When it launched its economic strategy for 2006-2016, One NorthEast, the regional development agency, gave a clear target for closing the gap between its gross value added (GVA) and that of the UK average.
The target, it said, was to raise the region’s GVA per head from 80 to 90 per cent of the UK average by 2016. This increase, it said, would require “a significant step change in economic performance”, needing both an increase in the productivity of those in work and the participation rate – the proportion of the region’s residents in employment.
This month, Alan Clarke, the RDA’s chief executive, insisted: “The target is the target, we are still aiming at it.”
But the most recent GVA figures, for 2007, illustrate just how challenging that target is. While the north-east economy grew in 2007 by £2bn ($3bn) to GVA of £40.2bn, the UK average grew faster, resulting in north-east GVA per head, on a relative basis, falling – a disappointment as this was the first year since 2002 that the gap between the north-east and the UK average had widened.
In 2006 north-east GVA growth per head had been the highest in the UK. A technical issue, a statistical revision of how GVA is calculated, did not help, as this reduced the north-east 2006 figure from 81.5 per cent to 79 per cent of the UK average.
From that revised base, the region lost 0.4 per cent in 2007, ending up with 78.6 per cent of the UK figure.
“Closing the gap” on various indicators has been a preoccupation for years as the region has striven to rise from the lower ranks in performance league tables for key indicators such as GVA, business stock per 10,000 population, unemployment and workless households.
There has been real progress in some areas, such as performance at GCSE and employment rates and in raising manufacturing productivity to improve global competitiveness, an effort spearheaded by the North East Productivity Alliance.
For many years unemployment in the north-east has been the highest of the English regions. At the third quarter of 2008, technically the start of the recession, the region’s rate was 8 per cent on the International Labour Organisation measure and 4.3 per cent on claimant count (UK: 5.8 per cent and 2.8 per cent).
The north-east is now at 8.4 per cent on the ILO measure and 5.4 per cent on claimant count (UK 6.3 per cent and 3.8 per cent), but the increase in recent months in the Job Seekers Allowance claimant count has been slower than for the UK as a whole. Whether this remains so will be a barometer of how the region is faring.
Tremendous effort has gone into boosting entrepreneurialism in line with the RDA’s target of creating between 18,500 and 22,000 new businesses by 2016 and increasing employment by between 61,000 and 73,000 new jobs.
Participants in this area include not only publicly-funded bodies such as Business Link and enterprise agencies, including Project North East, Entrust and InBiz, but also regional self-help organisations such as the Bridge Club and Entrepreneurs’ Forum, involving some of the region’s leading business people.
For high-growth businesses, The Alchemists consultancy service has delivered top-flight mentoring and there has been a focus on ensuring a range of finance for businesses’ ambitions to grow; NorthStar’s novel Proof of Concept Fund, for example, has helped a number of science-based ventures in their crucial early stages.
Effort on this scale is necessary because of the gap between the north-east and UK business stock.
However, there is a need, says Professor Paul Croney, dean of Northumbria University’s Newcastle Business School, for greater clarity on funding sources and better co-ordination between local agencies to help enterprise prosper.
While the region has produced highly successful and diverse indigenous companies, such as Sage, Greggs and Hargreaves, it simply does not have enough businesses, a product, at least in part, of its big-workplace, manufacturing heritage.
Business formation rates have been improving, but from a low base; at the start of 2007, the north-east still had the lowest rate of VAT-registered businesses of any region or country of the UK, 41 per cent below the national average.
Having seen business creation rates greater than the national average in 2007-8, One NorthEast has been concerned, says Mr Clarke, at the impact of recession and the implications of the credit crunch on banks’ ability to lend. Over the next two years, the RDA is channelling £46m from its own budget as well as national government schemes into tackling the effects of the recession on companies in the region.
At the heavy end of the industry scale, the north-east’s structurally-important Teesside steelworks, including the Redcar blast furnace, emerged relatively unscathed from steel company Corus’s recent job cuts announcement.
There are hopes that a deal to sell a majority stake in the Teesside operation to Marcegaglia of Italy and Dongkuk of South Korea will safeguard its future.
Some parts of the important processing sector, such as fine and speciality chemicals, are holding up well in recession but there are concerns in the base and commodity chemicals sector, particularly because of interdependence in the supply chain.
The Alcan plant, an important employer in south-east Northumberland with 650 jobs, has not been hit by recent global job cuts by its parent Rio Tinto Alcan, but has, along with other smelters globally, reduced output temporarily because of the fall in demand.
A legal battle with the European Commission is looming over the UK’s determination to exclude this site from the Large Combustion Plant Directive.
Recent worries about larger businesses in the region have focused on the downturn in construction and the global pressure on automotive sales, which has compelled Nissan’s Sunderland plan to cut 1,200 of its 5,000 workforce.
This cut is having a knock-on effect on suppliers who employ as many people in the region as Nissan. Over the long term, there are hopes the Sunderland site will become involved in electric vehicle production.
But the shift to “green” motoring is not guaranteed and will not be immediate.
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