The Yorkshire and Humber Economy a Joint Response to Changing Economic Circumstances
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YORKSHIRE AND HUMBER The Yorkshire And humber economY A joint response to changing economic circumstances July 2008 02 The Yorkshire and Humber economy CONTENTS 03 FOREWORD 04 COPING WITH TOUGHER ECONOMIc cONDITIONS 05 THE NEW YORKSHIRE AND HUMBER EcONOMY 07 THE RESPONSE TO cURRENT ECONOMIc cHALLENGES 11 NEXT STEPS The Yorkshire and Humber economy 03 FOREWORD The global economy is facing work with other agencies across Yorkshire This document encourages local businesses, unprecedented challenges. The twin and Humber to support the economy, build the voluntary sector and other local groups impact of tighter credit conditions and on Yorkshire’s strengths and help Yorkshire to continue communicating to regional increases in global commodity prices, in families and businesses through the tougher bodies and to central Government how the particular oil, mean we can expect difficult times ahead. In addition to the work detailed economy is changing in their area, whether times for the UK economy in the coming in this document there is other extensive current policies are working, and what months. This will affect each region in work being done by local councils and further needs to done in specific areas or different ways in line with the different the voluntary sector to support economic sectors. economies of each region. After the development in their areas. We expect this unprecedented growth of recent years, to feed into a comprehensive programme Whilst times may be harder over the Yorkshire and Humber and other regional of work across a range of different coming months, there is no doubt that economies will need to prepare themselves organisations across Yorkshire and Humber, the many strengths of the Yorkshire and for a more challenging economic climate. as well as informing the Government’s work Humber economy will help it through this in the run-up to the Pre Budget Report. difficult period. This document sets out how At this time it is critically important Yorkshire Forward, working with other local that national Government and regional In conjunction with this document, the agencies, together with central Government, bodies listen carefully to the experience Government is also launching the second will ensure that the region’s economy of businesses and other local groups to round of the Regional Funding Advice performs well in the coming months and ensure they understand what is happening (RFA) exercise, which offers regions the years. on the ground. And it is important that opportunity to advise on their long-term businesses are clear what support is offered priorities to support sustainable economic by Government and by regional agencies to growth. Yorkshire and Humberside is being help them manage in these difficult times. asked to provide advice on regional funding allocations of over £900m in 2008-09. This document has been drawn up by the Government and Yorkshire Forward as an initial framework for discussion with business, councils, housing groups, the voluntary sector and community groups. It sets out the next steps on how the Government and Yorkshire Forward will ROSIE WINTERTON YVETTE COOPER Minister for Yorkshire and the Humber Chief Secretary to the Treasury PAT McFADDEN TERRy HODGKINSON Minister of State, Department for Business Yorkshire Forward and Regulatory Reform 04 The Yorkshire and Humber economy COPING WITH TOUGHER ECONOMIC CONDITIONS Two world shocks have thrown the UK economy off-course: the global credit FIGURE ONE: UNEMPLOYMENT IN YORKSHIRE AND HUMBER crunch and the global surge in oil and food prices. This means the UK is facing 23,000 unprecedented challenges. The practical impacts on businesses are that it is 22,000 harder to raise capital to fund investment. Operational costs – especially for energy 21,000 - are rising. The input cost of commodities like steel, wood and fertiliser are 20,000 Flows increasing, squeezing profit margins and putting upward pressure on prices. These 19,000 challenges also have an impact on the individual consumer, particularly in terms 18,000 of higher prices at the petrol pump and a more expensive weekly shop. 17,000 We expect these tougher economic Jul 06 Jul 07 Jan 07 Jan 08 Nov 06 Nov 07 Sep 06 Sep 07 Mar 07 Mar 08 conditions to hit all businesses, but their May 07 May 08 impact varies across regions and sectors. Off-Flow On-Flow In the first half of 2008 the Yorkshire and Humber economy has held up to this The region’s service sector has achieved sector that is now being hit hardest by challenge relatively well, but there are signs significant growth over the last decade in the combined effect of tightening personal that these economic pressures will have a jobs and output. Service companies and and commercial credit, rising input and significant impact. Business confidence has retailers are being affected by declining energy costs, falling values and a major dipped significantly, particularly amongst consumer spending and confidence, as fall in consumer confidence. It is becoming smaller businesses that are especially well as rising energy costs. A significant more difficult to agree new property deals affected by tighter credit conditions. It will number of banks and building societies and there are examples of those that are be vital to help businesses take action to are based in the Leeds city-region. The completed and even on site being stalled. mitigate the impact of the slowdown over issues surrounding liquidity and funding Commercial speculative build has stopped, the second half of the year. within this sector and the attendant credit although there are parts of the construction constraints within the marketplace are sector – education and hospital building Yorkshire and Humber has a strong and inevitably having a significant effect on programmes – that are sustaining the diverse manufacturing base which has these businesses, including some major market. undergone a major restructuring over the businesses. Whilst many are well placed past 20 years, but still employs around 15% to deal with these challenges, some The last two months has seen an increase of the region’s workforce. Manufacturers companies are restructuring their balance in the numbers of people claiming job in the region are used to difficult trading sheets in response. Yorkshire’s strengths seekers’ allowance. In June the numbers conditions and many still report relatively in the financial sector are in a broader grew by 2,200, a 2.9% rise and the second healthy order books, but domestic orders range of financial and professional services highest in the country (see Figure One). The have slowed over the last few months. such as accountancy and legal services. impact is fairly evenly spread by geography Those sectors that have developed strong Businesses in these sectors are in general and industry. All indications are that this will specialisations based on higher value added not experiencing the same impact of the grow again in July. There are indications are activities are better placed to adapt to credit crunch as those in the banking sector. that this will grow again in July. There has change, with their track record of seeking In 2006 employment in the financial services also been a slow down of the numbers of export markets, investing in skills and sector was made up of 67% business job vacancies available. technology and innovation. Examples of services, 12% property related services and This represents the current analyis of the these in Yorkshire and Humber include 21% banking and insurance services. Yorkshire and Humber economy. Both Pace electronics which has recently won a nationally and regionally it is important contact to supply BT with set-top boxes for The property and regeneration sector that we keep up with developments in its online TV service. Other sectors may be has experienced a strong period of growth the economy by continuing to listen to more exposed to rising input and energy over the last decade leading to visible businesses and other regional organisations. costs, particularly in highly competitive global improvements in all of the region's towns markets. and cities, but it is the residential property The Yorkshire and Humber economy 05 THE NEW YORKSHIRE AND HUMBER ECONOMY Whilst these economic changes herald FIGURE TWO: YORKSHIRE AND HUMBER WORKING AGE EMPLOYMENT RATE (%) a more challenging time for Yorkshire and Humber, it must be remembered 75.0 that the region’s economy has changed fundamentally over the past decade. With 74.0 a population of more than five million people and over 300,000 businesses, the £82 billion economy is as big as 73.0 Denmark, Norway or Scotland and has grown faster than the European average 72.0 for seven consecutive years. There are almost 250,000 more people in jobs, more 71.0 businesses and fewer people in receipt of Government benefits. Yorkshire Forward 70.0 has led a strategy over the last ten years to build a more diverse economy, less 69.0 dependent on one or two sectors such as textiles and steel. This means the region is 68.0 less exposed, although not immune, to a downturn in the economy. 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Yorkshire and Humber’s new diverse economy combines a strong service The Sheffield city-region is no longer a Yorkshire and Humber has more people sector with a higher value manufacturing European Objective One area and accounts in work than for a generation, with an sector, with more people starting their own for a higher proportion of the UK’s total employment rate of 73.5 % (see Figure Two) businesses and social enterprises. There are steel production than it did in the 1960s and and a spread of employment across the new jobs in growing industries like digital 70s.