1. The West Midlands Economy
A review of Achievements & Challenges
10th Regeneration Management Research Network
Dr Glynn Jones
Head of Economics & Strategy
Wednesday 30th June 2010

2. The West Midlands: a review of achievements & challenges
1. The recession & its
impact on the region
2. Regional economic
performance
3. Future outlook for
regeneration
4. Key challenges
1

3. 1. The Recession & its Impact on
the Region
i. Global Recession
ii. Regional Impact
iii. Social & Spatial
Considerations

4. The nation has experienced a very deep recession,
extending over six quarters …….
Source: ONS, UK Output, Income & Expenditure, February 2010
Notes: Q4 2009 GDP was revised up from +0.1% up to 0.4%; Q1 2010 up from 0.2% to 0.3%
Estimates of the recession have been revised downwards from 6% to 6.3%.
3

5. Which is by far the deepest recession experienced in
the post-war period
‘Recession’ = two consecutive quarters of negative economic growth
1973 / 74 1980 / 81 1990 / 91 2008 / 09
Q3 -0.8 Q1 -0.8 Q3 -1.2 Q2 -0.1
Q4 -0.2 Q2 -1.8 Q4 -0.6 Q3 -0.9
Q1 -2.4 Q3 -0.3 Q1 -0.1 Q4 -1.8
Total -3.4 Q4 -1.2 Q2 -0.3 Q1 -2.6
Q1 -0.5 Q3 -0.4 Q2 -0.7
1975
Total -4.6 Total -2.6 Q3 -0.3
Q2 -1.7
Total -6.4
Q3 -0.2
Total -1.9
Source: ONS, GDP Quarter Growth, 2009
4

6. The West Midlands has seen the sharpest drop in
output of all the English regions over the last year....
PMI Output (12-month average) PMI Output (seasonally adjusted)
60
West Midlands
PMI Index (50 = no change on previous month)
Yorkshire & 55
Humber
East Midlands 50
South East
45
East England
40
South West
North East 35
North West UK
30
West Midlands
London
25
40 45 50 55
PMI (50 = no change on previous month)
Source: Markit Economics / AWM February 2010
5

7. And for much of the recession the region has seen some of
the highest rates of unemployment, peaking at over 10%
Source: ONS Labour Market Statistics, March 2010
6

8. Whilst the level of notified redundancies has eased since
early 2009, since 2010 they have again begun to rise
Source: Jobcentre Plus, March 2010
7

9. The impacts have especially affected the region’s older
urban communities, where deprivation is already high…
Source: NOMIS, JSA Claimant Count, February 2010
8

10. And in terms of social groups has impacted especially on
younger people and those with no qualifications
Source: Labour Force Survey, 2009
9

11. There is particular concern around the impact on young
people, with the risk of longer-term effects......
Youth Claimant Proportion (Jan 2010)
18%
16%
urban core economies
Claimant Rate (aged 18-24)
14%
12%
10%
8%
6%
4%
2%
0%
Source: NOMIS, JSA Claimant Count, February 2010
10

12. Especially given the strong evidence linking (long-term)
unemployment with poor health
• Higher mortality
Percentage Poor Health
• Poorer general health,
somatic complaints,
longstanding illness, limiting
longstanding illness
• Poorer mental health; more
psychological distress;
minor psychological/
psychiatric morbidity,
suicide
• Higher medical consultation,
medication consumption
and hospital admission rates
11

13. 2. Regional Economic Challenges
i. Regional economic trends
ii. Industrial structure
iii. Skills & productivity

14. Regional GDP per head dropped dramatically in the early
1980s - stabilising - then deteriorating in the late 1990s....
Note: GDP and GVA data are NOT directly comparable
GDP = GVA + taxes on products - subsidies on products
Source: Office of National Statistics
13

15. With the West Midlands experiencing the lowest average
annual growth in GVA per head (2000-2007) of any UK region
14

16. Equally, regional unemployment peaks in recession at higher
level; but since late1990s has not returned to national rate
18
16 UK
West Midlands
14 East Midlands
Regional Claimant Count Rate (%)
North East
12
South East
10
8
6
4
2
0
1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1
Source: ONS, Regional Claimant Count Rates
15

17. Underlying this poor performance are ‘structural vulnerabilities’
including dependence on low-tec manufacturing.....
West Midlands - Proportion of Manufacturing FTEs to all FTEs
Sandwell
Walsall
Stoke on Trent
Herefordshire
Dudley
Worcestershire
Telford and Wrekin
Staffordshire
Shropshire  Low-Technology
Wolverhampton  Medium-Low
West Midlands Technology
Birmingham  Medium-High
Technology
England
Warwickshire  High-Technology
Coventry
Solihull
20%
-20% 15%
-15% -10%
10% 5%
-5% 0% 5% 10% 15% 20%
Source: Annual Business Inquiry 2006
16

18. And a significantly higher proportion of the working age
population without qualifications compared to the UK
Working Age Population with No Qualifications
30
% of working age population with
25
no qualifications
20
15
10
5
0
Source: Labour Force Survey, 2008
17

19. Data on export values further underlines the poor presence of
high value sectors & dominance of ‘mature’ industries
Export Value by Sector, Year Ended Q1 2009
Unclassified
Transport Infrastructure
Textiles & Furnishings
Telecommunications & Broadcasting Equipment High GVA sectors
Security
Recreational & Leisure Goods
Paper, Printing & Packaging
Oil & Gas
Metals & Minerals
IT & Electronics
Household Goods
Healthcare & Medical Equipment
Giftware, Jewellery & Tableware
Food & Drink
Environment
Engineering (electrical & mech inc. Aerospace)
Energy
Creative & Media Industries
Clothing
Chemicals
Building
Biotech & Pharmaceuticals
Automotive
Agriculture
0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000
Export Value (£, thousands)
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20. Collectively this may help to explain why the region’s private
sector has the lowest proportion of ‘high-growth’ firms......
Proportion of businesses (10+employees) Proportion of manufacturing businesses
that are high-growth (2005-08) (10+ employees) that are high-growth (2005-08)
8 6
7
Percentage of manufacturing firms
5
6 UK % of all firms
Percentage of all firms
4 UK % of all manufacturing firms
5
4 3
3
2
2
1
1
0 0
Source: NESTA 2009 from the ONS Business structure database
High growth firms are defined by the OECD as a firm with an average employment
growth rate exceeding 20% per annum over a 3 year period and with 10 or more 19
employees at the start of the period.

21. And why the region’s private sector has been contracting in
contrast to the position in all other UK regions
Source: Annual Business Inquiry
20

22. Shift-share analysis suggests the private sector has created
74,500 fewer private sector jobs than statistically ‘expected’….
Source: Work Foundation / Annual Business Inquiry, 2009
Notes: Shift/share analysis is a technique used for retrospectively decomposing
employment change in a region. The shift-share model says that growth in the study area’s
employment is a function of: The study area’s share of national growth. The ‘industrial mix’
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change in activities. And the ‘shift’ change of activities toward/ away from the study area.

23. Whilst major investments have been made by AWM to
diversify the economy, significant challenges remain
Ansty Park Manufacturing Technology Centre
– World class R&D site – Joint EMDA / AWM investment to
requiring major public / encourage R&D
private investment
– Partners include Loughborough,
– Complex infrastructure issues Birmingham, Notts Uni plus TWI Ltd
– Hoped that TATA will locate – Major companies signed up : Rolls-
their European R&D Centre Royce, Aero Engine Controls and
here Airbus in the UK
– AWM investing £40 million+ – Industries benefiting: aerospace,
to help create an estimated automotive, energy, electronics
5,000 high value, technology assembly, and heavy duty
driven jobs construction equipment companies
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24. 3. Future Outlook for Regeneration
i. Economic Outlook
ii. Threats & Opportunities
iii. Changing organisational context

25. Forecasts for 2010 suggest growth of just over 1.2% with
commentators talking of a ‘jobless recovery’ .....
Average of Medium-Term Independent Forecasts “It is possible we will have a
3
quarter when GDP falls, but I
2.5 don’t think it will be a double dip.
I would be surprised if we go
Forecasts GDP Growth (%)
2
back to recession but I think
1.5 recovery will be bumpy and
1
fragile”
0.5
Kate Barker
0 Bank of England MPC, March 2010
2010 2011 2012 2013 2014
Source: HM Treasury, Forecasts for the UK Economy: a comparison of independent forecasts,
May 2010
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26. And there remains considerable uncertainty about the timing
and strength of recovery
GDP projection based on market interest rate  Recent improvements are still
expectations and £200 billion asset purchases
being boosted by remaining
stimulus measures
 Export recovery remains patchy
 Impact of public spending cuts
to come
 Financial institutions are
redressing their balance sheets,
with impacts on lending
 Many businesses are choosing
to save rather than invest due
to uncertain outlook
Source: Bank of England Inflation Report , May 2010
25

27. A major uncertainty concerns the impact of cuts in public
spend set out in the Spending Review Framework
• Current UK deficit of 11.5% or £156bn
• Coalition appears likely to adopt a split of 80:20
– 20% tax rise possibly through rise in VAT
– 80% reduction in public spending
• Spending on health and overseas aid to be protected
• Will try to limit the impact on the most vulnerable in society
and on regions heavily dependent on the public sector
• Protect spending that generates high economic returns
• Estimated that UK public sector job losses of 725,000
• Equivalent to 13% of total public sector jobs (5.7 mn)
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28. This will precipitate a ‘second-wave’ of redundancies in the
public sector which is increasingly shedding labour
Notified Redundancies (Jan-Mar 09) Notified Redundancies (Dec - Feb 10)
29% 3%
56%
32%
21%
39%
4% 8%
6%
manufacturing
2% services
construction
public
other
Source: Jobcentre Plus, Notified Redundancies, February 2010
Note: ‘Other’ includes Agriculture & Fishing and Energy & Water
27

29. % of employment in Public Sector
0
5
10
20
25
30
35
40
45
15
North…
Tamworth
Solihull
Stratford-on-…
Cannock Chase
Source: Annual Business Inquiry, 2008
Wychavon
Rugby
Warwick
Redditch
Sandwell
Lichfield
East…
Walsall
Great Britain & West Midlands Average = 27%
Staffordshire…
Wyre Forest
Herefordshire
Malvern Hills
South…
Newcastle-…
Nuneaton and…
Telford and…
Public Sector Employment
England
Great Britain
West Midlands
Dudley
Coventry
Shropshire
Bromsgrove
Wolverhampton
Stoke-on-Trent
Worcester
Birmingham
Within the region there are a number of economies that are
Stafford
40%
particularly vulnerable to expected public sector redundancies
28

30. As previously noted there are also concerns around
youth unemployment & those with low skills
Source: Department for Work & Pensions, Opportunity for All Indicators, 2007/08
29

31. Looking forward it will be critical to assist private sector
growth (to fill the gap) & especially ‘high growth’ firms
• Most firms experience modest growth - the number which
decrease in size is similar to the number that increase
• Focus on high-growth companies is critical:
– represent just 6% of UK firms employing 10+ people
– account for more than half the growth in jobs
– The majority are at least 5 years old (ie. its not just about start-ups)
– Few start-ups experience high growth in their first 10 years
– Occur in ALL sectors of the economy
• Interventions that target firms with high growth potential are likely
to be more efficient than general support for all SMEs
• Focus on quality, not just quantity
Source: NESTA 2009
Note: The highest % of growth firms reflect trends in the economy &
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are highest for financial & business services & lowest for manufacturing

32. There will also be opportunities arising from ‘replacement
demands’ even in sectors where employment is declining
Working Futures Projections West Midlands 2007-2017
250
Replacement Demands
200 Net New jobs
Employment Change (000s)
150
100
50
0
-50
Source: IER Working Futures, 2008
31

33. The organisational context for delivering regeneration
will also undergo significant change
• RDAs to be abolished in the Autumn
• LEPS will be Local Authority & Business led, covering :
– Employment and skills
– Transport and planning
– Regeneration (including physical regeneration)
– Some element of enterprise support (but relatively limited)
• The models for LEPS have not yet been detailed
• Not clear whether there will be full regional coverage
• None of the BIS functions RDAs currently perform seem
to fit into the LEP model
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34. 4. Key Challenges
1. Economic structure

35. Some challenging issues for some challenging times
Regeneration Context Regeneration Agenda
• Macro-economic context 1. Achieving a rebalanced
appears fragile – economy economy ?
may settle at lower level
2. Creating sufficient jobs for :
• Impact of public sector job
• those without qualifications
cuts on private sector output
• younger people
• Continuing uncertainties
around position of PIIGS 3. Major skills issues
• Economy remains ‘deeply 4. Future funding for major
unbalanced’ – n/s divide physical renewal schemes
• Continuing shift to (smaller) 5. Concerns around social &
more highly skilled economy spatial inequalities
• Major organisational change
34