Evidence Review Has Focused on the Following Priority Themes for the NEIER 1

A review of existing evidence to inform the North East Independent Economic Review Final report 20 December 2012

A review of existing evidence to inform the North East Independent Economic Review Final report Contents

1. Introduction ...... 1 2. Overview of NELEP performance ...... 3 3. Public policy ...... 26 4. The North East in UK, European and global markets ...... 30 5. Labour markets and skills ...... 34 6. Infrastructure and land markets ...... 41 7. Private and social enterprise ...... 46 8. Capital markets ...... 52 9. Conclusions ...... 56

Annex A: Bibliography ...... A-1 Annex B: Supporting data tables ...... B-1

Contact: Rebecca Pates Tel: 0161 475 2112 email: [email protected] Richard Hindle 0788 443 7607 [email protected]

Approved by: Richard Hindle Date: 19/12/12 Director

www.sqw.co.uk

1. Introduction

1.1 During 2012, North Eastern Local Enterprise Partnership (NELEP) has been engaged in an on-going process to determine future direction, against changing economic circumstances, and to build the capacity needed to deliver against these emerging priorities. In September 2012, NELEP asked a team of leaders from finance, industry, public and civil society to produce a strategic and constructively critical view of the economy of the area, the challenges it faces, and some headline priorities. The North East Independent Economic Review (NEIER) will be led by Lord Andrew Adonis and, based on the evidence gathered, will produce a series of strategic policy recommendations for NELEP, LEP partners in the North East and Central Government by Spring 2013.

1.2 NELEP, supported by SQW, has already been developing its short-term business plan. To inform both the NEIER and the business planning process, SQW was asked to undertake a headline review of the existing evidence on the local economy. The purpose of the review was to explore the current performance of the NELEP area in terms of strengths and weaknesses, recent trends and underlying drivers, and identify opportunities and challenges looking forward. The evidence review has focused on the following priority themes for the NEIER 1:

• Public policy

• The North East in UK, European and global markets

• Labour markets and skills

• Infrastructure and land markets

• Private and social enterprise

• Capital markets.

1.3 SQW worked closely with the NELEP Executive Team to identify material for this review. It draws upon ninety relevant and up-to-date evidence documents, including those produced as part of the Tyne and Wear City Region Economic Review in 2010/11 and wider evidence relating to Northumberland and County Durham. To supplement the review of existing evidence, SQW also undertook a headline analysis of key statistics to provide the most up-to- date picture on the performance of the NELEP area.

1.4 In addition to SQW’s review of existing evidence, the NEIER will involve two calls for evidence from regional partners and the preparation of submissions by sectoral, professional and community groups across the NELEP area. The full evidence base will be synthesised and considered by the Review Team, who will provide their recommendations and strategic actions for NELEP and others in early 2013.

1 Source: Terms of reference for an Independent Economic Review of the North East

Report structure

1.5 This report draws together the key messages from existing literature relating to the performance of the NELEP against the themes above. It is unlikely to present any real surprises to local stakeholders given that it is based on existing evidence, but should provide a reasonably comprehensive summary of strengths, weaknesses, opportunities and challenges for the NELEP area to inform the forthcoming NEIER. It draws on a wide range of available evidence, and gains from assembling material from different perspectives for different purposes at different times, while being supplemented in places by more recent information. But it is essentially a compendium, rather than a single consistent analytic assessment. The report was discussed with NELEP at a meeting in mid-December: this final report takes into account comments received at that meeting.

1.6 The report is structured as follows:

• Section 2 presents an overview of NELEP socio-economic performance, based on the most up-to-date secondary datasets

• Sections 3-8 presents the key messages from a review of existing literature on the themes of public policy, the North East in UK Europe and global markets, labour markets and skills, infrastructure and land markets, private and social enterprise, and capital markets

• Section 9 summarises the findings and provides conclusions.

1.7 The report is supported by two annexes: the bibliography is at Annex A; Annex B contains the detailed data which support Section 2.

2. Overview of NELEP performance

2.1 In this section, key statistics are presented on the economic performance and socio- economic characteristics of the North Eastern Local Enterprise Partnership (NELEP) area. The information is based on the most up to date data for the LEP area, set against national benchmarks. The data has been sourced by SQW for the purposes of this study, to provide a more recent picture of NELEP performance than available from the literature. The related detailed data can be found in Annex B.

2.2 We have used the most up-to-date evidence available throughout the section. However, the latest year in which evidence has been published varies and so the detailed statistics are not directly comparable in all cases: this is noted in the text. Some survey-based data sets are prone to sampling errors. Therefore, where possible, we have taken three-year averages of datasets such as the Annual Population Survey to remove any outliers amongst the data which arise from sampling error alone.

Key messages and statistics

Figure 2-1: Key messages

• The NELEP area lags the England average, and to a lesser extent the other northern regions, on almost all headline economic indicators (as illustrated in Table 2-1 below). • GVA per head across the LEP area is below the national average and, despite a higher growth rate in recent years than the North East region, the gap with the national average is still widening. • Key drivers of the GVA gap in the NELEP area are low employment rates, a low proportion of residents with high-level skills, and low enterprise rates. • The productivity of those in work in the NELEP area also acts as a drag on GVA performance, underpinned by structural change from higher productivity manufacturing jobs to lower paid service sector jobs (dominated by public sector employment and low occupational levels). Source: SQW

Table 2-1: Key drivers of economic performance

Employment rate % of Population 16-64.2011 (perGVA head) 2009 Productivity per (GVA job) Enterprise (VAT registr’nsper 10,000 WAP) Skills of (% WAP with NVQ4+) Innovation (% of employees in KIBS)

Performance compared to the England average where / indicates higher/lower levels than the England average, and = indicates similar levels to the England average

NELEP 66% = 65% £14,621 £37,533 448 26% 52% area*

North 66% = 65% £15,304 £37,551 445 25% 52% East

North 68% = 65% £16,884 £39,178 562 28% 52% West

Yorkshire 68% 64% £16,512 £39,776 549 27% 49% and Humber

England 70% 65% £20,498 £43,928 655 31% 54%

Source: SQW analysis Note: GVA data is only available from ONS at NUTS3 level and so a broad LEP area has been used (Durham CC, Sunderland, Tyneside and Northumberland)

Economic Output

2.3 Gross Value Added (GVA) is the main measure of economic output generated by an economy that is used by the Government 2. Latest data shows that the North East Local Enterprise Partnership area 3 generated £29.2 billion in GVA in 2009, of which half was produced in Tyneside (Newcastle upon Tyne, Gateshead, South Tyneside, North Tyneside). Together this area creates 74% of the North East’s GVA.

2.4 Figure 2-2 shows GVA growth since 1997 from the LEP area compared to the North East, North West, Yorkshire & Humber and England average (indexed to 1997). The chart shows that the LEP area has experienced a higher growth rate than the North East, North West and Yorkshire & Humber regions. However, the gap between the LEP area and England has widened in recent years.

Figure 2-2: GVA growth (1997-2009), Index 1=1997

1.80

1.70

1.60

1.50

1.40

1.30 Index 1=1997

1.20

1.10

1.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

LEP area North East North West Yorkshire and Humber England

Source: SQW analysis of ONS data. GVA at current basic prices. Note: GVA data is only available from ONS at NUTS3 level and so a broad LEP area has been used (Durham CC, Sunderland, Tyneside and Northumberland)

2.5 Figure 2-3 presents GVA per head since 1997 for the LEP area compared to the North East, North West, Yorkshire & Humber and England average. The graph shows that both the North East and LEP area have tracked just below the North West, Yorkshire & Humber and England averages since 1997 but with a greater gap emerging between the LEP area and the northern regions with the England average since around 2006.

2 Based on compensation to employees (i.e. earning) and profits. The lowest geographical level at which GVA data is available is NUTS 3, which is broadly equivalent to sub-regional geographies. 3 A broad LEP area for GVA purposes has been defined as Durham CC, Sunderland, Tyneside and Northumberland.

Figure 2-3: GVA per head (1997-2009)

25,000

20,000

15,000

10,000

5,000

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

LEP area North East North West Yorkshire and Humber England

Population, employment and deprivation

2.6 Table 2-2 provides the 2011 mid-year population and working age population estimates, along with the regional and national comparators. This shows that:

• The North Eastern LEP area’s population of 1.9m accounts for 75% of the North East region total population

• There are approximately 1.3m working aged people living in the North Eastern LEP area, which accounts for 65% of the total population, a similar proportion to the wider North East and England

• Newcastle upon Tyne has the highest percentage of working age to total population ratio at 69%; Northumberland has the lowest at 63%

• Over the last five years the working age population has grown by 1% in both the North Eastern LEP area and the North East Region. This is below the national average.

Table 2-2: Population 2011 Total Working Age Population (16 -64) Population Number % % change in last 5 years (2007-2011)

North Eastern 1% 1,933,400 1,257,700 LEP 65%

North East 2,596,400 1,681,700 65% 1%

England 53,107,200 34,347,400 65% 3% Source: ONS mid-year population estimates

2.7 Table 2-3 shows internal migration (i.e. UK nationals) into and out of the LEP area during the year ending June 2011. County Durham had the highest migration into and out of the area from/to elsewhere in England. Newcastle upon Tyne and Gateshead both had the highest migration into and out of the area from/to elsewhere in the LEP area.

Table 2-3: Internal migration into and out of the LEP (2010/ 2011) Inflow Outflow Total From LEP From Total To LEP To Area elsewhere Area elsewhere (% of total) in England (% of total) in England (% of total) (% of total) County Durham 14,900 4,700 10,200 14,600 4,120 10,480 (32%) (68%) (28%) (72%)

Northumberland 7,500 3,740 3,560 6,900 3,490 3,410 (50%) (50%) (51%) (49%)

Gateshead 6,200 4,280 1,920 6,100 3,950 2,150 (69%) (31%) (65%) (35%)

Newcastle upon 16,000 5,700 10,300 17,500 6,930 10,570 Tyne (36%) (64%) (40%) (60%)

Sunderland 5,800 3,160 2,640 7,000 3,740 3,260 (55%) (45%) (53%) (47%)

North Tyneside 6,500 4,500 2,000 6,000 3,890 2,110 (69%) (31%) (65%) (35%)

South Tyneside 3,000 1,860 1,140 3,100 1,820 1,280 (62%) (38%) (59%) (41%) Source: ONS Internal Migration by Local Authorities

2.8 Higher education students at the LEP’s major institutions make up a notable share of inflows of people – as illustrated below. The Universities of Durham, Sunderland and Newcastle all attract between one-fifth and one-quarter of students who are non-UK nationals.

Table 2-4: Undergraduate and postgraduate student numbers at major institutions in the NELEP area, by domicile, 2010/11 academic year Non -UK domiciled (i.e. non -UK UK domiciled (i.e. UK national) national) Total % of all students Total % of all students University of Durham 13,000 79% 3,355 21% The University of Sunderland 14,045 79% 3,735 21% The University of Northumbria 25,350 86% 4,075 14%

Non -UK domiciled (i.e. non -UK UK domiciled (i.e. UK national) national) at Newcastle The University of Newcastle- upon-Tyne 15,760 75% 5,190 25% Total for the NELEP area 68,155 16,355 Source: HESA

2.9 Data on international migration is limited at the sub-regional level, so below we present the number of adult overseas nationals entering the NELEP area that are allocated a National Insurance Number (NINo). This shows a peak of inflows prior to the recession of 11,000 NINo registrations in 2006/07, but a fall back since then to 7,000 registrations in 2011/12 which represents 0.54 registrations per 100k of the population aged 16-64 (compared to a UK average of 1.47).

Figure 2-4: NINo registrations in the NELEP area, 2002/03 – 2011/12

12 11 10 10 9 9 9

8 7 7 6 6 5 4 4

2 NINO (000s) registrationsNINO

0 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12

Source: DWP

2.10 Figure 2-5 shows the 2009-2012 three year employment rate average, along with the regional and national comparators.

• The NELEP area has a lower average employment rate than the national average at 66% 4.

• North Tyneside has a highest average employment rate at 72%, higher than the LEP area, regional and England average.

• Gateshead and Northumberland both also have higher average employment rates that the regional and LEP area averages.

4 Worth also noting that pension ages are rising over the next few years for both men and women.

Figure 2-5: Employment rate 3 year average (2009/10 – 2011/12)

100%

80% 72% 69% 70% 66% 67% 66% 66% 62% 64% 64% 60%

40%

20% WAP employment rate (16-64) rate employment WAP 0% England LEP Tyne North East North Gateshead Sunderland North Eastern North North Tyneside North South Tyneside South County Durham County Newcastle upon Newcastle Northumberland Source: Nomis Annual Population Survey Note: In order to minimise sampling errors within APS data an average across 2009/10 – 2011/12 has been used.

2.11 If employment rates are presented by age group, NELEP’s percentage point gap with England is greatest for the 50-64 year old age group. Employment rates for both women and men are below the national average for the NELEP residents aged 16-64, but the differential is greatest for men.

Figure 2-6: Employment rate by age group and gender 3 year average (2009/10 – 2011/12) Employment rate of … NELEP England PP gap residents aged 16-19 35% 34% 0

residents aged 20-24 59% 62% 3

residents aged 25-34 76% 78% 2

residents aged 35-49 79% 81% 2

residents aged 50+ 34% 39% 5

residents aged 50-64 58% 65% 7

residents aged 65+ 5% 9% 3

males aged 16-64 70% 76% 5

females aged 16-64 62% 65% 3 Source: Nomis Annual Population Survey Note: In order to minimise sampling errors within APS data an average across 2009/10 – 2011/12 has been used.

2.12 Figure 2-7 shows the total number of people claiming Job Seekers Allowance (JSA) in each district within the NELEP region. All regions share a similar trend between 2005 and 2012 with a significant increase in the total number of claimants between 2007 and 2009 and a growing gap between individual districts within the NELEP. County Durham has the highest number of claimants in every year of the data shown (increasing to 16,168 in 2012) but County Durham has the largest population by some way in comparison to other districts within the NELEP.

Figure 2-7: Aggregate number of people claiming JSA by LEP Districts 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 Number Number of JSA claimants 2,000 0 January January January January January January January January 2005 2006 2007 2008 2009 2010 2011 2012 County Durham Gateshead Newcastle upon Tyne North Tyneside Northumberland South Tyneside Sunderland

Source: SQW analysis of NOMIS data

2.13 In Figure 2-8 the number of JSA claimants is presented as a percentage of the 16-64 resident population in each area. The North East region and NELEP area (and all districts within it) both have a higher claimant rate than national figures. The NELEP area is closer to the national rate than the North East region is as a whole, but the gap between the NELEP region and national figures did not change between 2005 and 2012. In 2012, South Tyneside is the worst performing district with the highest percentage of JSA claimants per head (7.2%) than all other districts, the North East region and England (3.7%). Although the graphic above indicated County Durham as one of the worst performing districts in terms of aggregate number of claimants, when expressed in terms of per head it is actually one of the ‘least- worst’ districts in comparison to the national average.

Figure 2-8: Percentage of JSA Claimants expressed in proportion to 16-64 resident population estimates (2012)

8.0 7.2 7.0

6.0 5.4 5.4 5.5 5.1 4.9 4.7 4.8 5.0 4.4 4.0 3.7 3.0

2.0 1.0

0.0 percetage of 16-64 residents claiming JSA

Source: SQW analysis of NOMIS data

2.14 The Indices of Multiple Deprivation is a composite measure, based on data across a range of domains (income, employment, health and disability, education skills and training, barriers to housing and services, living environments, and crime). Figure 2-9 presents a 2010 IMD data map, and shows the ranking of each super output area (SOA) in the LEP area.

2.15 There are a high number of LSOA 5 in the 20% most deprived category in the South East of the NELEP geography. The highest ranked (most deprived) LSOA in the NELEP area is in Sunderland, 38 th of over 32,000. But there are also a small number of LSOAs which rank among the least deprived nationally: an LSOA in North Tyneside is ranked at 32,373 rd out of 32,482. More rural parts of the LEP are, typically, closer to the national average, or in some cases significantly better (although the IMD is typically a poor indicator of what is often ‘hidden’ deprivation in rural areas).

5 Lower Layer Super Output Area: a geographical boundary for reporting small area statistics; a LSOA typically covers between 1000 and 3000 residents or 400 to 1200 households.

Figure 2-9: IMD 2010 for the North Eastern LEP

Source: Map produced by SQW in October 2012 using ONS data. Contains Ordnance Survey data 2012 © Crown copyright and database right 2012

Earning levels

2.16 Figure 2-10 shows resident and workplace earnings in each of the LEP districts, and compares this to the regional and national average. This shows:

• Both resident and workplace earnings in the LEP area are below the England average; whilst regional price differences play some role, the implication is that workers in the LEP area tend to be employed in lower value activities (supported by other data on occupations - see below – figure 2-8).

• Residents in Gateshead, Newcastle upon Tyne and North Tyneside earn more than the North East average.

• Resident earnings are highest in Newcastle upon Tyne whilst workplace earnings are highest in Northumberland.

Figure 2-10: Resident-based and workplace-based earnings (median gross weekly pay for full- time workers, 2011)

£600 workplace resident £500

£400

£300

£200

£100 Median Gross Weekly Pay (£) Pay Weekly Gross Median £471.20 £477.10 £450.70 £452.00 £507.20 £475.70 £425.40 £457.10 £459.30 £474.00 £451.80 £450.90 £507.60 £424.50 £441.00 £440.70 £440.30 £0 £417.90 England Tyne North East North Gateshead Sunderland North Tyneside North South Tyneside South County Durham County Newcastle upon Newcastle Northumberland Source: SQW analysis of ASHE data

Labour market and Skills

2.17 Figure 2-11 presents the proportion of the working age population in the NELEP area with NVQ 4+ (equivalent to degree level or higher) . The 2009-2012 average shows that the proportion in the NELEP area was lower than the England average but higher than that of the North East region as a whole. Newcastle upon Tyne had the highest proportion of the working age population with NVQ 4+ at 30%, this was just slightly below that of the England average.

Figure 2-11: Percentage of working age population with NVQ4+ (2009-2011) 35% 31% 30% 29% 29% 30% 26% 25% 24% 24% 23% 25% 22% 20% 15% 10% % of 4+ WAP with% NVQ 5% 0% England LEP Tyne North East North Gateshead Sunderland North Eastern North North Tyneside North South Tyneside South County Durham County Newcastle upon Newcastle Northumberland Source: Nomis Annual Population Survey Note: In order to minimise sampling errors within APS data an average across 2009/10 – 2011/12 has been used.

2.18 Figure 2-12 shows an average between 2009-2012 of persons employed in the public or private sector as a percentage of all those in employment . Across the NELEP area, and

the North East region, a lower proportion of people are employed in the private sector and a higher proportion in the public sector than is the case for England as a whole.

Figure 2-12: All persons employed in public/private sector as % of all persons in employment (2009/10 - 2011/12)

100% Private Public 90% 80% 76% 72% 71% 71% 71% 71% 69% 70% 70% 71% 70% 60% 50% 40% 31% 28% 29% 29% 29% 30% 30% 29% 29% 30% 24% 20% 10% Percentage ofinPercentage all employment 0% England LEP Tyne North East North Gateshead Sunderland North Eastern North North Tyneside North South Tyneside County Durham County Newcastle upon Northumberland Source: Nomis Annual Population Survey Note: In order to minimise sampling errors within APS data an average across 2009/10 – 2011/12 has been used.

2.19 Figure 2-13 presents the employment breakdown by occupation for the NELEP area compared with regional and national averages. The figures for 2009-2012 show that the NELEP geography has a lower percentage of employees in professional and management level occupations compared to England as a whole, and a higher percentage of employees in elementary, process and sales occupations. Newcastle upon Tyne, Northumberland and North Tyneside have a higher percentage of employees in professional occupations that the LEP and regional averages. The percentage (21%) of employees in professional occupations is higher in Newcastle than nationally.

Figure 2-13: Percentage of all in employment by occupation (2009/10-2011/12)

100% elementary occupations 9% 11% 11% 12% 12% 12% 12% 13% 14% 90% 14% 5% 6% 7% 8% 8% 8% 8% 6%

10% process, plant and

80% 10% 8% 12% 9% machine operatives 10% 11% 10% 10% 10% 10%

70% 9% 8% 11% 10% 9% 9% sales and customer 10% 8% 10% 10%

60% 9% 11% 10% service occupations 13% 9% 10% 11% 11% 11% 50% 12% 11%

11% caring, leisure and other 12% 10% 11%

12% service occupations 11% 14% 40% 12% 13% 11% 14% 14% 10% 13% skilled trades

30% 12% 12% 13% 12% 12% 11% occupations 20% 19% 19% 18% 21% 17% 16% 15% 15% administrative and 13% Percentage Percentage of all employment in 10% 14% secretarial occupations 9% 9% 9% 9% 9% 8% 10% 8% 7% 10% 0% associate prof & tech occupations

England professional occupations Gateshead North East North Sunderland South South Tyneside North Tyneside North

County County Durham managers, directors and Northumberland

North Eastern LEP EasternNorth senior officials Newcastle upon Newcastle Tyne Source: Nomis Annual Population Survey Note: In order to minimise sampling errors within APS data an average across 2009/10 – 2011/12 has been used

Business base

2.20 Table 2-5 presents the number of local enterprises by employment size band in each of the LEP districts. This shows:

• County Durham and Northumberland had the highest percentage of smaller (less than 10 employees) businesses.

• South Tyneside and Sunderland had a higher percentage of businesses employing between 50 and 249 employees, these figures were higher than those of both the England and regional average.

Table 2-5: Proportion of local units in VAT and/or PAYE based enterprises by employment size band, 2012

Business base size Less than 10 10 -49 50 -249 250+

County Durham 81% 16% 3% 0%

Gateshead 75% 20% 4% 1%

Newcastle upon Tyne 76% 19% 4% 1%

North Tyneside 79% 17% 4% 1%

Northumberland 84% 13% 2% 0%

South Tyneside 76% 19% 5% 0%

Sunderland 75% 19% 5% 1%

North East 79% 17% 4% 1%

Business base size Less than 10 10 -49 50 -249 250+

England 83% 14% 3% 0% Source: SQW analysis of IDBR data

2.21 Figure 2-14 shows the e nterprise rate (number of VAT registered businesses per 10,000 of the working age population) for each of the local enterprise partnership districts compared to the regional and England averages. At 620, Northumberland has the highest enterprise rate of the LEP area, higher than the average for the North East and just below that for England.

Figure 2-14: VAT registered businesses (2012) per 10,000 of the working age population (2010)

700 620 655 600 482 500 447 449 448 445 405 400 321 339 300

200

100

0 England VAT registered businesses per 10,000 WAP per 10,000 businesses registered VAT Tyne North East North Gateshead Sunderland North Tyneside North South Tyneside South County Durham County Newcastle upon Newcastle Northumberland North Eastern LEP Eastern North Source: SQW analysis of ONS and IDBR data

Employees by sector

2.22 Between 2008 and 2011, total employment 6 in the LEP area has fallen by 6%, twice the rate of England as a whole. In terms of employees working in the LEP, the number of employees working full-time has fallen by 7% over the same time period, whereas the number working part-time has increased by 1%.

2.23 Figure 2-15 shows the percentage of employees in each sector in 2011 comparing the NELEP area with the national comparator: sectors above the diagonal line are over- represented in the NELEP compared to the England average (i.e. have a location quotient of >1) and sectors below the line are under-represented compared to the England average (i.e. have a LQ of <1).

2.24 This shows that the LEP area is over represented in a number of public sectors (such as Health and Public administration & defence) and also in manufacturing, and under- represented in professional, scientific & technical and business administration & support services sectors.

6 Employment = employees + working proprietors. Working Proprietors are sole traders, sole proprietors, partners and directors. Source: BRES

Figure 2-15: Percentage of all employees by sector (2011) England and North East LEP comparison 16% Health Over -represented (i.e. LQ of >1) 14%

12% Manufacturing

Education Retail 10%

Accommodation & Public administration food services 8% & defence Business administration & 6% support services Construction

North North Eastern LEP Professional, Arts, entertainment, scientific & technical Transport & storage 4% recreation & other services Information & Mining, communication quarrying Financial & insurance 2% & utilities Motor trades Wholesale Property Agriculture, forestry & Under-represented (i.e. LQ of <1) 0% fishing 0% 2% 4% 6% 8% 10% 12% 14% 16% England Source: ONS Business Register and Employment Survey. LQ = Location Quotient)

2.25 Figure 2-16 presents the proportional change in the number of employees per sector in the NELEP area between 2008 and 2011. The professional, scientific and technical sector saw the largest increase in employees, rising by 26% to the 2011 figure of 37,800. Again, this shows that the manufacturing sector is one of the largest employers in the LEP but the number of employees fell by 10% between 2008 and 2011.

Figure 2-16: Change in employees (%) by sector for the North Eastern LEP area, 2008 - 2011

40% Mining, quarrying Professional, & utilities Information & scientific & technical communication 20% Transport Property Accommodation & storage Health & food services Education Construction 0% 0Motor 20,000 40,000 60,000 80,000 100,000 120,000 trades Arts, entertainment, Public Manufacturing recreation & other Retail Financial administration -20% services & insurance & defence Wholesale Business -40% administration & support services

-60%

Percentage Change employees Percentage in(%) 2008-2011 Agriculture, forestry & fishing -80% Number of employees (2011)

Source: ONS Business Register and Employment Survey. Notes: green indicates growth in employees between 2008 and 2011, whereas red indicates a decline in the number of employees between 2008 and 2011.

2.26 In Figure 2-17, we present the percentage of employees in Knowledge Intensive Businesses (KIBs) in 2011; again, the LEP area average is below the national average, although Newcastle upon Tyne had 57% of all employees working in KIBs compared to the national average of 54%. County Durham was the LEP district with the lowest percentage; 46% of all employees were working in KIBs.

Figure 2-17: Percentage of employees in Knowledge Intensive Businesses (2011)

70% 57% 55% 60% 46% 49% 54% 47% 54% 52% 54% 52% 50% 40% 30% 20% 10% 0% Percentage of of employees Percentage (%) England Gateshead Tyne North East North Sunderland South South Tyneside North Tyneside North County County Durham Newcastle upon Newcastle Northumberland North Eastern LEP EasternNorth Source: ONS Business Register and Employment Survey

Innovation

2.27 Figure 2-18 shows R&D (£Millions) performed in UK Businesses by region between 2004 and 2011. Data at the LEP level is not available. The North East region is the worst performing region with regard to absolute levels of business expenditure on R&D over this time period, and there has been no increase in business expenditure on R&D between 2004 and 2011. In 2009, expenditure on R&D represented 1.4% of total workplace based GVA in the North East, compared to an England average of 2.1% 7.

7 Source: BIS regional competitiveness data

Figure 2-18: R&D Performed in UK Businesses by region 2004-2011 (£Millions)

5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0

R&D R&D expendiure in UKBusinesses 2004 2005 2006 2007 2008 2009 2010 2011

North East North West Yorkshire and the Humber East Midlands West Midlands East of England London South East South West

Source: SQW analysis of Office of National Statistics data

1.1 Figure 2-19 shows the aggregate number of patent applications filed and granted in the UK regions in 2011. As would be expected, London and the South East of England had the most patent applications filed, although their success rates are only 14% and 20% respectively. The North East region had the second lowest rate of patent applications in the UK (380) and only 70 patents applications were granted - a success rate of 14%. The North West region has over three times as many successful patent applications as the North East, although it also has more than twice the population.

Figure 2-19: Patent applications filed and granted in the UK by region in 2011

3,000

2,500

2,000

1,500

1,000

500

0 Number of patent applications filed/granted applications of patent Number

Applications Filed Patents Granted Source: Intellectual property office figures

Commercial floorspace

2.28 The data on commercial floorspace is now quite dated (2008), but it reflects the sectoral structure of the economy: the amount of factory floorspace is relatively high in the NELEP area compared to the England average, while offices are under-represented (especially commercial offices).

Figure 2-20: Commercial floorspace by type, 2008

Proportion of all floorspace 0% 10% 20% 30% 40% 50%

46.8% All Bulk Classes 46.0%

8.0% Retail Premises 8.2%

6.5% Offices 8.0%

Commercial 5.1% Offices 6.6%

1.3% Other' Offices 1.3%

20.8% Factories 15.7%

9.4% Warehouses 12.5%

Other Bulk 2.0% Premises 1.6% NELEP England

Source: DCLG

Trade and Investment

2.29 The data on trade, summarised below, is mostly presented for the North East region as a whole, the lowest geography at which it is readily available. The data covers trade in goods only: data relating to trade in services is not available at a regional level from HMRC. Investment data is presented for the LEP geography.

2.30 Exports of goods from the North East have held up well through the economic crisis, both exports to other EU member states and exports to non-EU states. Though results for Q1 2011 onwards are provisional and open to revision (as in all subsequent graphs), there is a clear upward trend in the total value of exports from the start of the time series in Q1 2009 to Q1 2012. The total value of exports per quarter over this timeframe rose from a low of £2.2bn in Q2 of 2009, to a high of £3.6bn by the latest quarter of data, Q1 2012. Both exports to the EU and non-EU markets saw growth over the period, non-EU destinations saw higher growth.

Figure 2-21: Total Exports of goods from the North East

2,500 4,000

2,000 3,000

1,500 2,000 1,000

1,000 Totalexports, £m 500 EU EU andNon-EU exports, £m 0 0 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Total Exports EU Exports Non-EU Exports

Source: HMRC Regional Trade in Goods Statistics

2.31 Exports of goods from the North East were predominantly to other member states of the EU between 2009 and 2012, but there have been fluctuations, as well as a marked recent downward trend. At the Q1 2010 peak, 60.2% of exports went to the EU; this fell to 45% in Q4 2011. But in aggregate other European Union countries, taken together, have been by far the largest market for North East’ exports; the total value of these sales was nearly three times the next largest destination, North America, in Q1 of 2012 (£1.8bn v. £650m).

Figure 2-22: Proportion of exports of goods from the North East going to EU and non-EU markets

100%

90%

80%

70% 39.8% 60% 55.0% 50% 60.2% 40% 45.0% 30%

20%

10% EU Exports Non-EU Exports 0% % ofmarket area exports% from 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Source: HMRC Regional Trade in Goods Statistics

2.32 Machinery and Transport was by far the largest export sector for the North East across most of 2009 to 2012, with export value more than quadrupling in that time period to over £2bn in Q1 2012. Chemicals were initially the most important sector by value, but their value has not grown in recent years, with exports valued at around £1bn per quarter. Machinery and

Transport is also the largest import sector for the North East: in Q1 2012, Machinery and Transport imports had a value of just over £1.3bn. Whilst Mineral Fuels have been the second largest import sector for the North East for most of the timeframe (and indeed the biggest in Q1 2009), import value in this sector fell dramatically in Q1 2012, from close to £750m to nearer to £150m. See Annex B for further details.

Figure 2-23: Exports of goods from the North East, by sector

2,500

2,000

1,500

1,000

Exports by sector(£m) by Exports 500

0 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Food and Live Animals Beverages and Tobacco Crude Materials Mineral Fuels Animal and Vegetable Oils Chemicals Manufactured Goods Machinery and Transport Miscellaneous Manufactures Other commodities nes

Source: HMRC Regional Trade in Goods Statistics

2.33 The NELEP area performs well in terms of the number of successful Foreign Direct Investment projects supported by the UK Trade and Investments (UKTI). Between 2010 and 2011, the NELEP area had 43 successful FDI projects supported by UKTI, the fifth highest (though considerably less than that for London). In terms of the number of jobs created or secured by those successful projects, the NELEP area secured well over 7,000 jobs in 2010/2011, the third biggest number of jobs after Greater Manchester and London. The NELEP area also performs well on the number of jobs created or secured per project, with the second highest total, at 171 jobs provided per project, only marginally behind the highest, Greater Manchester with 175. Some big single investments (e.g. at the Nissan plant) will have influenced these figures.

Figure 2-24: Number of UKTI-involved FDI successes in 2010-2011, by LEP area

Source: UKTI

Economic projections

2.34 As part of the literature review undertaken for this report, we brought out the key messages from the most recent economic projections available for the TWCR, Northumberland and County Durham 8. Please note that these forecasts are heavily caveated: they are from different sources, use different methodologies and assumptions (including their policy on/off assumptions, constant and current prices, employment definitions etc), were published on different dates, project data for different time periods, and (in some cases) cover overlapping geographies. Comparisons should therefore not be made between each set of forecasts. They are also now somewhat dated. A refreshed set of internally consistent forecasts for the NELEP geography as a whole would be a useful addition to the data.

8 Projections for County Durham have been sourced directly from the Council.

Projections for the Tyne and Wear City Region (TWCR)

2.35 In 2010, Durham University produced baseline economic projections for the Tyne and Wear City Region (TWCR), and then tested the potential impact of that year’s Comprehensive Spending Review. These baseline projections indicate the expected ‘direction of travel’ at that time. Figure 2-25 shows that the baseline ‘business as usual’ projection for GVA in TWCR would grow at a rate of 1.5% growth p.a. between 2009 and 2014. By 2014, the GVA generated in the TWCR was estimated at £23,000 million.

Figure 2-25: Baseline GVA Forecasts for TWCR

35,000

30,000

25,000

20,000

(£Millions) 15,000

Baseline Baseline GVA Forecast 10,000

5,000

0 2009 2010 2011 2012 2013 2014

Source: SQW analysis of; Durham University, November 2010. “Tyne and Wear City Region: Potential Impact from the Government’s 20 th October Comprehensive Spending review”.

2.36 Figure 2-26 shows that even with what now appears an optimistic assessment for future growth, the baseline projection for employment (headcount number) in the TWCR was expected to decrease by around 20,000 jobs. Employment numbers were expected to fall each year from 2010-14, with the rate of reduction only slowing slightly towards the end of that period.

Figure 2-26: Baseline Employment (headcount) Forecasts for TWCR

800,000

750,000

700,000

650,000

600,000

550,000 Head Count Employment

500,000 2009 2010 2011 2012 2013 2014

Source: SQW analysis of; Durham University, November 2010. “Tyne and Wear City Region: Potential Impact from the Government’s 20 th October Comprehensive Spending review”.

Projections for the Northumberland

2.37 Also in 2010, members of Durham University produced a document for Northumberland County Council that set out long-term sectoral and employment projections for the Northumberland economy. These projections are summarised in Figure 2-27. The baseline GVA in Northumberland was projected to increase by around 40-50% over the 20 years to 2030. The rate of growth in GVA was expected to increase by 2012, rising above the trend level between 2005 and 2010. The forecast shows the baseline GVA for Northumberland heading towards £5,000 Million.

Figure 2-27: GVA projections, Northumberland

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 GVA(£millions) 1,000 500 0 2005 2010 2015 2020 2025 2030

Source: SQW analysis of; Durham University, November 2010. “Tyne and Wear City Region: Potential Impact from the Government’s 20 th October Comprehensive Spending review”.

2.38 Figure 2-28 shows that the number of workers, in Northumberland, in total and also by broad sector groupings, was expected to stay approximately constant through to 2030. Employees in service industries were projected to grow by around 5,000 over the 20 year period; workers in industry including energy and construction were projected to decrease slightly, by 2,000, over this same period.

Figure 2-28: Total number of workers and by Sector, Northumberland

100,000

80,000

60,000

40,000

20,000 Number Number of Workers 0 2010 2015 2020 2025 2030

Agriculture, Forestry & Fishing Industry inc. energy and construction Services Source: SQW analysis of; Durham University, November 2010. “Tyne and Wear City Region: Potential Impact from the Government’s 20 th October Comprehensive Spending review”.

Projections for Durham

2.39 The projections below were commissioned by Durham County Council in 2009 as part of the employment land review and economic assessment. The forecasts are a ‘policy off’ scenario, so no assumptions for aspirations are built in. This shows that between 2009 and 2026, GVA is expected to increase by 34% to just over £7bn in 2026. In terms of employment, the view in 2009 was that employment would drop to a low of 184,000 before rising to 188,000 by 2026 (an increase of only 1% between 2009 and 2026). Between 2009 and 2026, employment in sectors such as mechanical engineering and other transport equipment was expected to fall (by 21% and 24%), whereas employment in sectors such as other business services, hotels and catering and insurances was expected to rise (by 29% for other business services, and hotels and catering, and 60% for insurance).

Figure 2-29: GVA projections for County Durham

8,000 7,000 6,000 5,000 4,000 3,000 2,000

GVA (£2003projectionsGVA m) 1,000 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Source: Cambridge Econometrics on behalf of Durham County Council

Figure 2-30: Employment projections for County Durham

189

188

187

186

185

184 Employment Employment (000s) 183

182

181

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Source: Cambridge Econometrics on behalf of Durham County Council

3. Public policy

3.1 In order to set the scene for the Economic Review, below we summarise key Government strategies, policies and plans relating directly to economic growth, highlighting priorities that resonate particularly strongly with the NELEP area given its characteristics, strengths and weaknesses.

3.2 In March 2011, the Coalition Government set out its Plan for Growth . This set out four clear ambitions, to:

• create the most competitive tax system in the G20

• make the UK one of the best places in Europe to start, finance and grow a business

• encourage investment and exports as a route to a more balanced economy

• create a more educated workforce that is the most flexible in Europe.

3.3 Rebalancing the economy is central to the Plan. This is essential for the North East, both in moving away from its overdependence on the public sector for employment towards private sector growth, and making the most of the region’s existing strengths in exports, as an attractive location for inward investment (especially in some of the priority sectors listed in the Plan, such as advanced engineering) and in its academic excellence. Improving the skills of the workforce is a major challenge for the NELEP area, as we explore in more detail below; this is required to attract the right kind of investment in higher value activities, to enable residents to start and grow their own businesses, and to facilitate sustainable growth in the long-term.

3.4 To complement the Plan, BIS also published the Skills for Sustainable Growth Strategy in 2011. In recognition that poor skills acts as a major drag on UK productivity and the shortfall in ‘vital intermediate technical skills’, this Strategy promotes the implementation of apprenticeships, a flexible system of vocational qualifications that better meets the needs of the economy, and encourages entrepreneurial skills and employer investment to raise skills in their sectors. It also emphasises the need for better education at all levels, not only through formal qualifications, but also through informal adult and community learning.

3.5 The Government has also introduced a new National Infrastructure Plan (November 2011) and National Planning Policy Framework (NPPF, March 2012) to provide the conditions for growth. The former commits, amongst other things, to improve the performance of the UK’s transport networks, secure a diverse and reliable lower carbon energy supply, and increase superfast broadband and mobile coverage 9. It also identifies Government intentions to allow local authorities more flexibility in the way they use local receipts to fund major infrastructure in specific circumstances. The NPPF explicitly states there should be a ‘presumption in favour of sustainable development’ in decision-making to support sustainable economic growth.

9 This includes commitments to improve Northern rail connectivity (Liverpool-Newcastle) and focus on container terminal and renewable energy ports

3.6 More recently, the Secretary of State for Business Innovation and Skills set out plans for an Industry Strategy (September 2012), in which the focus will be on finance, sectors, skills and technologies, as summarised in Table 3-1, below. This was underpinned by detailed sector analysis by BIS, which suggested that the advanced manufacturing, knowledge intensive traded services (e.g. professional and business services and traded aspects of higher and further education) and enabling sectors (such as energy and construction) could make the greatest contribution to future economic growth and employment in the UK; consequently, these are identified as the sectors where Government/public sector intervention can add most value.

Table 3-1: Proposed focus of the Industry Strategy, September 2012 Focus Details Access to • Including the Business Bank, the Funding for Lending scheme, Enterprise Capital Finance Funds, Enterprise Finance Guarantee, Business Finance Partnership

Sectors • Building a collaborative strategic approach with key sectors • Encouraging sustained investment in R&D • A focus on: ‹ advanced manufacturing, including aerospace, automotives, life sciences ‹ knowledge intensive services, including professional and business services, the information economy, and higher/further education ‹ sectors that support internationally traded services, e.g. energy, construction, ‹ Other sectors such as digital and creative sectors, food and drink, renewables, oil and gas and chemicals

Technologies • Accelerating the commercial application of academic research (especially in nascent disruptive technologies). This includes establishing ‘Catapult Centres’, one of which will be part-located in Northumberland, focused on offshore renewable energy

Skills • A long-term commitment to world-class skills, focusing on apprenticeships and vocational training, and the skills of professionals (especially relating to the supply of engineers)

Procurement • Using public sector spending to shape markets and influence supply chains Source: BIS, September 2012, Industrial Strategy – Cable outlines vision for future of British industry, Speech by Vince Cable on 11 September 2012

3.7 In keeping with the Government’s localism agenda, the responsibility for leading and delivering economic growth at local level now largely sits with Local Enterprise Partnerships (LEPs), businesses and communities themselves. A range of local initiatives have been announced which seek to enable this growth. Lord Heseltine’s recent review [74] advocates further devolution of funding from central government to LEPs so that spending reflects the strengths and weaknesses of each place.

3.8 For the NELEP, local initiatives secured to date include:

• a successful bid to the Government’s Regional Growth Fund for a £30m North East Infrastructure Fund to support development projects, which will operate alongside and lever in private finance, other Government funding (e.g. for transport) and NELEP’s Growing Places Fund (GPF).

• an Enterprise Zone (made up of ten sites in three clusters: land south of Nissan in Sunderland; on the north bank of the river Tyne; at the Port of Blyth), which will be

extended to give a further 40 hectares of sites eligible for investors to benefit from Enhanced Capital Allowances.

• the Newcastle city deal , which has secured new devolved powers in finance and investment, skills and employment, transport, housing and broadband, with a focus on low carbon (energy and marine) development. A Sunderland Deal is also proposed.

• a Rural Growth Network (RGN) Pilot in Northumberland and Durham, with £3m investment to test new and innovative approaches to business support and networking to encourage rural economic growth.

3.9 The role and remit of LEPs continues to expand. For example, they are likely to play a major role in influencing and leading bids for European structural funding after 2014, and as noted in the recent Autumn Statement (December 2012), Government will devolve a greater proportion of growth-related spending to LEPs from April 2015 in response to Lord Heseltine’s review of economic growth. Specifically, in the Autumn Statement the Government set out plans to:

• task LEPs with the development of new strategic plans for local growth consistent with national priorities

• provide £10m of capacity funding for LEPs (in 2013/14 and 2014/15) with individual LEPs bidding for up to £250k

• devolve a greater proportion of growth-related funding on the basis of LEPs’ strategic plans by creating a single funding pot from April 2015, which is likely to include some of the funding for local transport, housing, employment schemes and skills

• align the EU Common Strategic Framework funds in England with the LEPs’ plans post 2014. LEPs will also be able to determine how these EU funds (including ESF) are used locally

• make available a new concessionary public works loan rate to infrastructure projects nominated by LEPs (one per LEP up to a total ceiling of £1.5bn)

• provide a further £350m for the Regional Growth Fund (of which £100m will come from existing budgets) over this parliament

• support local authorities that wish to create combined authorities and/or collaborate in other respects

• enhance the role of LEPs in setting skills strategies and implementing them through local FE colleges. LEPs will also be able to bring bidders together to access the £340m Employer Ownership Pilot

• support the implementation of Local Development Orders and support local authorities in setting up locally-funded Enterprise Zones.

3.10 In this context, having a robust understanding of the strengths and weaknesses of the NELEP geography and economy is increasingly important. This is what we turn to in the next five chapters, where we outline the existing evidence base in relation to:

• the North East in UK, European and global markets

• labour markets and skills

• infrastructure and land markets

• private and social enterprise

• capital markets.

4. The North East in UK, European and global markets

4.1 In this section, we present the summary messages that emerged from a headline review of the literature in relation to the NELEP area’s national and international business flows. Specifically, we consider the importance of UK, European and global markets to the NELEP economy in terms of exports as well as commenting on its inward investment and wider international business performance.

4.2 As noted above, the UK Government has identified the encouragement of investment and exports as an important route to building a more balanced economy. It is therefore vital going forward that the NELEP economy can fully engage in national and international business activities, maximising trade and investment opportunities, and boosting its competitiveness.

Figure 4-1: Key messages

• The North East region has a high ‘export intensity’, with exports accounting for a larger proportion of its GVA than in any other UK region. It is also the only region to achieve a trade surplus. This is a major strength of the NELEP area on which to build to ‘rebalance’ the economy. • Manufacturing is an important sector for driving exports in the economy, but survey evidence suggests that export orders were deteriorating in Q3 2012. • A high share of the North East region’s exports are accounted for by EU countries (e.g. Netherlands, France and Germany) but the USA and Russia are also important export markets for the North East. • Despite some strong exporting companies, a high proportion of local businesses serve largely local markets, which have implications for the type of work undertaken and the prices charged (and therefore the GVA contribution of these sectors) and makes the region vulnerable to the level of local discretionary spend and demand from other local businesses. Source: SQW

Current performance and recent trends

Exports from the North East region represent a larger proportion of its GVA than any other UK region and is the only one to achieve a trade surplus

4.3 Strong exports are crucial to deliver strong, sustainable and balanced economic growth. Furthermore, it is now widely accepted that exporting companies are: more productive than non-exporters; achieve stronger financial performance; are more resilient and are more likely to stay in business; achieve economies of scale not possible domestically; increase the commercial lifespan of their products and services; and increase the returns on their R&D investments. In short, the evidence is unambiguous in that exporting businesses are becoming increasingly important for UK plc and this also applies to the NELEP economy.

4.4 The literature shows that, in 2010, exports from the North East region (including non-NELEP areas such as Teesside) represented 29% of the region’s total GVA. This was the highest value of goods exports relative to the size of its economy recorded for any region in the UK, suggesting that it has a high ‘export intensity’ [34, 44] . Additionally, the North East was the only region in the UK to achieve a trade surplus (+£2.5 billion) in 2010 [58] .

4.5 More recent data collated by SQW for Q1 2012, show the total value of exports and imports both decreased in all of the English regions apart from the North East, the North West, the South East and the South West, suggesting the NELEP area has continued to perform well in terms of exports during the recession.

4.6 Analysis undertaken by the Northern Economic Futures Commission found that ‘the North was very well placed to greatly expand its exports over coming years – the fastest growing markets are spending a rising proportion of their increased wealth on the exports in which the North already specialises’ [84] . To take advantage of these opportunities, exporters in the NELEP area will need to focus particularly on the BRICs and other converging economies where demand is growing strongly.

In total, the North East’s top five export partner countries were the USA, Netherlands, Russia, France and Germany

4.7 During the period June 2010 to June 2011, the North East exported a record £12.9bn of goods and services, representing a 21% increase on the previous 12 months, and higher than the national increase of 15% [26] . Within the 21% increase, Russia was the fastest growing export market, rising 177% over the period, to £591m. The USA was the largest single market for North East exports, with £2.08bn of export value generated in the period [26] . Spain, Belgium and Japan were the only markets in the top 20 for the North East that saw a fall in export value [26] .

Almost half of markets served by NELEP businesses are local (within the NELEP itself), so the level of local demand and disposable incomes spending has an important influence on the performance of local businesses

4.8 Almost a third (31.1%) of markets for businesses in the TWCR were located within the TWCR itself, with 15.1% located in the remainder of County Durham, and 6.2% for the remainder Northumberland [6] . The rest of Great Britain accounted for a further quarter (24.7%), with overseas markets accounting for 9.7% of businesses [6] . Finance, business and professional services sector is most likely to serve local markets: almost half the market for this sector comes from within the TWCR (48%).

4.9 Supply chains are also relatively localised: suppliers to business were most commonly located in the TWCR (33.9%), followed by the remainder of County Durham (13.2%) and Northumberland (3.9%), meaning that almost half of suppliers to business are local, with 28% from elsewhere in Great Britain, and 10.7% abroad [6] . Finance, business and professional services, and digital and creative are most likely to source inputs/supplies from within the TWCR (52% and 50%), whilst manufacturing are most likely to source supplies from elsewhere (42% from the GB except the North East, 31% abroad) [6] .

The total value of North East imports is lower than for all other UK regions

4.10 Imported goods or services coming into the NELEP area are vital for many competition and technological drivers of productivity and they also provide direct benefits to local consumers who benefit from a wider range of goods and services at lower prices, rather than being constricted to those goods and services that can be produced domestically.

4.11 For the North East region, the top five partner countries for imports to the region for the year ending March 2012 were Japan, the USA, France, Belgium and Germany. More recently, as of Q1 2012, data collated by SQW shows that the North East continued to have the smallest total value of regional imports at £10.7 billion. Imports to the region increased by only 4.8% in the 12 months up to Q1 2012, and there was a sharp fall in imports of 14% for Q1 2012 compared with Q1 2011.

Manufacturing is an important sector for driving exports in the economy, but survey evidence suggests that export orders were deteriorating in Q3 2012

4.12 As noted in Section 2, the most important commodities for export from the North East are: machinery & transport equipment (accounting for over 59% of the total goods exported); chemicals & related products; manufactured goods classified chiefly by material; miscellaneous manufactured articles; and mineral fuels, lubricants & related materials.

4.13 Many manufacturing firms in the NELEP area successfully compete in national and international markets and have strong linkages with international suppliers [10, 25]. Indeed, manufacturing is a major driver of export performance for the TWCR and, alongside financial, professional and business services, manufacturing counts for the majority of export earnings for the TWCR [10] . Digital and ICT companies in the TWCR are also generally exporters, rather than selling internally to the UK [25].

4.14 The North East Chamber of Commerce's Quarterly Economic Survey indicates that, as of Q3 2012, whilst the area performs very well in overseas markets, businesses are reporting a slowdown in growth of the manufacturing sector reflecting disappointing sales in the UK marketplace and falls in export orders [44] .

Implications, future opportunities and challenges

4.15 There are a number of implications arising from the evidence above which present opportunities and challenges for the NELEP area looking forward, including:

• Strong export performance, especially in manufacturing, is a major strength of the NELEP area. As with the rest of the UK, there is a major opportunity to grow the value of exports to emerging overseas markets in sectors where the NELEP can offer a strong competitive advantage. There may also be opportunities to target other BRICs economies in addition to Russia (where the North East has performed well recently), especially to China which does not feature prominently as an export market for the North East at present.

• The NELEP must do everything within its powers to make the area more investment friendly, both to indigenous and international investors. In order to do this, it must work with its partners to address key investment constraints noted in other sections of this report, such as skills, level of innovation, planning barriers and issues associated with an ageing infrastructure amongst others. There will also be opportunities to maximise the benefits associated with expansions of existing inward investment partners, and to secure potential second phase investment from London investments.

• Whilst export levels are strong from the NELEP area, the high propensity of many businesses to serve local markets will have implications for the type of work undertaken and the prices charged (and therefore the GVA contribution of these sectors). The performance of many businesses will also be dependent on the level of local discretionary spend and demand from other local businesses. A focus on encouraging more businesses to export will help to make the economy less vulnerable to downturns in local demand, as well as helping to rebalance the economy more generally.

5. Labour markets and skills

5.1 In this Section, we summarise the key messages from the literature review in relation to the labour supply and skills, engagement in the workforce, occupations and sector profiles, and productivity. We also explore issues around under-employment, graduate retention and the migration of skilled workers.

Figure 5-1: Key messages

• NELEP has a high share of working age residents, but engagement in the workforce is below the national average and (often intergenerational) worklessness remains persistent in some parts of the LEP • The TWCR is an inter-connected functional economic area with links to wider parts of the LEP area, especially in terms of travel to work patterns. Homeworking is relatively low but growing • The NELEP area saw strong employment growth in the 2000s, but this was largely driven by lower value added activities and the public sector • The NELEP area under-performs in higher level skills, but substantial progress has been made • The area is also under-represented in higher level and KIBs occupations, and a large proportion of these are in the public sector • As elsewhere, a sectoral shift has taken place from manufacturing to services (with an associated shift towards lower value activities), but advanced forms of manufacturing or pharmaceuticals remain very important for the NELEP area and – along with low carbon and environmental industries – provide a key opportunity looking forward • The productivity of those in work lags behind the national average, driven in part by low skills, a high share of jobs in lower-level occupations/sectors and barriers to agglomeration • There are issues around the under-employment and retention of graduates, and attracting highly skilled workers to the area Source: SQW

Current performance and recent trends

NELEP has a high share of working age residents, but engagement in the workforce is below the national average and worklessness remains persistent in some parts of the LEP area

5.2 The performance of the NELEP economy depends on the productive potential of the labour force, both in terms of the proportion of the population that is of working age and the share that are in work (in addition to the productivity of those in work, which we discuss below). As noted in Section 2, the proportion of the NELEP area’s population that are of working age matches the national average (65%), and the literature shows that the working age population (for the Tyne & Wear City Region, TWCR, at least) has been growing in recent years, with an increase of 3.3% between 2000 and 2010, reversing a declining trend from the past 20-30 years [3, 8, 32, 39] .

5.3 However, the NELEP under-performs in the proportion of the Working Age Population (WAP) which is economically active and in employment: the latest data, presented in Section 2, show the share of the WAP who are in employment in the NELEP area (66%) remains below the England average (70%). This is despite the evidence that the TWCR witnessed a substantial catch-up in employment (and economic growth/GVA) between 2000 and 2008, with growth in employment at twice the rate of Leeds and Manchester [4, 10, 26, 28, 32, 33]. The gap in the employment rate for the TWCR (vis-à-vis the national average) dropped by a half from 2000-2009 [1, 2] . This growth was more rapid in some parts of TWCR than others:

North Tyneside and Sunderland saw very high rates of growth in employment between 2000 and 2008 [10] ; Newcastle’s employment total also increased, but at a lower rate [10] .

5.4 Worklessness is a major issue across the LEP area, with concentrations of high unemployment evident in the west and north of County Durham [47, 71] , in deprived parts of south east Northumberland such as Blyth and across much of the TWCR [2, 27, 40]. These are areas that have been hit particularly hard by the loss of low-skilled, low value manufacturing jobs during the recent recession [64] , and this has reversed much of the progress made since 2000. They also face issues around multi-generational worklessness [47] , long-term limiting illness or disability or those looking after them, literacy issues, and barriers related to ‘benefits culture’ in former coal mining areas [27] .

5.5 The literature shows that the number of people claiming incapacity benefit (IB) in the TWCR fell by 20% (25,000) between 2000 and 2008, although by 2008 the TWCR still had a greater proportion of people claiming IB than other city regions [3, 8] . Jobseekers Allowance claimant numbers have risen in line with the national rate since the recession [3] . Out of work benefits’ recipients are particularly concentrated in urban areas, south east Northumberland and eastern County Durham [27] .

The NELEP area saw strong employment growth in the 2000s, but this was largely driven by lower value added activities and the public sector

5.6 The NELEP area saw strong employment growth between 2000 and 2008 (following a very slow recovery from the 1990s recession) and out-performed other northern LEPs in terms of employment growth during this period [89] . This employment growth was spread across the LEP area, and was driven largely by public sector expansion and investment, and work in lower value activities.

The TWCR is an inter-connected functional economic area with links to wider parts of the LEP area, especially in terms of travel to work patterns. Homeworking is relatively low but growing.

5.7 TWCR provided jobs for 693,000 people in 2008 and around three quarters of these jobs were concentrated in Newcastle, Sunderland, Gateshead and North Tyneside [3] . Beyond the City Region footprint, the main employment locations in County Durham are in Durham City (especially the knowledge economy) and in edge of town business/industrial parks to the south of Newton Aycliffe (manufacturing) and to the west of Peterlee (automotive manufacturing and call centre activity) [64] . Newcastle forms the largest single area of employment for the public sector, financial and business services and distribution/retail, with manufacturing tending to concentrate at out-of-town locations south of the River Tyne, in particular in Gateshead, South Tyneside, Sunderland and County Durham and with an increasing concentration around Washington [9, 10, 28, 30] . Over time there has been a shift in employment location, with growth corridors emerging along the A1 and A19, whilst Newcastle City Centre has ‘filled out’, along with decentralisation to business park-type locations [1, 10, 22] .

5.8 The ‘flows’ of workers to and from these centres of employment have an important bearing how effectively the NELEP economy functions: they influence the balance between demand and supply of labour, access to opportunities, the type and location of housing, and infrastructure needs. The TWCR Economic Review found that the City Region ‘ is an inter-

connected City Region or functional economic area, with overlapping travel to work patterns and labour market commuting flows ’10 . Travel to work areas (TTWAs) are often used as a crude approximation to functional geographies; recent reports highlight four functional and partly over-lapping labour market geographies in the TWCR 11 , based on Newcastle, Sunderland, Washington and Durham City, with strong commuting flows (especially of highly skilled workers) also from County Durham into north Tyne and Wear [64] . Higher- skilled workers tend to live in suburban and rural areas, attracted by the prime housing on offer, and commuting longer distances to work in the urban centres [5, 8] . This means that a significant amount of wealth generated in the main employment centres is ‘exported’ to Northumberland, North Tyneside, and northern County Durham, with increasingly high value housing separated from more deprived areas; this tends to increase polarisation [5, 9, 11, 27, 36] , although some, younger high-skilled workers have been attracted to city centre apartment living [5] .

5.9 Across the North East, over 10% of the workforce are home workers, which is low compared to other parts of the UK, but the number has grown rapidly since 2001 (by 42% between 2001 and 2009, compared to the national average increase of 18%) [62] . Home workers make a notable contribution to economic performance: for example, home-based businesses in County Durham, contribute over £0.5bn to the economy in turnover, or between £218m and £362m in GVA [62] . However, the limited supply of small business space and poor internet connectivity in some parts of the region (such as parts of County Durham) can restrict the growth prospects of ambitious home businesses.

The NELEP area under-performs in higher level skills, but substantial progress has been made

5.10 As noted in Section 2, the proportion of the NELEP’s working age population with higher skills (NVQ4+) lags behind the national average, although there is considerable variation across the area, from 22% with NVQ4+ in Sunderland to 30% in Newcastle, compared to a national average of 31% (average figures 2009-2011). However, according to the literature, the proportion of working age TWCR residents with NVQ4+ has been increasing more quickly than in most other city regions [2, 8, 23, 34] and over 25% of the 20-30 year old TWCR residents have a maximum of NVQ3 qualifications, a higher proportion than in any other city region [32] . Whilst County Durham has also made notable progress in improving its skills base (driven largely by improvements in GCSE attainment and growth in higher skilled jobs in the public sector [54] ), it still has a relatively poor skills profile compared to the North East and UK as a whole [1, 47, 54, 63] . Within the LEP area, Northumberland performs relatively well in terms of higher-level skills, with 29% of the working age population qualified to NVQ Level 4+ compared to a national average of 31% (see Section 2, average 2009-2011).

5.11 The main concentrations of highly skilled workers live in the central and eastern suburbs of Newcastle, Durham, North Tyneside, Tynedale (which has the highest proportion of

10 Harding, A. (April 2011) Tyne and Wear City Region Economic review: Final Review Report, p. 16 11 These are: ‘Newcastle and the North’ , including Newcastle, Gateshead, Sunderland (in particular Washington), Chester-Le-Street, nearby areas of Northumberland, Derwentside and North Tyneside (this TTWA employs 25% of the TWCR’s workers); ‘ Central Sunderland’ , including Sunderland, Easington, Peterlee and South Tyneside (this functions as the second economic centre of the bipolar TWCR [10, 25]. Transport links between the two, and institutional collaboration, have strengthened links to the larger economic centre of Newcastle in recent years, giving the areas the opportunity to complement each other in future [25]); ‘ Washington ’, including Sunderland, South Tyneside, Derwentside, Chester-le-Street and Gateshead; and ‘Durham City’ , covering the city of Durham and nearby areas of County Durham and beyond [11, 38].

residents to NVQ4+ [38] ) and Castle Morpeth, with Newcastle and North Tyneside seeing the highest growth in this group between 2000 and 2008 [3] . Durham has particularly high levels of people qualified to NVQ3/4 [3] .

5.12 Digital and creative have the most skilled sector workforce in TWCR (67% Level 4+), followed by finance, business and professional services (26%). The manufacturing sector has the smallest proportion of people with NVQ Level 4+ [6] .

5.13 Overall, the literature suggests that there is a reasonably good match between supply and demand for skills in the NELEP area [3, 49] , which partly reflects the type of jobs/occupations required by employers in the area, and a ‘low skills equilibrium’ in some places. However, in NECC’s North East Business Barometer for Q2 2011, 20.7% of businesses noted difficulty in recruiting skilled technical and manual employees, and 19% had difficulty recruiting managerial or professional employees, with a skills gap marginally more likely to be reported in the North East than elsewhere [49] . The literature also reports a ‘significant problem’ in finding employment for those with no qualifications – for example, only 39% of unqualified adults in the TWCR were in employment in 2007 – and that jobs are increasingly requiring intermediate and higher level skills [23] .

5.14 Four universities are based primarily in the NELEP geography, Durham University (16,300 students), the University of Newcastle (c.20,000), Northumbria (32,700), Sunderland (20,200) [13, 14, 17] . For Further Education, there is North Tyneside College [12] , Sunderland College [17] , South Tyneside College [16] , Gateshead College [15] , and Newcastle College [14] .

The area is also under-represented in higher level and KIBs occupations, and a large proportion of these are in the public sector

5.15 The TWCR lags behind all comparator city regions for higher levels occupations: when organisations set up in the TWCR, it has often been in the form of back room functions, including call centres and administration, rather than HQ facilities [3, 8, 33] . SQW’s data analysis in Section 2 suggests this message applies to the NELEP as a whole, although Newcastle, North Tyneside and Northumberland have a higher share of workers in managerial and professional occupations than other districts in the area. The recent strong employment growth in public services, distribution and financial & business services across the TWCR has resulted in an increase in demand for high skilled labour [71] . Over 45% of highly skilled jobs (senior managers and professionals) in the TWCR were based in the public sector, though very few are senior executive officers, and recent employment growth in knowledge-based industries (KBIs) has been overwhelmingly in the public sector (only 16.4% of KBI jobs were in the private sector).

5.16 KBI growth has been dispersed across the TWCR geography, with out-of-town locations key growth areas (e.g. Cobalt Park, Doxford, Longbenton, Newburn), though Newcastle city centre is by far the largest concentration and the largest share of growth [3, 8] . However, whilst the TWCR has seen this growth in KBI employment, it has not seen strong growth in some high-tech and service clusters, as elsewhere [2, 3, 33] . Health (especially in South Tyneside) and tourism (especially in Durham) are also important sectors for the TWCR [13, 16, 17, 30, 57, 59] .

As elsewhere, a sectoral shift has taken place from manufacturing to services (with an associated shift towards lower value activities), but advanced forms of manufacturing or pharmaceuticals remain very important for the NELEP area and – along with low carbon and environmental industries – provide a key opportunity looking forward

5.17 There has been a steady shift in employment from manufacturing jobs and there are few large employers in the TWCR (although manufacturing held up better than elsewhere during, despite still seeing a decrease of 24,500 between 2000 and 2008 [3, 8, 28, 32, 59] ) to a more flexible business base in (often lower skilled) services [1, 4, 5, 8, 9, 20, 22, 23, 25, 26, 32] . Over the last decade, growth in service sector employment was particularly high across the TWCR (compared to comparator city regions) in:

• the public sector, with employment growing by 32,200 between 2000 and 2008 [1, 3, 4, 10, 28] . Within the public sector, Central Government departments such as HMRC and DWP are major employers, employing 25,000 people in the TWCR [35]. As a result of this public sector growth, the North East overall (including Teesside) has the highest reliance on the public sector for employment out of all the English regions, with 25% of employment in the public sector in Q4 2011 [44]

• financial and business services (with growth of over 40,000 jobs from 2000 to 2008, many based in Newcastle but with for the most part lower level occupations also located in Sunderland) and creative and digital sectors, though the TWCR started from a low base and is also still under-represented [1, 2, 3, 4, 10, 25, 28, 59]

5.18 Despite the decline in jobs, manufacturing remains important, and much of the employment within it (almost 40%) is in advanced forms of manufacturing or pharmaceuticals [30] . Job numbers are holding up well in automotive when compared to other manufacturing specialisms; Sunderland is of course particularly important [4, 10, 26, 28, 30] . High productivity sectors of low carbon and environmental industries are also found in the North East: 3.5% of all industry in Northumberland, and 3.9% of all industry in the North East are classified under this heading, compared to 3.2% for Great Britain [53] .

The productivity of those in work lags behind the national average, driven in part by low skills, a high share of jobs in lower-level occupations/sectors and barriers to agglomeration

5.19 Productivity (GVA per job) in the NELEP area lags behind the national average and other comparator areas, and the literature attributes this to the lack of higher level functions associated with high productivity, a lower value added composition of employment (reflecting a sectoral shift away from manufacturing towards services), and the low cost base and cheap housing which attracts lower skilled employment [1, 2, 4, 35, 54]. A productivity differential has also occurred within the LEP area, with Newcastle’s productivity improving moving ahead of the rest of the TWCR [25] . The literature also argues that the TWCR is held back in productivity terms, compared to other city regions, by the scale of agglomeration economies, low skills profiles, access to higher value added employment opportunities and transport infrastructure (with north/south and river crossing congestion compounding the problem) [2, 3, 5, 9] .

There are issues around the under-employment and retention of graduates, and attracting highly skilled workers to the area

5.20 The TWCR is good at attracting undergraduates (the number of full-time students in Newcastle alone rose by 40% from 2001 to 2006/7) and reasonably good at retaining graduates (in particular those that grew up locally) [2, 3, 8, 19, 32, 33] . The TWCR is not as good though at providing graduate-level jobs, and retention rates are showing signs of decline from 42% in 2002-3 to 37% in 2007-8 [3] . Many graduates that remain in the area either take jobs for which they are over-qualified (representing ‘under-employment’), or take public sector jobs (almost two thirds worked in the public sector after graduating in 2007/8); fewer and fewer are taking-up STEM (science, technology, engineering, mathematics)-related work [2, 3, 8, 19, 32, 33] .

5.21 There is a mixed picture within the literature on the level of fluctuation in higher skilled workers in the TWCR: some sources argue that in-migration and out-migration of highly skilled workers are both low, leading to a less dynamic labour market than comparator city regions [e.g. 3] ; other sources suggest that the TWCR has the highest out-migration rate (and in-migration rate) of higher managerial and professional employees of all comparator city regions [e.g. 39] . However, most sources agree that it can generally be quite challenging to attract highly skilled workers to the TWCR [3, 8, 32, 33, 35] and recent UK data show that two of the ‘top three’ occupations facing skills shortage vacancies are the professionals and associate professionals categories [84] .

Implications, future opportunities and challenges

5.22 There are a number of implications arising from the evidence above which present opportunities and challenges for the NELEP area looking forward, including:

• The NELEP area has made good progress in improving the overall skills levels of its residents, but there is a need to ensure that businesses drive the demand for higher level skills so that those with good qualifications can access job opportunities that make the most of their skills (rather than being under-employed, as in the case of many graduates). There is also a need to attract and retain skilled young adults, and stem the outflow of graduates in particular.

• The shift from manufacturing to (lower value added) service sector jobs has acted as a drag on overall productivity. This in part reflects the types of economic functions taking place in the North East, but there is a real risk of a ‘low skills/low earnings equilibrium’ becoming embedded in the economy. Furthermore, a high proportion of the higher skilled jobs/occupations in services are in the public sector which has seen – and continues to see – considerable cut backs, which may reduce the number of higher level job opportunities further in future.

• Worklessness is a critical issue for the NELEP area, caused by both recent impacts of the recession (especially for those made redundant from low-skilled, low value manufacturing jobs) and longer-term, entrenched challenges around multigenerational worklessness, literacy issues, and cultural issues. This is a major challenge for the NELEP area at many levels: the newly redundant but low skilled, those already long-term unemployed who now find it even more difficult to re-

engage with the labour market, and the young adults at risk of becoming the next generation of the long-term workless.

• There are opportunities for growth in high productivity sectors such as advanced manufacturing, pharmaceuticals and low carbon and environmental industries where the NELEP already demonstrates strengths. Where these jobs are being created in these sectors, the workforce needs to have the appropriate skills (especially relating to STEM subjects) to respond to demand from the market. However, there is a risk that growth in these sectors will take the form of ‘jobless growth’, whereby growth in turnover/GVA will not necessarily lead to a significant number of jobs being created.

6. Infrastructure and land markets

6.1 In this Section we review evidence on the characteristics of the NELEP’s infrastructure, including road transport, rail/metro, the airport, broadband, energy and other natural assets such as the National Park. We also review evidence on housing markets and the availability of employment land to enable future economic growth.

Figure 6-1: Key messages

• Major infrastructure assets in the NELEP area include the international airport, ports, major routes such as the A1 and East Coast Main Line • Transport issues – based both on perception and reality – are seen as a barrier to increasing economic activity – in particular, attracting businesses, accommodating growth and connecting workers (especially those in deprived areas) to employment opportunities • Broadband coverage and connectivity speeds are poor in large parts of County Durham and Northumberland • Outstanding natural physical assets, and energy and related innovation assets are key strengths of the NELEP geography – and a potential source of resilience given concerns about natural resources and energy security • Against a backdrop of available sites and premises, many of which may not be in the right place or of the right quality, the Enterprise Zone presents a major opportunity to attract higher value added activities to the NELEP, especially in low carbon and advanced manufacturing sectors • The poor quality, and limited range, of the housing stock is acting as a barrier to attracting and retaining high skilled workers Source: SQW

Current performance

Major infrastructure assets in the NELEP area include the international airport, ports, major routes such as the A1 and East Coast Main Line

6.2 The NELEP area has substantial infrastructure assets, which form key nodes and important channels for national communications:

• major roads include the A1(M) and the A19 north/south routes, and the A69 westwards

• the Tyne and Wear Metro spans five districts of TWCR [13]

• major rail infrastructure includes the East Coast Main Line; also the Newcastle and Carlisle Railway/Tyne Valley Line

• ferry services from the International Ferry Terminal at North Shields run to IJmuiden near Amsterdam [12, 13, 14, 15, 16, 17]

• Newcastle International Airport provides important passenger and freight services with direct connections to the rest of the UK, Europe and the Middle East. Major destinations include Paris, London Heathrow, Belfast International, Southampton and London Stansted (January 2010). In 2011, 4.4m passengers flew from the airport, which supported 8,500 jobs and contributed £400m to the North East economy [12, 13, 14, 15, 16, 17, 58] . Newcastle Airport has increased in both passenger

numbers and freight movements in the previous ten years, 2001-2011, albeit with a dip in passenger numbers during the recession, as illustrated below.

Figure 6-2: Passenger and Freight Traffic and Newcastle Airport over time

6000000

5000000

4000000

3000000

2000000

1000000

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Terminal Passenger Numbers Freight (Tonnes)

Source: SQW analysis of The Civil Aviation Authority (CAA) UK Airport Statistics

6.3 The ports of Tyne, Sunderland, Blyth and Seaham are located in the NELEP area. The Port of Tyne is the largest: total freight traffic has doubled from 2.5m tonnes in 2001 to 5.2m tonnes in 2011, and it now deals with 2% of England’s freight traffic. In 2011 the majority of freight traffic to Tyne port was inward bound representing around 75% of all traffic 12 .

Transport issues – based both on perception and reality – are seen as a barrier to increasing economic activity – in particular, attracting businesses, accommodating growth and connecting workers (especially those in deprived areas) to employment opportunities

6.4 Businesses are attracted to the NELEP area/ TWCR because of the location, the central and accessible sites available and low costs, but according to a Business Survey for the TWCR review 15% of respondents felt that transport issues were a weakness [6, 31] . According to other literature, relative isolation and poor connections compared to other northern city regions create difficulty in attracting higher level employees, such as executives, and businesses that rely on close proximity to other centres of economic activity [36] . In a recent OECD report, the Tyne and Wear City Region’s infrastructure is described as ‘significantly below national and OECD standards’ and a ‘low infrastructure density’ is cited [83] . Although as of January 2010, it was also noted that the Tyne and Wear region is now only 2h 50m from London by rail, 1h 20m from Leeds, 1h 25m from Edinburgh, and 2h 20m from Manchester [12, 13, 14, 15, 16, 17, 58] .

6.5 Much recent employment growth has been alongside aligned to the A1 and A19, on the periphery of the TWCR urban area and in sites with good direct links to these major routes. Two other major transport corridors are the old route of the A1, to the north of the central

12 SQW analysis of Department for Transport Maritime statistics

business district of Newcastle, and the corridor along the Tyne, from Blaydon in Gateshead down to the sea [10] . However, there are issues around the accessibility of sites around the A1 and A19 using public transport links [5, 10, 56] . Many commuters have moved outwards from urban centres. The increasingly long-distance commuting patterns in the city region, and the greater numbers involved has led to congestion on north-south routes, particularly around river crossings [5, 9] . Some of the larger areas of persistent deprivation and worklessness are located away from urban centres, and also have poor accessibility to these areas of employment growth [5] .

Broadband coverage and connectivity speeds are poor in large parts of County Durham and Northumberland

6.6 Good broadband coverage and speeds is increasingly important to the way firms do business, especially homeworkers, as well as to meet expectations regarding access to social media and services delivered through the internet. In the NELEP area, broadband connectivity is a particular issue for County Durham and Northumberland, where large areas are reported to have no coverage and others only have internet connectivity via dial up [1, 27, 61] . Reflecting this, the literature notes that a quarter of businesses in the North East do not use the internet, compared to 19% nationally [58] .

Outstanding natural physical assets are a key strength of the NELEP geography

6.7 The quality of the natural environment and relative lack of crowding are deemed ‘soft assets’ for the NELEP area throughout the literature [e.g. 36, 43] . The Northumberland National Park covers western Northumberland, with Kielder Forest Park and the North Pennine Area of Outstanding Natural Beauty covering much of the rest of the County [27, 40] . Within County Durham, major natural assets include the North Pennine Area of Outstanding Beauty in the west, and the East Durham Heritage Coastline in the east, both of which are considered unique assets [57, 60] . Perceived benefit from the high quality surrounding environments is a major selling point to attract workers – and businesses – to locate in the NELEP area.

Energy and related innovation assets are a major strength of the NELEP area

6.8 The TWCR and wider LEP area offer distinct locational advantages for low carbon goods and services and renewable energy. As noted in other Sections of this report, this is supported by a strong advanced manufacturing base; technical and engineering expertise and organisational infrastructure (including the National Renewable Energy Centre, NaREC, at Blyth); the expertise and capacity in further and higher education institutions; and plentiful energy sources. Specific opportunities have been identified in low carbon vehicles, off shore wind, carbon capture and storage, and micro generation [2, 5, 7, 26, 29, 35, 58] . The main location for development of the energy sector is expected to be around the south of the TWCR, stretching across South Tyneside, Sunderland, and County Durham, as well as in Cramlington further to the north of the TWCR [7] . Despite these assets, the literature suggests there is work to do to boost innovation in this sector (and the economy more generally). For example, the OECD stated that R&D in the North East’s low carbon and environmental services sector was only 13% of the UK average [24, 53] .

Against a backdrop of available sites and premises, many of which may not be in the right place or of the right quality, the Enterprise Zone presents a major opportunity to attract higher value added activities to the NELEP, especially in low carbon and advanced manufacturing sectors

6.9 In terms of employment land availability, the literature suggests that:

• Sunderland had almost 195 hectares of employment land available in 2010, with 55% of this in Washington [18] , with a further 19 hectares available in central Sunderland for mixed use development.

• in Newcastle in 2010, there were 147 hectares of developable land, with a further 46 hectares at Newcastle Airport [19] .

• in Gateshead, there were just over 100 hectares of employment land supply in 2011 [20]

• South Tyneside had only 46 hectares of employment land available in 2011 [21]

• in January 2011, it was estimated that Northumberland had a forward supply of 229.62 hectares, with a further 107ha of expansion land/sites under option [90]

• for County Durham, it is estimated that the gross amount of potential new B class development with extant permission in May 2012 stood at 103.57 hectares [91]

• North Tyneside had an estimated overall supply of c.222 hectares in December 2011 [92]

6.10 The LEP area also has an Enterprise Zone which is made up of ten sites in three clusters across Sunderland (south of Nissan), the north bank of the river Tyne and the Port of Blyth. The Zones cover 88 hectares, and focus on the low carbon and advanced manufacturing sectors, particularly in relation to offshore, wind and marine energy and ultralow carbon vehicles. It was recently announced that the Enterprise Zone will be extended to give a further 40 hectares.

6.11 As noted in Section 2, national statistics show that the amount of office floorspace (especially commercial office space) is under-represented in the NELEP compared to the England average. The shortage of commercial available space is particularly prominent in Durham City, and the inadequate pipeline of quality sites and premises is thought to hinder the City’s economic potential [67] . Large business sites are available offering low rents: whilst these have proved attractive to call centre operators and created jobs, this is another example of where the low cost location attracts lower value added activities making it difficult to raise productivity levels across the LEP [64] .

6.12 The poor quality, and limited range, of the housing stock is acting as a barrier to attracting and retaining high skilled workers. The large quantities of social housing and low value old private stock found in the inner areas of Newcastle, Sunderland, South Tyneside and Gateshead [2, 20] are less attractive to high skilled technical and professional workers and managers – both those already living here and those moving into the NELEP area. As few urban locations can provide attractive housing for this group [3, 9] , they tend to look outside of the city for better quality housing - to rural Northumberland, coastal North Tyneside and northern County Durham [2, 9, 11] ). As a result of prime housing locating in more rural areas,

significant amounts of wealth are exported from employment centres and areas of high value housing are becoming increasingly separated from more deprived areas, leading to further polarisation [5, 9, 11, 27, 36] .

6.13 House prices in the TWCR reflect the large increases seen elsewhere in the 2000s, rising rapidly, but falling back towards the end of the 2000s. As elsewhere, there has been little turnover in the housing market since the onset of the financial crisis in 2008 [11] . House prices have grown most significantly in areas of Durham, Sunderland and Gateshead [5, 9] , and housing affordability ratios making it difficult for first time buyers to enter the prime housing markets to the north of Newcastle, Northumberland and Durham city in particular [11, 27] .

6.14 According to the literature, the TWCR has a high proportion of social rented accommodation, both in the major conurbations and outlying areas. This removes a significant amount of the TWCR’s housing stock from the housing market or, where social accommodation has been bought, it gives a stock of relatively low value [11] .

Implications, future opportunities and challenges

6.15 The evidence above presents NELEP with some opportunities and challenges looking forward in enabling economic growth. The patterns of economic activity, work, and business-related travel have changed substantially over recent years, and this change is on- going, particularly for newer, higher growth activities.

• There are major opportunities for the NELEP area in terms of its natural assets (for example, which plays an important role in attracting skilled workers who are looking for a better quality of life) and energy and related innovation assets

• There is a challenge to ensure that the nature of the floorspace/land available is appropriate to attract and enable growth of the higher value added activities - realising the potential of the Enterprise Zone should play an important role here.

• Linked to the point above, it is essential that unemployed residents are linked effectively to places of employment growth: at present, public transport links in some areas, especially deprived communities outside the city centre, are inadequate.

• The right kind of (affordable) housing in the right locations is needed to attract and retain professionals, managers and other qualified skilled workers. The current pattern of where people live and work is leading to greater commuting and congestion, and there is a question around longer term sustainability in this respect.

• Poor broadband coverage in many rural parts of the NELEP area is a barrier to rural economic growth, both in terms of enabling homeworking and business-to-business interaction, and will increasingly become a barrier to accessing services and social media.

7. Private and social enterprise

7.1 In this Section, we summarise the key messages, and issues, relating to private enterprise in the North East, as revealed through the literature review. We also consider the role of the innovation and the social enterprise sector.

Figure 7-1: Key messages

• In recent decades, the economy of the NELEP area has moved substantively away from its earlier dependence on coal, steel and heavy engineering towards a broader base, more typical of other modern city-region economies in its emphasis on services, and in which modern manufacturing also features strongly. But this restructuring process is as yet incomplete, for reasons which include scale and culture as well as industrial legacy • Employment in public and private business is distributed across Tyne and Wear, and parts of Durham and Northumberland, with particular strong concentrations in Newcastle city centre and in substantial and successful modern business parks, in Sunderland, and in secondary centres • Global manufacturing and service firms operate successfully within the North East LEP area: some have been in the North East for decades, others are more recent arrivals; many have continued to reinvest • The evidence for an enterprise-based economy across the NELEP area – as manifest in business start-ups and growth – remains at best mixed • While some firms are beacons of high productivity – Nissan is often described as the most productive car plant in Europe – the overall productivity of those in work lags behind the national average • The NELEP area is home to a number of national innovation assets including NaREC, PETEC (part of CPI, located at NETPark) and Newcastle University’s Institute of Ageing and Health, but the overall innovation intensity is low compared to other regions • Despite the positive story of inward investment, a sense of vulnerability remains, perhaps a legacy of what used to be termed a ‘branch plant economy’ • Social enterprise, which could provide some further diversification and scope for enterprise, is under-represented in NELEP, relative to other areas

Source: SQW

Current performance

In recent decades, the economy of the NELEP area has moved substantively away from its earlier dependence on coal, steel and heavy engineering towards a broader base, more typical of other modern city-region economies in its emphasis on services, and in which modern manufacturing also features strongly. But this restructuring process is as yet incomplete, for reasons which include scale and culture as well as industrial legacy

7.2 The North East has changed substantially in recent years, in terms of where employment is located and attitudes towards work and enterprise, as well as in the structure of business. The tendency towards agglomeration of specialist services in city centres and other focal points in city regions is evident in Newcastle in particular, and also in some well-located peripheral urban areas. But overall, the economic structure of the NELEP area remains under-represented in some of the high-growth/high-value activities in the UK economy. The relative small-scale of the wider North East, considered against the larger conurbations elsewhere in the North of England, and the location of the NELEP area with respect to these means that some more specialist functions, including some professional and technical services, have to date developed to a more limited degree than elsewhere.

7.3 Key sectors for the TWCR are financial and professional business services (with growth areas in accounting, legal and consultancy) and the creative, digital, software, media and process (oil, gas, chemicals, plastics, rubber) industries, low carbon, automotive and manufacturing more generally, health and wellbeing, tourism, education and the public sector, whilst there is potential for printable electronics [2, 10, 29, 30, 33, 35, 59] .

Employment in public and private business is distributed across Tyne and Wear, and parts of Durham and Northumberland, with particular strong concentrations in Newcastle city centre and in substantial and successful modern business parks, in Sunderland, and in secondary centres

7.4 Large concentrations of business are found at out-of-town locations and industrial parks, as well as the city centres of Newcastle, Sunderland, and Durham, with their higher education, tourism and cultural assets, with significant concentrations in these locations of public administration roles and financial, business and professional services [10] .

7.5 Major employers in Newcastle Travel to Work Area (TTWA) include the two universities, public administration and financial, business and professional services, and increasingly, the creative and digital, leisure and tourism industries [10] .

7.6 Key manufacturing sites in the NELEP area are at Washington, Team Valley, Boldon Business Park, East Gateshead, Peterlee, South Shields, Jarrow, Hebburn, Portobello, Blaydon and Cramlington. Office-based services are found primarily in central Newcastle, Gateshead, Sunderland and Durham, Cobalt, Doxford International Park, Gosforth Park, Washington, Team Valley, Peterlee (Bracken Hill Business Park), Killingworth and Newburn Riverside [10] . Particularly important business parks include Cobalt Park, Team Valley, Washington, Doxford International Park, Gosforth, Cramlington, Northumberland Business Park and Newburn Riverside; all have available car parking and good access to the strategic road [10] .

7.7 Sunderland and Washington have significant industrial bases, but remain ‘economies in transition’, with the long-term continued trend in employment decline in industry [10] . Much of the employment in Sunderland, a much smaller TTWA than Newcastle, is in Sunderland city centre, Sunderland Enterprise Park, and Doxford International Park [3, 4, 10] . Industry and employment in Washington is focused on Nissan, and on manufacturing more widely [10] .

7.8 Many highly skilled workers in Durham work in the public sector, but the tourism, cultural and creative industries are also increasingly important sources of employment for these groups [3, 4, 10] .

7.9 Retail is focused in Newcastle, which has by far the largest concentration with 439,000sqm. Gateshead has 224,000sqm (including 169,000 sqm at the MetroCentre), North Tyneside with 205,000sqm, Sunderland with 192,000sqm, and South Tyneside with 110,000sqm [13, 38] . In South Tyneside in 2011, 12.6% of retail units were vacant [21] , whilst 12% were vacant in Gateshead [20] .

Global manufacturing and service firms operate successfully within the North East LEP area: some have been in the North East for decades, others are more recent arrivals; many have continued to reinvest

7.10 Major companies in Tyne and Wear in February 2011 included: Nissan and Tanfield Group in Automotive; Trinity Mirror and De la Rue in Printing and Publishing; Ward Hadaway and

Dickinson Dees in Business Services; British Airways, Easyjet and Jet2 in Aviation; Longbenton Foods, Nestle and Gregg’s in Food and Drink; Offshore Group Newcastle, British Engine and Parker Domnick Hunter in Engineering (filtration and separation); Siemens Power Generation and Rolls-Royce plc in Mechanical Engineering. Sage plc accounts for around a third of computer services employees in the TWCR [35] ), BT Syntegra and TSG in Software/E-commerce; Shasun Phama Solutions in Biosciences; Northern Rock now Virgin Money) , AA Insurance, Royal & Sun Alliance and Tesco Bank in Financial Services; Fenwick and ASDA in Retail; and Barratt and Bellway in Construction (housing). Other major companies include Beitsche Bahn, BAE Systems Land Systems, J. Barbour & Sons, Procter & Gamble and AKZO-Nobel [13, 22] . Hitachi has a major plant in County Durham, located in Newton Aycliffe, as are Thorn Lighting, GlaxoSmithKline and 3M [54, 57] .

7.11 Some of these companies, such as Nissan, are at the heart of industrial clusters; others play a significant role in business concentrations. These include specialist manufacturing in sub- sea systems around the River Tyne, automotive and related industry around Washington, Easington and Derwentside; pharmaceuticals at Cramlington and Durham [25] .

7.12 Opportunities relating to existing strengths and resources, are currently being pursued in high growth and emerging sectors – for example in low carbon, where engineering, professional services, metal goods, construction, manufactured fuels, higher education, and power generation are all relevant [29] . Key locations for this sector are South and North Tyneside, Blyth, Washington, Easington and the Port of Sunderland [29] . Offshore wind is also seen as ‘one of the most promising subsectors [for the NELEP area] in terms of creating sustainable growth and quality jobs in the North East, with an advantageous location, established and proven workforce expertise, port facilities, and a strong R&D base, with major institutions such as NaREC, the two CORE centres, TSB Catapult and Energi Coast’ [84] – however, further strengthening the local supply chain is essential if this sector is to maximise its potential. In addition, specialist manufacturing assets include sub-sea expertise around the River Tyne, automotive around Washington, Easington and Derwentside, and pharmaceuticals at Cramlington and Durham [25].

The evidence for an enterprise-based economy across the NELEP area – as manifest in business start-ups and growth – remains at best mixed

7.13 In March 2010, there were 313 active enterprises per 10,000 working age population in TWCR, compared to 339 across the North East, and 537 for the UK overall [6] . People in the NELEP area are more likely to work for larger employers: for example, in Gateshead 86% of firms employ less than 20 people, but the number of businesses employing over 100 is 2.2%, higher than the 1.5% average nationally [26] .

7.14 There were 30,000 enterprise births in the North East (including Teesside) between January 2008 and December 2009 [45] . Relative to its population, Northumberland had more business starts than would be expected [45] . The highest number of business starts were in ‘real estate, renting, computer and other business’, with ‘recreational, personal and community service’ being the next most common type of new business [45] . Sectors where contraction appear to be most evident were in ‘construction’ and ‘recreational, personal and community service’ [45] . Gateshead has a high proportion of births in ‘manufacturing’, ‘real estate, renting, computer & other business’, ‘transport, storage & communication’ and ‘health & social work’, whilst there are relatively high proportions of start-ups in

Northumberland and County Durham in ‘recreational, personal & community service’ and in ‘agriculture, hunting & forestry’ [45] .

7.15 In the years when the economy was prospering, positive change continued in the North East, and the statistics point to some narrowing of the gap with national averages: the ONS Business Demography database shows that the TWCR’s number of active enterprises grew by 4,000 between 2004 and 2009, an 11% increase against an 8.5% increase in the UK more widely [6] . This may now have stalled: until 2008, the five Tyne and Wear districts had a surplus of enterprise births than deaths in most years, but this was reversed in 2009, with falling numbers of births and over 300 more deaths than births in 2009; in 2010, there were more than 1000 more deaths than births [21] .

While some firms are beacons of high productivity – Nissan is often described as the most productive car plant in Europe – the overall productivity of those in work lags behind the national average, attributed to a combination of low skills, a high share of jobs in lower-level occupations and also to under-employment

7.16 High productivity sectors are very small in employment terms in the TWCR, with only creative and digital operating on a substantial scale and with evident potential to grow further. Whilst there are manufacturing sub-sectors that are highly, and indeed increasingly productive, employment in some of these may be vulnerable; in financial, professional and business services, productivity in the TWCR is much lower than the national average [10] .

7.17 The knowledge-based private sector has been growing at a faster rate across the LEP area than nationally, but it starts from a relatively low base; County Durham, for example, ranks as 321 out of 380 areas for its proportion of knowledge based businesses in the UK Competitiveness Index, with only 13.4% of businesses classed as knowledge based [64, 54] .

The NELEP area includes several national innovation assets including NaREC, PETEC and the Institute of Ageing and Health, but the overall innovation intensity is low compared to other regions

7.18 According to a recent OECD report, innovation activity in the Tyne and Wear City Region ‘remains below national standards’, with patent applications standing at 53.8 per million inhabitants compared to the UK average of 90.2, and R&D expenditure at 0.83% of GDP, compared to a UK average of 1.6% and an OECD average of 1.55% [83]. An earlier innovation review by the OECD also concluded that the North East of England under-performed with respect to basic innovation input and output indicators (namely business and government R&D, patents and high-technology employment) compared to the UK and many regions in peer countries [85] .

7.19 That said, the NELEP area is home to a number of important innovation assets, including the New and Renewable Energy Centre (NaREC) in Northumberland and the Institute for Ageing and Health in Newcastle [86] . The New and Renewable Energy Centre was established in 2002, supported by OneNorthEast and European funding. It is based at Blyth in Northumberland. It has rapidly established itself as the UK centre of expertise in renewable energy technologies. The Institute for Ageing and Health (IAH) was established in 1994 to address issues associated with increases in the world’s older population and the linked opportunities for interdisciplinary research. It currently has a core research resource of about 140 staff, together with 60 PhD students. As of October 2008, the IAH’s core research

income was about £6million (plus wider income streams) and it is the largest centre of its kind in Europe (there is also no similar facility in the USA).

Table 7-1: Innovation Assets located in the North East region Innovation Asset Type Defining Characteristics The New and Renewable Energy Substantial city/place-based public sector led, with substantial Centre (NaREC) - R&D-intensive involvement from university/ies and Northumberland concentrations commercial and other research institutions

The Institute of Aging and Health Substantial city/place-based public sector led, with substantial - Newcastle R&D-intensive involvement from university/ies and concentrations commercial and other research institutions Source: SQW, 2008, Major Innovation Assets in the North of England

7.20 However, as noted in a recent report by the Northern Economic Futures Commission, the north faces a number of ‘substantive challenges’ in relation to improving its innovation performance, including difficulties in attracting and retaining high-level skills and graduates, under-developed processes for commercialising technological developments (with poor connections between the science base and businesses, and a lack of investment capital), and the inadequate scale and intensity of innovation networking to enable ‘open innovation’ [84] .

Despite the positive story of inward investment, a sense of vulnerability remains, perhaps a legacy what used to be termed a ‘branch plant economy’

7.21 The Business Survey for the TWCR Economic Review found that 70% of businesses would look to relocate locally if they had to move, with some sectors more likely to remain than others [6, 31] . But only a third of manufacturing stated that they would remain in the TWCR if they had to move, with ICT and digital also relatively footloose: the implication is that these industries may be less embedded than in other areas such as Manchester, where larger-scale industry and population make for better functioning labour markets, influencing an apparent higher ‘rootedness’ of business [6, 25, 31] .

Social enterprise, which could provide some further diversification and scope for enterprise, is under-represented in NELEP, relative to other areas

7.22 The relatively high share of the public sector in the NELEP economy, and the pressures to find innovative ways of delivering services at lower cost might be expected to be resulting in an expanding role for social enterprise, and for the third sector as a whole. There are a substantial number of ‘general purpose’ charities (4760) and community interest companies (CICs, 263) operating in the wider North East. These include a few well-known organisations, such as the Northern Rock Foundation, as well as membership organisations - The North East Social Enterprise Partnership and VONNE (Voluntary Organisations Network North East, which represents the wider community and voluntary sector). In total, the income of third sector organisations in the wider North East was estimated at £1.54bn in 2007/08, and they had assets valued at £2.7bn (work undertaken for the Northern Rock Foundation).

7.23 As elsewhere, a dedicated loan fund operates in the NELEP area – The Social Enterprise Loan Fund for the North East. There is also an intermediate organisation which specialises in finding new sources of funding – FINE – Funding Information for the North East.

7.24 However, surveys have found that social enterprises and charities in the North East tend to be smaller than those in other areas, that the sector is more dependent on statutory sources of funding, and that its members are under continuing pressure to reduce the scale and breadth of their activities. In a survey for VONNE and Newcastle CVS in July 2011, just under half of the respondents (48%) reported that they were cutting, or considering cutting their services (Northern Rock Foundation website).

Implications, future opportunities and challenges

7.25 The NELEP area provides many examples of successful business investment, much of which has been on a considerable scale. Some of these demonstrate the benefits of the public and private sector working together to promote the restructuring of the local economy. There is considerable scope to build on what has been achieved to date, for example:

• The investment from and around the existing successful automobile sector in electric vehicles and associated infrastructure

• Off-shore energy design and construction

• More broadly, reflecting the emphasis on rebalancing the economy towards manufacturing, where the North East is relatively strong

• Well-regarded HE and FE institutions, providing expertise and skills which can support and help steer the wide range of successful enterprises engaged in a modern economy

• Scope to continue to grow successful niche activities in financial, professional and business services; also in creative and digital.

7.26 There are also significant challenges in realising this potential on a scale that can make the difference required.

• The shift now taking place from public to private sector activity means that the change required in the North East, where the public sector is relatively over- represented, is greater than elsewhere

• At the same time, enterprise and business activity is relatively under-represented in the North East, and weaknesses have been identified in some of the skill-sets which underpin modern city region economies

• Changes in economic activity require an adaptive infrastructure - physical constraints, for example around the capacity of key roads such as the A1 and A19, may limit the speed of change and the growth of new activities

• Other local areas where new employment is needed may be less well connected still, limiting the scope to achieve wider productivity benefits.

8. Capital markets

8.1 In this Section, we summarise the key messages, and issues, relating to capital markets in the North East, as revealed through the literature review. The extent to which capital markets support and encourage, or inhibit, local economic activity is obviously relevant to economic conditions and prospects in the NELEP area. But, for the reasons given below, this is not a subject that is treated consistently or in depth in the reports we examined, and there are few statistics which cast a clear light on this at the level of the local area.

• First, the operation of capital markets, the scale and type of finance made available to business, the degree of competition among suppliers and the extent to which products meet business demand, are driven for the most part by national and international economic conditions

• Second, the offer to businesses in an area, and the extent to which this is tailored to specific local conditions, will be influenced by the potential for scale economies in supply – which will itself largely be determined by the scale, type and dynamism of local business activities

• Third, the products and services on offer will also be influenced by the broader economic heritage as well as immediate economic conditions: this includes the extent to which there is a tradition of a financial infrastructure providing different types of capital, local control or at least influence on the products, and specialist professional networks.

8.2 The implication is that while capital markets may enable or inhibit other aspects of local economic development, they may be less readily analysable at the area level. We nevertheless highlight four key messages.

Figure 8-1: Key messages

• The distinctive economic geography, scale and heritage of the North East has resulted in a tendency to depend on public sources of capital, to a greater degree than in other English regions • Dependency on the public sector was recognised as an issue by the RDA, One NorthEast, which sought to use public funds to pump-prime new funding mechanisms which it was hoped would develop into private sector mechanisms and institutions • SMEs in the North East are still experiencing difficulties in accessing finance. Barriers include confidence amongst SMEs, the availability of securing, limited access to mentors and investment angels and the extent to which SMEs are ‘investor ready’. The latter is evidenced by the low numbers of businesses/social enterprises in the North East reported as being able to put forward high quality and viable commercial propositions • Although Newcastle saw significant growth in financial services in the years leading into the recession, and the sector continues to be an important source of jobs, confidence in locally- controlled institutions was considerably damaged by the collapse of Northern Rock.

Source: SQW

Current performance

The distinctive economic geography, scale and heritage of the North East has resulted in a tendency to depend on inward investment and on public sources of capital, to a greater degree than in other English regions

8.3 Reduction in bank lending, and unprecedented cuts in public spending are of course currently making growth more challenging in all areas [54] , but these factors are particular issues for the North East. As noted in earlier sections of this Review, the industrial restructuring of the NELEP area is still work in progress. Other, competing city regions are also repositioning themselves, in most cases from a more advantageous base. Given the adverse wider economic conditions, the NELEP area faces an increasingly challenging environment for securing mobile investment opportunities [10] . The City Region is directly competing for investment with the two major city regions in the North of England, Leeds and Manchester.

8.4 Parts of the NELEP area have features which may both encourage and complicate the development of funding mechanisms, and more effective capital markets. Weaknesses identified in the County Durham economy include the size of local customer and supplier markets that undermine business start-up and growth rates [66] . But many County Durham businesses make specialist products which targeted at external markets [64] . And businesses in Durham City and the rural south have, taken overall, been found to have stronger links to local suppliers and markets than businesses in the north and east areas of the County [64] .

Challenges around access to finance, but also issues in the ability of businesses/social enterprises in the North East to put forward high quality and viable commercial propositions to potential investors/venture capitalists

8.5 Access to finance remains a major issue for the NELEP area. In 2011, 60% of SMEs in the North East tried to access finance and two-fifths of these failed – only 17% reported no difficulties in accessing the finance required [88] . Barriers preventing SMEs from accessing finance include confidence amongst SMEs, a lack of assets available for security, the complex funding landscape, limited access to mentors and angels, and the investor readiness of SMEs.

8.6 Recent research into the potential to grow the market for funding support for social and charitable enterprises in the North East found that the North East was a small part of national lenders’ portfolios and that in general the quality of businesses propositions was poor – the research suggested that demand for, not supply of, finance was the key issue in the North West [87] . An additional challenge was the inability of social enterprises to generate a rate of return that could attract non-mainstream funders, including venture capital.

Dependency on the public sector was recognised as an issue by the RDA, One NorthEast, which sought to use public funds to pump-prime new funding mechanisms which it was hoped would develop into private sector mechanisms and institutions

8.7 Working with private sector partners and the EU, the former RDA established a series of funds, many of which continue to operate under the ‘Finance for Business North East’ banner. These are the £5m North East Micro Loan Fund, operated by the business support organisation, Entrust, which includes a small equity matching fund; the £15m North East

Proof of Concept Fund and the £20m North East Accelerator Fund, both managed by Northstar Ventures; the £25m North East Technology Fund, managed by IP Capital; a £7.5m North East Angel Fund operated by Rivers Capital Partners; the North East Growth Fund and the £20m North East Growth Plus Fund, operated by FW Capital.

8.8 Finance for Business manages £125m funds in total, and has two boards, statutory and advisory, both led by Chairs from the private sector. It is backed by the European Investment Bank, the European Regional Development Fund (ERDF), and the UK Department for Business Innovation and Skills (BIS) through its Capital for Enterprise programme.

Although Newcastle saw significant growth in financial services in the years leading into the recession, and the sector continue to be an important source of jobs, confidence in locally- controlled institutions was considerably damaged by the collapse of Northern Rock. The challenge will be to find distinctive niches, with potential scale, in which a track record can be established.

8.9 Investment remains weak as of Q3 2012, with plant investment negative in Q3 for business optimism, having been positive in the previous two quarters [48] . The NELEP area is particularly negative, with negative balance on business optimism for all of plant investment plans, training investment plans, and cashflow [48] .

8.10 The shortage of development finance since the onset of the financial crisis has also meant a sharp decline in the number of new houses built in the North East, whilst tighter restrictions on mortgage finance have led to a less active housing market [11] . Given the scale and structure of the regional economy, and the vulnerability of consumer spending nationally, the way forward is likely to be through encouraging industrial specialisms and funding for infrastructure, rather than new products aimed, directly or indirectly, at the consumer market.

8.11 Possible areas include opportunities in automotive and low carbon for securing new investment [10, 34] , as well as investment in emerging technologies, incorporating the North East’s universities [26] . Lack of access to finance is considered to be holding back the digital and creative sector [30] , whilst, in a time of limited public funding there is a need for leveraging private sector investment to tap into renewable energy opportunities [35] .

Implications, future opportunities and challenges

• Efficient capital markets support effective modern regional economies and enable on-going restructuring to take place. They are also a consequence of the scale and dynamism of economic activity in an area; this creates effective demand for financial products, and leads to economies of scale in their supply.

• The implications of the scale, structure and history of the NELEP economy, outlined above and in earlier sections of this Review, suggest a relatively high dependence on the public sector, which has sought to make good a limited supply of locally- generated capital which could be recycled into potentially profitable opportunities. With the retreat of the public sector, gaps in provision will make it harder to grow the economy, meaning that demand could grow more slowly than it does in better- endowed regions, and resulting in more vulnerable businesses. This is despite the

considerable efforts to overcome this weakness made to date, and some evidence of progress.

• Economic recovery, nationally and in the North East, is likely to be partial, and concentrated in some activities not others. Public as well as private sources of funds are heavily concentrated in London and, despite the efforts made to redress this, financial services and the related networks of professional advisers operate at a more limited scale around Newcastle than they do in Manchester or Leeds.

• The challenge, which is substantial, is to develop and position financial services in the NELEP area so they enable capital markets to meet the needs of existing businesses more effectively, and develop the bespoke products which can stimulate new investment and activities. This is important because capital markets can create opportunities and enable faster and more effective economic development: they are not only reactive. Addressing this challenge will, we believe, require real business leadership, identifying opportunities specific to the area, for example in new energy, and a willingness to form networks, alliances and partnerships with specialists in this field outside the North East.

9. Conclusions

9.1 In this final Section, we summarise the key strengths and weaknesses of the NELEP economy, and the main opportunities and challenges/threats facing the area as it seeks to improve the resilience and performance of the economy.

9.2 In summary, the NELEP area is home to some distinctive assets and strengths, which have the potential to generate a real competitive advantage in future – and to realise the Government’s ambitions for sustainable economic growth and rebalancing the UK economy. Advanced manufacturing, pharmaceuticals, energy/low carbon and environmental industries are particularly important sectors for NELEP: they offer innovative, highly productive and world-class activities. Many of NELEP’s successful businesses hold a prominent position in international market place, with exports for goods such as machinery and transport holding up relatively well. These are strong foundations on which the economy can build. In addition to its business base, the NELEP area also offers an outstanding natural environment and cultural assets to its residents and visitors, and is home to excellent academic facilities which attract a vibrant graduate community and research expertise to the area.

9.3 There are, however, a number of challenges facing the NELEP area which are linked to the location, economic history and scale of the city region. While these factors cannot in themselves be changed, recognising the position will help frame actions which can counter their role in limiting economic prosperity. The issues to be addressed include:

• Under-performance in GVA per head and productivity, linked to low skills, under- employment, the nature and type of work mainly on offer (lower value added, service functions), low enterprise rates, a low innovation intensity, and the high proportion of working age residents out of work (representing unutilised productive potential)

• Major pockets of deprivation in both urban and the more rural, ex-mining parts of the LEP, and associated issues of multigenerational worklessness

• A high dependency on the public sector for employment (including for higher skilled and KIB employment) and investment capital. An associated need to stimulate more private sector growth

• Poor infrastructures, such as broadband connectivity in parts of Northumberland and County Durham, poor housing stock in some areas (and a limited range), and inadequate commercial property in some locations

• Issues around an under-representation of high-level skills, including challenges in attracting highly skilled workers to the area and retaining graduates.

9.4 The recent OECD report on ‘ promoting growth in all regions’, published in December 2012, focuses on the Tyne and Wear City Region area, and classifies it as a ‘region with catching-up potential’ [83] . However, it too highlights low levels of highly skilled residents, below average levels of infrastructure density and significant gaps in innovation intensity as critical drivers

of (and, in the case of the Tyne and Wear City Region, barriers to) growth. The report also identifies a number of issues that are acting as bottlenecks to growth and development in the area, including a relatively weak private sector, a lack of ‘critical mass’ to enable agglomeration and spillover benefits to take effect (with insufficient internal governance to take a lead in creating a better connected economy), and the inability to mobilise the potential workforce.

9.5 Strengths, weaknesses, opportunities and threats for the NELEP area are summarised in Table 9-1, below. It is hoped that this evidence review – and the wider NEIER – will provide a robust evidence base to the NELEP and its partners to identify and prioritise issues for medium and long term action. Furthermore, the NEIER will help to set the foundations for LEP ‘Strategic Plans’ which, as recognised by Government in the Autumn Statement, are needed to guide the devolution of growth-related spending to local areas (from April 2015) and which it is expected will provide the means to assuming greater control over funding within the LEP areas. This evidence will help the LEP to tailor specific actions to address many of the issues raised above, including more effective support for business and enterprise; unemployment and skills infrastructure including local transport, housing and broadband.

Table 9-1: Summary SWOT analysis Strengths Weaknesses • Substantial progress evident in improved skills levels: there are high • Under-performance in GVA per head, driven in part by issues around low employment proportions of adults with Level 4+ skills in Newcastle, North Tyneside and rates and the productivity of those in work (especially as employment as shifted from Northumberland– but low skills also an issue, both in these areas and higher value manufacturing activities to lower productivity service jobs) elsewhere in the LEP • Pockets of deprivation in both urban and the more rural, ex-mining parts of the LEP. • A relatively high proportion of employees continue to work in Associated issues around multigenerational worklessness, making it difficult to mobilise manufacturing. Advanced manufacturing, pharmaceuticals, energy/low the potential workforce. carbon and environmental industries are important sectors. • Issues around connecting those in need of work with areas of employment growth, • There are marked concentrations of KIBs in Newcastle, North and South especially via public transport Tyneside and Sunderland • The prevalence of employment in lower value activities and occupations, and an under- • A strong performance in exports, especially in machinery and transport, representation of residents with higher level skills has generated a trade surplus, which has held up well during the recession • High dependency on the public sector for employment (including for KIB employment), • Relatively strong performance in attracting FDI, and associated jobs an under-represented private sector, and under-representation of employees in higher • Outstanding natural and built assets, such as the Northumbria National value added services such as business administration, professional and technical Park and Durham’s World Heritage Site sectors • • International access via Newcastle International Airport and the ports Low levels of innovation intensity • The demand for finance, and the ability of businesses/social enterprises in the North East to develop high quality and viable commercial propositions • Poor broadband connectivity in parts of Northumberland and County Durham • Poor housing stock in some areas, and limited choice of better housing across the LEP area, acting as a barrier to attracting skilled workers • Low enterprise rates and tendency to depend upon large employers and the public sector as a source of investment capital

Opportunities Thr eats/challenges • Build on current strengths in exports – and encouraging more of the • Address barriers to inward investment – especially infrastructure business base to export – which will help rebalance the economy. • Improve the speed of broadband connectivity in rural parts of the LEP, which could limit • Excellent academic / research / FE and HE institutions – build on future economic growth and access to services/social media for the LEP’s businesses innovation assets and residents respectively • Build on high value added/advanced manufacturing sectors, providing an • Address the under-representation of private sector business (with the aim of creating a opportunity to raise productivity levels – e.g. in vehicles, offshore energy bedrock of growing medium and large companies), and the over-reliance on the public • The NELEP’s Enterprise Zone, provides a major opportunity to attract sector, to improve the resilience and diversity of the economy investment, build further on the area’s sectoral strengths and create jobs • Raise skills levels – especially in STEM skill – and linking these more effectively with the

• Enable and increase homeworking, especially in more rural and remote sectoral strengths in the LEP area parts of the LEP • Improve graduate retention (and ensuring graduates are not under-employed), and the • Opportunities to increase the social economy, which could encourage ability to attract highly skilled workers to the area (e.g. by improving housing offer, greater entrepreneurial activity promoting the quality of life advantages effectively) • Potential opportunities from the ageing population, particularly given the • Risk of long-term unemployment for young adults currently out of the workforce NELEP’s excellence in health research and care. • Address shortage of the right quality/location of commercial property • Vulnerability to business decisions made outside reinforcing a continued sense of being a ‘branch plant’ economy in some respects • Move away from an over-dependence on the public sector for employment, and stimulate growth of the private sector • Stimulate private sector investment capital and capital markets in general. Source: SQW review of literature

Annex A: Bibliography

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A-1

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A-2

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Regeneris Consulting , CDEA Demand for Skills summary [37]

Regeneris Consulting, CDEA Employment and Skills Evidence Base: A Final Report [71]

Regeneris Consulting, November 2010, Labour Market, Skills and Talent Study Technical Report One: Economic and Labour Market Overview [32]

Regeneris Consulting, November 2010 , Labour Market, Skills and Talent Study Technical Report Three: Higher Level Skills [33]

Regeneris Consulting, November 2010, Labour Market, Skills and Talent Study Technical Report Four: Future Employment and Skills [34]

A-3

Regeneris Consulting, November 2010, Labour Market, Skills and Talent Study Technical Report Five: Knowledge [35]

Regeneris Consulting, November 2010, Labour Market, Skills and Talent Study Technical Report Seven: City Region Assets and Attributes [36]

Regeneris Consulting, November 2010, Labour Market, Skills and Talent Study Technical Report Two: Economic Geography [38]

Regeneris Consulting, November 2010, Labour Market, Skills and Talent Study Technical Report Six: Demographic Change and the Skills Profile [39]

South Tyneside Council, December 2011, Annual Monitoring Report 2010/11 [21]

SQW, 2008, Major Innovation Assets in the North of England - A report to the Northern Way [86]

St Chad’s College, Durham, April 2010, Business Base and Entrepreneurship Profile for County Durham: Draft Report [63]

St Chad’s College, Durham, December 2011, Quantifying the Low Carbon and Environmental Goods Sector in Northumberland [53]

St Chad’s College, Durham, May 2012, Rio Tinto Alcan Lynemouth closure: evidence of likely economic impact [52]

St Chad’s College, Durham, November 2011 , Economic Scenarios for Northumberland [51]

Sunderland City Council, December 2010, Annual Monitoring Report 2009/10 [18]

The Northern Way, November 2009 , City Relationships: Economic Linkages in Northern city regions – Tyne & Wear City Region [25]

The Northern Way, October 2008, Major Innovation Assets in the North of England [55]

TWCR, 2011, Key Messages and Implications from the Final Reviewer’s Report TWCR - Economic Review [1]

TWCR, Key Messages for Transport [5]

TWCR, Key Messages from the Business Survey [6]

TWCR, Key Messages from the Economic Geography, Linkages and the Low Carbon Economy study [4]

TWCR, Key Messages from the Housing Study [9]

TWCR, Key Messages from the Labour Markets, Skills and Talent Study [8]

TWCR. Key Messages for the Low Carbon Economy [7]

Tyne and Wear Research and Information, February 2011, Gateshead Key Facts [15]

Tyne and Wear Research and Information, February 2011, Newcastle upon Tyne Key Facts [14]

A-4

Tyne and Wear Research and Information, February 2011, North Tyneside Key Facts [ 12]

Tyne and Wear Research and Information, February 2011, South Tyneside Key Facts [16]

Tyne and Wear Research and Information, February 2011, Sunderland Key Facts [17]

Tyne and Wear Research and Information, February 2011, Tyne & Wear Key Facts [13]

A-5

Annex B: Supporting data tables

Table B-1: all persons employed in public sector against all persons in employment

Jul 2009-Jun 2010 Jul 2010-Jun 2011 Jul 2011-Jun 2012

numerator denominator numerator denominator numerator Denominator

County Durham 60,100 220,100 63,700 225,600 61,200 222,000

Gateshead 25,200 84,500 23,500 82,800 24,400 82,100

Newcastle upon 38,400 123,100 38,600 129,200 34,500 131,400 Tyne

North Tyneside 31,300 95,200 28,800 93,200 26,900 88,600

Northumberland 40,500 138,900 38,900 135,600 38,900 137,900

South Tyneside 20,200 61,500 19,300 66,300 17,900 65,000

Sunderland 38,900 120,200 35,300 119,000 33,000 120,000

North Eastern 254,600 843,600 248,200 851,700 236,700 846,900 LEP

North East 336,200 1,120,000 322,200 1,124,200 308,200 1,119,300

England 5,871,100 24,060,400 5,812,300 24,192,200 5,599,100 24,335,400

United Kingdom 7,186,900 28,548,900 7,129,500 28,705,800 6,872,200 28,870,700

Source: ONS Annual Population Survey

Table B-2: all persons employed in private sector against all persons in employment

Jul 2009-Jun 2010 Jul 2010-Jun 2011 Jul 2011-Jun 2012

numerator denominator numerator denominator numerator Denominator

County Durham 160,000 220,100 161,900 225,600 160,800 222,000

Gateshead 59,300 84,500 59,300 82,800 57,700 82,100

Newcastle upon 84,700 123,100 90,600 129,200 97,000 131,400 Tyne

North Tyneside 63,900 95,200 64,400 93,200 61,700 88,600

Northumberland 98,400 138,900 96,700 135,600 99,000 137,900

South Tyneside 41,300 61,500 47,000 66,300 47,000 65,000

Sunderland 81,400 120,200 83,600 119,000 87,000 120,000

North Eastern 589,000 843,600 603,500 851,700 610,200 846,900

North East 783,800 1,120,000 802,000 1,124,200 811,100 1,119,300

England 18,189,300 24,060,400 18,379,900 24,192,200 18,736,400 24,335,400

United Kingdom 21,362,000 28,548,900 21,576,300 28,705,800 21,998,400 28,870,700

Source: ONS Annual Population Survey

B-1

Table B-3: Employment rate of the Working age population

Apr 2009-Mar 2010 Apr 2010-Mar 2011 Apr 2011-Mar 2012

numerator denominator numerator denominator numerator denominator

County Durham 210,800 326,800 217,900 330,100 220,600 331,400

Gateshead 84,000 123,800 84,500 125,000 80,900 124,400

Newcastle upon 117,000 195,400 129,800 201,900 129,800 206,100 Tyne

North Tyneside 91,700 126,900 92,700 127,100 89,800 127,600

Northumberland 137,400 195,400 129,600 193,400 134,000 192,300

South Tyneside 62,600 99,500 64,200 99,500 64,700 99,700

Sunderland 121,800 185,000 119,400 187,100 117,100 187,900

North Eastern LEP 825,300 1,252,700 838,000 1,264,100 837,100 1,269,400

North East 1,099,900 1,674,400 1,112,800 1,687,800 1,104,800 1,693,800

North West 2,998,100 4,429,700 3,050,700 4,445,800 3,032,900 4,448,800

Yorkshire and 2,336,000 3,411,400 2,348,700 3,436,600 2,333,200 3,451,900 Humber

England 23,521,100 33,396,000 23,642,000 33,580,300 23,713,500 33,717,700

United Kingdom 27,938,500 39,822,400 28,074,500 40,026,500 28,161,300 40,173,100

Source: ONS Annual Population Survey

Table B-4: percentage of the working age population with NVQ4+

Jan 2009-Dec 2009 Jan 2010-Dec 2010 Jan 2011-Dec 2011

numerator denominator numerator denominator numerator Denominator

County Durham 71,600 325,300 80,800 331,100 81,100 328,100

Gateshead 26,800 122,800 28,800 125,700 32,600 124,200

Newcastle upon 56,700 194,300 56,300 200,600 66,800 203,600 Tyne

North Tyneside 33,900 126,600 36,300 126,400 40,300 126,600

Northumberland 52,300 196,100 55,800 192,700 60,000 190,800

South Tyneside 22,700 99,600 23,600 99,400 22,700 98,700

Sunderland 38,400 183,800 43,100 186,700 40,700 185,300

North Eastern 302,300 1,248,400 324,700 1,262,500 344,200 1,257,400 LEP

North East 399,900 1,669,700 430,400 1,685,400 445,400 1,678,300

North West 1,192,600 4,422,900 1,273,500 4,440,400 1,274,600 4,406,500

Yorkshire and 903,700 3,402,600 907,800 3,428,900 938,800 3,414,200 Humber

B-2

Jan 2009-Dec 2009 Jan 2010-Dec 2010 Jan 2011-Dec 2011

England 9,871,800 33,331,500 10,414,100 33,521,000 10,897,900 33,375,800

United Kingdom 11,826,300 39,750,500 12,449,500 39,959,800 12,996,500 39,769,600

Source: ONS Annual Population Survey

Table B-5: mid-year population estimates

Total population (2011) Working Age Population (16 -64)

Number % County Durham 513,000 331,800 65%

Gateshead 200,300 129,400 65%

Newcastle upon Tyne 279,100 192,300 69%

North Tyneside 201,200 129,900 65%

Northumberland 316,300 198,700 63%

South Tyneside 148,200 95,400 64%

Sunderland 275,300 180,200 65%

North Eastern LEP 1,933,400 1,257,700 65%

North East 2,596,400 1,681,700 65%

North West 7,056,000 4,552,800 65%

Yorkshire and Humber 5,288,200 3,409,300 64%

England 53,107,200 34,347,400 65%

United Kingdom 63,232,600 40,895,000 65%

Source: ONS mid-year population estimates

Table B-6: Working age population mid-year estimates

2007 2011 % change

County Durham 326,100 331,800 2%

Gateshead 122,100 129,400 6%

Newcastle upon Tyne 188,900 192,300 2%

North Tyneside 125,900 129,900 3%

Northumberland 197,500 198,700 1%

South Tyneside 96,400 95,400 -1%

Sunderland 184,700 180,200 -2%

North Eastern LEP 1,241,600 1,257,700 1%

North East 1,663,000 1,681,700 1%

England 33,291,600 34,347,400 3%

B-3

United Kingdom 39,698,000 40,895,000 3%

Source: ONS mid-year population estimates

Table B-7: GVA (£ millions)

Durham CC Northumberland North East North West Yorkshire England and Tyne and and Wear Humber

1997 4 029 14 089 25 154 75 235 55 545 622 531

1998 4 203 14 879 26 423 79 373 58 236 661 723

1999 4 303 15 467 27 275 82 732 60 305 696 458

2000 4 403 16 170 28 185 85 552 62 397 725 959

2001 4 551 17 152 29 524 89 576 65 518 764 440

2002 4 707 18 190 31 033 93 780 69 164 808 329

2003 4 961 19 405 32 984 98 881 73 190 858 523

2004 5 230 20 487 34 829 103 589 76 991 905 640

2005 5 451 21 356 36 217 107 059 79 487 942 583

2006 5 783 22 406 38 037 112 253 83 512 997 084

2007 6 109 23 344 39 762 117 812 87 569 1 055 306

2008 6 249 23 519 40 291 119 224 88 761 1 078 810

2009 6 161 23 014 39 549 116 463 86 821 1 061 973

Source: ONS

Table B-8: GVA per head (£)

Durham CC Northumberland North East North West York shire England and Tyne and and Wear Humber

1997 8 083 9 941 9 795 11 073 11 204 12 792

1998 8 457 10 544 10 318 11 686 11 747 13 554

1999 8 673 11 025 10 695 12 215 12 167 14 204

2000 8 893 11 580 11 081 12 629 12 584 14 745

2001 9 219 12 303 11 623 13 225 13 165 15 459

2002 9 545 13 038 12 216 13 838 13 827 16 281

2003 10 061 13 914 12 984 14 544 14 553 17 218

2004 10 588 14 696 13 707 15 192 15 195 18 073

2005 10 998 15 278 14 214 15 655 15 553 18 678

2006 11 612 16 013 14 901 16 382 16 227 19 642

2007 12 173 16 650 15 530 17 165 16 900 20 649

B-4

Durham CC Northumberland North East North West York shire England and Tyne and and Wear Humber

2008 12 373 16 716 15 673 17 344 17 012 20 962

2009 12 165 16 237 15 304 16 884 16 512 20 498

Source: ONS

Table B-9: GVA per job

GVA (£millions) 2009 Jobs 2009 GVA per Job

North Eastern LEP 29,175 777,309 £37,533

Durham CC 6,161 168,757 £36,508

Northumberland and Tyne 23,014 608,552 £37,818 and Wear

North East 39,549 1,053,221 £37,551

North West 116,463 2,972,687 £39,178

Yorkshire and The Humber 2,182,736 86,821 £39,776 England 1,061,973 24,175,486 £43,928

Source: ONS and BRES

Table B-10: Resident-based and workplace-based earnings (median gross weekly pay for full- time workers, 2011)

Resident earnings (£) Workplace earnings (£)

County Durham 418 440

Gateshead 471 457

Newcastle upon Tyne 477 441

North Tyneside 476 459

Northumberland 425 474

South Tyneside 451 452

Sunderland 441 423

North East 452 451

England 507 508

Source: ASHE

Table B-11: NUMBER OF LOCAL UNITS in VAT and/or PAYE BASED ENTERPRISES in 2012

VAT Business base size businesses

Less than 10 10 -49 50 -249 250+

County Durham 14,820 11,935 2,360 460 65

B-5

VAT Business base size businesses

Less than 10 10 -49 50 -249 250+

Gateshead 5,975 4,460 1,220 255 40

Newcastle upon 9,210 6,965 1,745 410 95 Tyne

North Tyneside 5,215 4,125 865 190 35

Northumberland 12,175 10,235 1,630 285 25

South Tyneside 3,210 2,430 615 150 15

Sunderland 6,365 4,775 1,230 305 55

North East 75,630 59,465 12,895 2,830 445

England 2,218,215 1,843,215 300,750 64,405 9,875

Source: IDBR

Table B-12: Employees in Knowledge Intensive Businesses (2011)

Number % of all employees

County Durham 76,000 46%

Gateshead 44,500 49%

Newcastle upon Tyne 99,200 57%

North Tyneside 38,300 54%

Northumberland 45,500 47%

South Tyneside 22,900 54%

Sunderland 62,800 55%

North Eastern LEP 389,100 52%

North East 523,300 52%

North West 1,556,682 52%

Yorkshire and Humber 1,077,355 49%

England 12,405,000 54% Source: BRES Note: Employee figures exclude farm agriculture and all figures have been rounded to the nearest 100 to comply with BRES licences

Table B-13: Employees by sector (2011)

2008 2011 NELEP ENGLAND Agriculture, forestry & fishing 1,300 300 150,400 Mining, quarrying & utilities 8,600 10,900 263,100 Manufacturing 92,400 83,000 2,009,200 Construction 39,400 40,700 1,032,400

B-6

2008 2011 NELEP ENGLAND

Motor trades 14,800 13,200 408,800 Wholesale 23,300 14,600 979,300 Retail 84,800 74,100 2,346,900 Transport & storage 28,300 31,900 1,072,400 Accommodation & food services 57,000 58,900 1,567,600 Information & communication 21,900 26,700 963,700 Financial & insurance 22,300 18,300 928,400 Property 9,600 11,300 361,000 Professional, scientific & technical 29,600 37,800 1,732,000 Business administration & support services 61,900 45,300 1,921,400 Public administration & defence 69,700 61,800 1,150,800 Education 74,600 75,100 2,194,800 Health 110,200 113,400 2,931,100 Arts, entertainment, recreation & other 35,600 34,200 1,045,700 services Source: BRES Note: Employee figures exclude farm agriculture and all figures have been rounded to the nearest 100 to comply with BRES licences

Table B-14: Employees by sector (2011)

County County Durham Gateshead Newcastle Tyne Upon North Tyneside Northumberl and South Tyneside Sunderland

Agriculture, forestry & fishing 100 0 0 0 200 0 0 Mining, quarrying & utilities 3,800 500 400 800 2,000 400 3,000 Manufacturing 24,600 11,200 8,300 5,400 11,200 5,000 17,400 Construction 10,000 6,800 5,200 4,400 6,300 2,700 5,400 Motor trades 2,900 1,700 2,200 1,600 2,200 700 1,800 Wholesale 3,600 3,400 1,700 1,400 1,800 700 2,000 Retail 16,200 10,700 14,800 7,800 10,500 4,300 9,700 Transport & storage 8,000 4,200 6,400 1,800 3,600 2,000 5,900 Accommodation & food services 12,400 5,400 15,100 4,900 9,900 3,100 8,100 Information & communication 1,900 3,700 7,900 6,000 2,100 1,000 4,000 Financial & insurance 2,300 1,900 6,600 1,400 1,100 300 4,800 Property 2,400 900 2,800 1,500 1,200 600 1,800 Professional, scientific & technical 6,700 3,700 12,800 5,000 5,100 1,500 3,000 Business administration & support services 6,700 6,900 12,700 4,000 4,100 3,200 7,600

B-7

County County Durham Gateshead Newcastle Tyne Upon North Tyneside Northumberl and South Tyneside Sunderland

Public administration & defence 14,400 7,600 18,500 5,300 5,600 1,600 8,700 Education 18,000 7,500 19,600 5,700 8,800 4,500 11,000 Health 23,300 11,800 27,800 11,100 15,400 8,500 15,600 Arts, 6,300 3,300 10,000 3,200 5,500 2,000 3,900 entertainment, recreation & other services Source: BRES Note: Employee figures exclude farm agriculture and all figures have been rounded to the nearest 100 to comply with BRES licences

Table B-15: Employees by occupation (numerator three year average 2009/10-2011/12)

managers, managers, and directors senior officials professional occupations & prof associate tech occupations administrative secretarial and occupations trades skilled occupations leisure caring, service other and occupations sales and service customer occupations plant process, machine and operatives elementary occupations

County 19,533 34,200 28,367 26,033 25,033 17,600 21,567 22,000 28,333 Durham

Gateshead 7,533 12,467 9,967 11,900 8,133 8,200 8,300 6,767 10,267

Newcastle 9,733 27,367 12,800 13,867 12,233 13,167 13,767 8,233 17,467 upon Tyne

North 8,500 17,833 13,367 11,367 9,533 7,533 11,367 4,900 8,267 Tyneside

Northumberl 13,200 24,300 18,000 14,400 17,733 13,367 12,000 9,033 15,900 and

South 5,567 8,500 7,800 8,600 7,667 6,733 6,733 5,000 8,000 Tyneside

Sunderland 9,033 17,000 13,867 13,700 13,833 11,100 13,533 11,800 16,600

North 73,067 141,700 104,167 99,833 94,200 77,667 87,200 67,733 104,733 Eastern LEP

North East 95,467 185,400 139,000 129,333 126,867 106,133 114,633 89,733 139,167

England 2,507,2 4,671,6 3,403,5 2,748,5 2,596,2 2,172,8 1,956,8 1,567,0 2,636,2 67 00 67 33 67 33 33 33 00

Source: ONS Annual Population Survey

B-8

Figure B-1: Imports of goods into the North East, by sector

2,500

2,000

1,500

1,000

Imports by sector(£m) Importsby 500

Source: HMRC Regional Trade in Goods Statistics

Figure B-2: Exports of goods from the North East, by geography, 2009-2012

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200 Exports by geography by Exports(£m) 0 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Asia & Oceania Eastern Europe (excl EU) European Union Latin America and Caribbean Middle East and North Africa (excl EU) North America Sub-Saharan Africa Western Europe (excl. EU) Low Value Trade

Source: HMRC Regional Trade in Goods Statistics

B-9

Figure B-3: Imports of goods into the North East, by geography, 2009-2012

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200 Imports by (£m) geography Importsby 0 2009 2009 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Asia & Oceania Eastern Europe (excl EU) European Union Latin America and Caribbean Middle East and North Africa (excl EU) North America Sub-Saharan Africa Western Europe (excl. EU) Low Value Trade Source: HMRC Regional Trade in Goods Statistics

Figure B-4: Net balance of trade for goods for the North East, by sector, 2009-2012

1,000 902 923 865 839 801 798 810 799 776 766 767 728 800 718 712 702 708 705 675 701 672 652 636

600 524 444 391 400 338

200

-193 -207 -61 -191 -196 -186 -195 -215 -247 -209 -192 -200 -215 -205 -241 -202 -234

Net (£m) Exports 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 -309 -331 -400 -361 -388

-509 -488 -600 -549 -563

-662 -800 -748

-1,000

Chemicals Machinery and Transport Other commodities nes Animal and Vegetable Oils Beverages and Tobacco Crude Materials Food and Live Animals Manufactured Goods Miscellaneous Manufactures Mineral Fuels

Source: HMRC Regional Trade in Goods Statistics

B-10

Figure B-5: Net balance of trade for goods for the North East, by geography, 2009-2012

1,000

800 750 744 690 689 651 659 598 600 535 519 516 484 442 454 435 452 378 356 349 331 400 319 335 309 314 319 249 196 200 133 52 36 0 -32 -23 -15 -44 -43 -89 -62 -70 -132 -112 -144 -97 -143 -200 -255 -240

Net (£m) Exports 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 -297 -322 -400 -352 -379 -393

-600 -518 -571 -591 -800

-1,000 European Union North America Latin America and Caribbean Sub-Saharan Africa Low Value Trade Middle East and North Africa (excl EU) Asia & Oceania Eastern Europe (excl EU) Western Europe (excl. EU) Source: HMRC Regional Trade in Goods Statistics

B-11

Figure B-6: Number of jobs provided from UKTI-involved FDI successes in 2010-2011, by LEP area

Source: UKTI

B-12

Figure B-7: Number of jobs provided per UKTI-involved FDI success in 2010-2011, by LEP area

Source: UKTI

Table B-16: Aggregate number of people claiming JSA by LEP districts

Area Nov Nov Nov Nov Nov 2009 Nov Nov Nov 2012 2005 2006 2007 2008 2010 2011

Total Total Total Total Total Total Total Total Numbe Numbe Number Numbe Number Number Numbe Number of r of r of of JSA r of of JSA of JSA r of JSA JSA JSA claimant JSA claimants claimant JSA claimants claiman claima s claima s claima ts nts nts nts

County 6,766 6,856 6,271 10,186 14,278 12,509 14,641 16,168 Durham

Gateshead 3,305 3,467 3,080 4,339 6,001 5,454 6,290 6,734

Newcastle 5,315 5,810 5,370 6,755 8,688 8,257 9,307 9,589 upon Tyne

North 3,349 3,589 3,194 4,410 5,772 5,664 6,170 6,221 Tyneside

B-13

Northumberl 4,487 4,890 4,301 5,764 7,397 7,024 7,919 8,572 and

South 3,848 4,187 3,777 4,886 6,402 5,868 6,696 7,238 Tyneside

Sunderland 5,316 5,923 5,542 7,361 10,318 9,211 10,154 10,180

Source: Nomis

Table B-17: Percentage of Claimants expressed in proportion to 16-64 resident population estimates Percentage of Claimants 16 -64 Area Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11 Nov-12

County 2.1 2.1 1.9 3.1 4.3 3.8 4.4 4.9 Durham

Gateshead 2.7 2.8 2.5 3.5 4.9 4.4 5.1 5.4

Newcastle 2.9 3.1 2.8 3.5 4.4 4 4.5 4.7 upon Tyne

North 2.7 2.9 2.5 3.5 4.5 4.4 4.8 4.8 Tyneside

Northumber- 2.3 2.5 2.2 2.9 3.8 3.6 4 4.4 land

South 4 4.4 3.9 5 6.5 5.9 6.7 7.2 Tyneside

Sunderland 2.9 3.2 3 4 5.6 4.9 5.4 5.4

North Eastern 2.6 2.8 2.5 3.5 4.7 4.2 4.8 5.1 LEP

England 2.2 2.3 2 2.6 3.9 3.4 3.8 3.7

North East 2.8 3 2.8 3.7 5 4.6 5.2 5.5 Source: Nomis

Table B-18: R&D Performed in UK Businesses by region 2004-2011 (£Millions)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

United Kingdom 11510 12239 12484 12505 12662 13734 14144 15676 15814 15532 16053 17408

England 10827 11412 11642 11748 11885 12847 13312 14649 14847 14360 14873 16113

North East 164 125 124 149 257 289 292 331 318 315 308 259

North West 1451 1582 1604 1538 1739 1892 1623 2021 2130 1926 2074 2260

Yorkshire and the Humber 304 319 337 335 343 344 384 436 433 454 488 543

East Midlands 933 909 974 862 936 1006 985 1062 976 992 1137 1149

West Midlands 576 760 774 794 758 721 915 995 886 847 886 1237

East of England 2758 2798 2650 2915 2672 3718 3650 3992 4182 3812 3851 3638

B-14

London 810 700 865 669 759 552 882 1067 1109 907 877 1142

South East 2964 3212 3156 3266 3125 3125 3347 3515 3466 3758 3798 4528

South West 867 1006 1158 1221 1296 1201 1232 1229 1345 1349 1454 1358

Wales 144 161 187 200 226 232 216 308 243 243 234 255

Scotland 400 517 507 441 430 506 460 543 554 631 622 689

Northern Ireland 139 150 149 116 120 148 157 177 171 297 324 352 Source: ONS

Table B-19: Patent applications filed and granted in the UK by region in 2011 2011

Applications filed Patents granted Success %

East Midlands 685 155 22.627737

East of England 1,818 409 22.49725

London 2,701 401 14.846353

North West 1,285 246 19.143969

Northern Ireland 249 16 6.4257028

North East 380 70 18.421053

Scotland 991 207 20.887992

South East 2,828 591 20.898161

South West 1,403 363 25.873129

Wales 580 82 14.137931

West Midlands 1,060 216 20.377358

Yorkshire** 1,127 175 15.52795

Unmatched Postcodes 236 61 25.847458

Total 15343 2992 19.50075 Source: Intellectual Property Office

B-15