Doncaster Chamber Economic Review Q3 2011 by Doncaster Chamber

Toward a Profitable, Productive Doncaster

Q3 2011 Economic Review Doncaster Chamber

Doncaster Economic Review Summary “Government must do more to boost growth and promote stability for British business” Ian Mason, Economic Advisor UK GDP growth for the second quarter of the year was downgraded last week to 0.1% - indeed the Office for Budget Responsibility’s annual forecasts for growth in 2011 have been revised down on three separate occasions within 12 months. This can hardly be surprising. Inflation has been above 4% since the turn of the year – and above 3% for nearly 24 months now. In the year to August, the cost of raw materials rose by 16.2% and so the price of manufactured goods rose by 6.1% over the same period – that’s the highest level of producer price inflation since October 2008. In addition, the Coalition Government has pushed up VAT to 20%. All the while, wages have stagnated, with regular pay rising by 2.1 per cent on a year earlier. The effect, quite clearly, is a significant reduction in disposable income and business cash flow – business and consumer spending power thus, has been depleting with every passing month. In an economy for which such spending is the significant majority, this will only ever serve to stymie growth. Businesses have stripped out as many costs as possible over the course of the last 3 years and a waiting game has commenced. A quick return to growth would see businesses start to recover margins, invest and recruit; yet the longer the wait, the greater the chance of further redundancies, more cost-cutting and a resulting reduction in overall productivity in the economy – a process that will take years to correct. In this light, a return to significant growth as soon as possible is extremely important, yet if the private sector alone is not able to drive the recovery, there are few other potential origins of such growth. Many, including the Government, have suggested that an export-led recovery may be such an origin, particularly given the weak pound benefits British exports – but the weak pound also makes imports more expensive – and the UK imports most of its raw materials. While the weak pound has indeed stimulated greater export activity, exports in Doncaster have fallen away during 2011 - this reaffirms the Chamber’s assertion that export growth is reaching a plateau. The value of exports for the third quarter of 2011 is 31% lower than the third quarter of 2010, and represents a loss to the Doncaster economy of over £5.18 million.

The UK exports more to the US, Ireland, France, Belgium, Spain and Italy (all of whom have serious sovereign debt issues) than it does emerging economies such as China, India and Brazil (all three of whom represent the large proportion of World GDP growth). If growth is going to come from anywhere, in the short term at least, it will not then, come from exports. In this light, the Government needs to consider, more radically, how growth can be stimulated. What could push growth to such a level that businesses could then do the rest – what could halt the waiting game underway at present? A small business investment bank could be developed in order to bridge the gap for those business for whom high street bank lending is inappropriate – or inaccessible. The Government must also avoid the temptation to use the profits made from the sale of shares in the banks for anything other than debt repayments. This would give greater room for growth-inducing spending in the short term. Such spending might well take the form of much needed infrastructure investment, in transportation projects and house building, both of which would offer jobs and stimulate further investment in the short term, and increase underlying growth potential in the long-term. There could also be room for selected VAT cuts in areas such as home improvements or energy – or indeed a reversal of the previous poisonous increase. These concepts represent some of the many things that the Chamber has been advocating since 2009, during the depths of the recession. There are, however, some signs of a general improvement in circumstances for business. While short-term sales projections are again down, turnover and profitability projections over the next 12 months have risen significantly, as has investment in both plant/machinery and training. Cash flow projections also returned to positive territory last quarter for the first time since the recession began. One thing however, remains clear, the Government must do more to boost growth and promote stability for British business if the economy is to avoid being caught up in the aftermath of the sovereign debt crisis enveloping Europe - taking measures to avoid crippling the financial services sector would be a start.

Doncaster Economic Review Contents

Summary

Contents

About Doncaster Chamber

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

Sector Breakdown Manufacturing Services

P12

Labour Party Conference Briefing

P14

Key Dates for the Next Quarter

P16

Useful References

P17

Methodology

P18

Press Release

P19

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

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

Overview Gross Domestic Product “UK GDP grew by 0.1% in the last quarter, down from 0.4% in the first quarter of the year” 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.

Business Stock by Employment Size

0 ‐ 4 5 ‐ 9 10 ‐ 19 20+

Gross Value Added (GVA)

Business Stock There are currently 6,500 registered businesses in the Borough.

Business Stock by Sector

Retail

15.47%

Construction

12.71% 8.76% 7.00% 6.71% 6.71% 6.59% 5.65% 5.29% 4.94% 4.71% 3.76% 3.00% 2.76% 2.71% 2.12% 1.12%

Professional, Scientific and Technical Accommodation and Food Services Business, Administration and Support Services Arts, Entertainment and Recreation Manufacturing Health Wholesale Transport and Storage (inc Postal) Motor Trades Agriculture, Forestry and Fishing Education Property Information and Communication Finance and Insurance Public Administration and Defence

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. 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 The last quarter saw a 3% fall 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 fell by 5%. Sales (Last Quarter) - Doncaster - All Sectors 50% Positive/Negative Balance

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.

4,710 (72%) 965 (15%) 425 (7%) 400 (6%)

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

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

-20% -30% Quarter Doncaster - All Sectors

Overview Consumer Confidence “26% of businesses are reporting price rises in the coming 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.

Fuel Prices The average cost of a litre of unleaded petrol in Doncaster is 132.6p, virtually unchanged from the previous quarter, but up 16% over the course of the last year. The average cost nationally, is 134.65p, again virtually unchanged from the last quarter, but up 15% on the last year. The average cost of a litre of diesel in Doncaster is 137.5, virtually unchanged from the last quarter, against a national average of 139.54p, a slight increase. Prices 26% of businesses are reporting price rises in the coming quarter; 98% of all businesses will, at the very least, be maintaining the price of their products over the next three months. This again demonstrates the significance of the stubbornly high rate of inflation

Gross Household Disposable Income - Doncaster

Prices - Doncaster - All Sectors

12000

50% Positive/Negative Balance

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Value

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2001

2002

2003

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2008

2009

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

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 Quarter Doncaster - All Sectors

Inflation Inflation remained at 4.5% during August. The Chamber believes that inflation will near 5% during the final months of 2011; we also believe that inflationary pressures are likely to ease in the medium term, largely due to the effect of Government spending cuts and the fall of the VAT hike from the inflation calculation. We believe the Bank of England was correct to both hold the interest rate at 0.5% and increase their asset purchasing programme based on this evidence.

Price Pressures Price pressures across the board look to be tightening further. 38% of businesses reported pressure from the high cost of raw materials, another increase of 15% from the previous quarter. Demand from emerging economies and indeed the increasing rarity and cost of extraction of some important raw materials will continue to push up the cost of raw materials in the coming years. Current prices are also inhibitive to UK businesses due to the weak pound – a large proportion of raw materials are imported from abroad.

Overview Business Confidence “Business confidence, the profitability expectation, continued to improve to 71%, 25% higher than the second quarter of 2011” 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 over the last two quarters.

Business confidence, the profitability expectation, continued to improve to 71%, 25% higher than the second quarter of 2011. Over the course of the recession, confidence in Doncaster has remained well above national averages and this trend looks set to continue, despite difficult economic circumstances.

30% Positive/Negative Balance

Profitability

Cash Flow (Last Three Months) - All Sectors

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

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

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

Business Confidence (Next Three Months) - All Sectors

Doncaster - All Sectors

Positive/Negative Balance

80% 60%

Investment

40% 20% 0% -20%

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

-40% Quarter Doncaster - All Sectors

Turnover The percentage of businesses reporting overall growth has also recovered; the rate is now 73%, up from 45% at the end of the last quarter. Cash Flow

Business has reported a 35% increase in investment in plant/machinery, and a 35% increase in training investment. Private sector growth must accelerate to fill the void left by public sector retraction – of this, there can be no doubt. In such an instance, significant investment must be made in order to increase the capacity and profitability of businesses. The Chamber has doubts as to whether the private sector can bridge the gap in a town such as Doncaster, where more than 24% of GDP is publically funded. This upward trend of increased investment must continue 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, 37% of businesses said there would be no change (+1%), 56% (-2%) said there would be some change and 7% (+1%) said their business would change its product/service portfolio significantly.

The number of businesses reporting an improvement/worsening in cash flow has dipped slightly to a balance of 8% - 8% lower than the second quarter of 2011. 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.

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 July and August, continuing the upward trend witnessed in the first quarter of the year. There were 10,126 registered as unemployed in August 2011, as opposed to the 8,993 registered as unemployed in August 2010.

Value

5000

Unemployment

4000 3000 2000 1000 0

Doncaster Residents Registered Unemployed

Quarter

12000 10000

Employment Expectations

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8000 6000 4000 2000

Ja n Fe ua br r y ua 10 M ry ar 10 ch A 10 pr il M 10 ay J u 10 ne Ju 10 Se Au ly 1 pt gu 0 em st 1 O be 0 c N t o r 10 ov be D em r 1 ec b 0 em er 1 J a be 0 n r Fe ua 10 br r y ua 11 M ry ar 11 ch A 11 pr il M 11 ay J u 11 ne J 11 A uly ug 1 us 1 t 11

Employment expectations in the borough have gained a little ground since the last quarter. 26% (+8%) of businesses interviewed expect to recruit over the next three months, while 9% expect their workforce to decrease in the next three months. Employment Expectations (Next Three Months) - All Sectors

Month

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 Q3 2011, Job Centre Plus handled a total of 5,041 vacancies, compared to 6,833 in the same period last year – but down from 7208 in the final quarter of 2010.

Positive/Negative Balance

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

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

-20% Quarter Doncaster - All Sectors

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

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

House Prices House prices have been remarkably resilient during the course of the recession; indeed, eleven of the last twelve months have seen house price rises. The average cost of a home in Doncaster now stands at £120,680, - 0.8% from Q3 2010 and a 2.4% fall on Q2 2011. A subdued market and the subsequent fall in prices do not reflect the long term trend in the sector, which will, undoubtedly, be upward. Rather, it reflects a lack of disposable income in the population as a whole and the lack of availability of affordable mortgages. The problem is exacerbated amongst first time buyers, who now need a minimum of a 20% deposit to secure a home; in Doncaster, this represents a minimum level of savings of just over £24,000. 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 have also previously been housing requirements, forcing local authorities to build a certain number of homes in every year. These two requirements are, however, counterintuitive, as developers looking to build new estates are dissuaded from doing so, when the affordable home requirement reduces or eliminates their margins on the build. Hence, not only are developers failing to keep abreast with current demand (thus maintaining prices merely at current ‘inflated’ levels), but they are now actively discouraged from developing in some instances by, ironically, measures bought in place to combat excessive house prices. There is a real risk of prices spiralling out of control. The only conceivable way to avoid this eventuality, is to build significant numbers of new homes, in order to, initially, meet current demand based on household creation projections – thus shielding prices from supply pressures – and then move beyond this to satisfy the existing shortfall, in order to reduce house prices and make homes more affordable for all. Ministers must recognise that house prices should become a key aspect of fiscal policy in the UK.

Overview Investment “Since 2000, nearly £1.7bn has been added to the economy from investment”

Value of Investment

400.0 350.0 300.0 Value (£m)

250.0 200.0 150.0 100.0 50.0

11 20

Jobs Created

0.0 20

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.

Year

During 2011 (up to September), investment in Doncaster created some 827 jobs, already up slightly on the previous year’s 827. Since 2000, 22,518 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 2011 (to the end of September), investment in Doncaster was responsible for the development of 57 acres, or roughly 4% of the 1,270 acres developed since 2000. The spike witnessed during 2009 was directly attributable to the opening of the Yorkshire Wildlife Park.

4500

Land Developed by Investment

4000 3500

Value

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1500 300 Acres

1000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Year

200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -100 Year

Value to Economy During 2011 (to the end of September), investment contributed over £54 million to the value of the Doncaster economy, already nearing the figure of £65 million achieved during 2010. Since 2000, nearly £1.7bn has been added to the economy from investment.

Overview Miscellaneous “The value of exports in Q3 2011 is 31% lower than those registered in the third quarter of 2010.

Capacity The percentage of firms reporting excess rose slightly, by 9% to 59%. There is a suggestion that firms have 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 rising unemployment and that falling sales have led to an increase in spare capacity. Capacity - Doncaster - All Sectors

Positive/Negative Balance

90% 80% 70% 60%

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 Q3 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11

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

Quarter Doncaster - All Sectors

The number of exporters and number of transactions has, in comparison to the third quarter of 2010, decreased by 4% and increased by 5% respectively. The range of destinations exported to has also increased by 5%. This reaffirms the Chamber’s assertion that export growth is reaching a plateau. The value of these exports is 31% lower than the third quarter of 2010. This represents a loss to the Doncaster economy of over £5.18 million.

50% 40%

Value of Exports

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

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The percentage of firms reporting increasing export sales fell slightly to 17%; there is also a predicted further drop in growth for the next quarter, of 2%. The Chamber is 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.

Quarter

Sector Breakdown Manufacturing “Growth in turnover rose by 27% to 67% and the balance of businesses reporting increased sales fell away by 11%.”

Profitability Business confidence, the profitability expectation, now sits at 58%, a further increase of 15% on the previous quarter and now moving ahead of national averages in manufacturing.

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

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 and have now moved ahead of levels last seen during 2008.

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

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

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

Profitability Expectations (Next Quarter) - Manufacturing

Manufacturing Sector (Donc) Manufacturing Sector (UK)

Positive/Negative Balance

80%

Manufacturing Sector (SY)

60% 40% 20%

Investment

0% -20%

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

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

The last quarter has seen a 19% increase in the balance of businesses expecting to invest in plant/ machinery/ equipment, 23% of businesses are set to reduce levels of investment in the coming months, slightly less than the 26% of businesses looking to increase investment.

Manufacturing Sector (SY) Investment in Plant/Machinery (Next Three Months) Manufacturing

Cash Flow The balance of manufacturing businesses reporting an improved cash flow position fell in the last quarter by 15%, growth in turnover rose by 27% to 67% and the balance of businesses reporting increased sales fell away by 11%. These figures represent a further deterioration in the recovery and a net plateau in terms of growth for the first half of the year.

Positive/Negative Balance

40% 20% 0% -20%

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

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

Manufacturing Sector (SY)

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.

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 Q3 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11

-20% -30% Quarter

Profitability Expectations (Next Quarter) - Service Sector

Service Sector (Donc)

Service Sector (SY)

Service Sector (UK)

Positive/Negative Balance

80% 60% 40%

Sales

20%

Businesses reported an 11% drop in sales over the last quarter. 37% of businesses are now experiencing growth in their sales figures (down from 39% in the last quarter), while 23% are now experiencing a decline (up from 17%).

0% -20%

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

-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 22% (up from 15% in the previous quarter) - against those that report further redundancies, now at 13% (a two percent increase). This represents an overall gain of some 10% on the previous quarter. Employment expectations have also risen by 1% from the previous quarter. 25% of businesses expect to recruit in the second quarter (up from 17% in the previous quarter), while 8% expect to lay off staff.

Export sales also fell away by 11% from the last quarter, while advanced orders are forecasted to remain unchanged in the next quarter. However, the figures show a 28% increase in those businesses expecting their turnover to grow in the first three months of the New Year – 88% of businesses are now expecting this to be the case, up from 56% 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. While there are some signs of positivity creeping back into the sector, caution must be exercised, due to the potential effect of Christmas on business perception.

Policy Briefing Labour Party Conference “The deficit is already set to be £46 billion higher than the Government originally planned due to the weak recovery” This Party Conference was Labour’s first since Ed Miliband was elected Leader of the Opposition and offered the Member of Parliament for Doncaster North an opportunity to set out his framework for a future Labour Government. The Chamber was represented at the Conference due to the presence of all three of Doncaster’s local MPs, Caroline Flint, Rosie Winterton and Ed Miliband. Throughout the course of the week, Labour Shadow Cabinet Members were keen to stress that while mistakes were inevitably made during their time in office (amongst those highlighted were the abolition of the 10p tax rate, the 75p pension rise, a failure to further toughen controls on migration and a failure to thoroughly regulate the banking sector), that claims of profligate spending of public money were erroneous. They cited the fact that upon entering the Financial Crisis in 2007, the UK had lower national debt that in 1997 when they were first elected and that debt was lower than that held by America, France Germany and Japan. A Balanced Approach The Party has long argued for a steadier, more balanced approach to the public finances and are still committed to halving the deficit over four years. They believe that present economic circumstances have vindicated this decision, as unemployment is now rising (it was falling before the election), as Britain has experienced slower growth than any other G7 country except Japan since the General Election and as the deficit is already set to be £46 billion higher than the Government originally planned due to the weak recovery. The party also argued that abolishing the Future Jobs Fund and so cutting 100,000 jobs for young people out of work was a grave error of judgement, noting the woeful youth unemployment figures and that the scrapping of the Regional Development Agencies, the Education Maintenance Allowance, the cutting of childcare tax credits for working parents were all also errors of similar proportion. Shadow Ministers were also keen to point out what they see as the hypocrisy of Coalition rhetoric of Labour profligacy,

while at the same time spending £2bn on NHS reorganisation, £100m on elected police commissioners, 1bn on a tax cut for the banks and £47bn on the bills of rising unemployment. A Five Point Plan Shadow Chancellor Ed Balls used his conference speech to lay out a five-point plan to boost growth and jobs and to continue to bring down the budget deficit: 1/ A repeat the bank bonus tax – with a promise to use the money to build 25,000 affordable homes and guarantee a job for 100,000 young people. The Chamber has long campaigned for a sustained period of Government house-building. 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. 2/ A promise to bring forward long-term investment projects such as schools, roads and public transport in order to get people back to work and strengthen the future economy. The Chamber believes that significant infrastructure investment is fundamental to the future competitiveness of the British economy and has campaigned for projects such as the link road to the airport in the borough, as well as improvements to the East Coast Mainline in and around Doncaster and access to the High Speed Rail network. 3/ A reversal of the VAT rise for a temporary period. Inflation has been above 4% since the turn of the year – and above 3% for nearly 24 months now. In the year to August, the cost of raw materials rose by 16.2% and so the price of manufactured goods rose by 6.1% over the same period – that’s the highest level of producer price inflation since October 2008. All the while, wages have stagnated, with regular pay rising by 2.1 per cent on a year earlier. The effect, quite clearly, is a significant reduction in disposable income and business

Policy Briefing Labour Party Conference “If people make money and profit through hard work, something for something, they should be rewarded” cash flow – business and consumer spending power thus, has been depleting with every passing month. In an economy for which such spending is the significant majority, this will only ever serve to stymie growth. The Chamber has campaigned against the VAT increase from the beginning, arguing that it ought to be delayed until inflation had been tamed by public sector spending cuts. 4/ An immediate one year cut in VAT to 5% on home improvements, repairs and maintenance. 5/ A one year national insurance tax break for every small firm which takes on extra workers, using the money left over from the Government’s failed national insurance rebate for new businesses. A New Bargain The Leader of the Labour Party used his keynote speech to set out an ethical framework upon which his party will contest the next election. Mr. Miliband wants to target those individuals who never get any attention, in the media, in politics or even in the workplace. He believes that those individuals, families and businesses that work hard and lead moral lives, support the rest of the country, whose actions are not always so well-intentioned. He believes that the country has been told for decades, by all parties, that if you’re in work, you will do better each year, that if you work hard at school you will be rewarded with more opportunities in life and that if you teach your kids the difference between right and wrong and bring them up properly, they will get a good job and a decent home. Yet he believes that this is almost never true and cites the fact that those who are most disadvantaged by Government, are those “who work hard, who try to get on - It’s the cancer patients who have worked all their lives but now lose their support, It’s the couple who have put money aside and saved, but now lose their tax credits and it is the single mum working as a dinner lady who loses help with her childcare” At the root of Mr. Miliband’s thinking, is the notion that a future Labour Government will pursue policy that rewards well managed, well run businesses, citing a pledge to give all major Government contracts to firms who commit to training the next generation with decent apprenticeships and none will go to those who don’t. Indeed throughout the

week, Shadow Ministers were keen to cite their commitment not to continually tinker with regulation and to ensure that small businesses were able to access affordable finance. There was also a commitment to ensure appropriate leadership and management training for those running businesses in the UK – something the Chamber has long argued to be lacking. Mr. Miliband also recognised the need for a “new era of wealth creation”, where British business competes not just with European counterparts, but with in China, India and Brazil. The Chamber has continually highlighted the fact that The UK exports more to the US, Ireland, France, Belgium, Spain and Italy (all of whom have serious sovereign debt issues) than it does emerging economies such as China, India and Brazil (all three of whom represent the large proportion of World GDP growth). He was also keen to stress that “we can’t pay our way unless as a country we invent things, make things, and sell real services and products” and that the party were committed to “raising productivity and helping firms to compete”. Finally, he argued that “if people make money and profit through hard work, hard graft, something for something” they should be rewarded. A Defining Moment? The Chamber has repeatedly called for decision-makers to recognise the weakness of the recovery and take appropriate action to address the matter. Developments in the EU may force the Government’s hand, if it does choose to avoid a further economic downturn in the UK. Measures such as a temporary VAT cut, a pledge to build houses and invest in infrastructure and measures to reduce youth unemployment all constitute sensible, proactive spending priorities. Some commentators have interpreted Mr. Miliband’s keynote speech as Government attempting to distinguish between good and bad businesses, yet this analysis fails to acknowledge the key message of the Conference, one of a need to improve the quality of businesses in the UK, to give them the quality of staff they need, the right training for the senior managers, the infrastructure investment required to the physical environment in which they operate and a stable regulatory environment.

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

Bank of England MPC Announcement

10/11/11

Bank of England Inflation Report

16/11/11

Autumn Statement

29/11/11

Bank of England MPC Announcement

08/12/11

Parliamentary Recess – House Rises

20/12/11

Parliamentary Recess – House Returns

10/01/12

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.

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

Whether you're starting up, already running a business, or looking to grow and develop, we can help you to:

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.

Doncaster Economic Review Methodology “This research is the largest and most representative of its kind in the Borough” This Doncaster Economic Review has bought together information from over 300 local businesses, surveyed via post, email and telephone call, over the period 29 August to 21 September 2011. This research is the largest and most representative of its kind in the Borough – and hence the most credible economic analysis available to Doncaster. In the manufacturing sector 62 firms, employing approximately 4,627 people, responded. 17 (27%) of manufacturing respondents were exporters. In the service sector 247 businesses with approximately 9181 employees responded. Of the service sector participants, 42 (17%) were exporters. While the majority of respondents employ fewer than 20 people, the sample included 83 large businesses (27% of all respondents). NB: Balance figures, referred to throughout this report, are determined by subtracting the percentage of companies reporting decreases in a factor from the percentage of companies reporting increases. Number of Responses 20+ Employees

309 83 (27% of total)

Manufacturing Firms

62 (20% of total)

Service Sector Firms

247 (80% of total)

Number of Exporters

National Headlines this quarter: The British Chambers of Commerce’s latest Quarterly Economic Survey (QES) highlights the risks facing Britain's recovery. The survey, comprising 6,700 responses from businesses across the UK, shows that while many balances are still in positive territory, indicating growth, this is weaker than in previous quarters. Figures for the domestic market, exports, business confidence, cash-flow, and investment in plant and machinery have weakened over the last quarter. The major highlights from Q3 2011 QES include:

√

The Q3 QES results point to a deterioration in the economic situation, with concerning signs of stagnation in the domestic economy. Cash-flow remains a real concern for businesses, indicating they are under financial pressures.

√

Disappointing balances for exports, and for investment in plant and machinery, suggest that the much-needed rebalancing of the UK economy is not yet occurring.

√

Business confidence among manufacturers fell in the last quarter. The balance measuring manufacturers’ confidence in turnover fell by seven points (to +33%), and in profitability the balance was down six points to 16%.

√

Figures for the last three months showed a fall in the balance of manufacturers expanding their work force, and in services there was only a marginal increase.

√

Firms in both sectors do not seem to be much more optimistic about future recruitment. In manufacturing the employment expectations balance was down five points to +10%, and in services down six points to +6%.

√

The domestic balances in the Q3 survey signal minimal growth or stagnation, with declines in both manufacturing and services.

√

The manufacturing balance for home deliveries fell to +3% (from +18%) the lowest since Q1 2010, and in services to 0%, from +10%.

59 (19% of total)

Manufacturing Exporters

17 (29% of exporters)

Services Exporters

42 (71% of exporters)

Doncaster Economic Review - Quarter 1 2011 Press Release “The Government must do more to boost growth and promote stability” Ian Mason, Economic Advisor Businesses have stripped out as many costs as possible over the

Tuesday, 11 October 2011

course of the last 3 years and a waiting game has commenced. A

GOVERNMENT MUST DO MORE TO BOOST GROWTH

quick return to growth would see businesses start to recover

AND PROMOTE STABILITY FOR BUSINESS

margins, invest and recruit; yet the longer the wait, the greater the chance of further redundancies, more cost-cutting and a resulting

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

reduction in overall productivity in the economy – a process that will take years to correct. The Government must do more to boost growth and promote

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

stability for British business if the economy is to avoid being caught up in the aftermath of the sovereign debt crisis enveloping Europe” END

In the last quarter, sales, cash flow and exports have all fallen, yet business

confidence

and

investment

have

both

improved

significantly – something the Chamber will be monitoring over the next few months. As ever, price pressures and unemployment continue to rise. Commenting, Ian Mason, Economic Advisor at Doncaster Chamber of Commerce, said: “Inflation has been above 4% since the turn of the year – and above 3% for nearly 24 months now. In the year to August, the cost of raw materials rose by 16.2% and so the price of manufactured goods rose by 6.1% over the same period – that’s the highest level of producer price inflation since October 2008. In addition, the Coalition Government has pushed up VAT to 20%. All the while, wages have stagnated, with regular pay rising by 2.1 per cent on a year earlier. The effect, quite clearly, is a significant reduction in disposable income and business cash flow – business and consumer spending power thus, has been depleting with every passing month. In an economy for which such spending is the significant majority, this will only ever serve to stymie growth.