ERECE EXECUTIVE SUMMARY State of the Somerset Economy 2013 Produced by Marchmont Observatory for Somerset County Council July 2013 1 Contents Contents ................................................................................................................................. 2 1. Introduction ..................................................................................................................... 4 2. The Economic and Policy Context ................................................................................... 4 2.1 Economic context ..................................................................................................... 4 2.2 Policy Context .......................................................................................................... 5 3. Somerset - in profile ........................................................................................................ 6 3.1 Somerset’s economic geography ............................................................................. 6 3.2 Travel and Communications ..................................................................................... 6 3.3 Demography ............................................................................................................. 7 4. Economic Performance, Trends and Prospects ............................................................... 7 4.1 Gross Value Added .................................................................................................. 7 4.2 Employment structure............................................................................................... 8 4.3 The Sub-economies of Somerset ............................................................................. 9 4.4 Future prospects ...................................................................................................... 9 4.5 Impact of Hinkley Point C ........................................................................................10 5. Business Competitiveness..............................................................................................11 5.1 Characteristics of enterprises ..................................................................................11 5.2 Productivity ..............................................................................................................12 5.3 Drivers of productivity ..............................................................................................12 6. Workforce Competitiveness ............................................................................................13 6.1 Employment ............................................................................................................13 6.2 Unemployment ........................................................................................................14 6.3 Participation in and attainment in education or training ............................................14 6.4 Highest qualification among economically active residents ......................................15 7. Demand for Skills, Education and Training .....................................................................15 7.1 Skills Demand .........................................................................................................15 7.2 Skills shortages and gaps ........................................................................................16 7.3 Training and skills development ..............................................................................16 8. Prosperity and Quality of Life ..........................................................................................16 8.1 Disposable income ..................................................................................................16 8.2 Quality of Life ..........................................................................................................17 8.3 Educational attainment ............................................................................................17 8.4 Housing affordability ................................................................................................18 2 9. Area Competitiveness ....................................................................................................18 9.1 Location and infrastructure ......................................................................................18 9.2 Broadband ...............................................................................................................19 9.3 Climate change and carbon usage ..........................................................................19 9.4 The Low Carbon Economy ......................................................................................20 10. Somerset – a successful economy? ............................................................................20 10.1 Successes ...............................................................................................................20 10.2 Weaknesses in the economy ...................................................................................21 10.3 Future threats ..........................................................................................................24 10.4 Opportunity and growth ...........................................................................................26 3 1. Introduction This Executive Summary Report summarises the extensive analysis presented in the State of the Somerset Economy 2013. Commissioned by Somerset County Council and produced by the Marchmont Observatory at the University of Exeter, this report refreshes and extends the State of the Somerset Economy: An Economic Profile report, published in June 2010. This Summary draws together the key points to emerge from the data and analysis and then concludes by considering what this means for the Somerset economy, both now and in the medium term. Crucially, this new commission incorporates updated statistics for Gross Value Added (GVA) – the principal indicator of economic performance - for 2011 and also a broad range of analyses on Somerset’s historical and projected economic performance drawing on the Heart of the South West Economic Model produced by Oxford Economics. This also includes some projections based on the development of Hinkley Point C. 2. The Economic and Policy Context 2.1 Economic context The fortunes of the Somerset economy will be strongly influenced by the national economic and policy context. Sustained recovery from the deepest recession in decades is so far proving elusive. The latest data 1 suggest that the UK economy shrank by 0.3 per cent in the final quarter of 2012. This was slightly larger than the 0.1 per cent fall forecast by the OBR in December, reflecting disrupted North Sea oil production. Output rose by 0.2 per cent in 2012 as a whole yet surveys suggest little pick-up in underlying activity in recent months. On an encouraging note, the labour market performed more strongly in the fourth quarter than expected, with surveys pointing to continued employment growth into 2013. The Coalition Government’s approach to reviving the economy continues to be spearheaded by its deficit reduction plans and monetary activism, whilst on the supply side, a variety of reforms seek to support local growth and to create jobs. In its latest forecasts 2, the Office for Budget Responsibility (OBR) has halved the growth forecast for 2013 from the 1.2% it had predicted in December 2012 to 0.6%. This is explained by lower than expected exports as a result of the continued economic crisis in the Eurozone and slower growth in the developing economies on which the UK is reliant for its export markets. At the same time, borrowing is likely to continue at the same pace as this year, indicating that the economic problems and debt crisis are taking longer to resolve. Growth of 1.8% is expected in 2014. Despite this, the UK labour market continues to perform more strongly than forecast, with a net increase of over one million jobs in the private sector since the first quarter of 2010. Employment rose by 584,000 in the fourth quarter of 2012 compared with a year earlier and employment levels were the highest recorded since the pre-crisis peak. The OBR expects employment to continue to rise over the forecast period. 1 ONS second estimate of GDP Q4 2012, released 27 February 2013. 2 Economic and Fiscal Outlook – March 2013, OBR 4 The UK is now eighth in the World Economic Forum Global Competitiveness Report but a range of factors have weighed heavily on the UK economy: • the impact of the financial crisis on GDP and productivity has been greater than expected; • the Euro zone crisis has damaged confidence and reduced external demand; • the price of commodities has driven inflation, reduced real incomes and raised business costs, all of which impact on demand in the economy; • the high cost and availability of credit has acted as a significant barrier to business growth. 2.2 Policy Context In response to the economic conditions, the Government’s economic strategy comprises: • monetary activism or ‘credit easing’ to help provide small and medium sized businesses with access to finance; • tackling the public sector deficit as a top priority, so that in addition to cuts in public funding, significant action is being taken on welfare spending and reforms aimed at improving incentives to work; • reform of the financial system; and • a package of structural reforms, aimed at rebalancing the economy away from government