Doncaster Chamber Economic Review Q1 2011 by Doncaster Chamber

Toward a Profitable, Productive Doncaster

Q1 2011 Economic Review Doncaster Chamber

Doncaster Economic Review Summary “Doncaster is now disproportionately vulnerable to the consequences of a retraction of the public sector” Ian Mason, Economic Advisor The recent budget again downgraded growth expectations for the UK economy over the course of this Parliament. This reflects a growing consensus, that the short-term outlook for the economy is weak. The Chamber has repeatedly warned that measures in the emergency budget and comprehensive spending review announced last year will endanger growth prospects. While the Chamber still supports the need to enforce a degree of austerity, given the weakness in the economy, we are forced to question the fact that given that the UK has consistently reported budget deficits for 28 of the last 37 years, why is there a sudden and urgent need to eliminate the deficit completely, and within such a short timeframe as four years? Moreover, the Chamber is alarmed that, despite a few welcome ‘pro growth’ measures, such as the reduction in corporation tax and introduction of enterprise zones, in many key areas there is still a vacuum of business-friendly policy emanating from Central Government While the labour market has demonstrated a fantastic degree of strength, by keeping more workers in employment than comparable recessions of the last century, weaknesses are now manifesting; unemployment in the Borough rose during January and February for the first time in over 12 months and employment expectations are also down. This is regrettable, given Doncaster’s previous position of relative strength and represents the first indication of the impact of public sector spending cuts on the labour market. A disproportionate number of jobs in Doncaster are in the public sector and, over the last decade, for every job created in the private sector, the public sector has created an astonishing 7.5. This now leaves Doncaster disproportionately vulnerable to the consequences of a retraction of the public sector. Despite the Government’s austerity measures, weak growth and an overdependence on the public sector, the Chamber strongly believes that the greatest threat to economic stability in the short to medium term, comes from inflation. With the cost of fuel rising by 5% in the last three months and 16% in the last six months, falling wages, the rising cost of food and with businesses facing pressure to increase their prices from the high cost of raw materials and low margins, both business cash-flow and consumer disposable income are already greatly reduced, hence the suppression of growth evident during the recovery thus far.

This, once again, highlights the significance of the stubbornly high rate of inflation, which, itself, rose to 4.4% in March, a full 1.1% higher than when this review was last published three months ago. This makes the decision to increase VAT this January somewhat unfathomable. The Chamber is now forecasting that inflation will reach and pass 5% during 2011; we also believe however, that inflationary pressures are likely to ease in the medium term, largely due to the effect of Government spending cuts. To this end, we believe the Bank of England should resist the urge to lift interest rates for as long as possible, in order not to further burden households and businesses already suffering from price pressures. The Government believe that business will provide the immediate stimulation to lead the UK back to sustained growth, a fact that looks, at present, to be misguided. Sales retracted by 12% in the first quarter of 2011, business has reported a 17% drop in investment in plant/machinery, a 21% drop in training provision and the percentage of businesses reporting overall turnover growth has collapsed; the rate is now 13%, down from 50% at the end of 2010.The number of businesses reporting an imporovement/worsening in cash flow has once again fallen to a balance of -12%, 8% lower than the final quarter of 2010. With all this in mind, there is little wonder that business confidence, the profitability expectation, has collapsed, now 39% lower than the last quarter of 2010 at 11%. Over the course of the recession, confidence in Doncaster has remained well above national averages, yet now appears to be converging. The recent coalition budget, billed the ‘budget for growth’ contained few measures that will greatly benefit business (the Chamber’s budget briefing can be found at the rear of this review). The effects of spending cuts and tax increases far outweigh any other measures that have or could be introduced. The Chamber is concerned that the coalition seemingly has little awareness of the economic conditions necessary for business growth, particularly in areas such as Doncaster, where there is a high concentration of SME’s and public sector jobs, little appreciation for the need to balance spending cuts and tax increases with substantive policy measures to counteract them and has given little thought to the timing of such interventions, where, in the case of the VAT rise, a simple 12 month delay may have relieved the pressure on the economy.

Doncaster Economic Review Contents

Summary

Contents

About Doncaster Chamber

Overview Gross Domestic Product Consumer Confidence Business Confidence Employment Housing Inward Investment Miscellaneous

Sector Breakdown Manufacturing Services

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Budget 2011 Briefing

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Key Dates for the Next Quarter

P16

Useful References

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About the Quarterly Economic Survey

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Press Release

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Doncaster Economic Review About Doncaster Chamber “The Chamber’s aim is to help create a profitable, productive Doncaster” Nigel Brewster, President Howard Gannaway, Chief Executive The Voice of Doncaster Business Doncaster Chamber is “the voice of Doncaster business”, the Chamber has a membership base of some 1,200 local businesses who collectively employ some 47,000 people in the Borough. The Chamber’s aim is to help create a profitable, productive Doncaster for the benefit of businesses and residents alike, and works to achieve this by proactively addressing the issues that affect the success of the local economy. The Chamber believes that Doncaster is a great town but wants to make it an even better place for local companies and investors alike to do business. Businesses typically join the Chamber because they want to create and access more commercial opportunities. The Chamber can facilitate this, by helping businesses raise their profile and by brokering new business contacts through events and networking. There are, however, many other barriers to further business growth, such as access to procurement opportunities, difficulties in the transport system or skills shortages in the local area. The Chamber’s role is to identify such issues and work with key stakeholders and partners to remove them, thus engendering a more favourable business climate in the Borough. In order for the Chamber to accurately reflect business opinion, the Chamber delivers a range of Focus Groups which are open to all Chamber members. These groups offer an excellent forum for Doncaster businesses to address the issues, concerns and opportunities pertinent to them, as well as offering the opportunity to network and share best practice. The Chamber offers groups in sectors such as Construction, Professional Services, Transport and Logistics, Retail, and Creative and Digital Industries. The Chamber also runs a Knowledge and Enterprise Focus Group which addresses skills issues, and an Employment and Training Focus Group to tackle HR related issues. Each Focus Group is represented at the Chamber’s Policy Council, whose task is to set the direction of policy work at the Chamber.

This level of engagement with local businesses, combined with regular research, such as this publication, ensures that the Chamber can talk with authority on issues affecting local business and can represent business when working with partner organisations. The Chamber is committed to working with local stakeholders to deliver the Borough’s Economic Strategy for the benefit of the town’s businesses and communities alike. To this end the Chamber publishes a Policy Manifesto each year to outline local business priorities and to identify ways in which Doncaster’s economic regeneration can continue apace. The Policy Manifesto details the key issues affecting business, under four key themes of Business Climate, Business Skills, Business Infrastructure, and Business Opportunities, and suggests a suitable course of action in each case. A full copy of the Policy Manifesto is available via the Chamber’s website. Doncaster faces some serious challenges in the coming years. The town has a productivity gap of some £850m; meaning that Doncaster adds £850m less value to the economy each year than it should for a town of its size. Work is well underway to tackle this headline issue by a number of key organisations, including Doncaster MBC. Nonetheless, the town still has a number of challenges relating to education, health, housing, transport and other issues that must be met if Doncaster is nurture a profitable, productive business climate. This economic review has been developed in order to provide businesses and partners across the Borough with a detailed, accurate, economic assessment of Doncaster – the foundation with which to deliver on the recommendations of the Chamber’s Policy Manifesto and Doncaster’s Economic Strategy alike. If you have any questions regarding the content of this review, or would like more information regarding the benefits of Chamber Membership, please contact the Chamber on 01302 341000 or at chamber@doncaster-chamber.co.uk.

Overview Gross Domestic Product “The last quarter saw a 12% drop in the number of firms reporting increased sales” The first months of 2011 have seen increasing levels of instability in the economy. Long term growth prospects have been downgraded and short term fiscal policy has held little regard for the current economic fragility. Gross Value Added (GVA) Doncaster’s GVA is £4.442bn, accounting for 5.3% of the total GVA for Yorkshire and the Humber and giving Doncaster the 6th largest economy in the region. GVA per head in the Borough is £15,179 per annum, only slightly behind (95%) the Yorkshire and Humber average, £15,941. Business Stock There are currently 7,650 registered businesses in the Borough.

5-9 975

10 - 19 460

20 + 420

The public sector accounted for 27.6% of Doncaster’s GVA in the last financial year. This makes the Borough particularly vulnerable to the Government spending cuts enforced by the coalition. 56% of Doncaster businesses are deeply concerned by the impact this is likely to have on their efforts to grow in the coming years; a sizeable proportion of private sector turnover in Doncaster is, at present, still reliant on the public sector. Over the course of the last decade, for every job created by the private sector in the borough, the public sector has created 7.5 – that is a staggering demonstration of the challenge faced by the economy, as it seeks to rebalance toward private sector investment and public sector retraction, particularly as only 420 local businesses employ more than 20 members of staff. Sales

Employment Size Band 0-4 5,795

Public Sector GVA Contribution

Total 7,650

The number of new businesses created (through Success Doncaster) in the Borough is 1,218 over the life of the program, of which 1,068 are still active (87% survival rate). Of these starts, over 800 have been delivered by Doncaster Chamber of Commerce.

The last quarter saw a 12% drop in the number of firms reporting increased sales – a sharp decline from the stability seen over the course of 2010. Many commentators have predicted that last year’s trend of sluggish growth is set to continue, these figures are in sharp contrast to that theory. The number of firms reporting increases in advanced orders also fell by 12%; for the first time in 6 months, more firms are now predicting a fall in sales than those predicting an increase – more troubling, should be the fact that the last time this was true, the economy actually contracted by 0.5% in the following quarter.

Success Doncaster Business Starts (last 12 months) 50%

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Overview Consumer Confidence “The average cost of a litre of unleaded petrol in Doncaster is 132.38p, up 5% on the fourth quarter of 2010 and 15.6% on the third quarter” The headline in the coalition’s first budget was a VAT increase to 20%. The Chamber has repeatedly argued that this rise must not be implemented until at least January 2012, as stubbornly high inflation and increasing prices pressures are a short-term concern, but in the medium term, we expect Government spending cuts to tame this effect. Gross Disposable Household Income (GDHI) Household’s disposable income rose rapidly between 2000 and 2008, reflecting growth in the economy and in house prices, as households borrowed against their property to fund consumption. The onset of recession in 2008 saw this trend plateau during 2009; however, the cost of food, fuel and higher taxes, particularly VAT, will see GHDI fall over 2011 – particularly in those households with lower incomes. It is likely that Northern economies, those with high levels of public sector employment, will be hit hardest.

Fuel Prices The average cost of a litre of unleaded petrol in Doncaster is 132.38p, up 5% on the fourth quarter of 2010 and 15.6% on the third quarter – against a national average of 133.28p, up 4.3% and 14% on the third quarter. The average cost of a litre of diesel in Doncaster is 138.9p, up 6.4% on the last quarter and against a national average of 139.73p, up 5.9% on Q4 of 2010. Prices 15% of businesses are reporting price rises in the coming quarter, a 12% fall on the previous quarter; perhaps reflecting the significant reduction in disposable income and businesses margins. Despite this, the figure once again highlights the significance of the stubbornly high rate of inflation. 95% of all businesses will, at the very least, be maintaining the price of their products over the next three months. Prices - Doncaster - All Sectors

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Doncaster - All Sectors

Inflation Inflation rose to 4.4% during March, 1.1% higher than three months ago. The Chamber is now forecasting that inflation will reach and pass 5% during 2011; we also believe however, that inflationary pressures are likely to ease in the medium term, largely due to the effect of Government spending cuts. To this end, we believe the Bank of England should resist the urge to lift interest rates for as long as possible, in order not to further pressure households and businesses already suffering from price pressures.

Price Pressures Price pressures across the board look to be easing slightly. 14% of businesses reported pressure from the high cost of raw materials, down from 25% in the previous quarter. 6% of businesses reported pressure from the cost of finance – a continuation of the lower trends in this figure seen recently. 13% of respondents reported pressure from the cost of pay settlements however, virtually unchanged from the last quarter, but significantly higher than during the recession.

Overview Business Confidence “Business confidence has collapsed, now 39% lower than the last quarter of 2010 at 11%.” With expectations of decreased sales and, as a result, turnover, increased competition and falling demand, it comes as little surprise that business confidence has collapsed. The surprise is the extent to which this is the case – a 39% fall to 11% - the lowest this figure has been since mid-recession.

state of the economy. During the recession, cash flow fell dramatically to a balance -54% in the final quarter of 2008 and has yet to fully recover; this latest fall is perhaps the first indication, when considered alongside the collapse in business confidence, sales and turnover figures, of the impact of public sector spending cuts.

Profitability

Cash Flow (Last Three Months) - All Sectors

Business Confidence (Next Three Months) - All Sectors

30% Positive/Negative Balance

Business confidence, the profitability expectation, has collapsed, now 39% lower than the last quarter of 2010 at 11%. Over the course of the recession, confidence in Doncaster has remained well above national averages, yet now appears to be converging, possibly the first reflection of the raft of public sector spending cuts that will disproportionally affect areas of the country like Doncaster.

20% 10% 0% -10% -20%

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10 '11

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-30% Quarter Doncaster - All Sectors

Turnover The percentage of businesses reporting overall growth has also collapsed; the rate is now 13%, down from 50% at the end of 2010. This reflects the astounding fall in confidence recorded, yet also indicates that demand is falling, not just margins. Cash Flow The number of businesses reporting an imporovement/worsening in cash flow has once again fallen to a balance of -12% - that’s 8% lower than the final quarter of 2010. This is a key indicator with which to measure the

Business has reported a 17% drop in investment in plant/machinery and a 21% drop in training investment. Private sector growth must accelerate to fill the void left by public sector retraction – of this, there can be no doubt. In such an instance, significant investment must be made in order to increase the capacity and profitability of businesses. The Chamber has doubts as to whether the private sector can bridge the gap in a town such as Doncaster, where more than 24% of GDP is publically funded. There must be a sharp upward trend of increased investment if Doncaster is to stand any chance of fulfilling this aim. Flexibility Asked whether their goods or services would change over the next twelve months, 57% of businesses said there would be no change (+16%), 39% (-1%) said there would be some change and 4% (-3%) said their business would change its product/service portfolio significantly.

Overview Employment “Unemployment in the Borough rose during January and February for the first time in 12 months” Employment expectations have fallen during the first quarter of the year; almost as many businesses are looking to lay off staff as are looking to recruit and while unemployment is increasing, the number of vacancies is decreasing.

Vacancies In Q1 2011, Job Centre Plus handled a total of 5,498 vacancies, compared to 4,,590 in the same period last year – but down from 7208 in the final quarter of 2010. Job Centre Plus Vacancies

Unemployment during January and months. There were February 2011, as as unemployed in

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Unemployment in the Borough rose February for the first time in over 12 9,741 registered as unemployed in opposed to the 10,848 registered February 2010.

Doncaster Residents Registered Unemployed

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Employment Expectations Employment expectations in the borough have fallen again since the last quarter. 12% (-9%) of businesses interviewed expect to recruit over the next three months, while 10% expect their workforce to decrease in the next three months.

Employment Rate

Redundancies The fiscal year 2009/10 saw a total of 927 redundancies reported to Job Centre Plus. Since April 2010, 426 redundancies have been reported to Job Centre Plus in the Borough.

40% Positive/Negative Balance

As at October 2010, there were 125,100 people in employment in Doncaster, giving an Employment Rate of 66.5%, compared to Yorkshire and Humber at 68.4% and Great Britain at 70.4%.

Employment Expectations (Next Three Months) - All Sectors

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-20% Quarter Doncaster - All Sectors

Overview Housing “In the last financial year, only 314 houses were built in Doncaster.” Over-inflated house prices in the UK pose a strong underlying threat to long-term economic growth. The last decade has seen a housing shortfall develop, as the number of households created in any one year has far exceeded the levels of new homes completed. This gap has significantly worsened over the course of the recession, thus intensifying the risk to the economy, something that has, thus far, seems to have gone unnoticed by key decision makers in Whitehall.

Overpriced The IMF recently calculated the share of the increase in real house prices in the UK over the last ten years that cannot be accounted for by fundamental factors such as lower interest rates and rising incomes. This “house-price gap” suggests that prices are about 30% higher than can be justified by fundamentals. Incentivise Developers

House Prices House prices have been remarkably resilient during the course of the recession; indeed, eleven of the last twelve months have seen house price rises. The average cost of a home in Doncaster now stands at £128,844, unchanged from Q1 2010 and a 0.9% fall on Q3 2010. As confidence has crept back into the market, incentivised in part, by low interest rates, we have seen a small rise in transactions over the year that has proved enough to produce an upward bounce in prices; largely because it coincided with very low levels of supply on the market. This lack of supply is, however, indicative of a wider problem. Housing Completions The assumptions of the Department of Communities and Local Government suggest that new households are projected to increase by, on average, 252,000 each year between now and 2031 across the UK. If this proves to be the case, the current levels of housing construction have fallen far below future levels of household formation. In last financial year, only 314 houses were completed in Doncaster. Social Housing Social housing waiting lists have also rocketed by 55% over the last five years; rising unemployment and repossessions as a result of the recession are projected to cause the number of households on waiting lists to jump from 1.77m in 2008 to a record high of around two million in 2011 – a rise of some 200,000 homes in just three years across the UK. In Doncaster alone, the current social housing waiting list has 11,275 applicants.

Various measures have been enforced by local and national Governments in order to assist first-time buyers and those on low incomes that seek the stability of home-ownership. One such measure is a requirement for a percentage of new build homes to be affordable homes – in Doncaster, 26% of all new homes (on sites with 15+ units) are required to be affordable. There are also housing requirements, forcing local authorities to build a certain number of homes in every year (1280 in Doncaster). These two requirements are, however, counterintuitive, as developers looking to build new estates are dissuaded from doing so, when the affordable home requirement reduces or eliminates their margins on the build. Hence, not only are developers failing to keep abreast with current demand (thus maintaining prices merely at current ‘inflated’ levels), but they are now actively discouraged from developing in some instances by, ironically, measures bought in place to combat excessive house prices. There is a real risk of prices spiralling out of control. The only conceivable way to avoid this eventuality, is to build significant numbers of new homes, in order to, initially, meet current demand based on household creation projections – thus shielding prices from supply pressures – and then move beyond this to satisfy the existing shortfall, in order to reduce house prices and make homes more affordable for all. Ministers must recognise that house prices should become a key aspect of fiscal policy in the UK.

Overview Investment “During 2010, investment contributed over £65 million to the value of the Doncaster economy” seen during 2009. Since 2000, over £1.5bn has been added to the economy from investment. Value of Inward Investment

400.0 350.0 300.0 Value (£m)

Investment is critical to the future of Doncaster’s economy. Whilst there is a strong case for re-balancing the economy towards exporting, it is also important that quality businesses are brought in to the town to generate wealth and provide employment. Doncaster’s infrastructure makes it an attractive location for investors, as do low labour costs. In recent years companies such as BT, LA Fitness, Scotts Miracle Gro and Kinch Aviation have recognised that Doncaster is a good place to do business. Amazon, the online retailer, has also re-located to a distribution centre in Doncaster - a clear indication that significant national and international players are recognising Doncaster as a good place to do business.

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Jobs Created

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During 2010, investment in Doncaster created some 711 jobs, up slightly on the previous years 418. Since 2000, 21,691 jobs have been created in the Borough as a result of investment. There were also 1000 temporary jobs created at the new Amazon warehouse.

Jobs Created Through Inward Investment

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Land During 2009, investment in Doncaster was responsible for the development of 38.6 acres – this accounts for roughly 3% of the 1,270 acres developed since 2000. Land Developed by Inward Investment

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Value to Economy During 2010, investment contributed over £65 million to the value of the Doncaster economy, up from the £48.5 million

Overview Miscellaneous “The percentage of firms reporting excess capacity has fallen over the last quarter by 3% to 48%.

Capacity The percentage of firms reporting excess capacity has fallen over the last quarter by 3% to 48%. This continues the trend seen over the last year, whereby capacity has been gradually reduced as firms shed employees. There is a credible line of thought that suggests that firms attempted to hang on to their best talent over the course of the recession, thus learning lessons from previous recessions whereby the shedding of staff indiscriminately, led to suppressed growth in the long term. Now that the economic recovery is faltering, firms may no longer be able to support such talent; hence the falling levels of capacity and rising unemployment. Capacity - Doncaster - All Sectors

Positive/Negative Balance

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export, is putting pressure on the price of importing raw materials from the continent, thus negating the benefit of exporting in the first place. Export Sales (Last Quarter) - Doncaster - All Sectors 40% Positive/Negative Balance

As the economy moves from recession to recovery, it is important that public sector stimulus is replaced by private sector growth. Much of that growth should come from exporting goods and services abroad. Exports have continued to rise this quarter, in line with expectations given the weak pound. However, the rate of growth of exports has again slowed, thus suggesting a plateau in the reaction to the weak pound.

30% 20% 10% 0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10 '11

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Quarter Doncaster - All Sectors

The number of exporters and number of transactions has increased in comparison to the first quarter of 2010, by 4% and 19% respectively. The range of destinations exported to has also increased by 9%. This suggests that the weak pound is, in fact, encouraging more export activity – 2010 proved to be a strong year for export. The value of these exports is 22% higher than the first quarter of 2010. This represents an additional benefit to the Doncaster economy of over £1.28 million.

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The percentage of firms reporting increasing export sales remained constant at 13%, continuing the general trend seen throughout 2010. There is also a predicted decrease in growth for the next quarter, of 3%. The Chamber is still concerned that the weak pound, while reducing the cost to

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Sector Breakdown Manufacturing “The balance of manufacturing businesses reporting an improved cash flow position fell in the last quarter by 34%,”

Profitability

Cashflow (Last Three Months) - Manufacturing 30% Positive/Negative Balance

The recent manufacturing revival appears to have suffered a setback in the first quarter of the year. Profitability, turnover, cash flow and investment have all suffered. Interestingly, there is a clear disparity in terms of manufacturing between Doncaster and the South Yorkshire region as a whole; while this may appear to be a logical due to Sheffield’s prominence in the sector, it is the level of disparity that is alarming.

Business confidence, the profitability expectation, now sits at 10%, a collapse of 32% on the previous quarter and now at parity with national averages in manufacturing.

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Profitability Expectations (Next Quarter) - Manufacturing

Investment

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The last quarter has seen a 17% shift in the balance of businesses expecting to invest in plant/ machinery/ equipment. Returning to the average levels of investment seen during 2009/10, 28% of businesses are set to reduce levels of investment in the coming months, far more than the 20% of businesses looking to increase investment.

-40% -60% Quarter Manufacturing Sector (Donc) Manufacturing Sector (UK)

Investment in Plant/Machinery (Next Three Months) Manufacturing

Manufacturing Sector (SY)

Cash Flow The balance of manufacturing businesses reporting an improved cash flow position fell in the last quarter by 34%, growth in turnover fell by 28% to 11% and the balance of businesses reporting increased sales fell by 14%. These figures go some way toward reversing the gains seen over the last few quarters and should serve as cause for concern. Serious questions remain about the coalition Government’s decision to remove tax incentives for high-end investment; a decision that will stifle growth in high-tech manufacturing.

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Manufacturing Sector (SY)

Sector Breakdown Services “The evident fragility of the services sector calls into question the timing of national budget cuts”

Profitability Business confidence, the profitability expectation, now sits at 11%, a collapse of 41% on the previous quarter for the sector and reflecting the general state of the economy. Profitability Expectations (Next Quarter) - Service Sector

Employment Expectations (Next Three Months) - Service Sector 40% Positive/Negative Balance

Quarter four of 2010 saw much of the gains witnessed during the three months July to September reversed, as sales, export, employment and cash flow all fell. The impact of the VAT rise has yet to be accounted for in these figures and represents an area of great concern for the services sector.

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Service Sector (SY)

Service Sector (UK)

Employment/Expectations Employment churn remains low in the sector. The number of businesses reporting an increased workforce fell to 6% (down from 13% in the previous quarter) - against those that report further redundancies, now at 13% (a two percent fall). This is an overall reduction of some 7% on the previous quarter. Employment expectations have also fallen by 3% from the previous quarter. 13% of businesses expect to recruit in the second quarter (down from 22% in the previous quarter), while 7% expect to lay off staff.

Businesses reported an 12% decrease in sales over the last quarter. 29% of businesses are now experiencing growth in their sales figures (down from 36% in the last quarter), while 28% are now experiencing a decline. Export sales also decreased by 17% from the last quarter, while advanced orders also suggest a further 9% contraction in the next quarter. However, the figures show a 40% decrease in those businesses expecting their turnover to grow in the first three months of the New Year – 36% of businesses are now expecting this to be the case, down from 64% in the last quarter. It is clear that the services sector is suffering as a result of the impact of Government spending cuts, high inflation and low demand. As this sector is of crucial importance to the UK economy, these figures should be taken as a warning that more must be done to stimulate the economy.

Policy Briefing Budget 2011 “The Chamber welcomes the 3year moratorium on legislation for new business starts and all firms with less than ten employees.” Evidence has shown us that a recovery from a financial/banking crisis is fundamentally different from that of a cyclical recession, the like of which was last witnessed in the UK the early 1990’s. Growth is sluggish, business investment severely impaired and the transition from recession to recovery fragile at best; all the while, the Government is required to provide significantly more fiscal stimulus than would be considered ‘normal’. The result – large budget deficits and debt growing as a percentage of GDP. This set of economic circumstances is precisely what we have witnessed during 2010. In this context, this budget, the Chancellor’s second in office, had to lay down a path which must entrench recovery, deliver growth and then, and only then, begin to address the desperately needed reforms to our public services to ensure that such a crisis cannot be repeated. This paper examines the budget’s measures against that criteria. The Regulatory Burden – Legislation and Tax The ‘burden of red-tape’ has become an all too familiar platitude in the vocabulary of British business. Yet despite the rhetoric, we have yet to see a firm commitment to reducing this burden for business – take the announcements in this budget; a consultation on merging Income Tax and NI contributions, not a commitment. Reform of the planning system by putting growth and business at the heart of the process was also a central tenet; however, much of this is at complete odds with previous announcements within the Localism Bill, which one local developer termed a "charter for objectors". If the Coalition's plans are to provide a much-needed confidence boost for the economy, tensions such as this must be resolved quickly. The Chamber welcomes the 3-year moratorium for new business starts and all firms with less than ten employees on legislation emanating from the UK; especially as 6,770 of Doncaster's 7,650 businesses employ fewer than 10 people. However, 68% of regulations introduced since 2001 originate in Brussels; the Government failed to note how it will mitigate against those regulations in order to support growth and job creation, especially as these directives tend to be the ones that affect businesses the most.

Crucial to reducing the regulatory burden on business is the tax code – this budget promised the elimination of 43 tax reliefs in exchange for a 2% reduction the headline rate of corporation tax. The Chamber welcomes such reforms – and particularly welcomes the continued reduction of corporation tax and commitment to ensuring that the UK business climate is the most competitive of all G20 countries. We must however, express concern that this year’s bank levy will raise significantly less than last year’s bonus tax. Business Support, Access to Finance and Export While the commitment to greater access to finance for business (15% increase in lending) is laudable, the Chamber is concerned that this may not be enforceable, nor necessarily prudent to enforce. The Government must not encourage a return to the culture of imprudent lending that gave birth to the recent financial crisis Clearly, we must wait to hear details of the proposed export credit scheme, however this was the only proposal of note in the budget relating to export. The Chamber was represented on a trade mission to the Republic of Macedonia just last week and witnessed a country ready and willing to engage with British business. More must be done to mitigate the risk involved in trading overseas; there must be a firm recognition that without taking advantage of international markets, the UK will never experience growth in its economy. Business support must be targeted at stages in the business lifecycle where there are clear and apparent barriers to growth; Doncaster’s business stock is predominantly micro businesses, while little more than 400 businesses in the borough employ more than 20 members of staff. Stimulating enterprise and entrepreneurship remains a vital tool in delivering long-term economic growth; we have seen the positive impact of this in Doncaster. Yet this must now be complimented by additional support for companies who can most readily create jobs and wealth – those sustainable, profitable businesses who face real barriers to growth. The Chamber awaits further details of the ‘Start-Up Britain’ initiative with interest.

Policy Briefing Budget 2011 “Growth and recession are finely balanced on a knife edge”

Infrastructure and Enterprise Zones Enterprise zones are in principle an excellent idea – but without strict controls on the reason for a business’ transfer in to such a zone, they simply move money around rather than create it. Put simply, if a business is looking to expand and create jobs, but requires support to bridge the initial transfer to a new premises, then enterprise zones are an excellent idea. However, if a business relocates to new premises inside a zone simply because of the financial incentives and doesn’t create new jobs/wealth, then we are simply wasting public money. However, without a serious commitment to infrastructure spending, not just within these zones, but across the country, any benefits from the implementation of enterprise zones will be rendered negligible. Yorkshire and the Humber has the lowest per capita transport spend of any region in the UK, yet the few infrastructure announcements actually present in this budget are, once again, largely focused on the South and the West of England. Disposable Income and Cash Flow A central tenet of the Chancellor’s first budget was a commitment to ‘not accept a fall in living standards’ – yet the IMF has recently calculated that the average household has effectively lost 1.6% of its income as a result of high inflation. In such context, the increase in personal allowance and decrease in fuel duty ought to be seen as tacit acknowledgement of the squeezed disposable income witnessed by every household over the last year and that has hit retailers so hard; yet the average family will save £55.30 per year. More must be done to recognise the short term effect of inflation on the economic recovery. The consumer prices index now stands at 4.4%, has increased consistently for the past 15 months and, according to the Chamber’s estimates, will pass 5% during the remaining 9 months of 2011. That rate is high given our stage in the economic cycle and low level of interest rates and calls in to question yet again, the timing of the VAT increase in January. It also places the Bank of England in an impossible position – the economy cannot yet withstand an increase in interest rates. GDP shrank by 0.6% in the three months to December, business, as yet, is showing little sign of increasing their levels of

investment and all businesses are facing pressures to raise their prices from the cost of raw materials (particularly those imported), fuel prices and the simple fact that for three years, there has been a general resistance to price increases for fear of losing market share during a recession. The Chancellor's decision to defer passenger duty on flights for twelve months is welcome and will help the aviation sector - including Robin Hood Airport Doncaster Sheffield in what remain tough times for the industry. The decision to move away from the idea to tax per plane rather than per passenger is also a significant lobbying win for the Chamber. A shift to this style of taxation would have disproportionately hit airports with a strong freight offering as Robin Hood Airport will ultimately have - and hampered Doncaster's ability to develop a major international freight hub, as such this move is most welcome, as is the freeze in rates for HGVs. A Growth Budget? This budget has been billed as the ‘Budget for Growth’, yet the economic forecasts from the Independent Office for Budget Responsibility have downgraded levels of GDP growth expected for the fiscal year 2011/2012 from 2.6% a year ago, to only 1.7% now. Year-on-year growth forecasts have also been revised down for the remainder of this Parliament. To blame any of this on the ‘inclement weather’ experienced at the end of 2010, is to misrepresent the economic uncertainty prevalent at this time. Weak growth, low interest rates, high inflation and no room for fiscal or further monetary stimulus suggests that growth and recession are finely balanced on a knife edge. Unemployment is at a 17 year high and will continue to worsen this year and families across the UK will continue to witness a decline in their living standards. This budget presented an opportunity to restore confidence in the business community, reduce barriers to growth and fuel the faltering recovery. Yet the inhibiting factor of the success of any of these measures, as in the instance of the VAT increase, is not the detail of the policy in question, but the timing of its implementation.

Doncaster Economic Review - Quarter 1 2011 Key dates for the next quarter “The Chamber’s campaign to secure Government funding for FARRRS attracted the support of over 550 local businesses” Daniel Fell, Head of Policy

Bank of England MPC Announcement

07/04/11

March Inflation Figures Announced

12/04/11

Local Elections in the United Kingdom

05/05/11

Bank of England MPC Announcement

05/05/11

Bank of England Inflation Report

11/05/11

Bank of England MPC Announcement

09/06/11

Doncaster Economic Review Useful References “Doncaster Chamber is ‘the voice’ of Doncaster business”

Success Doncaster

SYITC (South Yorkshire International Trade Centre)

Success Doncaster is a programme run by Doncaster Council, working collaboratively with the public, private, voluntary and community sector across the Borough. It is the brand name for Doncaster Council’s Work Skills and Enterprise Programme and this investment offers our businesses, communities and individuals support to develop their employment, skills and entrepreneurial potential. A diverse range of specialist providers have been contracted by the Council, to deliver bespoke initiatives tailored to the needs of residents and employers.

The SYITC is a partnership of Barnsley & Rotherham, Doncaster and Sheffield Chambers of Commerce, delivering international trade services throughout the South Yorkshire region.

Visit: www.successdoncaster.co.uk to find out more. Invest in Doncaster Invest in Doncaster is the first point of contact for investors. Our team of specialists provides information to both existing and potential businesses on a wide range of issues including the availability of land and premises, business development, financial benefits, HR consultancy, and information on the local economy. Visit: www.investindoncaster.co.uk to find out more.

Visit: www.syitc.com to find out more JobCentre Plus JobCentre Plus is an executive agency of the Department for Work and Pensions. It provides services that support people of working age from welfare into work and helps employers to fill their vacancies. Visit: www.jobcentreplus.gov.uk to find out more. National Data Sources: ONS – Office of National Statistics UK TRADE PUBLIC SECTOR

Business Link

NOMIS – Official Labour Market Statistics

Business Link helps your business save time and money by giving you instant access to clear, simple, and trustworthy information.

HM Treasury Bank of England INFLATION REPORT

Whether you're starting up, already running a business, or looking to grow and develop, we can help you to: manage your finances employ people find and keep customers pay the correct tax comply with environmental legislation understand regulations in your sector find events and support near you

MPC MINUTES QUANTITATIVE EASING EXPLAINED

Visit: www.businesslink.gov.uk to find out more.

Doncaster Economic Review About the Quarterly Economic Survey “The Quarterly Economic Survey is the largest and most representative independent business survey of its kind in the UK” The Quarterly Economic Survey (QES) is the UK’s largest private quarterly survey of business. Each quarter, over 6,000 businesses – belonging to Chambers of Commerce in every region of the country – participate in the QES. Businesses are questioned on a wide range of issues, including home sales and orders, export sales and orders, employment prospects, investment, recruitment difficulties, cash-flow, confidence and price pressures. The QES is the first economic indicator of the quarter, published in advance of official figures and other private surveys, and it consistently mirrors actual trends in the economy; for this reason the survey is closely watched by policymakers at the Treasury and Bank of England and also by the media.

National Headlines this quarter: Results from the British Chambers of Commerce’s latest Quarterly Economic Survey (QES), with over 6,000 business responses, suggests that while the UK economy has returned to positive growth, the disappointing results highlight the fragility of the recovery. While balances for the manufacturing sector remain positive and exports are still strong, there has been a worsening across all the key balances, pointing to a choppy economic environment in Q1. The service sector shows mixed results. Though many balances have risen in the last quarter, the improvement is slight and still inadequate. The major highlights from Q1 2011 QES include:

Locally, the survey is distributed, via post and email to all businesses in Chamber membership. We can expect a typical response rate of 250 businesses – 25% of all Chamber members – making this research the most credible economic indicator available to Doncaster.

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The QES figures suggest that manufacturers are much less confident of increasing their expected turnover and profitability over the next 12 months than they were in Q4 2010. Turnover and profitability confidence has fallen to levels not seen since Q2 2009 (turnover figures falling 20 points to +28% and profitability down 20 points to +10%).

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In the service sector confidence in future turnover grew slightly by five points to +31%, the highest since Q1 2010. However, service sector firms are less confident of increasing their profit in the next 12 months, with the balance figure falling seven points to +10%, a disappointingly weak level.

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Lower business confidence negatively impacts businesses decision-making, recruitment and investment; for example key employment balances for both manufacturing and service sectors worsened. The manufacturing employment balance fell eight points, to +15%, the weakest since Q1 2010 but still much stronger than during the recession. The service employment balance rose 4 point, to +4%, equal best to Q2 2008 but still a weak level.

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Business Confidence (Profitability Expectations) 80% 60%

Balance

40% 20% 0% -20%

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-40% -60% Quarter Doncaster

Yorkshire and the Humber

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Doncaster Economic Review - Quarter 1 2011 Press Release “UK growth expectations have again been downgraded across the life of this Parliament” Ian Mason, Economic Advisor While the Chamber still supports the need to enforce a degree of

Tuesday, 05 April 2011

austerity, given the weakness in the economy, we are forced to

BUSINESS

REPORTS

FIRST

MANIFESTATION

question the fact that given that the UK has consistently reported budget deficits for 28 of the last 37 years, why is there a sudden and

AUSTERITY MEASURES

urgent need to eliminate the deficit completely, and within such a A report released today by Doncaster Chamber of Commerce, highlights the challenges facing the economy as we move into 2011. Doncaster Chamber’s “Doncaster Economic Review” details data collected during the first quarter of the year and reveals the first manifestation of the coalition Government’s austerity measures.

reported a 17% drop in investment in plant/machinery, a 21% drop in training provision and the percentage of businesses reporting overall turnover growth has fallen; the rate is now 13%, down from 50% at the end of 2010.The number of businesses reporting an imporovement/worsing in cash flow has once again fallen to a balance of -12%, 8% lower than the final quarter of 2010. confidence,

the

profitability

expectation,

that, despite a few welcome ‘pro growth’ measures, such as the reduction in corporation tax and introduction of enterprise zones, in many key areas there is still a vacuum of business-friendly policy emanating from Central Government. The recent coalition budget, billed the ‘budget for growth’ contained

Sales retracted by 12% in the first quarter of 2011, business has

Business

short timeframe as four years? Moreover, the Chamber is alarmed

few measures that will greatly benefit business (the Chamber’s budget briefing can be found at the rear of this review). The effects of spending cuts and tax increases far outweigh any other measures that have or could be introduced. The Chamber is concerned that the coalition seemingly has little awareness of the economic conditions necessary for business growth, particularly in areas such as Doncaster, where there is a high concentration of SME’s and public sector jobs, little appreciation for the need to balance

has

also

collapsed, now 39% lower than the last quarter of 2010 at 11%. Over the course of the recession, confidence in Doncaster has remained well above national averages, yet now appears to be converging. Commenting, Ian Mason, Economic Advisor at Doncaster Chamber of Commerce, said:

spending cuts and tax increases with substantive policy measures to counteract them and has given little thought to the timing of such interventions, where, in the case of the VAT rise, a simple 12 month delay may have relieved the pressure on the economy. The Chamber will be meeting with cabinet members on Thursday to discuss these matters.”

END

“The recent budget again downgraded growth expectations for the UK economy over the course of this Parliament. This reflects a growing consensus, that the short-term outlook for the economy is weak. The Chamber has repeatedly warned that measures in the emergency budget and comprehensive spending review announced last year will endanger growth prospects.