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Toward a Profitable, Productive Doncaster

Q2 2011 Economic Review Doncaster Chamber


Doncaster Economic Review Contents “As it has been for the last 12 months, inflation remains the greatest risk to the economy” Ian Mason, Economic Advisor Depending upon whom one chooses to listen to, GDP growth will post somewhere between -0.2% and 0.3% when the Office for National Statistics releases its preliminary GDP estimate at the end of this month. Whatever the figure eventually released, the conclusion that has been reached by the majority of economists, is that slow growth is set to characterise the economic cycle in the UK for some time to come. This is hardly surprising. In the last quarter, sales, turnover and cash flow have all markedly improved, yet such indicators, when viewed over a six or nine month period, show little-to-no upward trend. More troubling, is the continued slump in investment intentions, rising price pressures and rising unemployment. Indeed, over the course of the recession, the labour market actually demonstrated a fantastic degree of strength, by keeping more workers in employment than comparable recessions of the last century, yet weaknesses are now manifesting; unemployment in the Borough rose again during the last quarter and employment expectations are stagnating. 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. However, the last three months have also seen several major private sector insolvencies across the UK, the most notable include the likes of Jane Norman and TJ Hughes, with several other major employers such as Bombardier and Thornton’s laying of staff in volume. In all, there is a more troubling narrative to be considered, one that will not be spoken of publicly in Whitehall. The recession saw many firms look to hold on to their most talented staff members and seek to find efficiencies within their organisation to avoid the last resort - losing this talent. The Chamber has also seen members look to utilize any spare capacity the firm may have, be selling the skills of their staff as a service to other businesses, looking only to recoup their overheads and thus winning such business at a

price specialist firms simply could not compete with. The Chamber has also seen firms splitting up into one or more components in order to reduce overheads. Such ‘efficiencies’, have led to increased competition and severely reduced margins, at a time when inflation has remained comparatively high for our position in the economic cycle. Such activity has inevitably led to the proverbial ‘waiting game’; having reduced costs as much as possible, many firms simply put faith in an economic recovery emerging – something that has really yet to happen. When you consider that GDP growth has not exceeded 0.5% for over 9 months now, there is a real concern that inflation, along with Government spending cuts and tax increases, is choking off the recovery before it ever really had the chance to establish. The twelve months to May 2011 saw a 37% increase in the cost of crude oil, 13.5% increase in the cost of domestically grown food produce, a 9.6% increase in the cost of imported food produce, a 14.2% increase in the cost of imported metals, a 11% increase in the cost of imported chemicals and an 8.3% increase in the cost of other imported materials. While this doesn’t mean all that much to many of us, the consequence of this 15.7% average increase in the cost of materials to the UK, has meant an average 14% increase in the cost of a litre of unleaded fuel since September 2010, double-digit increases in the cost of food at the supermarket and clothes in the high street and an aggressive decline in living standards across the country; yet all the while wages have stagnated. As it has been for the last 12 months, inflation remains the greatest risk to the economy, a fact that is barely acknowledged in Whitehall. Clearly, the most healthy, logical and simple economy recovery is one led by the private sector, as ministers readily acknowledge. Yet decisions such as the VAT tax increase, the severity of spending cuts and the uncertainty created by the ‘policy vacuum’ left in their wake, have done little to revive ailing business confidence. The key question for all those running businesses in the UK at present, is where exactly will growth come from now?

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Doncaster Economic Review Contents

Summary

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Contents

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About Doncaster Chamber

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

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Sector Breakdown Manufacturing Services

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Budget 2011 Briefing

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Key Dates for the Next Quarter

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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.

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Overview Gross Domestic Product “There is a widely held belief that GDP for Q2 2011 will fall further toward 0%”

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.

Public Sector GVA Contribution 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

5-9 975

10 - 19 460

20 + 420

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).

The last quarter saw a 9% increase in the number of firms reporting increased sales. Many commentators have predicted that last year’s trend of sluggish growth is set to continue, these figures reinforce this theory. The number of firms reporting increases in advanced orders also rose by 11%, reversing the decline witnessed in Q1 of 2011.

Of these starts, over 800 have been delivered by Doncaster Chamber of Commerce.

Sales (Last Quarter) - Doncaster - All Sectors

Success Doncaster Business Starts (last 12 months) 90 80 70 50

40% 30% 20% 10% 0% -10%

40

-20%

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

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Doncaster - All Sectors

0 A pr -0 M 9 ay -0 9 Ju n09 Ju l0 A 9 ug -0 9 Se p09 O ct -0 N 9 ov -0 D 9 ec -0 Ja 9 n10 Fe b1 M 0 ar -1 0 A pr -1 0

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Overview Consumer Confidence “26% of businesses are reporting price rises in the coming quarter, an 11% increase on the previous quarter” Inflation remains the single greatest risk to the economy. Consumer demand has been fragile at best since the turn of the year, all the while price pressures have escalated and inflation has reached 4.5%. 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. Gross Household Disposable Income - Doncaster

year – against a national average of 133.83p, again virtually unchanged from the first quarter. The average cost of a litre of diesel in Doncaster is 136.96p, down slightly on the last quarter and against a national average of 137.91p, again a slight fall. This is the first time in over 12 months that fuel prices have fallen, yet it remains to be seen whether this is a temporary stall, possibly due to the temporary boost of supply from, amongst others, the US Strategic Petroleum Reserve. Prices 26% of businesses are reporting price rises in the coming quarter, an 11% increase on the previous quarter; wiping out the fall in the previous quarter. This again demonstrates the significance of the stubbornly high rate of inflation. 97% of all businesses will, at the very least, be maintaining the price of their products over the next three months.

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Prices - Doncaster - All Sectors

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

Inflation Inflation dropped slightly to 4.2% during June, 0.2% lower than three months ago. The Chamber is repeating its forecast that inflation will reach and pass 5% during 2011; we also believe that inflationary pressures are likely to ease in the medium term, largely due to the effect of Government spending cuts. We believe the Bank of England should resist the urge to lift interest rates for as long as possible, in order not to further expose households and businesses. Fuel Prices The average cost of a litre of unleaded petrol in Doncaster is 132.46p, virtually unchanged from the first quarter of the

Doncaster - All Sectors

Price Pressures Price pressures across the board look to be tightening again. 23% of businesses reported pressure from the high cost of raw materials, increasing from 12% in the previous quarter. 10% of businesses reported pressure from the cost of finance – a continuation of the lower trends in this figure seen recently. 19% of respondents reported pressure from the cost of pay settlements however, virtually unchanged from the last quarter, but significantly higher than during the recession.

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Overview Business Confidence “When asked whether their goods or services would change over the next twelve months, 36% of businesses said there would be no change” The general mood in the Doncaster business community is one of cautious optimism – this is reflected in the recovering business confidence figures collected by the Chamber this quarter. Many, if not most, of the balances have recovered from the ‘shock’ witnessed in the last quarter – most notably, that of cash flow, which has risen to its highest level since the end of 2007.

20101. This is a key indicator with which to measure the 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 quarter’s figures suggest the foundations of a recovery being, as they are, at the highest level since the end of 2007. Cash Flow (Last Three Months) - All Sectors

Profitability Business confidence, the profitability expectation, recovered to 46%, 35% higher than the first quarter of 2011. 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.

Positive/Negative Balance

30% 20% 10% 0% -10% -20%

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

-30% -40% -50%

Business Confidence (Next Three Months) - All Sectors

-60% Quarter

70%

Doncaster - All Sectors

Positive/Negative Balance

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Investment

30% 20% 10% 0% -10% -20%

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

-30% Quarter Doncaster - All Sectors

Turnover The percentage of businesses reporting overall growth has also recovered; the rate is now 45%, up from 13% at the end of the last quarter. This is further evidence that balances are recovering from the first quarter ‘shock’. Cash Flow The number of businesses reporting an improvement/worsening in cash flow has increased to a balance of 16% - that’s 28% higher than the first quarter of

Business has reported an 8% drop in investment in plant/machinery, but training investment remained static. 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 When asked whether their goods or services would change over the next twelve months, 36% of businesses said there would be no change (-21%), 58% (+20%) said there would be some change and 6% (+2%) said their business would change its product/service portfolio significantly.

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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.

Job Centre Plus Vacancies 8000 7000 6000

Unemployment in the Borough rose during April and May continuing the upward trend witnessed in the first quarter of the year. There were 9,821 registered as unemployed in May 2011, as opposed to the 9,966 registered as unemployed in May 2010.

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Doncaster Residents Registered Unemployed

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Employment expectations in the borough have gained a little ground since the last quarter. 18% (+6%) of businesses interviewed expect to recruit over the next three months, while 10% expect their workforce to decrease in the next three months.

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Ja nu Fe ar br y 1 ua 0 r M y1 ar 0 ch A 10 pr il M 10 ay J u 10 ne 1 Ju 0 A ly S e ug 1 0 p t us em t 1 be 0 O c r1 N t ob 0 ov e e r1 D mb 0 ec e em r 1 b 0 J a er nu 10 Fe ar br y 1 ua 1 r M y1 ar 1 ch A 11 pr il M 11 ay 11

0

Employment Expectations (Next Three Months) - All Sectors

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Employment Rate 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%. Vacancies In Q2 2011, Job Centre Plus handled a total of 5,498 vacancies, compared to 5,454 in the same period last year – but down from 7208 in the final quarter of 2010.

Positive/Negative Balance

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

-20% Quarter Doncaster - All Sectors

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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 Q2 2010 and a 0.9% fall on Q1 2011. 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 the 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.

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Overview Investment “During 2010-11, investment contributed over £73 million to the value of the Doncaster economy”

Value of 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, Scott’s Miracle Grow 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.

250.0 200.0 150.0 100.0 50.0 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Jobs Created

Year

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 Investment

Land During 2010, investment in Doncaster was responsible for the development of 38.6 acres, or roughly 3% of the 1,270 acres developed since 2000. The spike witnessed during 2009 was directly attributable to the opening of the Yorkshire Wildlife Park.

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Value to Economy

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During 2010-11, investment contributed over £73 million to the value of the Doncaster economy, up from the £48.5 million seen during 2009. Since 2000, over £1.5bn has been added to the economy from investment.

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Overview Miscellaneous “The percentage of firms reporting excess capacity remains at a consistent level, rising slightly 2% to 50%”

Capacity The percentage of firms reporting excess capacity remains at a consistent level, rising slightly 2% to 50%. 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

90% 80% 70% 60%

concerned that the weak pound, while reducing the cost to 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 Q2 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10 '11 '11

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Quarter Doncaster - All Sectors

The number of exporters and number of transactions has, in comparison to the second quarter of 2010, decreased by 11% and increased by 10% respectively. The range of destinations exported to has also increased by 2%. This suggests that export growth is, in fact, beginning to plateau. Indeed, the value of these exports is 47% lower than the second quarter of 2011. This represents a loss to the Doncaster economy of over £8.39 million.

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The percentage of firms reporting increasing export sales increased slightly to 18%, continuing the general trend seen throughout 2011. There is also a predicted increase in growth for the next quarter, of 10%. The Chamber is still

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Quarter

11


Sector Breakdown Manufacturing “21% of businesses are set to reduce levels of investment in the coming months, far more than the 6% of businesses looking to increase investment” The growth in the manufacturing sector has stalled somewhat in the first half of the year. Most balances have recovered from their downward spike during the first quarter of 2011, but remain largely at the levels recorded in the final quarter of 2010.

Business confidence, the profitability expectation, now sits at 43%, a recovery of 33% on the previous quarter and now moving ahead of national averages in manufacturing.

30% Positive/Negative Balance

Profitability

Cashflow (Last Three Months) - Manufacturing

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

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

-30% -40% -50% -60%

Profitability Expectations (Next Quarter) - Manufacturing

Quarter Manufacturing Sector (Donc) Manufacturing Sector (UK)

Positive/Negative Balance

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Manufacturing Sector (SY)

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Investment

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

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

Manufacturing Sector (SY)

The last quarter has seen a 7% fall in the balance of businesses expecting to invest in plant/ machinery/ equipment. Returning to the average levels of investment seen during 2009/10, 21% of businesses are set to reduce levels of investment in the coming months, far more than the 6% of businesses looking to increase investment.

Investment in Plant/Machinery (Next Three Months) Manufacturing

The balance of manufacturing businesses reporting an improved cash flow position recovered in the last quarter by 29%, growth in turnover rose by 29% to 40% and the balance of businesses reporting increased sales recovered by 15%. These figures represent a recovery from the losses reported in the last quarter and a net plateau in terms of growth for the first half of the year. 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.

Positive/Negative Balance

40%

Cash Flow

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

-40% -60% -80% Quarter Manufacturing Sector (Donc) Manufacturing Sector (UK)

Manufacturing Sector (SY)

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Sector Breakdown Services “Growth in the services sector is sluggish at best”

Profitability Business confidence, the profitability expectation, now sits at 46%, a recovery of 35% from the previous quarter for the sector.

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

Figures for the second quarter of the year paint a more positive picture of the local services sector. As with manufacturing, many of the losses from the first quarter have been reversed. This however, is a clear indication that growth in the services sector is sluggish at best – indeed the Chamber believes this trend is to continue throughout the remained of 2011.

30% 20% 10% 0% -10%

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

-20% -30% Quarter

Profitability Expectations (Next Quarter) - Service Sector Service Sector (Donc)

Service Sector (SY)

Service Sector (UK)

Positive/Negative Balance

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Sales

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

Businesses reported a 25% increase in sales over the last quarter. 39% of businesses are now experiencing growth in their sales figures (up from 29% in the last quarter), while 14% are now experiencing a decline (down from 28%).

-40% Quarter Service Sector (Donc)

Service Sector (SY)

Service Sector (UK)

Employment/Expectations Employment churn remains low in the sector. The number of businesses reporting an increased workforce rose to 15% (up from 6% in the previous quarter) - against those that report further redundancies, now at 11% (a two percent fall). This represents an overall gain of some 10% on the previous quarter. Employment expectations have also risen by 1% from the previous quarter. 17% of businesses expect to recruit in the second quarter (up from 13% in the previous quarter), while 10% expect to lay off staff.

Export sales also increased by 51% from the last quarter, while advanced orders also suggest a further 39% increase in the next quarter. However, the figures show a 34% increase in those businesses expecting their turnover to grow in the first three months of the New Year – 56% of businesses are now expecting this to be the case, up from 36% 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.

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Policy Briefing High Speed Rail “Transport investment per capita is lower in Yorkshire and the Humber than in any other UK region” The Chamber has long campaigned for Government to enhance the capacity and efficiency of Britain’s intercity rail network. If the UK plc is to grow, particularly in those areas which are currently under achieving economically, it is imperative that the UK’s transport infrastructure is significantly enhanced - otherwise the UK’s global competitiveness will plummet - as will that of its constituent towns and regions.

Sheffield’s connectivity, particular through improved rail services, will increase its potential to attract inward investors and enhance the ability of its indigenous firms to grow. This will drive key economic activity – for example advanced manufacturing and export – that will then have positive knock on effects on the wider City Regional economy – i.e. for aviation, haulage, distribution, retail and business services.

Put simply, business needs to move goods and people in a timely and cost effective manner. The rail network is fundamental to that capability and likely to become ever more important as fuel prices spiral, congestion on the roads worsens and the economic case for environmentally sound transportation becomes increasingly evident.

The case for investing significantly and quickly into the UK’s inter city rail network is therefore extremely compelling and overwhelmingly in the interests of the Sheffield City Region’s business community – indeed, 91% of businesses in the City Region support High Speed Rail including those outside of the core city.

Transport investment per capita is lower in Yorkshire and the Humber than in any other UK region; this disparity has significantly contributed to economic output gaps in the North of England and must be addressed if northern economies are to achieve their potential in terms of their contribution to national GDP. The Sheffield City Region The Sheffield City Region sits at the heart of the UK and some of its constituent conurbations can point to good connectivity as a key strategic asset. Doncaster enjoys an excellent position on the motorway network, good London links through the East Coast Mainline, a new international airport and comparatively easy access to the Humber Ports. However, other parts of the City Region, especially Sheffield, have less advantageous transport links and a 2hours plus journey time to the capital in particular is a deterrent to inward investment and future economic growth. Whilst the City of Sheffield’s economy might bare the most obvious brunt of this shortfall, the problem is a significant one for the whole City Region – including for towns such as Doncaster that, in isolation, enjoys comparatively good connectivity; this is why the High Speed Rail is so important to Doncaster businesses also. It is widely accepted that Sheffield is the biggest driver of the City Regional economy. It is therefore very much in the interests of all conurbations within the City Region for Sheffield’s connectivity to be improved. Improving

Modal Shift Achieving modal shift is a key aim of High Speed Rail – this includes moving people away from unsustainable and environmentally damaging modes of transport and towards greener modes such as rail. It should be noted that much of the High Speed Rail documentation is pre-occupied with what it cites as the benefits of moving people away from air travel; the Chamber believes that this theme is unwelcome, unnecessary and contradicts the Government’s own focus on supporting regional airports, particularly after the decision not to build a third runway at Heathrow. High Speed Rail must be part of a complete package for UK infrastructure, this means building a system that works with regional airports and that supports onward journeys rather than one that works in opposition to them. Additionally, the High Speed Rail documentation cites carbon emissions as a key driver behind moving passengers from air travel to trains. It should be noted here that air travel is responsible for only 2% of global carbon emissions and that a focus on moving car passengers to trains would be far more advantageous to the environment and the economy. Route Selection Whilst a number of potential routes are being considered by Government for High Speed Rail, there are two main contenders. The Y-Model, backed by the Chamber, would go from London to Birmingham and then divide into two strands with one arm going to Manchester and Liverpool and the other arm going to the Sheffield and Leeds City Regions.

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Policy Briefing High Speed Rail “It should be unthinkable to develop a High Speed network that excluded the Sheffield City Region” The alternate model (Reverse S) would go from London to Birmingham to Manchester and then across from Manchester to Leeds. It is the Chamber’s view that the west coast only model for High Speed Rail would be disastrous for the Sheffield City Region and should not be supported. Yorkshire and the Humber has, in its own right, an economy that is larger than many European countries; it should be unthinkable to develop a High Speed network that excluded either of its two core City Regions. Connectivity It is important for businesses within the Sheffield City Region that Trans-Pennine links are also improved in the near future to ensure that the whole rail network works for business. In short, there is no point in the main High Speed Rail network being in place if businesses cannot get goods and people from that network to their ultimate destination with ease. High Speed Rail terminus will not be the final destination for travelers, whether business users or otherwise, consequently it is imperative that HS2 is delivered within the context of a broader transport network that meets business needs for efficiency and reliability; for example, access to and from the High Speed Rail network to Hull and the Humber Ports should also be a priority to allow onward business travel. To ensure that this happens, Government must increase broader infrastructure spending now so that our transport network is High Speed ready from day one. When the TGV network was built in France the country failed to simultaneously invest in its existing rail stock and its economy is now paying a heavy price for this lack of foresight; the UK must not make the same mistake. Investment in the UK’s existing rail infrastructure, including the East Coast Mainline that currently serves Sheffield so well, is critical in order to support the movement of goods and freight and a must if the country is to take advantage of the additional capacity in our rail infrastructure that High Speed Rail will create. This will be critical if Doncaster in particular, and the City Region in general, is to develop an advanced logistics sector that supports value adding industries such as advanced manufacturing.

Technical Details Two of the key ambitions for High Speed Rail are for it to cut journey times and to increase capacity. Experts forecast that by 2020 the technology will exist to create a passenger train that can travel up to 400kph. While 400kph passenger trains do not currently exist, a track is being designed that will be capable of carrying trains up to this speed in the future and it is anticipated that High Speed Trains in the UK will travel this quickly. The train design and the stations serving them must also have different characteristics. Standard high speed trains are built so that two can be joined together for busier services. When combined, they are as long as Eurostar trains (400m) so require very different sized stations. High Speed trains have higher seating capacities (1,100 passengers) than other modes of transport so stations must be able to cope with large volumes of people arriving at the same time. High Speed stations are more comparable to airport terminals than conventional train stations. For example, when using approximately ten platforms, it will be possible to run up to 18 trains per hour from one station on a single two-way high speed line; this translates into nearly 20,000 passengers per hour. Conclusion Investment into the UK’s transport infrastructure is critical if the private sector is to create wealth and employment; as part of this investment strategy Government must deliver a rail network fit for the 21st, nd and indeed 22 , Century. Business has indicated its support for High Speed Rail but only if it is delivered alongside investment in the rest of the UK’s transport infrastructure. Doncaster is currently well served by the East Coast Mainline with a number of firms using the London link to their competitive advantage; however, Doncaster is also highly dependent on the Sheffield City Region and an improved link between Sheffield (one of England’s top five cities) and the capital is imperative if the wider region’s economy is to grow. Government is currently consulting on High Speed Rail (http://www.dft.gov.uk/consultations); businesses are urged to respond to that consultation in short term but, in the long term, keep the pressure on Government for transport investment that will benefit British business.

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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

Parliamentary Recess – House Rises

27/07/11

Bank of England MPC Announcement

04/08/11

Bank of England Inflation Report

10/08/11

Parliamentary Recess – House Returns

06/09/11

Bank of England MPC Announcement

08/09/11

Parliamentary Recess – House Rises

16/09/11

Liberal Democrat Party Conference

17/09/11 – 21/09/11

Labour Party Conference

25/09/11 – 29/09/11

Conservative Party Conference

02/10/11 – 05/10/11

Parliamentary Recess – House Returns

11/10/11

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

Success Doncaster 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.

SYITC (South Yorkshire International Trade Centre) 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.syitc.com to find out more JobCentre Plus

Visit: www.successdoncaster.co.uk to find out more.

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.

Invest in Doncaster

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

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.

National Data Sources: ™ ONS – Office of National Statistics UK TRADE

Visit: www.investindoncaster.co.uk to find out more. Business Link Business Link helps your business save time and money by giving you instant access to clear, simple, and trustworthy information. Whether you're starting up, already running a business, or looking to grow and develop, we can help you to:

PUBLIC SECTOR

™ NOMIS – Official Labour Market Statistics ™ HM Treasury ™ Bank of England INFLATION REPORT MPC MINUTES QUANTITATIVE EASING EXPLAINED

™ manage your finances ™ employ people ™ find and keep customers ™ pay the correct tax ™ comply with environmental legislation ™ understand regulations in your sector

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

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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 6,600 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.

National Headlines this quarter:

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.

The major highlights from Q2 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.

The British Chambers of Commerce’s latest Quarterly Economic Survey (QES) suggests that economic growth in the UK remains weak. The survey results, combining 6,600 responses from businesses across the UK, are likely to have been negatively affected by the reduced number of working days in Q2. While the second quarter results are more positive than those in the first quarter, they highlight the threats still facing the economy.

For both the manufacturing and services sectors, exporting activity remains stronger than domestic market performance. This suggests a sluggish domestic market in the UK, with businesses more likely to see growth from overseas than at home.

The balances show exporting activity in the manufacturing sector is stronger than in the service sector. However, they are not strong enough to suggest a rebalancing towards exports, with export sales balances in manufacturing falling (by four points to +26%), and rising only slightly in services (three points to +18%).

Businesses are still facing real difficulties in managing cash-flow (the movement of cash in and out of the business). Despite marginal improvements in both sectors, both cash-flow balances are still in negative territory. . Manufacturers have only recorded three positive results since Q1 2008. Services firms have not recorded a positive balance since the start of 2008.

Despite balances falling since the last quarter, businesses’ intentions to raise prices are still relatively high (likely due to rising raw material costs). The balance of manufacturing firms reporting pressure to increase prices fell two points, to +38%, and in services fell six points, to +27%.

________________________________________________ Local, Regional and National Comparisons Business Confidence (Profitability Expectations) 80% 60%

Balance

40% 20% 0% -20%

Q3 '07

Q4 '07

Q1 '08

Q2 '08

Q3 '08

Q4 '08

Q1 '09

Q2 '09

Q3 '09

Q4 '09

Q1 '10

Q2 '10

Q3 '10

Q4 '10

Q1 '11

Q2 '11

-40% -60% Quarter Doncaster

Yorkshire and the Humber

UK

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Doncaster Economic Review - Quarter 1 2011 Press Release “As it has been for the last 12 months, inflation remains the greatest risk to the economy” Ian Mason, Economic Advisor Tuesday, 12 July 2011

While this doesn’t mean all that much to many of us, the consequence of this 15.7% average increase in the cost of materials

BUSINESS CONCERNED THAT INFLATION IS CHOKING

to the UK, has meant an average 14% increase in the cost of a litre

OFF THE RECOVERY

of unleaded fuel since September 2010, double-digit increases in the cost of food at the supermarket and clothes in the high street

A report released today by Doncaster Chamber of Commerce, highlights the challenges facing the economy over the remaining months of 2011.

Doncaster Chamber’s “Doncaster Economic Review” details data collected during the second quarter of the year and reveals further economic uncertainty for local businesses.

In the last quarter, sales, turnover and cash flow have all markedly improved, yet such indicators, when viewed over a six or nine month period, show little-to-no upward trend. More troubling, is the continued slump in investment intentions, rising price pressures and rising unemployment.

Commenting, Ian Mason, Economic Advisor at Doncaster Chamber

and an aggressive decline in living standards across the country.

Yet all the while wages have stagnated.

As it has been for the last 12 months, inflation remains the greatest risk to the economy, a fact that is barely acknowledged in Whitehall. Clearly, the most healthy, logical and simple economy recovery is one led by the private sector, as ministers readily acknowledge. Yet decisions such as the VAT tax increase, the severity of spending cuts and the uncertainty created by the ‘policy vacuum’ left in their wake, have done little to revive ailing business confidence. The key question for all those running businesses in the UK at present, is where exactly will growth come from now?”

END

of Commerce, said:

“When you consider that GDP growth has not exceeded 0.5% for over 9 months now, there is a real concern that inflation, along with Government spending cuts and tax increases, is choking off the recovery before it ever really had the chance to establish.

The twelve months to May 2011 saw a 37% increase in the cost of crude oil, 13.5% increase in the cost of domestically grown food produce, a 9.6% increase in the cost of imported food produce, a 14.2% increase in the cost of imported metals, a 11% increase in the cost of imported chemicals and an 8.3% increase in the cost of other imported materials.

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Doncaster Economic Review Q2 2011