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Toward a Profitable, Productive Doncaster

Q3 2010 Economic Review Doncaster Chamber


Doncaster Economic Review Summary “Suppressed (or even negative) growth is not an acceptable trade in order to achieve a balanced budget and will damage the future prosperity of UK PLC” Daniel Fell, Head of Policy The third quarter of 2010 paints a picture of uncertainty; while a number of indicators have seen significant gains since July, the long term trends suggest little likelihood of sustained, substantial growth. Rather, we are to see weak gains of between 0.5% and 1.5% GDP growth for the next 24 months at the very least. National manufacturing figures have, once again proved buoyant in the three months to September and whilst this has not been reflected locally, the Chamber is encouraged by local export figures, which continue to show remarkable levels of trade - no doubt reflecting the continued weakness of sterling. Doncaster’s headline unemployment rate remains far less than the national average at 4.9% (though the worklessness rate – a figure which includes those out of work due to incapacity benefit remains high when compared with national averages). However, businesses are beginning to recruit once again; the current expectation is that firms will advertise 35% more vacancies in the run-up to Christmas. Indeed, August represented the sixth successive month in Doncaster that unemployment fell. Thus far, the labour market has demonstrated a fantastic degree of strength, by keeping more workers in employment than comparable recessions of the last century. While the effect of public sector budget cuts will inevitably have a negative impact upon this, particularly as a disproportionate number of jobs in Doncaster are in the public sector, the Chamber expects unemployment nationally to peak at 2.55 – 2.65 million by mid 2011. Doncaster’s strong export growth continued over the last quarter; the number of exporters and number of transactions has increased in comparison to the third quarter of 2009, by 33% in both instances. The range of destinations exported to has also increased by 17%. This suggests that the weak pound is, in fact, encouraging more exporting activity. The value of these exports is 15% higher than the third quarter of 2009. This represents an additional benefit to the Doncaster economy of over £2.115 million. 19% of businesses are reporting price rises in the coming quarter, down from 21% in the previous quarter, but this is

still high given the level of spare capacity in the economy. This, once again, highlights the significance of the stubbornly high rate of inflation (Inflation remained at 3.1% during September, still above 3%, as it has been throughout 2010 thus far). 93% of all businesses will, at the very least, be maintaining the price of their products over the next three months. 28% of businesses are more worried about the relatively high rate of inflation now, than they were 3 months ago. Unless the significant spare capacity in the economy can suppress inflation sufficiently in the coming months (58% of businesses report significant capacity), the 2.5% increase in VAT scheduled for January 2011 could see inflation pushed higher and force the Bank of England to raise interest rates – further damaging GDP growth prospects that have already been downgraded due to public sector spending cuts. In this light, the Chamber must once again call for the VAT rise to be delayed for at least 6 months – pending further analysis of inflationary pressures after Christmas. There is a clear and present risk to the economy from Government spending cuts that must be managed with care; if spending cuts reduce growth and increase uncertainty, while price pressures from both raw materials and the VAT increase spark further rises (or little retraction) in the inflation rate, household’s disposable income and business’ cash flow could be further squeezed. In such an instance, the likely outcome would see the economy move back into recession. The danger in this scenario is that the Government no longer have stimulus spending at their disposal as a tool for combating weak growth, nor does the Bank of England have the option of reducing interest rates. Indeed, in order to combat runaway inflation, they may even have to increase interest rates – thus suppressing growth further. While the Chamber fully supports the general principle of eliminating the budget deficit, we urge the Government to avoid becoming blind to what the economy actually needs at this stage in the cycle. Suppressed (or even negative) growth is not an acceptable trade in order to achieve a balanced budget and will damage the future prosperity of UK PLC.

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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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Immigration 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 £830m; meaning that Doncaster adds £830m 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 “Sales projections are 9% lower for the next quarter – possibly indicating the first real impact of Government spending cuts” 2010 has characterised by weak growth and low confidence among the business community. While long term growth prospects remain strong, short-term economic policy must appreciate current 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 the Yorkshire and Humber average of £15,941. Business Stock There are currently 7,650 registered businesses in the Borough. 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 fell slightly over the second quarter of the year (April – June) to 94, from 98 in the three months to March 2010.

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 proposed by the coalition. 59% 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 – we must remember that the economy is not long out of recession and has yet to see GDP growth of anything over 0.4% - the economic recovery is barely underway. Sales The last quarter saw only a 1% increase in the number of firms reporting increased sales – a rate which has now been rather stagnant over the course of 2010. This would seem to suggest that the current trend of sluggish growth is set to continue for the time being. The number of firms reporting increases in advanced orders fell by 9%; this is troubling and perhaps the first real indication of the impact of premature Government spending cuts. Sales (Last Quarter) - Doncaster - All Sectors

Success Doncaster Business Starts (last 12 months) 90 80 70 50 40

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

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Overview Consumer Confidence “28% of businesses are concerned about the stubbornly high rate of inflation”

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 did little to adjust this trend; however, the cost of food, fuel and higher taxes, particularly VAT, will see GHDI fall over 2010 – 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. In Doncaster 54% of employees work in the public sector. Gross Household Disposable Income - Doncaster 12000 10000

Value

8000

The average cost of a litre of diesel in Doncaster is 118.3p, down 0.75% on the last quarter and against a national average of 120.0p, virtually unchanged on Q2 of 2010. Prices 19% of businesses are reporting price rises in the coming quarter, down from 21% in the previous quarter, but this is still high given the level of spare capacity in the economy. This, once again, highlights the significance of the stubbornly high rate of inflation. 93% of all businesses will, at the very least, be maintaining the price of their products over the next three months. Prices - Doncaster - All Sectors 50% Positive/Negative Balance

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 April 2011, as stubbornly high inflation and increasing prices pressures are, at present, negating the impact of excess capacity in the economy.

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Inflation Inflation remained at 3.1% during September, still above 3% as it has been throughout 2010 thus far. Fuel Prices The average cost of a litre of unleaded petrol in Doncaster is 114.5p, down 1.5% on the second quarter of the year – against a national average of 116.8p, down 1.3%.

22% of businesses reported pressure from the high cost of raw materials, a rise from 17% in the previous quarter. The Chamber is concerned that the low pound is increasing the cost of importing raw materials from the continent, thus negating the effect of the low pound on exports – particularly as the rest of Yorkshire and Humber are reporting a figure closer to 27%. 11% of businesses reported pressure from the cost of finance – a continuation of the lower trends in this figure seen recently. 11% of businesses are reporting pressure from the cost of pay settlements. 28% of businesses are more worried about the relatively high rate of inflation now, than they were 3 months ago.

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Overview Business Confidence “Business confidence now sits at 45%, a welcome 16% increase for the first time in 2010” After nine consecutive months of falls, business confidence in Doncaster has finally risen and by some 16% to 45% - something of a surprise given the uncertain economic outlook.

dramatically to a balance -54% in the final quarter of 2008 and has yet to fully recover; a further illustration of the damage that could be caused to Doncaster’s economy by the introduction of public spending cuts in 2010.

Profitability

Cash Flow (Last Three Months) - All Sectors 30% Positive/Negative Balance

Business confidence, the profitability expectation, now sits at 45%, a 16% increase on the second quarter of 2010, moving ahead of national averages. Business does, however, remain cautious over prospects for the final months of 2010, particularly in light of the austerity measures announced in the coalition budget. Business is still too reliant on the public sector stimulus introduced at the height of the recession; the £6bn of cuts announced for this fiscal year are most unwelcome.

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

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Q1 Q2 '09 '09

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Business Confidence (Next Three Months) - All Sectors

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Doncaster - All Sectors

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Investment

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-30% Quarter Doncaster - All Sectors

Turnover The percentage of businesses reporting overall growth has seen gains of 10% in the last quarter, bringing the rate to 47% - this, along with business confidence figures is encouraging – and ahead of national trends by some margin Cash Flow The number of businesses reporting an imporovement/worsing in cash flow now sits at a balance of -4%. This is a key indicator with which to measure the state of the economy. During the recession, cash flow fell

Perhaps a sign of increasing confidence returning in the economy, business has reported a 27% increase in investment in plant/machinery and a 23% increase in training provision. 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 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. This trend of increased investment must continue 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, 50% of businesses said there would be no change (-1%), 34% (-8%) said there would be some change and 15% (+8%) said their business would change significantly its product/service significantly. This increase is comforting, as business is beginning to realise that it must change in order to compete in the new marketplace.

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Overview Employment “Unemployment in the Borough fell for the sixth month in succession in August” Doncaster’s headline unemployment rate remains far lower than the national average at 4.9%. However, businesses are beginning to recruit once again; the current expectation is that firms will advertise 35% more vacancies in the run-up to Christmas.

Vacancies In August 2010 Job Centre Plus handled a total of 2635 vacancies, compared to 1,696 in the same period last year – an overall increase of 35%. Job Centre Plus Vacancies

Unemployment 8000 7000 6000 5000 Value

Unemployment in the Borough fell for the sixth month in succession during August. There were 8,993 registered as unemployed in August 2010, as apposed to the 10,351 registered as unemployed in August 2009. The headline unemployment rate in Doncaster is currently 4.9%, compared to August 09 at 5.6%. Crucially, this compares well to the national average of 7.8% in the UK.

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Doncaster Residents Registered Unemployed (2010)

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Employment expectations in the Borough have increased since the last quarter. 26% of businesses interviewed expect to recruit over the next three months, while only 6% expect their workforce to decrease in the next three months.

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Employment Expectations (Next Three Months) - All Sectors

As at September 2009 (most recent stats available) there were 123,800 people in employment in Doncaster, giving an Employment Rate of 68.2%, compared to Yorkshire and Humber at 71.2.% and Great Britain at 72.9%. 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.

Positive/Negative Balance

40%

Employment Rate

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-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 £136,224, some 11.5% higher than in September 2009 and a staggering 12% increase on Q2 2010. As confidence has crept back into the market, incentivised in part, by low interest rates, we have seen a small rise in transactions 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 12,959 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 spiraling 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 Inward Investment “Over the course of 2009, inward investment in Doncaster created some 418 jobs”

Value of Inward Investment

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Inward 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 and Kinch Aviation have recognised that Doncaster is a good place to do business. Amazon, the online retailer, have announced that they will be re-locating to a distribution centre in Doncaster to cover extra demand over the Christmas period – 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 Year

Jobs Created During 2009, inward investment in Doncaster created some 418 jobs, up slightly on the previous years 366. Since 2000, 20,980 jobs have been created in the Borough as a result of inward investment. Jobs Created Through Inward Investment

Land During 2009, inward investment in Doncaster was responsible for the development of 468 acres – this accounts for 38% of the 1,232 acres developed since 2000 and is the highest single figure since 2000, possibly reflecting the cost reductions forced by the recession. Land Developed by Inward Investment

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Value to Economy During 2009, inward investment contributed over £48 million to the value of the Doncaster economy, slightly down on last years £50m+. Since 2000, over £1.5bn has been added to the economy from inward investment.

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Overview Miscellaneous “The percentage of firms reporting excess capacity has fallen over the last quarter by 31%, to 58%”

Capacity The percentage of firms reporting excess capacity has fallen over the last quarter by 31% to 58%. This continues the trend seen over the last year, whereby capacity has been gradually reduced as firms shed employees. Given the high levels of inflation the economy is witnessing at present, the Chamber is hopeful that this excess capacity is now translating into a reduction in inflation prior to the VAT increase in January 2011. Capacity - Doncaster - All Sectors

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The number of exporters and number of transactions has increased in comparison to the third quarter of 2009, by 33% in both instances. The range of destinations exported to has also increased by 17%. This suggests that the weak pound is, in fact, encouraging more export activity – this quarter follows the marked improvement shown in the last quarter. The value of these exports is 15% higher than the third quarter of 2009. This represents an additional benefit to the Doncaster economy of over £2.115 million.

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The percentage of firms reporting increasing export sales increased in the last quarter by 7% to 22%, bucking the trend seen thus far in 2010. There is also a predicted increase in growth for the next quarter, of a further 11%. The Chamber is, however, still 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.

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Export

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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.

Quarter

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Sector Breakdown Manufacturing “Most indicators suggest a further period of sluggish growth”

Profitability Business confidence, the profitability expectation, now sits at 31%, an 8% reduction on the previous quarter, but still comfortably higher than national averages in manufacturing.

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

Against a national backdrop of rising output and production levels, it is concerning to see Doncaster’s manufacturers reporting worsening cash flow, sales and profitability. However, the increased investment in equipment and training suggests that businesses are, once again, beginning to plan for the future.

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Profitability Expectations (Next Quarter) - Manufacturing

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Manufacturing Sector (SY)

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Investment

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Manufacturing Sector (SY)

The last quarter has seen a 15% shift in the balance of businesses expecting to invest in plant/machinery/equipment . While there are still far more businesses that don’t expect to increase their investment levels than those that do, this shift in attitude is both noticeable and encouraging. The Chamber will continue to monitor this in future months in the hope that a trend develops. Investment in Plant/Machinery (Next Three Months) Manufacturing

Cash Flow 40% Positive/Negative Balance

Gains seen in manufacturers’ cash flow in Q2 were reversed in the last quarter, with the balance of businesses reporting an improved position falling by 17% to -13%. This, coupled with a reduced expectations of growth in turnover (down 12% to 38%) and the fact that more businesses now expect their sales to fall than rise, emphasises the sluggish nature of the economic recovery and suggests that it was wrong to remove public-sector stimulus while there was so much uncertainty in the business community. Serious questions remain about the coalition Government’s decision to remove tax incentives for high-end investment; a decision that will stifle growth in the manufacturing sector.

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Manufacturing Sector (SY)

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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 47%, a 21% increase on the previous quarter for the sector. Profitability Expectations (Next Quarter) - Service Sector

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

The last quarter has witnessed a strong rebound in the service sector. While it is too early to call this a recovery, it must be noted that turnover, sales, profitability and, encouragingly, export sales have all risen by double digit figures.

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Q3 '10

Businesses reported a 7% increase in sales over the last quarter. 44% of businesses are now experiencing growth in their sales figures, while only 23% are now experiencing a decline.

-40% Quarter Service Sector (Donc)

Service Sector (SY)

Service Sector (UK)

Employment/Expectations Encouragingly, the number of businesses reporting an increased workforce has risen to 25% - against those that report further redundancies, now only at 6%. This is an overall improvement of some 8% on the previous quarter. Employment expectations have also risen by 13% from the previous quarter, suggesting that the gains made over the last three months are set to continue. 20% of businesses expect to recruit in the run up to Christmas, while only 7% expect to lay off staff.

Export sales also increased by 17% from the last quarter, while advanced orders also suggest a further 18% increase in the next quarter. In all, this translates to a 16% increase in those businesses expecting their turnover to grow in the run up to Christmas – 63% of businesses are now expecting this to be the case. Clearly, we must attribute some of this positivity to the nature of Christmas in the UK – particularly in the retail sector and thus should treat these figures with caution. However, the acid test of the service sector ‘recovery’ will be whether these positive trends are reflected in the actual Christmas sales figures.

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Doncaster Economic Review - Quarter 3 2010 Immigration Briefing “The UK could potentially lose out on recruiting the best global talent as a result”

A new permanent limit on the number of non-EU workers entering the United Kingdom will come into effect from April 2011. It will be announced after 12-week consultations within the Government and with business. An interim measure will also be implemented to avoid a rush of applications for migrants and ensure that the number of work visas issued stays below 2009 levels. Government Policy The Government believes that Britain can benefit from controlled migration and while recognising the importance of attracting the brightest and the best to ensure strong economic growth, continue to emphasise that unlimited migration could place unacceptable pressure on public services. The new temporary controls will cap the number of visas for the most highly skilled migrants (those that do not need to have a job in Britain before being granted a visa) in Tier 1 at the 2009 level of 5,400 and will raise the number of points needed to qualify from 95 to 100. Tier 2 workers – skilled migrants who fulfil a specific UK job offer – will also be reduced by 1,300 to 18,700 over the next nine months. Tier three comprises of less skilled workers but no-one has ever been granted a UK visa under this tier. Tier four covers temporary workers, ranging from students doing a holiday job to artists coming to the UK for performances. Business Business is concerned that a cap of any sort will deprive them of the competitive advantage of the flexibility which is the hallmark of the UK’s labour market. The healthcare field, hospitality industry and education and technology sectors are expected to be directly affected by the rule changes, as professions on the official shortage list will be included in the restrictions. The UK Border Agency's points-based system lists a range of jobs for which there is a current shortage, with non-EU workers invited to apply. They include civil engineers for major construction projects, as well as electrical, mechanical and chemical engineers, various medicine and health care roles, maths and science teachers and care workers. The interim measures could affect the ability of some regions of the UK to recruit nurses into the sector – there are already difficulties in areas with a much smaller pool of registered

nurses. Lloyd’s pharmacy had successfully lobbied for the return of the pharmacist role to the occupation shortage list in 2009 - a cap is now likely to have a significant impact on recruitment. Of greatest concern, is that it could be the skilled workers who will be caught out by an immigration cap, not the unskilled migrants moving from within the EU; a business that requires an engineer with specialised skills toward the end of the year could see its efforts to grow its business thwarted, if the cap had already been exceeded for that year. It could be that a British person with the same qualifications and levels of skill may not be available for four or five years because it needs to be trained up from scratch, leaving the business with no option but to refuse the order. The UK could potentially lose out on recruiting the best global talent as a result. India News of the UK’s immigration cap has alerted Indian industry leaders, who are worried that that the new rules against non-EU immigration might impact Indian companies who have heavily invested in the UK, as well as those UK-based companies that rely on workers from the South-Asian peninsula, particularly in services sectors such as IT, food and hospitality. There are more than 700 Indian companies with investments in the UK and about two thirds are in the IT and computer software sectors; Indian companies are also the second highest foreign employers in Britain, after the US. Tata, the UK’s largest foreign investor, employs a total workforce of 47,000. The Department for Business, Innovation and Skills (BIS) estimates that bilateral trade with India is worth at least £11bn a year to the UK economy. India’s Minister of Commerce and Industry, Anand Sharma, has raised concerns over the issue with the UK Government, “Though we understand the United Kingdom and European Union regulations, the regime has to be investor friendly and must not come in the way of free movement of investors and professionals.” Over the last few years, Indian giants of the likes of ICICI Bank and Kingfisher Airlines have set up bases in London. Some Indian companies like Wipro and IL&FS have even made London their European headquarters; they now fear that these companies will face difficulties getting visas for young Indian talent.

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Doncaster Economic Review - Quarter 3 2010 Immigration Briefing “The Government are actively reducing the ability of business to grow the UK out of recession” Flexibility The results of the consultation on the permanent limit are expected to make fundamental changes in the way workers from outside the European Union will be chosen. When the temporary limit of 24,000 skilled non-EU workers was set back in June, it was decided to exempt the thousands of Indian IT staff working in Britain, while a decision was made as to whether they should be covered by the permanent cap to come into effect next April. This is because they come into Britain under the guise of an "intra-company transfer" - governed by international trade agreements. These require the UK to provide access to the managers and specialist staff employed by non-EU companies when they are posted to a British branch of that business. Indeed the World Trade Organisation's General Agreement on Trade in Services, explicitly states that while conditions – such as qualifications and English language fluency, which are specified under tier two of the points-based immigration rules – can be imposed, the imposition of a numerical limit is banned. However, many of these IT staff are ostensibly working in the British branch of their company but are in actual fact being subcontracted to work in British firms or doing work out-sourced by British companies. This means it may be possible to cap their numbers despite the international ban. The numbers involved are not marginal; indeed more than 35,400 work permits were issued to foreign IT workers to come to Britain in 2008 and such intra-company transfers make up 45% of all the skilled workers that currently come in under tier two. There is already a ban on unskilled workers being recruited by British companies from outside the EU so controlling the numbers coming in through the skilled and highly skilled routes – tiers one and two of the points based system – is the only method the Prime Minister has if he is to make his limit work.

Yet this fails to fundamentally address the issues at the heart of the matter. The general perception of immigration in the UK is negative; politicians and the media alike have lent extensive coverage to the topic to reinforce this view, blaming immigrants for problems such as unemployment, housing shortages, classroom overcrowding and excessive demands on the NHS. The proposed introduction of a cap on migration by the new coalition Government as the answer to the perceived threat to the UK labour market, is the political consequence of this negative view. The largest categories of immigrants that enter the UK are EU nationals (who are entitled to come to the UK without a visa because of the UK’s membership of the EU) and relatives of people settled here (because the right to family life is recognised by the European Convention on Human Rights (ECHR), to which the UK is a signatory). Short of taking the UK out of the EU and annulling the UK’s signature to the ECHR, there is nothing that can be done about such migration. Introducing a "cap" — whether temporary or permanent — on tier one and tier two workers, is a nonsense if the end goal is to reduce overall levels of immigration. There were 590,000 migrants to the UK in 2008; within that, the number of tier one workers admitted last year was around 28,000 and the number of tier two workers was around 65,000. The only conceivable impact of the announcement of a cap on immigration numbers, is to reinforce the perception that unemployment and bad housing are caused by immigration. More worrying still, is the fact that through the limits to Tier 1 and Tier 2 immigration, the Government are actively reducing the ability of business to grow the UK out of recession, by depriving them of the competitive advantage offered by the flexibility of the UK’s labour market.

Limited Options According to the BBC, Britain now exports more to the Irish Republic than it does to Brazil, India, Russia and China combined. With this in mind, it seems logical that if a permanent cap is to be enforced, that intra-company transfers should be excluded, in order to further develop trade relations with nations such as India.

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Doncaster Economic Review - Quarter 2 2010 Key dates for the next quarter “Investment with a long-term benefit, such as that in infrastructure, must be safeguarded from cuts� Daniel Fell, Head of Policy

September Inflation Figures Announced

12/10/10

Government Spending Review

20/10/10

Bank of England MPC Announcement

04/11/10

Bank of England Inflation Report

10/11/10

Bank of England MPC Announcement

09/12/10

Bank of England Quarterly Report

13/12/10

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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.

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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 5,600 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. 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. 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 – 20% of all Chamber members – making this research the most credible economic indicator available to Doncaster. ________________________________________________

National Headlines this quarter: Results from the British Chambers of Commerce’s latest Quarterly Economic Survey (QES), with over 5,000 business responses, suggest that the UK economy slowed considerably in the third quarter of 2010, following unusually strong growth recorded in the second quarter of the year. But UK growth remained in positive territory, and a new recession can be avoided. The manufacturing sector experienced a weakening of some balances, although there were positive aspects. Results from the service sector showed performance to be worse than the manufacturing sector, with all key service sector indicators, such as employment expectations and investment, slowing. Despite the economy’s continued growth, serious challenges will be faced by the business community over the coming year as the austerity measures are implemented. To reduce the dangers of a major economic setback, forceful action must be taken by the Government and the Monetary Policy Committee. The major highlights from Q3 2010 QES include: •

The manufacturing sector turnover confidence balance rose seven points, to +49%, the strongest result since Q3 2007. However, manufacturers’ profitability confidence declined by three points to reach +23%.

The service sector home orders balance fell nine points to –4%, dropping into negative territory after being positive in Q2. The service domestic balances, though much weaker than those for manufacturing, are still better than during the recession.

The service sector employment expectations balance declined 10 points, to +1%, indicating the inability of firms to take on staff as 2010 ends.

The Q3 cash flow balances worsened in both sectors and are worryingly weak. The manufacturing cash flow balance fell one point, to 0%. Services cash flow dropped eight points, to –11%.

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

Balance

40% 20% 0% 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 -20% -40% -60% Quarter Doncaster

Yorkshire and the Humber

UK

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Doncaster Economic Review - Quarter 2 2010 Press Release “More businesses are still reporting a worsening cash flow position than those that reported improvements.” Daniel Fell, Head of Policy Tuesday, 12 October 2010

“There is a clear and present risk to the economy from Government spending cuts that must be managed with care;

BUSINESS WARNS OF THE EFFECT OF EXTREME

if spending cuts reduce growth and increase uncertainty,

PUBLIC SECTOR CUTS IN ADVANCE OF SPENDING

while price pressures from both raw materials and the VAT

REVIEW

increase spark further rises (or little retraction) in the inflation rate, household’s disposable income and business’ cash

A report released today by Doncaster Chamber of

flow could be further squeezed. In such an instance, the

Commerce, highlights the challenges facing the economy

likely outcome would see the economy move back into

during the remainder of 2010 and into 2011.

recession.

Doncaster Chamber’s “Doncaster Economic Review” details

The danger in this scenario is that the Government no

data collected during the third quarter of the year and,

longer have stimulus spending at their disposal as a tool for

perhaps a sign of increasing confidence returning in the

combating weak growth, nor does the Bank of England have

economy, reveals that business has reported a 27pc

the option of reducing interest rates. Indeed, in order to

increase in investment in plant/machinery and a 23pc

combat runaway inflation, they may even have to increase

increase in training provision.

interest rates – thus suppressing growth further. While the Chamber fully supports the general principle of eliminating

However, 59pc of Doncaster businesses rate Government

the budget deficit, we urge the Government to avoid

spending cuts as the single largest threat to their business.

becoming blind to what the economy actually needs at this

More businesses are still reporting a worsening cash flow

stage in the cycle. Suppressed (or even negative) growth is

position than those that report improvements. This is a key

not an acceptable trade in order to achieve a balanced

indicator with which to measure the state of the economy.

budget and will damage the future prosperity of UK PLC.”

During the recession, cash flow fell dramatically to a balance -54% in the final quarter of 2008 and has yet to fully recover;

Meanwhile, the current rate of inflation remains at 3.1%, a

a further illustration of the damage that could be caused to

comparatively high level given the reduced demand in the

Doncaster’s economy by the introduction of public spending

economy; Mr Fell added: “In this light, the Chamber must

cuts in 2010.

once again call for the VAT rise to be delayed for at least 6 months – pending further analysis of inflationary pressures

Commenting, Daniel Fell, Head of Policy at Doncaster

after Christmas.”

Chamber, said:

END

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Doncaster Chamber Economic Review Q3 2010