentage points over the last year compared to a 0.1 increase nationally. Levels Source: ONS, Annual Population Survey increased between 2012 and 2015 before falling between 2015 and 2017 whilst national Figure 7.15: Percentage of working age population with other figures have remained steady. qualification or no qualifications8  12% of the Tees Valley working age population had no qualifications in 2017, compared to 7.7% nationally. This has risen by 2.6 percentage points over the last year compared to a drop of 0.3 nationally. Over the last 5 years the percentage has dropped by 1 percentage points compared to a drop of 2 percentage points nationally.

 7.4% of the Tees Valley working age 9 population had ‘other’ qualifications in 2017,

Source: ONS, Annual Population Survey compared to 6.9% nationally. Over the last year this has risen by 0.7 percentage points compared to a rise of 0.3 nationally. Over the 8 This may include apprenticeships last 5 years this has increased by 1.1 percentage points compared to a 68rise of 0.6 nationally.

7.3. Current Skills by Occupation

30% of current occupations in Tees Valley require a Level 4 or above qualification compared to 32% nationally. Figure 7.16 illustrates that the skills levels of current occupations in Tees Valley are similar to national skills levels.

Figure 7.16: Skill levels of current employment Key Findings:

 Current employment demand for Level 4 occupations appears to match supply – 30% of current occupations in Tees Valley require a level 4 or above qualification whilst 30% of the Tees Valley working age population are qualified to a level 4 or above (as discussed in the previous NVQ Skills Levels section).

Source: EMSI 2017

7.4. Apprenticeships and Traineeships

6,060 people living in Tees Valley started an apprenticeship in 2017/18 .

There has been a 34% drop in the number Tees Valley residents starting an apprenticeship over the last year, compared to a 24% fall nationally. The introduction of the apprenticeship levy in April 2017 has had a negative effect on apprenticeship starts across the country.

Figure 7.17: Percentage of 16-35 year olds starting an apprenticeship Key Findings:

 Apprenticeship starts are still higher in Tees Valley than nationally, with 3.6% of 16-35 year olds starting an apprenticeship in 2017/18 compared to 2.6% nationally.  Apprenticeship starts are 36% lower than three years previously, compared to a 25% drop nationally.

Source: Education Skills Funding Agency (ESFA) – rates calculated using ONS Mid -Year population

The majority (59%) of apprenticeships over the last year were started by Tees Valley residents aged under 25, which matches the national figure. This can be broken down into:

 16-18 - 30% compared to 28.4% nationally  19-24 - 28.9% compared to 30.3% nationally  25+ - 41.1% compared to 41.4% nationally

Figure 7.18 Percentage Change by Age 2016/17 to 2017/18 Key Findings:

 Over the last year there has been a 46% drop in the number of apprenticeships started by those aged over 25, compared to a 32% fall nationally.  There has been a 8% drop in the number of 16-18 year olds starting an apprenticeship, compared to a 13% fall nationally.

Source: ESFA 49% of apprenticeships started by Tees Valley residents were Intermediate level apprenticeships compared to 43% nationally. 40% were advanced level apprenticeships compared to 44% nationally and 11% were higher level apprenticeships compared to 13% nationally.

Figure 7.19: Percentage Change by Level 2016/17 to 2017/18 Key Findings:  Over the last year there has been a 42% drop in Tees Valley residents starting Intermediate apprenticeships, compared to a 38% fall nationally.  Advanced level apprenticeships have fallen by 28% compared to 16% nationally.

 Higher apprenticeship have risen Source: ESFA by 5% compared to a 32% rise nationally.

Figures 7.20 - 7.21 uses the generic Framework Sector Subject Areas used by ESFA to compare apprenticeship starts against national figures:

Figure 7.20: Percentage of apprenticeships starts by Framework Sector Subject Area 2017/18 Key Findings:

 The largest percentage of apprenticeships started by Tees Valley residents are in Business, Admin and Law with 32% of all starts (30% nationally).  Tees Valley has a higher percentage of apprenticeship starts than national in: o Construction, Planning and the Built Environment o Business, Admin and Law o Health, Public Services and Care; and o Education and Training

Source: ESFA Figure 7.21: Percentage change by Framework Sector Subject Area 2016-17 to 2017-18 Key Findings:  Over the last year Construction, Planning and the Built Environment is the only framework sector to show an increase in apprenticeships started by Tees Valley residents with a 13% rise, compared to a 7% rise nationally.  The largest fall in apprenticeship starts has been in Engineering and Manufacturing Technologies with a 47% drop compared to a 21% fall nationally.

Source: ESFA

83% of Tees Valley residents started an apprenticeship which was delivered in Tees Valley9, with a further 8% delivered in the North East.

9 Delivered in Tees Valley by providers who may or may not be based in Tees Valley.

The Tees Valley Business Survey 2018 found that 30% of local businesses had taken on an apprentice in the last year. Of those businesses that took on an apprentice, 77% said they would recruit a further apprentice in the future.

42% of local businesses had not taken on an apprentice in the last year with more than a third (34%) citing not having the time to support an apprentice as the main reason. 21% of businesses said they were unsure of the process or support available when recruiting an apprentice and one fifth were unable to afford to take on an apprentice. Other reasons highlighted in the feedback included the poor quality of apprentices, being able to find an apprentice on a suitable programme or the type of work being unsuitable.

7.5. Travel to learn

89% of learning aims started by Tees Valley residents in 2017/18 were undertaken within Tees Valley. This varies from 92% for Middlesbrough and Redcar and Cleveland residents to 82% for Darlington residents.

The majority of learners started a learning aim which was based in their home district. This varies from 69% in Darlington and Middlesbrough to 45% in Redcar and Cleveland.

Figure 7.22: Percentage of learning aims started in 2017/18 Home District Location of Learning Darlington Hartlepool Middlesbrough Redcar and Cleveland Stockton on Tees Tees Valley Darlington 69% 1% 1% 1% 3% 11% Hartlepool 1% 67% 2% 1% 4% 11% Middlesbrough 6% 7% 69% 36% 20% 31% Redcar and Cleveland 1% 1% 7% 45% 2% 11% Stockton on Tees 5% 9% 14% 10% 61% 24% Tees Valley 82% 84% 92% 92% 90% 89% Other North East 15% 14% 6% 5% 6% 8% Other England 4% 2% 2% 3% 4% 3%

7.6. Current job demand There were 30,601 job vacancies advertised online in Tees Valley between January 2018 and December 2018.

Key Findings:

 This is a 0.5% rise when compared to 2017 (145 extra vacancies), in comparison to a 7% drop nationally and a 6% drop across the North of England.

Figure 7.23 illustrates that the largest number of job vacancies in Tees Valley in 2018 were for

Teachers, IT Staff, Engineers, Nurses, Carers and Admin workers.

Figure 7.23: Top 5 Tees Valley Job Vacancies in 2018

Source: Burning Glass Labour Insight

Key Findings:

 The largest rise when compared to 2017 was for Process, Plant and Machine Operatives, with a 55% increase (vacancies increasing from 240 to 372) and a particular increase in Metal working machine operatives. Demand had also increased for Plant and machine operatives and Printing machine assistants.  However compared to 2017 demand has fallen for Leisure, Travel and Related Personal Service occupations with a 27% fall (vacancies dropping from 441 to 324). In particular a fall in vacancies for Beauticians, Hairdressers, Barbers and Housekeepers.

7.7. Skills Shortage Vacancies The 2017 DfE Employer Skills Survey reported that 5% of Tees Valley employers reported a skills shortage vacancy, this matches the North East figure and compares to a national figure of 6%.

27% of all vacancies in the Tees Valley are classed as skills shortage vacancies compared to 22% nationally and 25% across the North East region. However this is down 11 percentage points from the 38% reported in 2013, compared to a national increase of 1 percentage point. Figures 7.24 and 7.25 highlight the industry sectors reporting skills shortage vacancies and the percentage of all vacancies which are skills shortage vacancies.

Figure 7.24: Percentage of employers with a Skills Shortage Vacancy by industry sector Key Findings:

 31% of Information & Communication employers in Tees Valley reported a skills shortage vacancy, compared to just 6% nationally.  15% of Education employers in Tees Valley reposted a skills shortage vacancy compared to 9% nationally.  10% of Manufacturing employers and 9% of Construction employers in Tees Valley also reported skills shortage vacancy, compared to 9% and 5% nationally.

Source: Department for Education (DfE) Employer Skills Survey

Figure 7.25: Percentage of all job vacancies which are skills shortage vacancies by industry sector Key Findings:

 89% of Tees Valley job vacancies in the Information and Communication sector

were skills shortage vacancies, compared to 27% nationally.  64% of Construction job vacancies were skills shortage vacancies, compared to 35% nationally.  43% of Education vacancies and 38% of Manufacturing vacancies in Tees Valley were skills shortage vacancies compared to 23% and 29% nationally.

Source: DfE Employer Skills Survey

The Tees Valley Business Survey 2018 found that 74% of Tees Valley business had recruited staff over the last year, and of these 51% stated they experienced difficulty in recruiting these staff.

A range of skills were listed as difficult to obtain, with the most common being:  Digital/IT skills – software development, programing, 3D modelling and production, and digital marketing  Engineering – in particular electrical and mechanical  Sales and marketing  Machinists, labours and technical staff – platers, welders, plumbers, riggers.  HGV Drivers  Carers  Managers and executive staff  Admin  General attitude

37% of Tees Valley businesses stated they were experiencing a skills gap within their existing workforce. The main skills that businesses said they were lacking were Leadership & Management and Design & Technology, particularly 3D design. Skills were also needed in Digital/IT, Sales and Marketing. However 80% of businesses said they have provided training for existing staff over the last 12 months.

7.8. Future Job Demand

The nationally developed Working Futures model predicts that Tees Valley will have 133,000 jobs that will need filling by 2024. This is made up of 17,000 new jobs and 116,000 replacement jobs. The Tees Valley Strategic Economic Plan, published in December 2016, sets an ambitious growth target of creating 25,000 net new jobs over the next decade. Figure 7.26 and 7.27 illustrate the breakdown of new and replacement jobs by industry sector and skills requirement.

Figure 7.27: Future Job Demand by Industry Sector 2014 - 2024 Key Findings:  Professional and Business Services are projected to have the largest expansion demand, followed by Healthcare and Wholesale and Retail.  Production Industries, Logistics and Public Admin, Defence and Education are the three sectors which are not projected to have any expansion job opportunities between 2014 and 2024; however every sector is projected to have a large number of replacement demand job opportunities.

Source: Working Futures  Part-time jobs are projected to make up a greater share of total Figure 7.28: Total Skills Requirement 2014 -2024 employment in the future.  Growth in female employment is expected to exceed that for men.  High qualification / high skill occupations are making up an ever increasing share of total employment with over half of the 133,000 jobs predicted requiring a level 4 or above qualification. In addition 45% of these jobs are projected to be high skill managerial, professional or associate professional & technical occupations.  There will still be a high demand for intermediate and lower level skills, particularly in replacement jobs, with almost half of all job opportunities Source: Working Futures (46%) requiring a level 3 or below qualification.

Figure 7.29 shows that high skill levels are projected to be in demand across all sectors, in particular Public, Admin, Defence and Education, IT, Media and Other Services, Production Industries, Professional and Business Services and Healthcare. Figure 7.29: Percentage Skills required 2014 - 2024 by sector and qualification level

Source: Working Futures All sectors, including those with declining aggregate employment numbers are projected to see thousands of job opportunities in the next decade.

7.9. Current Employment a) Overall resident employment 280,300 Tees Valley residents aged 16-64 were employed in 2018, 68.4% of the working age population compared to 75.2% nationally. Figure 7.30 illustrates the trends in employment rate over the last 5 years. Figure 7.30: Employment Rate (resident employment) Key Findings:

 Tees Valley resident employment rate peaked in 2017 at 69%, whilst nationally and regionally the rate continues to rise.  Over the last year the Tees Valley rate has fallen by 0.7 percentage points (4,500 fewer residents in employment) compared to a 0.6% rise nationally and a 0.8% rise across the North of England.

Source: ONS Annual Population Survey (APS)

b) Employment by Sector Tees Valley has over 262,400 employee jobs (people working in Tees Valley) across a range of industries as shown in Figure 7.31.

Figure 7.31: Industry sector breakdown Tees Valley % Change Change % Change Industry Sector Employee nationally LQ10 2012-17 2012-17 Jobs (2017) 2012-2017 Chemical and Process 5,780 -1,560 -21% -2% 2.6 Raw Materials and Agriculture 4,120 -540 -12% -7% 2.4 Advanced Manufacturing 19,020 3,950 26% 17% 1.5 Healthcare 35,640 -70 0% 11% 1.4 Other Public Services 53,230 4,210 9% 1% 1.3 Energy and Circular Economy 6,470 250 4% 14% 1.2 Other Private Services 36,410 230 1% 6% 1.1 Construction 12,370 -3,690 -23% 14% 1.1 Creative, Culture and Leisure 32,150 3,310 11% 17% 0.9 Other Manufacturing 8,560 80 1% 8% 0.8 Logistics 15,450 1,870 14% 15% 0.8 Professional & Business Services 26,200 -1,610 -6% 16% 0.6 Digital 6,680 120 2% 20% 0.5 Biologics 360 130 57% -6% 0.5 Source: EMSI

10 LQ (Location Quotient) shows how concentrated activity in the sector is in an area compared to nationally. A location quotient above 1 shows that activity is more specialised in an area than nationally

Key Findings:

 Tees Valley has particular sectoral strengths in Chemical and Process and Raw Materials and Agriculture with Location Quotients of over 2. However these two sectors along with Construction have seen the highest fall in jobs over the last five years.

 Although a small sector, employment in Biologics has more than doubled over the past five years compared to a 6% decrease nationally.  Employment in Advanced Manufacturing has also grown over the past five years with a 26% increase and 3,950 extra jobs, compared a 17% rise nationally.

Tees Valley has a number of key sectors which contain a higher number of employees than national. Figure 7.32 and 7.33 show the distribution of jobs by industry and occupation compared to national in 2017.

Figure 7.32: Distribution of Jobs by Industry in 2017

Key Findings:

 Tees Valley has a larger percentage than

national employed in: o Other Public Services o Healthcare o Advanced Manufacturing o Chemical and Process o Raw Materials and Agriculture o Other Private Services o Energy and Circular Economy o Construction  Tees Valley has fewer than national employed in: o Professional and Business Source: EMSI Services

o Digital o Logistics o Creative and Culture o Other Manufacturing o Biologics

Figure 7.33: Distribution of Jobs by Occupation in 2017 Key Findings:

 19% of employment in Tees Valley is in Professional occupations (18.9% nationally)  14.2% of employment is in Elementary occupations (13.8% nationally).  Tees Valley has above the national average employed in: o Caring, Leisure and Other Service Occupations; o Skilled Trades Occupations; o Process , Plant and Machine Operatives; and o Sales and Customer Service.  And fewer the national average employed in: o Associate Professional and Technical occupations; o Managers, Directors and Senior officials; and o Administrative and Secretarial Source: EMSI occupations.

c) Public/Private Sector and Self-Employment The majority (76%) of Tees Valley employees are employed in the private sector, with 24% employed in the public sector, compared to 79% and 21% nationally. Figure 7.34: Percentage in employment working in the private sector Key Findings:

 Tees Valley has a lower percentage than national employed in the private sector, with almost a quarter of all employees employed in the public sector in 2017-18.  There was a fall in private sector employment in 2015-16 from 75.5% in 2014-15 to 73.9% in 2015-16. This may in part be due to the closure of the SSI Steelworks in October 2015 which resulted in the loss of around 2,200 local jobs. Source: ONS APS  However private sector employment

has risen by 2.4 percentage points

since 2015-16 from 73.9% to 76.3%,

compared to a rise of 0.7 nationally.

Figure 7.35 illustrates that 6.8% of Tees Valley working age residents are self-employed, compared to 10.9% nationally.

Figure 7.35: Percentage of working age population self-employed Key Findings:

 Self-employment in Tees Valley has fluctuated slightly over the past five years with levels currently at their lowest since 2012-13.  Nationally self-employment has risen year on year for the past five years.

Source: ONS APS

d) Full-Time/Part-Time Employment Figures 7.36 and 7.37 illustrate that Tees Valley has a lower percentage in employment working full- time and a higher percentage working part-time than nationally.

Figure 7.36: Percentage in employment working full-time Figure 7.37 Percentage in employment working part-time

Source: ONS APS Source: ONS APS

Key Findings:

 73% of those in employment in Tees Valley are in full-time employment compared to 75% nationally.  The gap between Tees Valley and National figures narrowed in 2014-15 with full-time employment in Tees Valley rising to 74%, before falling back to 73% in 2015/16 which is where it has remained.

 27% of those in employment in Tees Valley are in part-time employment compared to 25% nationally.

Males have historically dominated full-time employment and this continues to be the case. Female employment is more evenly distributed between full and part-time.

Figure 7.38: Male and Female split Key Findings:

 88% of males in Tees Valley were employed full-time in June 18 compared to 58% of females (88% of males and 60% of females nationally).

 The split in male and female full time and part-time employment has been steady over the past 4 years.

Source: ONS APS June 18

e) Zero hour and Non-Permanent contracts Data on zero-hour contracts is only available at a regional level e.g. North East. Figure 7.39 shows that the North East has a slightly lower percentage (2.2%) of people employed in zero-hour contacts compared to national (2.5%).

Figure 7.39: Percentage of people employed in zero-hour contracts Key Findings:

 The percentage of people in the North East on zero-hour contracts rose to 3.7% in 2017 before falling to 2.2% in 2018.

Source: ONS Labour Force Survey

The Tees Valley Business Survey 2018 found that only 8% of Tees Valley businesses had recruited any staff on zero hour contracts over the past 12 months.

Figure 7.40 shows that 4.3% of those in employment in 2017-18 in Tees Valley were employed in non-permanent employment, compared to 4.9% nationally.

Figure 7.40: Percentage of all employment in non-permanent employment Key Findings:

 The percentage of those in non- permanent employment in Tees Valley has fallen from a high of 6.8% in 2015-16 to 4.3% in 2017- 18, compared to a fall of 0.8 percentage points nationally.

Source: ONS APS 7.10. Economically Inactive The economically inactive population comprises all persons who are neither "employed" nor "unemployed", for example those who are long-term sick, students or retired. 27% of the working age population in Tees Valley were economically inactive in June 2018, compared to 21% nationally. This has risen over the last 2 years, from 25% in 2015/16 compared to a fall of 1 percentage point nationally. Figure 7.41 shows that the economically inactive cohort is made up of the following:

Figure 7.41: Economically Inactive Breakdown Key Findings:

 A quarter of the inactive population are long-term sick compared to 21.5% nationally.  Tees Valley has twice the percentage temporary sick than national at 4% compared to 2%.  A further quarter of the inactive population are looking after family/home which is similar to national figures.

Source: ONS APS June 2018  Tees Valley has fewer students than nationally at 23% compared

to 27%.

The majority of the economically inactive in Tees Valley (84%) do not want a job compared to 78% nationally.

Figure 7.42: Percentage of those Economically Inactive who want a job Key Findings:

 The percentage of those who do want a job peaked in 2015/16 at 26% before falling to 16% in 2017-18.

Source: ONS APS June 2018

Figure 7.43: Age split of economically inactive Key Findings:

 As expected, 94% of those aged 65+ are economically inactive, compared to 89% nationally.  Tees Valley has a higher percentage of 16-19 year olds who are economically inactive at 62%, compared to 56% nationally, which is reflective of the higher than national further education participation rate referenced on page 63.

Source: ONS APS June 2018  33% of 50-64 year olds are inactive compared to 26% nationally.

7.11. Economically Active The economically active population comprises all persons who are either "employed" or "unemployed and actively seeking employment". 73% of the working age population in Tees Valley were economically active in June 2018, compared to 79% nationally, this comprised of:  93.7% in employment (95.7% nationally)  6.3% unemployed (4.5% nationally) Figure 7.44 shows that the percentage of economically active claiming to be unemployed has halved over the past five years, falling from 13.1% in 2012-13 to 6.3% in 2017/18. Nationally unemployment has fallen from 8% in 2012-13 to 4.3% in 2017/18. Figure 7.44: Percentage of economically active claiming to be unemployed Key Findings:

 Tees Valley has narrowed the gap between national figures over the last 5 years from 5.1 percentage points in 2012-13 to 2 percentage points in 2017-18.

Source: ONS APS

Figure 7.45 shows that Tees Valley has a higher percentage unemployed across all age ranges than national.

Figure 7.45: Percentage of age specific population claiming to be unemployed Key Findings:

 Over a quarter (26%) of 16-19 year olds in Tees Valley are unemployed compared to 18% nationally.  10.5% of 20-24 year olds are unemployed compared to 9.4% nationally.  6.3% of 25-34 year olds are unemployed compared to 3.8% nationally.

Source: ONS APS June 2018

Figure 7.46: Percentage of age specific population claiming to be unemployed over time Key Findings:  The percentage of 16-19 year olds claiming to be unemployed has dropped dramatically from 50% in 2012-13 to 26% in 2017-18, compared to a drop of 11 percentage points national. This is most likely due to the raise in participation age.12 However the rate has risen by 4.9 percentage points over the last year compared to a drop of 2.4 nationally. Source: ONS APS 11

7.12. Claimant Count In October 2018 4.1% of 16-64 year old Tees Valley residents were claiming either Job Seekers Allowance or Universal Credit (and required to seek work), almost double the national average of 2.3%. This rises to 6.6% for 18-24 year old residents, compared to 3.2% nationally. Universal Credit is designed so that a broader span of claimants is required to look for work than under Job Seekers Allowance, therefore the monitoring of claimant count over time is unreliable due to the phased roll out of universal credit within Tees Valley and across the country. Figure 7.47: Gender split of claimant count Key Findings:

 Tees Valley has a higher percentage of males claiming unemployment benefits than national at 64% compared to 59%.  The percentage of males claiming unemployment benefits has fallen from a high of 70% in October 15 to 64% in October 18.  36% of females were claiming unemployment benefits in October 2018 compared to 41%

Source: ONS Claimant Count October 2018 nationally. This has risen from a low of 30% in 2015.

11 Government legislation introduced in 2013 requires all young people to continue in education or training until at least their 18th birthday

Figure 7.48: Age split of claimant count – October 2018 Key Findings:

 The largest gap between the Tees Valley and national age groups is the 18-24 group, in which 6.6% are claiming in Tees Valley, compared to 3.1% nationally.  The gap between the national figures closes as the age range increases.  Over the last 5 years the percentage of 18-24 year olds claiming unemployment benefits has dropped from 11% in 2013 to 6.6% in 2018 – a drop of 4.5 percentage points compared to a drop of 2.4 nationally.

Source: ONS Claimant Count October 2018

7.13. Job density Figure 7.49 shows that Tees Valley has consistently had a lower jobs density that nationally with 0.70 jobs for every working age resident in 2017 compared to 0.87 jobs nationally. Figure 7.49: Job Density Key Findings:

 Jobs density in Tees Valley increased year on year from 0.66 in 2011 to a high of 0.72 in 2015, before falling to 0.69 in 2016 and recovering to 0.70 in 2017.  Nationally Jobs density has continuously increased.

Source: ONS Jobs Density

7.14. Wages and disposable income a) Median full time earnings Tees Valley historically has a low percentage of residents employed in high value occupations12 compared to the national average; 38.6% employed in high value occupations in 2017 compared to 42.2% nationally. Tees Valley is 3.6% below the national average compared to 4.5% four years ago. For workers living in Tees Valley the median gross annual full time wage in 2018 was £26,030 compared to £29,870 nationally and £26,894 across the North of England. Figure 7.50 shows how this has changed over time: Figure 7.50: Median gross annual full time earnings Key Findings:

 The median gross annual full time salary for Tees Valley residents has increased by 3% (£880) over the last 4 years, compared to a 9% increase nationally and an 8% increase across the North of England.

Source: ONS – Annual Survey of Hours and Earnings

Figure 7.51: Median gross weekly full time earnings13 by resident local authority 2018

Key Findings:  Stockton-on-Tees residents currently have the highest weekly full-time earnings in the Tees Valley at £524 per week, followed by Hartlepool with £509. Middlesbrough residents have the lowest weekly earnings at £480 per week.

Source: ONS – Annual Survey of Hours and Earnings

12 High value occupations are defined as Managers, Directors or Senior Officials, Professional occupations or Associate Professional and Technical occupations. 13 Weekly wages have been used instead of annual wages for the local authority breakdown as confidence internals for annual wages at a local authority level made the data unreliable.

In October 2015 the SSI Steelworks in Redcar and Cleveland closed resulting in the loss of over 2,000 jobs, with many of these highly paid. The impact of this closure on weekly earning in Redcar and Cleveland can be seen in figure 7.52. Figure 7.52: Median gross weekly full time earnings by resident local authority over time

Key Findings:

 Weekly wages for Redcar and Cleveland residents experienced a 9% fall in 2016 compared to 2015 (a drop of £44). Hartlepool was the only other local authority to see a fall in wages during this same time period of 4% (a drop of £18). Across the Tees Valley wages rose by 1% from 2015 to 2016 compared to a 2% rise nationally.  There has been a 10% rise in weekly wages over the last 4

Source: ONS – Annual Survey of Hours and Earnings years in Middlesbrough, followed by a 9% rise in Hartlepool and 6% rise in Darlington. In Stockton and Redcar and Cleveland wages

have risen just 3% and 1% respectively compared to a 10% rise nationally. b) Median household income - Gender Males continue to earn a higher median gross weekly full-time wage than females, both within Tees Valley and nationally, with a weekly difference of around £100 in Tees Valley and £103 nationally. Figure 7.53: Median gross weekly full-time earnings – 2018 Key Findings:

 Tees Valley male residents earn on average £551 per week for full-time work, compared to £615 nationally.

 Tees Valley female residents earn on average £451 per week for full time work compared to £512 nationally.

Source: ONS – Annual Survey of Hours and Earnings

c) Gross Disposable Household Income Gross disposable household income (GDHI) is the amount of money that all of the individuals in a household have available for spending or saving after they have paid direct and indirect taxes and received any direct benefits. In 2016 GDHI per head in Tees Valley was £15,100, compared to £19,880 nationally and £16,240 across the North of England. Figure 7.54: Growth in GDHI per head from 2015 to 2016 (%) Key Findings:

 Of the 10 combined authorities, the largest decline in GDHI per head between 2015 and 2016 was in Tees Valley at negative 1.6%. This compares to an increase of 0.6% nationally.

Source: ONS GDHI Figure 7.55: GDHI per head from 2011 to 2016 Key Findings:

 Over the last 5 years GDHI has risen by 10% in Tees Valley from £13,700 in 2011 to £15,100 in 2016, compared to an 18% rise nationally and a 13% increase across the North of England.

Source: ONS GDHI

7.15. Education, Employment and Skills SWOT analysis

The table below shows a SWOT analysis of the region:

Strengths Weaknesses The majority of Tees Valley primary schools are The quality and performance of Secondary schools is above the national average with high quality below average. schools and above average Key Stage 2 results. School performance at a local level varies between Tees Valley has good quality further education and Local Authorities with pockets of under-achievement skills provision as rated by Ofsted. in both primary and secondary.

Participation in higher education is above average Further education performance is below average with a higher percentage of 18-29 year olds in with lower than national A-level average point score Higher Education than national. and a higher than average number of 16-17 year olds NEET. Tees Valley has sectoral strengths in a number of key sectors including Chemical and Process, Raw Tees Valley has a below average higher education Materials and Agriculture, Advanced attainment, with graduate employment lower than Manufacturing and Healthcare. average. The number of residents with higher level skills is below average and the number of residents Unemployment has halved over the past 5 years. with no qualifications has risen over the last year.

Tees Valley has a higher percentage of residents Tees Valley historically has a low percentage of starting apprenticeships than nationally. residents employed in high value occupations compared to the national average. The percentage of job vacancies classed as ‘skills shortage vacancies’ has dropped over the past 4 Whilst we have high levels of apprenticeship starts, years. the number of people doing Higher Level Apprenticeships is far lower than national levels

Teesside University is described as the UK’s leading The amount of disposable income available to Tees higher education institution for working with Valley households has seen the largest decrease of business and received the Queen’s Anniversary all Combined Authorities over the last year. Prize for work at world-class level in the field of enterprise and business engagement. Whilst there are many high-skilled jobs in the area, there are also a relatively high proportion of low skilled jobs. Business view: Three-quarters of Tees Valley firms had taken on Business view: staff over the past year. 71% of Tees Valley businesses have not taken on a graduate employee over the past year. Reflecting Tees Valley’s occupational structure, the main reason cited by these businesses (59% of firms) was that no roles were available that required graduate skills.

Opportunities Threats There is currently high job demand for skilled IT Graduates have become more and more likely to professionals, engineers, teachers, nurses, carers find work outside of Tees Valley over the past 5 and administrative staff. years, with almost a quarter of graduates in non- graduate roles, potentially displacing those with There are 133,000 jobs that may need filling by lower level skills into unemployment. 2024, including 17,000 new jobs and 116,000 replacement jobs, with over half requiring high Employers are reporting skills shortages, with skills level skills. There will still be a high demand for in IT, Construction, Education and Manufacturing intermediate and lower level skills, particularly in most sought. replacement jobs. Tees Valley has a higher than average number of Employment in Biologics, a priority sector for Tees residents who are Economically Inactive, in Valley, has more than doubled over the last 5 particular those who are long term or temporarily years, compared to a 6% decrease nationally. sick. In addition Tees Valley consistently has a lower than average job density with a higher than average Private sector employment has risen by 2.4 number of residents unemployed. percentage points since 2015-16, compared to a Wages are lower than average, which although may rise of 0.7 nationally. attract investors to the region discourages workers from remaining in the area. Creative destruction - automation and robotics is likely to impact disproportionally on lower skilled An ageing workforce is contributing towards work, potentially leading to relatively more potential skills shortages, and gaps that employers unemployment in the short-run but also acting as a cannot fill, particularly in key sectors. driver of productivity increase and economic The introduction of the Apprenticeship Levy has had growth via a rebalancing of paid work into a negative impact on the number of people starting intermediate and higher skilled new jobs in the an apprenticeship both locally and nationally. longer-term. Changing shopping habits and rise of online services Business view: continue to add pressure on high streets and reduce 3 in 10 local businesses had taken on an apprentice jobs in retail. in the past year with over three-quarters of these Business view: firms reporting that they would recruit another in 37% of Tees Valley businesses stated they were the future. experiencing a skills gap within their existing

workforce.

Section 8: Transport & Digital Infrastructure

The following section provides an overview of the transport, digital connectivity and infrastructure needs in Tees Valley. It seeks to determine whether the area’s transport and digital infrastructure is fit for purpose.

The Tees Valley has a number of locally and nationally significant transport assets, which underpin economic activity and also offer economic growth opportunities in their own right. These include:

 The port of Tees and Hartlepool: The largest exporting port in England and provides a critical gateway to world markets for the Tees Valley industrial platform.  Major highways: The A1 (M), A66, A19, A171 and the A1053 provide fast communications within the sub-region as well as to the North East region and the rest of the country.  Rail connections: Darlington acts as a critical rail ‘gateway’ into and out of the Tees Valley and is the main interchange hub for national and inter-regional rails connections. Transport plans for Tees Valley take account of Transport for the North activities, as well as the need for efficient freight and passenger transport corridors running both north and south and east to west.

Digital infrastructure – Tees Valley is evolving into one of the most vibrant digital hubs in the UK with a successful and self-sustaining digital media, technology and creative supercluster developing a worldwide reputation for creativity, imagination and vision. Whilst the region has the highest proportion of premises with superfast broadband coverage in the country and the highest take-up rates of the fastest line speeds, pockets of poor broadband provision persist. Key messages

 There are declining passenger numbers through Durham Tees Valley Airport. However, growth of the TVCA-owned airport is now a key priority within the Combined Authority’s new ten year Investment Plan.  Tees Valley has rapid East Coast Mainline rail connections, including Darlington to London in 2½ hours.  The port of Tees and Hartlepool is a key asset for the area with great potential for supporting export growth from Tees Valley, surrounding regions and the UK as a whole. It is the largest English port in terms of outwards tonnage despite this falling by almost a fifth between 2015 and 2017. However, the port is particularly reliant on Crude Oil Liquid Bulk trade (a declining cargo) which accounts for the vast majority (97%) of England’s outward Crude Oil tonnage and 70% of the port of Tees and Hartlepool’s total outward tonnage.  Tees Valley is a relatively compact (300 square miles), functional economic area with close to 9 in 10 of working residents employed in the region. Commuting is broadly balanced between in and out commuters, which results in little overall impact on aggregate Tees Valley productivity rates.  Average road speeds are significantly quicker than other built up areas in England.  Increasing levels of motor vehicle and rail usage contrast with falling levels of bus usage.  Excellent digital infrastructure and connectivity is helping to drive productivity growth.  The 2018 Business Survey found that three-quarters of Tees Valley firms rated the transport infrastructure in Tees Valley as very positive, positive or adequate when rating the Tees Valley as a place to invest, work, live and visit.

8.1. National Connectivity Air passenger numbers

Exhibiting similar trends to many other regional airports, Durham Tees Valley Airport (DTVA) has been losing passengers for more than a decade. In 2006 around 911,900 passengers passed through DTVA but by 2016 this level had fallen to 131,500. The last five years passenger numbers are summarised for northern regional airports as shown in the table below.

Table 8.1. Passenger numbers by North of England regional airport, 2012 to 2016

Source: DfT Aviation Statistics

The table below compares the historical performance of the airports servicing Tees Valley (in terms of passenger numbers and percentage of share of catchment area market):

2005 2009 2017

DTVA 0.902 (11%) 0.288 (5%) 0.128 (2%)

Newcastle 5.187 (61%) 4,569 (68%) 5.298 (60%)

Leeds Bradford 2.609 (7%) 2.553 (8%) 4.075(13%)

Manchester 22.083 (14%) 18.630 (11%) 27.774 (16%)

Total Market NE and N. 7,493,000 5,900,000 7,537,000 Yorkshire

Proportion of DTVA 4% 5% 5% Passengers from outside of core catchment area

Source: Future Scenarios for Durham Tees Valley Airport, York Aviation (June 2018)

Benchmarking of the breakdown of business to leisure passengers using Newcastle, Bristol and Cardiff airports, assumed a ratio of 1:5 business to leisure breakdown. For DTVA this could equate to circa 24,000 business passenger movements annually.

The table below provides historical trend analysis for the amount of air freight (by tonne) from a selection of airports:

Airport 2007 2009 2017

DTVA 786 298 4

Newcastle 785 2,597 5,482

Leeds/Bradford 109 359 15

Manchester 165,366 102,543 120,181

Total UK airports 2,325,238 2,047,861 2,622,496

Source: UK Airport Data- Freight -Civil Aviation Authority (2018)

The table clearly illustrates a slight increase in air freight over the period of 297,258 tonnes or 11% across the UK since 2007, compared to a decline in air freight of 41,364 tonnes or 25% across the North. Newcastle has significantly bucked the trend, but overall demand has declined. This is particularly the case for DTVA which has witnessed a reduction of 782 tonnes or 99.5% in air freight.

Port freight traffic

The port of Tees and Hartlepool remained the largest English port in terms of outward tonnage in 2017 with 17.4 million tonnes, 70% of which was Crude Oil as shown in the chart below. The port is the main English port for outwards Crude Oil trade tonnage, accounting for 97% of the England total. In contrast, inwards Crude Oil trade into the port of Tees and Hartlepool was zero in 2017.

Chart 8.1. Tees & Hartlepool port freight traffic by cargo type, Outwards tonnage (thou’s)

Source: DfT Port Freight Statistics

However, the last couple of years have seen some significant falls in certain cargo types. Between 2015 and 2017 the port of Tees and Hartlepool’s outward tonnage fell by 4.1m tonnes, a 19% decrease. The main contributions to this decrease came from three cargo types. Crude Oil tonnage

fell by 1.15m tonnes (9% down), Dry Bulk down by 0.81m tonnes (49% lower) and Iron & Steel lower by 2.08m tonnes (an 87% drop).

In terms of inwards tonnage, the port of Tees and Hartlepool recorded 11.0m tonnes in 2017 ranking it 9th in the UK. Inwards tonnage also saw a large fall over the past two years, 23% down in 2017 as compared to 2015.

Overall tonnage (outwards plus inwards) for the port of Tees and Hartlepool stood at 28.4m tonnes in 2017 making it the 7th largest UK port in terms of total tonnage. However, as recently as 2014 the port was the 3rd largest UK port for total tonnage with 39.5m tonnes.

8.2. Local Connectivity

Travel to work patterns

Commuting in Tees Valley is relatively self-contained (one definition of a functional economic area) when compared to many other areas. Around 247,700 people (87% of working residents) live and work in Tees Valley with 38,100 residents commuting to surrounding areas - particularly County Durham, North Yorkshire and Tyne & Wear - and 34,700 residents of surrounding areas choosing to work within Tees Valley. The flows for each Tees Valley local authority area are detailed in Table 8.2 below.

Table 8.2. Tees Valley travel to work flow summary

Within Outflow Inflow Net inflow (-ve=outflow) LA TV Other TV Other TV Other Darlington 33,900 5,000 15,400 4,200 18,500 -900 3,000 Hartlepool 26,000 6,400 11,900 4,400 8,400 -2,000 -3,600 Middlesbrough 33,000 16,000 21,700 24,200 30,100 8,200 8,400 Redcar & Cleveland 33,300 17,200 23,300 9,800 12,800 -7,400 -10,500 Stockton-on-Tees 56,600 20,300 30,800 21,200 30,000 800 -800 Tees Valley 247,700 - 38,100 - 34,700 - -3,300 Source: Census 2011

In terms of average travel to work time, Tees Valley commuters enjoy the shortest time spent getting to work of any North of England LEP area outside of Lancashire. In 2016, the typical commuting journey time for Tees Valley was 25 minutes compared to the LEP average of around 27 minutes. Tees Valley road usage

Road congestion is less of an issue in Tees Valley than many other parts of England. Chart 8.2 below shows that Tees Valley compares favourably against metropolitan counties across the North of England in terms of average road speed. In addition, Tees Valley average speeds are significantly quicker than built-up areas in the Midlands and the South at 30.4 mph. For example, West Midlands Metropolitan County recorded an average speed of 20.1 mph, West of England Combined Authority had a district average of 21.4 mph and Inner London came in at just 12.1 mph.

Chart 8.2. Average speed on local ‘A’ roads (miles per hour), Tees Valley and North of England Metropolitan County areas, 2017

Key points

 At over 30 mph Tees Valley average ‘A’ road speeds are significantly quicker than other metropolitan areas in the North of England and are also well above the national average.

Source: DfT Reflecting the health of the local economy and in particular its improving employment rates, the total distance travelled by motor vehicle in Tees Valley has been increasing since 2013 as shown in the table below.

Table 8.3. Total distance travelled by motor vehicle, Tees Valley local authorities Million vehicle miles 2012 2013 2014 2015 2016 2017 Darlington 487 485 498 505 497 496 Hartlepool 381 380 384 392 396 398 Middlesbrough 724 714 737 753 741 761 Redcar & Cleveland 540 538 553 548 557 562 Stockton-on-Tees 891 873 911 926 936 936 Tees Valley 3,023 2,990 3,083 3,124 3,127 3,153 Source: DfT road traffic statistics

This pick-up in motor vehicle usage has been mirrored by a fall in bus patronage across all Tees Valley districts as shown in Table 8.4. For example, over the past two years 2½ million fewer bus journeys were made in Tees Valley (2016/17 as compared to 2014/15).

Table 8.4. Bus patronage data (millions), Tees Valley local authorities 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Darlington 6.950 6.481 6.544 6.419 6.330 6.168 Hartlepool 4.751 4.560 4.581 4.582 4.366 4.328 Middlesbrough 9.467 8.980 8.983 8.680 8.168 7.736 Redcar & Cleveland 4.641 4.298 4.278 4.262 4.122 3.874 Stockton-on-Tees 8.888 8.427 8.390 8.533 8.075 7.866 Tees Valley 34.697 32.747 32.776 32.476 31.062 29.972 Source: Connect Tees Valley, TVCA

Rail usage - journeys within Tees Valley

In terms of aggregate Tees Valley rail station usage, boardings and alightings totalled 6.56m across all stations during 2017/18, down a little from the 6.62m in 2016/17. However, the total remains well above the recent low of 6.17m recorded in 2012/13.

The five busiest stations in the Tees Valley – Darlington, Middlesbrough, Hartlepool, Thornaby and Redcar Central accounted for 5.23m boardings and alightings in 2017/18, 80% of aggregate Tees Valley station usage.

The chart below summarises the number of rail journeys made between these five stations.

Key points

The greatest number of journeys between the Tees Valley’s top five stations were to/from Darlington and Middlesbrough stations.

Across Tees Valley, East Coast Mainline station, Darlington had the highest station usage in terms of total boardings and alightings with 2.33m in 2017/18. Middlesbrough was second with 1.31m, Hartlepool third with 642,000 and Thornaby fourth with 604,000. Redcar Central was fifth busiest with 345,000 boardings and alightings. Around 1.33m rail journeys (20% of the Tees Valley aggregate) were made through other Tees Valley stations over the year, ranging from Saltburn’s 238,000 down to Teesside Airport’s 81 boardings and alightings.

Most common journeys to/from Tees Valley stations, 2017/18

Key points

Both Darlington and Hartlepool station journeys were dominated by trips to and from Newcastle upon Tyne. However, whilst Darlington saw the vast majority of longer journeys to/from other parts of Great Britain along the East Coast Main Line (Darlington to London just 2½ hours), Hartlepool journeys were more concentrated within the North East.

Middlesbrough and Thornaby stations saw more of a balance of journeys across the Tees Valley, Yorkshire and to/from Newcastle whilst

Redcar journeys were largely concentrated within Tees Valley itself.

The 2018 Tees Valley Business Survey shows that the majority of businesses do not feel that transport links in the Tees Valley are an obstacle to growth. Figure 8.1 illustrates the percentage of businesses that feel transport links are currently an obstacle preventing their business from growing.

Figure 8.1: Obstacles to business growth – transport links Key Findings:

 8% of businesses feel that road and air links are an obstacle preventing their business from growing.

The survey also highlights that 6% of Tees Valley Businesses encountered ‘transport costs’ as a barrier to accessing new supply chains or exporting.

Three quarters of Tees Valley Businesses rated the transport infrastructure in Tees Valley as very positive, positive or adequate when rating the Tees Valley as a place to invest, work, live and visit as shown in figure 8.2.

Figure 8.2: Transport Infrastructure in Tees Valley Key Findings:

 39% of businesses rate the transport infrastructure in Tees Valley as ‘Positive’ or ‘Very Positive’, with an additional 36% rating transport as ‘Adequate’.

 Just over a quarter of businesses rated the transport infrastructure as ‘Poor’ or ‘Very Poor’.

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8.3. Digital connectivity

The Tees Valley scores well above the national average for digital connectivity and take-up of fast line speeds. The latest data indicates that of the five Tees Valley districts only Darlington has a relatively low level of superfast broadband availability (percentage of all residential and business premises covered) when compared to other parts of the country. However, pockets of poor broadband provision do exist at the local level, not just in more remote rural areas but also in major commercial zones. Table 8.5. Tees Valley district level broadband coverage as at November 2018

Superfast EU Ultrafast  All five Tees Valley districts (>30 Mbps) (>100 Mbps) score significantly above UK average coverage for Darlington 94.41% 86.43% Ultrafast broadband. Hartlepool 97.31% 90.52%  Stockton, Redcar & Cleveland, Middlesbrough Middlesbrough 97.22% 93.36% and Hartlepool have Redcar & Cleveland 97.74% 90.19% relatively high levels of Superfast broadband Stockton-on-Tees 96.36% 89.82% coverage. Tees Valley average 96.61% 90.06%  Only Darlington has a slightly lower Superfast broadband UK 95.38% 55.64% coverage than nationally. Source: thinkbroadband.com Figure 8.3. Superfast coverage (UK measure > 24Mbps), English regions as at November 2018  The North East has the highest proportion of all residential and business premises with superfast broadband coverage in the country at 97.43%. This is measured against the UK government’s threshold of at least 24Mbps (Megabit per second).

In terms of broadband take-up, Tees Valley had the highest take-up of the fastest line speeds with 44.3% of all residential and business premises above 30 Mbit/s.

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Table 8.6. Take-up of lines by speed, % split, 2014

Source: Mapping Local Comparative Advantages in Innovation, BIS, July 2015

The 2018 Tees Valley Business Survey found that 39% of Tees Valley Businesses made improvements to the technology and digital tools they used over the last year.

The survey asked businesses to rate the ‘Digital Infrastructure in Tees Valley. Figure 8.4 shows that 81% of Tees Valley Businesses rate Tees Valley as ‘Very positive’, ‘Positive’ or ‘Adequate’ for digital infrastructure. 19% said that the digital infrastructure in Tees Valley was ‘Poor’ or ‘Very poor’.

Figure 8.4: Digital Infrastructure in Tees Valley Key findings:

 38% of businesses rated digital infrastructure in Tees Valley as Very Positive or ‘Positive’.

 44% of businesses rated the Digital Infrastructure as ‘Adequate’.

 One fifth of business rated Tees Valley digital infrastructure as ‘Poor’ or ‘Very Poor’

Source: Tees Valley Business Survey

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8.4. Transport & Digital Infrastructure SWOT analysis

The table below shows a SWOT analysis of the region:

Strengths Weaknesses An established international airport with the potential Over-reliance on Crude Oil outward for rapid expansion and the generation of catalytic trade (70% of Tees Valley total outward economic change across Tees Valley. tonnage) – a declining cargo in which tonnage has more than halved since International gateway and deep-water port with 2000 and is continuing to fall. extensive spare capacity and strong growth potential. The port of Tees and Hartlepool already accounts for Ageing local rail rolling stock. 97% of England’s outward Crude Oil trade. Limited east west rail connectivity. Low levels of congestion together with some of best digital connectivity in the country providing an Existing River Tees crossing points acting investment ready environment with minimal growth as bottle-necks. constraints. Poor connectivity between dispersed Excellent superfast broadband coverage with the and multiple concentrations of housing highest take-up rate of the fastest line speeds of any and industry. LEP area. Broadband coverage patchy in some Busy East Coast Main Line railway station and rail rural areas. gateway hub at Darlington. Business view: Relatively little road congestion and fast commuting A quarter of local businesses rate the times. Tees Valley transport infrastructure as poor or very poor. A wide range of sectoral training provision e.g. Stockton Riverside College’s Logistics Academy.

Major logistics investments e.g. Amazon in Darlington and strategic infrastructure projects such as Middlesbrough’s Centre Square office development, Teesside Advanced Manufacturing Park (TeesAMP) and the digital and creative hub, Boho Zone.

Business view: Fewer than 1 in 10 Tees Valley firms believe local transport infrastructure is acting as an impediment to growth. Opportunities Threats Ideal compact and low lying valley geography for the Lack of investment in transport and development of a complementary programme of digital infrastructures may lead to a cycling, walking and other sustainable transport deterioration in Tees Valley’s presently measures. relatively strong position under this theme.

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Potential productivity improvements from investing in improving all forms of connectivity between Potential closure of the airport would settlements and employment centres including a new lead to loss of an international gateway. Tees crossing, Middlehaven Dock Bridge and Portrack Relief Road. Pockets of poor digital connectivity e.g. in many rural areas across Darlington As a significant employer with existing sub-sectoral and in some major commercial areas strength, road and rail freight is playing an increasing such as Middlesbrough. These digital important role in facilitating the movement of goods access inequalities impact negatively on beyond Tees Valley’s borders. aggregate productivity.

Planned developments include a minerals processing Business view: plant (potash from North York Moors) at Wilton with One fifth of local business rated Tees new deep-water facility on the River Tees. Valley digital infrastructure as ‘Poor’ or ‘Very Poor’. Potential to develop and advance proposals for the creation of a Free Zone in Tees Valley following the Chancellor’s Special Economic Zone.

Strengths in Advanced Manufacturing, Chemical & Process and Energy & Circular Economy provides potential for greater than average returns to investment in industrial digitisation.

Potential supply chain opportunities for electric and self-driving vehicles.

Business view: Potential for improvement with only 4 in 10 Tees Valley firms making improvements to their technology and digital tools over the past year.

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Section 9: Place and Culture

The following section provides a summary of the Tees Valley place and culture offer. It seeks to determine how the creation of a people environment allied to vibrant communities can support the development of a successful business environment.

Ensuring a high quality environment where people and businesses thrive is a critical enabler, set out in the Tees Valley SEP. The region has, and continues to invest in developing our cultural and place offer, including building cultural capacity, developing town centres and remediating former industrial sites.

Tees Valley offers a diverse mix of environments, providing quality business accommodation, alongside a comfortable work life balance for its residents across a range of housing options. The arts, culture, tourism and leisure offer has an important role to play in shaping the quality of the Tees Valley proposition and making it an attractive place to live, work and visit. Culture in particular can help to create places that attract and retain businesses and business leaders, while maximising the use of arts, cultural, heritage, rural and natural assets can attract more, higher spending visitors. Although the total number employed in culture and tourism is high, most companies are micro and are operating at the edge of economic viability. There is a need to develop the cultural/tourism proposition of the region and facilitate the creation of sustainable critical mass within the sector. The cultural sector within Tees Valley is at an emergent stage, both in terms of overall output and a lack of critical mass in terms of business composition i.e. a preponderance of micro and small enterprises.

To support our ambitions, we must continue to invest in place, to attract and retain the businesses and people we need.

Key messages

 The cost of living, and the quality of life this affords in Tees Valley is an attractive proposition. With average wage rates far closer to the national average than house prices, Tees Valley has some of the most affordable homes in the country. Average housing rental costs also account for a significantly smaller share of wages than nationally.  The cost of business premises are also significantly lower than in other parts of the country, with office occupancy costs amongst the lowest nationally.  There were almost 20 million visitors to the Tees Valley in 2017, up by 6% on 2016.  Over £920 million was spent across the Tees Valley visitor economy in 2017, an annual increase of £65 million or 7.6% on 2016.  The Tees Valley visitor economy employed around 11,900 full-time equivalent workers in 2017, up by close on 1,000 in just three years.  Those districts in Tees Valley with the highest proportions of households in fuel poverty and residents in economic inactivity – Middlesbrough and Hartlepool – have correspondingly low scores in relation to wellbeing measures.  The Tees Valley Business Survey 2018 found that 13% of local businesses feel that the perception of Tees Valley as a place to do business is an obstacle preventing their business from growing.

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9.1. Housing

The average house price paid in Tees Valley for the year ending 2017 was £152,700, well below the all LEP average of £273,000.

After peaking in the mid-2000’s and drifting lower up to 2013, new build prices in Tees Valley have since picked up with growth rates close to those seen nationally. However, the recovery in growth rates for existing houses observed nationally since 2013 has not been reflected in the Tees Valley.

Chart 9.1. Mean price paid – existing and new build houses, Tees Valley and LEP mean, 1995-2017

It is more affordable to purchase a house in Tees Valley than in other areas of England. The Tees Valley average house price is only 6.3 times that of the average annual salary, whereas it is over 10 times that in England.

Table 9.1. Mean pay and house price ratio, Tees Valley, North of England and England. Mean annual gross Mean house price (£) Ratio of house price pay (£ p.a.) to salary Tees Valley 24,400 152,700 6.3 North of England 25,700 178,600 6.9 England 29,600 299,200 10.1 Source: ONS, House Price Statistics for Small Areas and ONS, ASHE, 2017 estimates

Tees Valley also has very low rents in comparison to median pay, meaning rents are more affordable than in other areas. In Tees Valley, only 32% of take home pay would be spent on renting a two bedroom home whereas it would be 47% of pay in England.

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Table 9.2. Take home pay, average rents and ratios, Tees Valley, North of England and England. Median Mean rent Mean rent % of take % of take monthly net for one for two home pay home pay take home bedroom bedrooms on one bed on two bed pay (£) (£) (£) rent rent Tees Valley 1,443 394 462 27 32 North of England 1,505 452 533 30 35 England 1,628 707 772 43 47 Source: Valuation Office Agency and ONS, ASHE, 12 months to March 2018

9.2. Fuel poverty

Estimated levels of fuel poverty vary greatly throughout the Tees Valley with many rural areas and affluent settlements having far lower rates of fuel poverty that contrast sharply with more urban areas where pockets of deprivation result in significantly higher levels. The ten Lower Super Output Areas (LSOAs) with the highest estimated fuel poverty in Tees Valley are all in Middlesbrough. Additionally, over a quarter of households in certain built up central areas of Stockton, Darlington and Hartlepool all suffer from fuel poverty.

Chart 9.2. Fuel poverty by local super output area, Tees Valley, 2016

At the district level all five Tees Valley boroughs have relatively high numbers of fuel poor households compared to both North of England and national rates as shown in the table below. In addition, Middlesbrough has the highest proportion of households (17%) in fuel poverty of any local authority district in England (jointly with Liverpool).

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Table 9.3. Fuel poor households, Tees Valley districts, North of England and England

2016 Estimated number of Estimated number of fuel Proportion of households poor households households fuel poor (%) Middlesbrough 58,400 10,000 17.0 Hartlepool 41,300 6,100 14.7 Redcar and Cleveland 60,900 8,700 14.3 Darlington 47,700 6,600 13.7 Stockton-on-Tees 80,900 10,900 13.4 Tees Valley 289,200 42,100 14.6 North of England 6,549,700 833,500 12.7 England 22,996,200 2,550,600 11.1 Source: ONS Fuel poverty statistics, 2016 9.3. Business Floorspace

Tees Valley has an attractive and competitive offer for doing business. This includes the availability and cost of floorspace.

There is estimated to be over 7 million square metres of business floorspace in Tees Valley as at 2016. Stockton accounts for the highest proportion of floorspace with 2.3 million sq. m. or one third of the Tees Valley total. On average, Industrial floorspace accounts for 4.0m or 56% of total Tees Valley business floorspace but for Middlesbrough this proportion is somewhat lower at just 44%.

Source: VOA. Notes: This analysis excludes properties without a floorspace valuation – this Excluded category accounting for almost one fifth of all properties. Other floorspace includes a wide variety of establishments e.g. Restaurants, Wine Bars, Libraries and Sporting grounds

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Business floorspace in Tees Valley is most concentrated in and around the centres of Middlesbrough, Darlington, Stockton and Hartlepool. Retail and Office floorspace is concentrated in Town Centres and some specialist out of centre locations whilst Industrial floorspace is concentrated at various industrial estates throughout the Tees Valley. Clusters of Industrial floorspace occur to the East and North West of Darlington, aside the lower stretches of the River Tees and running North to South along the coast of Hartlepool Borough.

Significant levels of Industrial floorspace at Seal Sands, the port of Tees and Wilton without a floorspace valuation are excluded from this analysis, and it should be noted that these areas are key locations of specialist employment land for the Process, Chemicals and Advanced Manufacturing industries.

9.4. Office occupancy costs

Tees Valley has some of the lowest operating costs in the country with rents, rates and terms significantly lower than all other major UK cities and a fraction of those in and around London. Average office costs indicate that Middlesbrough in Tees Valley provides the most affordable rents in the UK, including for Grade A office space as shown in the chart below.

Chart 9.3. Annual Prime Rental Office Occupancy Costs Key points Tees Valley offers a choice of both town centre and office park locations, as well as first class quality at competitive prices at key schemes and business park locations. These include Enterprise Zone sites at Kirkleatham Business Park (Redcar), Northshore (Stockton) and Queens Meadow (Hartlepool), as well as key developments such as Lingfield Point and Morton Palms (Darlington), Wynyard Business Source: BNP Paribus Real Estate, UK total office occupancy Park (Stockton) and costs, September 2016 Middlesbrough town centre.

The 2018 Tees Valley Business Survey found that 90% of businesses rate business accommodation as very positive, positive or adequate.

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Figure 9.1: Business Accommodation in Tees Valley Key Findings:

 15% of businesses rate business accommodation in Tees Valley as ‘very positive’, and 42% as positive.  One third of businesses rate business accommodation in Tees Valley as ‘adequate’.  10% of business in Tees Valley rate business accommodation as ‘poor’ or ‘very poor’.

Source: Tees Valley Business Survey

The survey highlights that 13% of businesses feel that the perception of Tees Valley as a place to do business is an obstacle preventing their business from growing.

9.5. Culture

Tees Valley Arts engagement

The arts and cultural offer in Tees Valley is growing, however participation levels remain low.

Relatively low numbers of people in Tees Valley tend to spend time attending or participating in arts activities compared to the national average, over six in ten people engaged with art over the 12 months to May 2017. Over four in ten people engaged three or more times. Darlington recorded the greatest levels of arts engagement within Tees Valley as shown in the table below.

Table 9.4. Arts engagement, Tees Valley districts, May 2017 Attended 3 or more arts Attended an arts event OR museum events / spent time doing arts or gallery OR spent time doing an activity in past 12 months. arts activity in past 12 months Darlington 43.7% 66.3% Hartlepool 43.1% 60.7% Middlesbrough 41.5% 61.9% Redcar & Cleveland 40.1% 62.8% Stockton on Tees 44.5% 62.0% England average 49.7% 69.8% Source: Active Lives Survey, 18 month dataset to mid-May 2017, Jan 2018

The Tees Valley has a great number and variety of cultural, heritage and visitor attractions spread across all five boroughs. Some of these are detailed in the map below.

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9.6. Tourism and visitor economy

The local visitor economy is contributes around £923 million to the Tees Valley economy in 2017. This represents a £65 million or 7.6% increase on the 2016 estimate. Food & Drink remains the dominant sub-sector but all sub-sectors recorded solid growth as shown in the table below.

Table 9.5. Visitor economy expenditure, Tees Valley

Key points  Visitor spend (incl. VAT) contributed £923m to the Tees Valley economy in 2017.  This was comprised of a direct impact of £679m, and indirect impact (re both supply chain effect and induced household spend) of £243m.

Source: STEAM

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Table 9.6. Visitor economy employment, Tees Valley Key points  The Tees Valley visitor economy employs 9,300 people directly with an additional 2,600 indirectly across supporting sectors  Food & Drink employ over 4,300 workers directly with retail, recreation and accommodation accounting for around 4,600 jobs combined.

Source: STEAM

In terms of visitor numbers, there were 19.76m visitors in 2017, up 6% on 2016. Of this total, 17.67m were day visitors with 2.09m staying in the Tees Valley, either with friends or relatives (1.43m) or in paid accommodation (656,000). 9.7. Personal well-being

Health – both physical and mental – and well-being is a key driver of local economic performance. A fit, lively and engaged labour force is significantly more productive than one that is not – research suggests up to 12% more productive.

Personal well-being indicators provide alternative metrics in understanding the local economic environment and in helping to stimulate inclusive growth. ONS have identified four well-being measures covering:

 Life satisfaction – overall, how satisfied are you with your life nowadays?  Worthwhile – overall, to what extent do you feel the things you do in your life are worthwhile?  Happiness – overall, how happy did you feel yesterday?  Anxiety – overall, how anxious did you feel yesterday?

People are asked to respond on a scale of 0 to 10 with 0 ‘not at all’ and 10 ‘completely. Thresholds are labelled as per the table below:

Table 9.7. Well-being indicator group scales

Life satisfaction, worthwhile and Anxiety scores happiness scores

Response on Label Response on Label an 11 point scale an 11 point scale 0 to 4 Low 0 to 1 Very low 5 to 6 Medium 2 to 3 Low 7 to 8 High 4 to 5 Medium 9 to 10 Very high 6 to 10 High Source: ONS

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Key findings

 Well-being indicators are closely correlated to deprivation measures including high levels of economic inactivity and fuel poverty.  In Tees Valley, Middlesbrough and Hartlepool display some of the highest economic inactivity rates in the country (around 3 in 10 working age residents are not active in the labour market) and record some of highest rates of fuel poverty. These districts also have the lowest levels of well-being in Tees Valley with residents scoring well below average on Life Satisfaction, Happiness and feeling their lives are worthwhile.  In contrast, Darlington, Stockton and Redcar & Cleveland have lower levels of economic inactivity and fuel poverty with residents scoring significantly higher in terms of well-being indicators than either Middlesbrough or Hartlepool.

Chart 9.4. Well-being ratings in Tees Valley, year ending March 2018

Source: ONS

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The 2018 Tees Valley Business Survey asked businesses to rate ‘Quality of Life’ in Tees Valley as a place to invest, work, live and visit. Figure X shows that 93% of businesses rate the Tees Valley as ‘Very Positive’, ‘Positive’ or ‘Adequate’ for quality of life. 7% of respondents said that the Tees Valley was ‘Poor’ or ‘Very Poor’.

Figure 9.2: Quality of Life in Tees Valley Key Findings:

 Two thirds of businesses rate the Quality of Life in Tees Valley as ‘Very Positive’ or ‘Positive’.

 27% of businesses rate the Tees Valley as ‘Adequate’.

 7% of businesses rate the Tees Valley as ‘Poor’ or ‘Very Poor’.

Source: Tees Valley Business Survey 9.8. Place and Culture SWOT analysis

The table below shows a SWOT analysis of the region:

Strengths Weaknesses A rich industrial heritage, diverse landscape, strong Lack of wider awareness of Tees Valley and what events programme and wide range of local it has to offer. attractions help make Culture and Tourism one of the fastest growing sectors in employment terms. Negative perceptions of the region, potentially stemming from: Some of the lowest business overhead costs in the  Poor quality, low value existing housing country combined with affordable housing and a stock. low cost of living.  Numerous pockets of deprivation,

particularly in Middlesbrough, with Established destination marketing offer, with households recording low levels of well- engaged leisure/ attraction businesses. being and high levels of fuel poverty.

Strong HE offer via Teesside University and Lack of knowledge of the cultural sector, Northern School of Art. inadequate sub sector classifiers, no baseline for

impact measurement. Strong creative digital hub with potential for expansion and innovation. No clear voice/ representation of culture sector

in governance and decision making. Business view:

9 out of 10 Tees Valley firms rate business Low levels of Cultural Lottery investment accommodation as very positive, positive or compared to national average and other parts of adequate. the North East

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Small cultural infrastructure, unused to Tees Valley-wide working

No cohesive culture sector networks or knowledge and skills development programme

No clarity or connectivity between culture, creative industry and leisure ‘sectors’

Business view: 1 in 10 firms in Tees Valley rate business accommodation as ‘poor’ or ‘very poor’. Opportunities Threats A growing culture offer, with the potential to help Potential growth constraint from labour and skill reverse the declining working age population and shortages make Tees Valley the place to live, work or visit. Challenge to attract and retain talent. Extend Destination offer to include conferencing offer and events bidding pipeline to grow sector. Competition from other HEIs and urban cultural hubs. City of Culture 2025 - bidding opportunity and step change in cultural provision. Lack of skilled ‘‘employment ready’ workforce results in lost inward investment. Passenger rail bi-centenary 2025 and projects such as the Darlington to Stockton railway. Competition from other cities/ city regions developing a strong place-based cultural offer. Creative Industries Sector Deal / investment opportunities. Lack of capacity in the sector to respond to opportunities. Attraction of wider visitor numbers and spend from family and friends of students at the Durham Lack of ambition for creative risk taking and University’s International Study School at Queen’s innovation. Campus, Stockton-on-Tees. Business view: Collaborative investment between culture and 13% of local businesses feel that the perception education/ skills sectors to develop talent pipeline of Tees Valley as a place to do business is an & apprenticeship programmes for cultural and obstacle preventing their business from growing. creative careers.

Untapped potential to increase business engagement and partnerships for mutual benefit.

Business view: The vast majority (93%) of businesses rate the Tees Valley as ‘Very Positive’, ‘Positive’ or ‘Adequate’ for quality of life.

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Section 10: Performance Gaps and SEP 2016 Baselines.

 The chart below summarises and quantifies the key metric performance gaps identified in the Executive Summary on page 5.

Chart 10.1. Key metrics performance gaps

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SEP 2016 baseline information and updates

The tables below summarise the baseline and progress so far on each the six thematic building blocks that underpin the SEP’s overarching target of generating 25,000 additional new jobs across the Tees Valley between 2016 and 2026.

SEP target - Business Density: 10% Growth: reducing the gap to 72% of UK rate. Definition: Business Density is defined as the number of enterprises registered in an area as a percentage of the overall number of residents aged 16 to 64 in the previous year. Baseline 2016: 66.3% of UK rate. Updates: 2017 – 65.2% of UK rate: 2018 – 64.5% of UK rate.

SEP target – Jobs Density: 55% Growth: or a jobs density figure of 0.75 (related to a reduction of the jobs density gap to 0.07 or approximately 25,000 additional jobs). Definition: Jobs density is defined as the number of jobs in an area divided by the resident population aged 16-64 in that area. For example, a job density of 1 would mean that there is one job for every resident aged 16-64. Baseline 2016: Tees Valley job density of 0.69 against a UK average of 0.84. Updates: 2017 – 0.70

SEP target – GVA per hour worked: 30% Growth: reducing gap to 94% of UK average Definition: ONS’s preferred measure of productivity is Gross Value Added (GVA) per hour worked. This measure removes employment rate, economic inactivity, demographic and commuting considerations with GVA per head and work pattern issues with GVA per job. Baseline 2016: 90.8% of UK rate. Updates: 2017 – 90.5% of UK rate.

SEP target – Population: 6% Growth: increasing the Tees Valley population to 706,200 by 2026. Definition: Mid-year population estimates are based on results from the latest Census of Population with allowance for under-enumeration. Baseline 2016: 670,950 Updates: 2017: 672,500

SEP target – CO2 emissions: 25% Reduction: decrease CO2 emissions per capita by one quarter Definition: CO2 emissions relates to the following sectors: Industry, Road Transport, Public and Commercial, Other Transport, Agriculture and land use and waste. Baseline 2016: 10.2 tonnes per capita Updates: No updated data available until June 2019.

SEP target – NVQ Level 4: 20% Growth: (equating to 36% of residents having a NVQ Level 4 qualification) Definition: NVQ Level 4 is defined as the percentage of Tees Valley residents aged 16-64 who are qualified to a NVQ level 4 or above. Baseline 2016: 30.8% Updates: 2017 – 30.1%

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Bibliography

The following outlines key sources under each section of the Economic Assessment.

Further material is available at: https://teesvalley-ca.gov.uk/research-intelligence/

Section 2 and Section 10: Executive Summary, Performance Gaps & SEP 2016 Baselines  Output (GVA) – Gap equals GVA required to match UK GVA per head. Source: ONS 2017.  Productivity (GVA per hour worked) – Gap equals GVA required to match UK GVA per hour worked. Source: ONS 2017.  Enterprise (Number of registered enterprises) – Gap equals number of enterprises required to match UK enterprises per resident population aged 16 to 64. Source: ONS 2018.  Employment (Number of employed residents) – Gap equals number of employed residents aged 16 to 64 required to match UK employment rate. Source: ONS July 2017 / June 2018.  Qualifications (Number of residents with an NVQ4 qualification or above) – Gap equals number of residents aged 16 to 64 required to match proportion of UK residents with an NVQ4+ qualification. Source: ONS 2017.  Commercialisation (Firms introducing either a new or significantly improved product or service) – Gap equals proportion of firms that introduced either a new or significantly improved product or service between 2012 and 2014 required to match the LEP average rate. Source: Enterprise Research Centre 2017.

SEP 2016 Baseline sources  Business Density – ONS, NOMIS: UK Business Counts - Enterprises and Mid-year Population Estimates.  Jobs Density - ONS, NOMIS: Jobs Density.  GVA per hour worked – ONS: Sub-regional Productivity: Labour Productivity (GVA per hour worked and GVA per filled job) indices by Local Enterprise Partnership.  Population – ONS, NOMIS: Mid-year Population Estimates.

 CO2 emissions – BEIS: UK local authority and regional carbon dioxide emissions national statistics: 2005 to 2016.  NVQ Level 4 – ONS, NOMIS: Annual Population Survey.

Section 3: Area Profile Sources: ONS, DEFRA, DCLG, Census.

Section 4: Economic Growth and Productivity Sources: ONS, ABS, Economic Modelling Specialists International (EMSI), HMRC, Tees Valley Business Survey 2018.

Section 5: Business Growth Sources: ONS, Enterprise Research Centre, ScaleUp Institute, Tees Valley Business Survey 2018.

Section 6: Research & Development, Innovation and Energy Sources: Enterprise Research Centre, HMRC, Eurostat, Smart Specialisation Hub, BEIS, Tees Valley Business Survey 2018.

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Section 7: Education, Employment and Skills Sources: DfE, Higher Education Statistics Agency (HESA), Tees Valley Business Survey 2018, ONS, Economic Modelling Specialists International (EMSI), Education Skills Funding Agency (ESFA), Burning Glass Labour Insight, Working Futures.

Section 8: Transport & Digital Infrastructure Sources: Census, DfT, Connect Tees Valley, thinkbroadband.com, BIS, Tees Valley Business Survey 2018.

Section 9: Place and Culture Sources: ONS, Valuation Office Agency (VOA), BNP Paribas Real Estate, Tees Valley Business Survey 2018, Active Lives Survey, Scarborough Tourism Economic Activity Monitor (STEAM), Stockton-on- Tees Borough Council.

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