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Toward a Profitable, Productive Doncaster

Q4 2010 Economic Review Doncaster Chamber


Doncaster Economic Review Summary “January’s VAT increase was an incredible gamble to take with a fragile economy” Daniel Fell, Head of Policy Data collected for the final quarter of 2010 reinforces the Chamber’s warnings of uncertainty in the economy; while a number of indicators have seen significant gains since September, the medium term trends suggest little likelihood of sustained, substantial growth. Rather, the Chamber predicts GDP growth to register 1.9% during 2011 and 2.4% for 2012. In uncertain economic times, Doncaster is not ideally placed to witness a business-led recovery. Though November represented the ninth successive month in Doncaster that unemployment has fallen and while the labour market has demonstrated a fantastic degree of strength, by keeping more workers in employment than comparable recessions of the last century, a disproportionate number of jobs in Doncaster are in the public sector and, over the last decade, for every job created in the private sector, the public sector has created an astonishing 7.5. Despite the Government’s austerity measures, weak growth and an overdependence on the public sector, the Chamber strongly believes that the greatest threat to economic stability in the short to medium term, comes from inflation. With fuel rising by an incredible 10% in the last three months alone, falling wages, the rising cost of food and with businesses facing pressure to increase their prices from the high cost of raw materials and low margins, both business cash-flow and consumer disposable income are already greatly reduced, hence the suppression of growth evident during the recovery thus far. 53% of businesses reported pressure from the high cost of raw materials in quarter four, a rise from 22% in the previous quarter. 28% of businesses are reporting price rises in the coming quarter, an increase of 9% from the previous quarter. This, once again, highlights the significance of the stubbornly high rate of inflation, which, itself, rose to 3.3% in November. The percentage of firms reporting excess capacity has fallen over the last quarter by 7% to 51%. The Chamber had hoped that the high levels of spare capacity in the economy would reduce inflation over the course of the year – yet any effect this may have had has been stunted by excessive price pressures elsewhere.

The VAT increase will, in all likelihood, lead to a further rise in inflation past 4.5%. One member of the Bank of England’s Monetary Policy Committee (MPC), the body charged with making the interest rate decisions, has already voted to increase the base-rate for the last couple of months in order to combat the stubbornly high inflation rate. Yet any interest rate rise will suppress growth further at a time when there is little stimulation from anything else. The Government believe that business will provide the necessary stimulation to lead the UK back to sustained growth, a fact that looks, at present, to be misguided. Sales grew by a meagre 1% in the last quarter of 2010, continuing the sluggish growth experienced since the economy left recession at the end of 2009. Employment expectations also fell in the last quarter, 21% of businesses interviewed expect to recruit over the next three months, while 11% actually expect their workforce to decrease in the next three months. It serves purpose at this point, to illustrate that the factors driving the current high level of inflation are very different from those that are likely to be important in the medium to long term. Spare capacity within companies and in the labour market will continue to put downward pressure on inflation, as will the austerity measures enforced by the coalition. As the temporary effects of VAT increases and higher import prices dissipate, inflation is expected to fall back toward a more stable rate, over the next 3 years or so. In this light, an immediate VAT increase was an incredible gamble to take with a fragile economy. The Chamber have long argued that this risk was unnecessary and that the VAT rise should have been delayed by a year or so, in order to relieve business cash-flow and consumer disposable income from further pressures. While the Chamber still supports the need to enforce a degree of austerity, given the weakness in the economy, we are forced to question the fact that given that the UK has consistently reported budget deficits for 28 of the last 37 years, why is there a sudden and urgent need to eliminate the deficit completely, and within such a short timeframe as four years?

This makes the decision to increase VAT this January somewhat unfathomable.

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Doncaster Economic Review Contents

Summary

P2

Contents

P3

About Doncaster Chamber

P4

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

P5

Sector Breakdown Manufacturing Services

P12

Immigration Briefing

P14

Key Dates for the Next Quarter

P16

Useful References

P17

About the Quarterly Economic Survey

P18

Press Release

P19

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Doncaster Economic Review About Doncaster Chamber “The Chamber’s aim is to help create a profitable, productive Doncaster” Nigel Brewster, President Howard Gannaway, Chief Executive

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

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

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Overview Gross Domestic Product “Sales projections are 9% lower for the next quarter – possibly indicating the first real impact of Government spending cuts” 2010 has been 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.

Public Sector GVA Contribution

Business Stock

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

There are currently 7,650 registered businesses in the Borough.

Sales

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.

Employment Size Band 0-4 5,795

5-9 975

10 - 19 460

20 + 420

Total 7,650

The number of new businesses created (through Success Doncaster) in the Borough is 1,218 over the life of the program, of which 1,068 are still active (87% survival rate).

The last quarter saw 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 rose by 7% in the final quarter of 2010; it remains to be seen however, whether this will translate into increased turnover through 2011.

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

Sales (Last Quarter) - Doncaster - All Sectors

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

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

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

-20%

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-30%

20

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10 0 09 M ay -0 9 Ju n09 Ju l09 A ug -0 9 Se p09 O ct -0 9 N ov -0 9 D ec -0 9 Ja n10 Fe b10 M ar -1 0 A pr -1 0

Doncaster - All Sectors

pr A

Value

60

Positive/Negative Balance

50%

Month

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Overview Consumer Confidence “17% of businesses are concerned about the stubbornly high rate of inflation”

The headline in the coalition’s first budget was a VAT increase to 20%. The Chamber has repeatedly argued that this rise must not be implemented until at least January 2012, as stubbornly high inflation and increasing prices pressures are, at present, negating the impact of excess capacity in the economy. 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 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.

The average cost of a litre of unleaded petrol in Doncaster is 126.1p, up an incredible 10% on the third quarter of the year – against a national average of 127.74p, up 9.3%. The average cost of a litre of diesel in Doncaster is 130.5p, also up 10% on the last quarter and against a national average of 132.01p, up 10% on Q3 of 2010. Prices 28% of businesses are reporting price rises in the coming quarter, an increase of 9% from the previous quarter; this is high given the level of spare capacity in the economy. This, once again, highlights the significance of the stubbornly high rate of inflation. 94% of all businesses will, at the very least, be maintaining the price of their products over the next three months. Prices - Doncaster - All Sectors

Gross Household Disposable Income - Doncaster 50% Positive/Negative Balance

12000 10000

Value

8000 6000 4000 2000

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

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

0 2000

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Inflation Inflation rose to 3.3% during December, still above 3% as it has been throughout the entire of 2010. The Chamber is concerned that inflation could reach 4.5% during 2011 as a result of the VAT increase – this is of great concern, as it could force the Bank of England to raise interest rates, further suppressing growth, increasing the cost of borrowing for business and further reducing disposable incomes for households, already suffering from price increases. Fuel Prices

Price Pressures

Doncaster - All Sectors

53% of businesses reported pressure from the high cost of raw materials, a rise from 22% 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. 19% of businesses reported pressure from the cost of finance – a continuation of the lower trends in this figure seen recently.

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Overview Business Confidence “Business confidence now sits at 50%, a welcome 5% increase as we move into 2011”

After nine consecutive months of falls, business confidence in Doncaster has now risen in two consecutive quarters, this time by 5% to 50% - still surprising given the uncertain economic outlook.

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 2011. Cash Flow (Last Three Months) - All Sectors

Profitability

Business Confidence (Next Three Months) - All Sectors

30% Positive/Negative Balance

Business confidence, the profitability expectation, now sits at 50%, a 5% increase on the third quarter of 2010, moving well ahead of national averages. Business does, however, remain cautious over prospects moving into 2011, 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.

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

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

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

70% Positive/Negative Balance

60%

Doncaster - All Sectors

50% 40%

Investment

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

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

-30% Quarter Doncaster - All Sectors

Turnover The percentage of businesses reporting overall growth has seen gains of 3% in the last quarter, bringing the rate to 50% - 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 remains 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 dramatically to a balance -54% in the final quarter of 2008

Business has reported a 19% increase in investment in plant/machinery and a 15% 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. There must be a sharp upward trend of increased investment if Doncaster is to stand any chance of fulfilling this aim. Flexibility Asked whether their goods or services would change over the next twelve months, 39% of businesses said there would be no change (-11%), 29% (-5%) said there would be some change and 7% (-8%) said their business would change significantly its product/service significantly. Business must 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 November 2010 Job Centre Plus handled a total of 2232 vacancies, compared to 1,309 in the same period last year – an overall increase of 70%. Job Centre Plus Vacancies

Unemployment 8000 7000 6000 5000 Value

Unemployment in the Borough fell for the ninth month in succession during August. There were 8,422 registered as unemployed in November 2010, as apposed to the 10,036 registered as unemployed in November 2009. The headline unemployment rate in Doncaster is currently 4.6%, compared to November 09 at 5.4%. This compares to the national average of 3.5% in the UK.

4000 3000 2000

Doncaster Residents Registered Unemployed (2010)

1000 0

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Q2 2008

Q3 2008

Q4 2008

Q1 2009

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Employment Expectations

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ct ob er ov em be r

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Employment expectations in the borough have fallen since the last quarter. 21% of businesses interviewed expect to recruit over the next three months, while 11% 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

30% 20% 10% 0% -10%

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

-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 £130,067, some 3.6% higher than in December 2009 and a 4.5% fall on Q3 2010. As confidence has crept back into the market, incentivised in part, by low interest rates, we have seen a small rise in transactions over the year that has proved enough to produce an upward bounce in prices; largely because it coincided with very low levels of supply on the market this lack of supply is, however, indicative of a wider problem. Housing Completions The assumptions of the Department of Communities and Local Government suggest that new households are projected to increase by, on average, 252,000 each year between now and 2031 across the UK. If this proves to be the case, the current levels of housing construction have fallen far below future levels of household formation. In last financial year, only 314 houses were completed in Doncaster. Social Housing Social housing waiting lists have also rocketed by 55% over the last five years; rising unemployment and repossessions as a result of the recession are projected to cause the number of households on waiting lists to jump from 1.77m in 2008 to a record high of around two million in 2011 – a rise of some 200,000 homes in just three years across the UK. In Doncaster alone, the current social housing waiting list has 11,275 applicants.

Various measures have been enforced by local and national Governments in order to assist first-time buyers and those on low incomes that seek the stability of home-ownership. One such measure is a requirement for a percentage of new build homes to be affordable homes – in Doncaster, 26% of all new homes (on sites with 15+ units) are required to be affordable. There are also housing requirements, forcing local authorities to build a certain number of homes in every year (1280 in Doncaster). These two requirements are, however, counterintuitive, as developers looking to build new estates are dissuaded from doing so, when the affordable home requirement reduces or eliminates their margins on the build. Hence, not only are developers failing to keep abreast with current demand (thus maintaining prices merely at current ‘inflated’ levels), but they are now actively discouraged from developing in some instances by, ironically, measures bought in place to combat excessive house prices. There is a real risk of prices 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

400.0 350.0 300.0 Value (£m)

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, re-located 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.

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.

Jobs Created Through Inward Investment Land Developed by Inward Investment 4500 4000

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

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 7%, to 51%”

Capacity The percentage of firms reporting excess capacity has fallen over the last quarter by 7% to 51%. 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 would hope that this excess capacity will now translate into a reduction in inflation, eliminating the effect of the VAT increase in January 2011. Capacity - Doncaster - All Sectors

60% 50% 40%

40% 30% 20% 10% 0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10

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

Quarter Doncaster - All Sectors

The number of exporters and number of transactions has increased in comparison to the fourth quarter of 2009, by 30% and 43% respectively. The range of destinations exported to has also increased by 20%. This suggests that the weak pound is, in fact, encouraging more export activity – 2010 has proved to be a strong year for export. The value of these exports is 128% higher than the fourth quarter of 2009. This represents an additional benefit to the Doncaster economy of over £11.2 million.

30% 20%

Value of Exports

10% 25000000

Quarter

20000000

5000000 0 20 08 20 08 Q 3 20 08 Q 4 20 08 Q 1 20 09 Q 2 20 09 Q 3 20 09 Q 4 20 09 Q 1 20 10 Q 2 20 10 Q 3 20 10 Q 4 20 10

The percentage of firms reporting increasing export sales fell in the last quarter by 9% to 13%, continuing the general trend seen throughout 2010. There is also a predicted decrease in growth for the next quarter, of a further 6%. 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.

10000000

2

Export

15000000

1

Doncaster - All Sectors

Value

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

Q

0%

Q

Positive/Negative Balance

70%

Export Sales (Last Quarter) - Doncaster - All Sectors

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.

Quarter

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Sector Breakdown Manufacturing “Manufacturing has seen significant gains in the latter part of 2010”

Profitability Business confidence, the profitability expectation, now sits at 42%, an 11% increase on the previous quarter and 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, Doncaster manufacturers have performed extremely well in the last quarter of the year. Sales and cash flow have increased by large margins and for the first time in 2010, more businesses are expecting to invest than those that don’t.

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

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

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

Profitability Expectations (Next Quarter) - Manufacturing

Manufacturing Sector (Donc) Manufacturing Sector (UK)

Positive/Negative Balance

80%

Manufacturing Sector (SY)

60%

Investment

40% 20% 0% -20%

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

-40% -60%

The last quarter has seen a 21% shift in the balance of businesses expecting to invest in plant/machinery/equipment . For the first time in over a year, there are more business expecting to invest than those that don’t, thus continuing the trend of increased investment expectations seen since the turn of the year.

Quarter Manufacturing Sector (Donc) Manufacturing Sector (UK)

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

Cash Flow

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.

40% Positive/Negative Balance

The balance of manufacturing businesses reporting an improved cash flow position increased in the last quarter by 28%, growth in turnover remained stagnant (up 1 to 39%), but the balance of businesses reporting increased sales rose by a staggering 39%. These figures all reinforce the strong picture nationally for manufacturers and give some hope that the industry can fill the void left by Government stimulus. There is, however, an awful long way to go if the economy is to be re-balanced and less reliant upon the services sector.

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Q4 '07

Q1 '08

Q2 Q3 '08 '08

Q4 Q1 Q2 Q3 '08 '09 '09 '09

Q4 '09

Q1 Q2 '10 '10

Q3 '10

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

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”

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

Business confidence, the profitability expectation, now sits at 52%, a 5% increase on the previous quarter for the sector. Profitability Expectations (Next Quarter) - Service Sector

30% 20% 10% 0% -10%

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

-20% -30%

80% Positive/Negative Balance

40% Positive/Negative Balance

Profitability

Employment Expectations (Next Three Months) - Service Sector

Quarter

60%

Service Sector (Donc)

Service Sector (SY)

Service Sector (UK)

40% 20%

Sales

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

-40%

Businesses reported an 8% decrease in sales over the last quarter. 36% of businesses are now experiencing growth in their sales figures, while only 23% are now experiencing a decline.

Quarter Service Sector (Donc)

Service Sector (SY)

Service Sector (UK)

Employment/Expectations Of concern, are the employment figures for the last quarter. The number of businesses reporting an increased workforce has fallen to 13% (a twelve percent decrease) - against those that report further redundancies, now at 15% (a nine percent rise). This is an overall reduction of some 13% on the previous quarter. Employment expectations have also fallen by 14% from the previous quarter, suggesting that the gains made over the summer month have been reversed. 22% of businesses expect to recruit in the early part of the New Year, while 13% expect to lay off staff.

Export sales also decreased by 12% from the last quarter, while advanced orders also suggest a further 7% increase in the next quarter. However, the figures show a 1% increase in those businesses expecting their turnover to grow in the first three months of the New Year – 64% of businesses are now expecting this to be the case. It is clear that the services sector is suffering as a result of the impact of Government spending cuts, high inflation and low demand. As this sector is of crucial importance to the UK economy, these figures should be taken as a warning that more must be done to stimulate the economy.

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Doncaster Economic Review - Quarter 4 2010 Spending Review 2010 - Briefing “The Chamber welcomes the move to protect science/ technology research funding across the board.” Shortly after the General Election, the coalition Government presented an emergency budget designed to restore Britain’s fiscal credibility in the eyes of the World, by turning a record budget deficit into a budget surplus within five years. The mandate for this Comprehensive Spending Review was framed by the measures announced back in June and details specific areas of Government spending recommended for reduction or abolition. Welfare State Whatever the result of May’s General Election, the obvious place to look for the first cuts was from the welfare budget. As the single largest expenditure, the expansion of this budget under the previous Government had become unsustainable. Key measures in this area include a much needed benefit cap – meaning no individual out of work can possibly earn more than someone in work. The Chamber welcome the move to curtail excesses in welfare spending – but are cautious about their implementation. The benefit cap should be applied according to family size for example. Science/Technology Investment The Chamber welcomes the move to protect science/ technology research funding across the board. By the very nature and necessity of the spending review, there had been significant concern that cuts to the NHS, Higher Education, MOD and the research councils would seriously damage the future economic development of the UK by limiting state-funded science/technology research. Renewable Energy Included in the review, are several measures to stimulate a renewable energy industry in the UK; these include - £1bn for carbon capture and storage projects, £200m to stimulate windturbine production in the nations ports, a funded renewable energy heat incentive and £1bn Green Investment Bank. Whilst global warming is now widely acknowledged, the focus of Government’s attention must not solely be on the reduction of carbon emissions through schemes such as Carbon Capture and Storage (CCS) but also economic competitiveness. Of

utmost importance, must be the restoration of the UK’s energy independence. Alternative fuels that will power the next generation of business must be sought, in order to eliminate carbon emissions from transport and energy generation, but also to eliminate the risk of the exhaustion of the planet’s fossil fuels, without a direct replacement. The loss of the power generation industry would be a major blow to the region – there must be more investment in alternatives now, in order to safeguard this cornerstone of the Yorkshire economy Pensions The state pension age will increase to 66 four years earlier than planned. As the population is living and working longer, the current pension age has proved to be unsustainable. Therefore, the Chamber welcome a measure that will gather £4–10bn per annum. Housing The social housing budget has been slashed in half, bringing to an end ‘council homes for life’ and, to finance the proposed target of 150,000 new homes, changing the way rent is paid for such homes. This is one of the most significant failings of the spending review – a target of 150,000 homes is a vast underestimation of the housing crisis taking root in the UK. 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. If this proves to be the case, the current levels of housing construction have fallen far below future levels of household formation. 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. In Doncaster alone, the current social housing waiting list has 12,959 applicants. In the absence of sufficient provision, there is very real potential for further unsustainable house price growth. Ministers must recognise that house prices should become a key aspect of fiscal policy in the UK; if prices were to be stabilised at an affordable level, that protects long-term investment growth, while avoiding an inflationary ‘bubble’, this would go some way toward regulating the excessive levels of consumer debt that

14


Doncaster Economic Review - Quarter 4 2010 Spending Review 2010 - Briefing “Household disposable income and business cash flow positions are the most significant and most immediate threat to the economy” have become commonplace in the last decade and that fuelled the last recession.

growth prospects that have already been downgraded due to public sector spending cuts.

The Chamber was, however, delighted with the protection afforded to the decent homes scheme, something that should help the construction industry’s supply chain.

In this context, the Chamber is again concerned by the clear lack of understanding amongst ministers regarding the inflation risk to the economy. In addition to the VAT rise, proposals to raise the cap on train fare increases to 3% above RPI were announced. This means that rail users will experience average fare increases of at least 8% year on year until 2014 – an unacceptable increase given the economic climate.

Schools Proposals for a ‘Pupil Premium’ appear to be slightly odd. Despite the obvious need to ensure that children are not disadvantaged by where and to whom they are born, the average spend per head on education is already higher for the most disadvantaged students in the UK. It seems to be the case that the ‘extra funding’ announced for this measure has simply been sourced mainly from existing schemes and, as such, is not new spending. While the Chamber has never advocated targets as the most effective form of incentive to public sector bodies, in an age of austerity, a reform of the current system to reward grade improvement rather than attainment may have been more appropriate than spending more per pupil – the exact solution the previous Government have been derided for repeatedly by the now Prime Minister and Chancellor. The Chamber has long campaigned for the ring-fencing of enterprise budgets in schools, in order to ensure that the money is used where intended. In this light, we also find proposals to remove ring-fencing from all areas of the school budget odd and believe that, far from making schools more efficient, we will simply see any efforts to target support prove futile. The Inflation Risk Inflation remained at 3.1% during September, still above 3%, as it has been throughout 2010 thus far. With businesses also reporting that price pressures are showing no sign of abating, the inflation risk must now become a concern. The Chamber has voiced significant discontent at the proposed VAT increase due in just three months time. 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

Household disposable income and business cash flow positions are the most significant and most immediate threat to the economy, as fragility in this area breeds lower spending and results in lower growth. Uncertainty The overall premise of this spending review is, and always has been, to return a budget surplus by the end of this parliament; the Chamber believes that this intention is admirable. However, the pace and scale of the cuts required to achieve this are inappropriate for the current economic climate. Despite the level of detail in this spending review, the true impact of the spending cuts cannot yet be measured. The Chamber is deeply concerned that removing this level of stimulus when the economy has anything but recovered will seriously undermine business efforts to grow and sustain the economic recovery. 59% of Doncaster businesses are deeply concerned about the impact of spending cuts on their business. A slower pace of spending cuts would, in the long-term, prove to be more efficient. The stubbornly high rate of inflation remains the single greatest risk to the economy at present – something that was not acknowledged by this spending review. While several crucial areas of spending have been protected, the overall scale of cuts amounts to a massive gamble by the coalition Government.

15


Doncaster Economic Review - Quarter 4 2010 Key dates for the next quarter “The Chamber’s campaign to secure Government funding for FARRRS has already attracted the support of 350 local businesses”

Bank of England MPC Announcement

13/01/11

December Inflation Figures Announced

18/01/11

Bank of England Inflation Report

16/02/11

Bank of England MPC Announcement

10/02/11

Bank of England MPC Announcement

10/03/11

Budget 2011

23/03/11

16


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:

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 find events and support near you Visit: www.businesslink.gov.uk to find out more.

17


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” Peter Davies, Mayor of Doncaster 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.

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 has continued growing in the fourth quarter of 2010, but at a slower pace than in the second and third quarters. The QES results indicate that the UK economy has continued to expand in Q4 2010. But, in spite of strong manufacturing and improved export balances in both sectors, GDP growth has probably slowed in Q4 (relative to Q3) because of the inadequate performance of the service sector. The service sector’s weaknesses are worrying, and unless reversed could have adverse consequences, particularly for jobs. The major highlights from Q4 2010 QES include:

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

The QES figures suggest that manufacturers are still confident of increasing their expected turnover and profitability in 2011. Turnover confidence remained near to a three-year high, moving down 1 point to +48%. Profitability confidence increased 7 points, to +30%, the highest level since Q4 2007.

Similarly, both measures for the service sector are up, though they suggest firms in the sector are not as confident as earlier in 2010. The service sector’s turnover confidence balance rose 12 points, to +26%. Profitability confidence increased 13 points to +17%.

In both manufacturing and services, the exporting figures signal an increase in both overseas sales and orders during the last quarter.

In the manufacturing sector, the results reached their strongest level since Q4 1994. The manufacturing export sales balance soared 13 points to +37%, and export orders balance surged 21 points to +39%.

The service sector figures suggest exports returning to levels not seen since before the recession in 2007, with export sales rising 10 points to +21% and export orders by 4 points to +12%.

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

Balance

40% 20% 0% -20%

Q3 '07

Q4 '07

Q1 '08

Q2 '08

Q3 '08

Q4 '08

Q1 '09

Q2 '09

Q3 '09

Q4 '09

Q1 '10

Q2 '10

Q3 '10

Q4 '10

-40% -60% Quarter Doncaster

Yorkshire and the Humber

UK

18


Doncaster Economic Review - Quarter 4 2010 Press Release “More businesses are still reporting a worsening cash flow position than those that reported improvements.” Daniel Fell, Head of Policy austerity measures that could see over a million workers in the

Tuesday, 11 January 2010

public sector made redundant.

BUSINESS WARNS OF FRAGILE STATE OF THE ECONOMY

Despite the Government’s austerity measures, weak growth and an overdependence on the public sector, the Chamber strongly

A report released today by Doncaster Chamber of Commerce,

believes that the greatest threat to economic stability in the

highlights the challenges facing the economy as we move into

short to medium term, comes from inflation. With fuel rising by

2011.

an incredible 10% in the last three months alone, falling wages, the rising cost of food and with businesses facing pressure to

Doncaster Chamber’s “Doncaster Economic Review” details

increase their prices from the high cost of raw materials and low

data collected during the fourth quarter of the year and paints a

margins, both business cash-flow and consumer disposable

picture of uncertainty for the economy.

income are already greatly reduced. 53% of businesses reported pressure from the high cost of raw materials in quarter

Sales grew by 1% in the last quarter of 2010, continuing the

four, a rise from 22% in the previous quarter. 28% of businesses

sluggish growth experienced since the economy left recession

are reporting price rises in the coming quarter, an increase of

at the end of 2009. Employment expectations also fell in the last

9% from the previous quarter.

quarter, 21% of businesses interviewed expect to recruit over the next three months, while 11% actually expect their

In this light, an immediate VAT increase was an incredible

workforce to decrease in the next three months.

gamble to take with a fragile economy. The Chamber have long argued that this risk was unnecessary and that the VAT rise

Commenting, Daniel Fell, Head of Policy at Doncaster Chamber

should have been delayed by a year or so, in order to relieve

of Commerce, said:

business cash-flow and consumer disposable income from further pressures.

“In uncertain economic times, Doncaster is not ideally placed to witness

a

business-led

recovery.

Though

November

While the Chamber still supports the need to enforce a degree

represented the ninth successive month in Doncaster that

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

unemployment has fallen and while the labour market has

to question the fact that given that the UK has consistently

demonstrated a fantastic degree of strength, by keeping more

reported budget deficits for 28 of the last 37 years, why is there

workers in employment than comparable recessions of the last

a sudden and urgent need to eliminate the deficit completely,

century, a disproportionate number of jobs in Doncaster are in

and within such a short timeframe as four years?”

the public sector, leaving the area vulnerable to Government END

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Doncaster Chamber Economic Review Q4 2010  

Doncaster's Economic Review for the fourth quarter of 2010.

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