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1NG PLAN
The Foundations for Growth: Workstream 1 Draft report
April 2009
CONTENTS
1.
INTRODUCTION........................................................................................ 1
The Economic Masterplan – 1NG Plan ............................................................ 1
Cities and economic growth .......................................................................... 3
Overview: NewcastleGateshead – a decade of change...................................... 6
Role and function ........................................................................................ 9
The recession and the 1NG Plan .................................................................. 10
A Competitiveness Framework for NewcastleGateshead ................................. 11
Spatial geographies ................................................................................... 13
Structure of the report ............................................................................... 14
2.
POLICY CONTEXT ................................................................................... 15
The Regional Economic and Spatial Strategies .............................................. 16
City Region Strategies ............................................................................... 19
OECD Territorial Review of Newcastle .......................................................... 21
Local Strategies ........................................................................................ 22
Implications for the Economic Masterplan ..................................................... 24
3.
THE NEWCASTLEGATESHEAD ECONOMY ................................................. 25
Introduction ............................................................................................. 25
Recent growth trends ................................................................................ 25
Conclusions – recent growth ....................................................................... 31
The company base .................................................................................... 32
Density .................................................................................................... 35
Growth in business stock ............................................................................ 36
New firm formation ................................................................................... 37
Conclusions – business stock ...................................................................... 41
Employment structure ............................................................................... 42
Conclusions – employment structure ........................................................... 47
Innovation and R&D .................................................................................. 48
A regional perspective ............................................................................... 49
Conclusions – innovation ............................................................................ 53
Diversity or specialism? ............................................................................. 54
4.
THE NEWCASTLEGATESHEAD LABOUR MARKET ...................................... 83
Population and demographic change ............................................................ 85
Deprivation .............................................................................................. 91
Employment, Self-Employment, Unemployment and Inactivity ........................ 92
Occupational structure, educational attainment and skills ............................... 94
5.
PROPERTY MARKET ................................................................................ 99
Introduction ............................................................................................. 99
Office Market ............................................................................................ 99
Industrial market .....................................................................................107
Retail market ...........................................................................................109
Housing market .......................................................................................115
Conclusions .............................................................................................118
6.
THE RECESSION – AND BEYOND 2011 .................................................. 121
Impact on the UK economy .......................................................................123
7.
CONCLUSIONS AND KEY ISSUES AND CHALLENGES ............................. 131
Workstream 1 ..........................................................................................131
Key findings ............................................................................................131
Diversity vs. specialism .............................................................................136
Key issues and challenges .........................................................................142
1.
INTRODUCTION
1.1.
A team of consultants, led by Shared Intelligence, has been commissioned
by Newcastle and Gateshead Councils and One NorthEast to prepare an
Economic Masterplan (EM) for NewcastleGateshead (NG). The
NewcastleGateshead City Development Company (CDC) – to be launched
in March 2009 as 1NG - is managing the preparation of the EM on behalf
of the study sponsors.
1.2.
This is the draft report of Workstream 1 – the economic baseline study.
This introduction:
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reviews the overall brief for the EM, and for the economic baseline
study;
presents a preamble to the baseline study, setting it in a context which
includes the role of cities in driving economic growth; an overview of
the urban renaissance from which both Newcastle and Gateshead have
benefited since the early 1990s and the implications of the current
global recession; and,
sets out a framework around which to structure the evidence of
Newcastle Gateshead’s economic role and performance.
The EM – 1NG Plan
1.3.
The brief for the EM identified two critical questions about the future of
NG to be addressed through the EM:
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how will NG earn its living over the next 20 years?
what will (or could) this look like on the ground?
1.4.
The EM – or 1NG Plan, which has been agreed as its title - will, for the
first time, develop a long-term economic strategy for the whole of
Newcastle and Gateshead as the core of the Tyneside conurbation. Also
for the first time, the 1NG Plan will consider how the two urban centres
can become a coherent place, connected by a world class waterfront,
focusing on the urban core. The 1NG Plan will set out a compelling spatial
vision and priorities for place investment which will support the delivery of
the economic strategy – and in some cases will drive it forward.
1.5.
Thus the economic strategy for NG as a whole will drive the spatial
strategy for the urban core. The 1NG Plan will

build consensus on an ambitious – but realistic – economic and spatial
vision/strategy for NG, which will drive a step change in its
competitiveness and its contribution to city regional and regional
economic growth; all of the subsequent projects/interventions will
align with this objective;
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have a strong focus on delivery and implementation, prioritising
economic and spatial interventions on the basis of their impact on
competitiveness and deliverability through a robust appraisal process;
enable the CDC, and its sponsors, to make hard choices about future
investment in NG;
identify a small number of transformational projects which will catalyse
public and private sector perceptions of and investment in NG; and,
secure the buy in of key opinion formers/shapers and other key public
and private sector stakeholders to secure clear commitment to take
forward the outcomes and priorities.
1.6.
The 1NG Plan will set out a long-term vision/strategic direction for the NG
economy and detail the actions required to implement the plan over the
next five years, with a particular focus on the physical regeneration
priorities for the CDC.
1.7.
The Si team was appointed in August 2008 although work did not
commence on the plan until late November. It will be presented to the
CDC Board for approval in summer 2009 and thereafter to the local
authorities and One NorthEast. The 1NG Plan is to be developed through
the synthesis of six separate workstreams, detailed below:
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1.8.
Workstream 1 – the economic baseline aims to identify the ‘foundations
for growth’ for the NG economy, by:
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using the ‘competitiveness model’ set out in CLG’s ‘State of the Cities’
research to provide a framework for the research;
providing a concise baseline analysis of how the NG economy has
evolved over the last fifteen years, in the context of cityregional/regional trends and, where appropriate, the performance of
comparable Core Cities, offering a commentary on the significance of
the data;
exploring the economic relationships between Newcastle and
Gateshead and between NG and the rest of the City Region;
considering how the NG economy might be impacted by the recession,
and how it might grow over the next 20 years;
identifying - based on evidence - those sectors which have been
growing rapidly; those which have real prospects for growth post
recession;
considering the spatial implications of these growth assumptions; and,
proposing a series of issues and challenges for the future
competitiveness of the NG economy, which will be refined and tested
through the next stages of the research.
Cities and economic growth
The 21st Century will be the century of cities. For the first time, over half the
world will live in cities – in Europe the figure is already 75%...
Charles Landry, The Creative City, Comedia 2000
1.9.
Cities and city-regions have become an increasing focus of the
Government’s regional economic policies in recent years. ‘The State of
English Cities1’ – a major CLG research programme exploring the
economic competitiveness of English cities, led by Michael Parkinson,
reviews the evidence of their recent economic performance.
1.10.
The study notes that English cities are complex systems – with different
economic, social and institutional structures which persist over time –
creating a degree of ‘path dependence’ in the patterns of size, function
and specialization. Cities also differ in their capacity to adapt to change.
1.11.
The research develops the concept of ‘urban competitiveness’ as the
City’s response to changes in its technological, competitive, market and
regulatory environment – in which some industries and institutions
survive and others are replaced by new ones – and cites a number of
success factors which characterise ‘urban competitiveness’:
1 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
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“for example, the export base of a city has a key influence on the performance of
its economy. Competitive advantage depends on creating and attracting a highly
educated and skilled labour force.
High rates of innovation and entrepreneurship help ensure high productivity, high
wages and high employment and enable a city to adjust to economic and
technological change.
The socio-cultural assets of a city are an important source of urban competitive
advantage, shaping its attractiveness to educated and creative people.
The quality of the communications infrastructure – road, rail, air and
telecommunications – and hence its internal and external connectivity, has a
direct influence on a city’s economic performance.
The strategic decision-making capacity of a city also affects its competitiveness,
particularly through its mechanisms of economic governance.”
1.12.
The State of the English Cities (SEC) research2 reinforces the
fundamental hypothesis of Harvard economist Michael Porter and others:
that nations, cities and indeed individual firms compete to attract
investment and jobs in the new marketplace being forged by globalisation
and ubiquitous information technology. This theory is not universally
accepted - others argue3 that cities do not in fact compete with each other
for investment, and that urban economies are fundamentally independent.
1.13.
IPPR4 argue that cities should see economic interaction with each other as
an opportunity rather than a threat; furthermore a pre-occupation with
‘competition’
“results in an undue level of attention being given to policies designed to attract
investment, employment and skilled labour from elsewhere, when more attention
should be focused on nurturing investment, employment growth and skill
development locally.”
1.14.
In reality, the truth lies somewhere between these contrasting viewpoints.
NG is in competition with other cities to attract and retain skilled labour.
Yet the days of competing for major foreign direct investment, or for large
scale public sector relocations, are an increasingly distant memory.
1.15.
Increasingly, its relationships with the rest of Tyne and Wear – and indeed
other City Regions – may be more important to NG’s future prosperity
than its ability to compete with them. Ongoing Northern Way research5 is
exploring the potential to strengthen the economic relationships between
the northern city regions – and in particular between Leeds and
Manchester.
1.16.
The SEC6 report notes that the economic performance of the English cities
is highly variable (see section 3 of this report). Almost all of the best
performing cities were in the Greater South East or East of England and
shared the following characteristics:
2 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
3 Urban Myth: why cities don’t compete, ippr/centre for cities discussion paper no 5 February 2006
4 ibid
5 Making Connections to Boost Economic Growth in the North, Work Foundation/Centre for Cities for Northern Way
6 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
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networks of highly connected business services firms;
capacity for innovation and the diffusion of technology to drive up
productivity;
access to highly flexible and skilled labour; and,
good intra and inter-regional and international connectivity.
1.17.
Some cities – like Manchester and Derby – showed evidence of
polarisation with strong economic growth alongside widespread
deprivation.
1.18.
Other research reinforces the view that the economies of London and the
wider South East have much stronger linkages and synergies than those
between the Northern city regions7 and this complementarity has helped
to widen the gap in their economic performance.
1.19.
In overall terms the SEC8 research presents a very positive assessment of
cities’ contribution to regional economic growth and to the achievement of
wider social and economic objectives:
“many English cities have the qualities, assets and leadership skills to make a
growing contribution to national welfare and prosperity. More cities could
contribute more in future….England’s cities are now better placed than at any
time since the end of the nineteenth century to become motors of national
advance.”
1.20.
Alongside this optimistic view of the future, the SEC9 report nonetheless
highlighted the need for Government to adopt more supportive,
decentralised policies to help realise the latent economic and social
potential of cities, arguing that this approach has been particularly
successful in continental Europe. This view was strongly supported by the
English Core Cities10 group, who proposed
“increased freedoms and more effective partnerships; the streamlining of
strategic planning and funding; and greater local empowerment. Core Cities want
to achieve greater local financial control and the ability to plan in a more
coordinated way over longer periods to grow their economies and those of the
city-regions.”
1.21.
There are some initial signs that this approach is beginning to be
translated into regional and national policy making. In the early part of
this decade, the Northern Way11, developed by the three northern
Regional Development Agencies, CLG and HM Treasury, placed cities and
city-regions at the core of efforts to reduce the gap in economic output
and prosperity between the North of England and London and the South
East.
7 City Links: integration and isolation; Paula Lucci and Paul Hildreth, Centre for Cities 2008
8 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
9 ibid
10 Cities Outlook, 2009, Centre for Cities, 2009
11 Moving Forward, The Northern Way Growth Strategy, 2005
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1.22.
The Government’s subsequent Sub-National Review of Economic
Development and Regeneration12 (SNR) sought to strengthen the role and
contribution of regions, city regions and individual local authorities, rather
than replace the regional tier with sub/city-regional arrangements. The
Local Democracy, Economic Development and Construction Bill13 invites
proposals for the creation of statutory sub/city-regional bodies – Economic
Improvement Boards – in return for the devolution of powers and
resources.
1.23.
Thus the 1NG Plan is being prepared at a time when there is clear
Government recognition of and support for the role of Cities as drivers of
economic growth, social inclusion and social mobility. The Plan will
explore how regional economic, planning, transport and other
policies should be strengthened to allow NG to realise this
potential.
Overview: NG – a decade of change
1.24.
The 1NG Plan will set out an economic and spatial strategy over the
period to 2030. Thus looking back at the key changes over the last fifteen
years or so provides a useful frame of reference for considering what
might happen over the next twenty. Although, of course, past
performance is no guarantee of future results.
1.25.
This timeframe neatly spans the economic cycle between the current and
most recent recessions facing the UK; it also captures the time period
during which NG’s cultural and economic renaissance has come to fruition.
So, as an introduction to the detailed analysis which follows, how has NG
changed, and has it changed for the better?
1.26.
It is of course widely acknowledged that the physical – and perceptual
transformation – of the area has been immense. Newcastle and
Gateshead are on a shared journey - a journey which, early in 2009, sees
both places making progress towards broad objectives of sustained
economic growth, social inclusion and the creation of sustainable
communities – but still with some way to go to achieve these long-term
ambitions.
1.27.
Arguably, the journey began some twenty or twenty five years ago, in the
mid 1980s, when both communities, suffering the impact of sustained
economic restructuring and the decline of traditional industries, became a
focus for Government regeneration initiatives including the Gateshead
International Garden Festival and, in Newcastle, the establishment of the
Tyne and Wear Development Corporation. Here, in the early regeneration
of the Quayside, we might pinpoint the beginning of the journey.
12 Review of Sub-National Economic Development and Regeneration (SNR), Department of Communities and Local Government and the Department for Business,
Enterprise and Regulatory Reform, 2006
13 Local Democracy, Economic Development and Construction Bill, 2008-09, Government Bill introduced by Baroness Andrews, Department for Communities and
Local Government
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1.28.
Alongside the physical transformation of the Newcastle waterfront, the
City Council, English Partnerships and English Heritage were coming
together to develop a long-term plan for the historic, Georgian core of
Newcastle City Centre which had lost its way as both a retail and office
location. Over a ten year period from the mid 1990s, Grainger Town –
named after its leading proponent, Richard Grainger – became a focus
first for the housing-led reclamation of vacant upper floor space, then for
public realm enhancement and finally the rebirth of the area as a leisure
and retail destination. Grey Street was voted the finest street in England –
and it still is.
1.29.
Sometimes policy did not join up. The transformation of the Newcastle
Quayside resulted in the displacement of some of the larger office
occupiers from older, obsolete premises in Grainger Town and played its
part in the city centre’s decline, although on balance the net effect was a
positive one.
1.30.
This was not unprecedented. Ten years earlier, the development of the
Metro Centre started a process of steady decline in the retail role of many
of the smaller town centres in Tyne and Wear – perhaps most noticeably
Gateshead yet, paradoxically, served to drive up the quality and
competitiveness of the City Centre’s retail offer.
1.31.
Gateshead, building on the success of the Garden Festival, drove the next,
pivotal stage of the area’s renaissance, demonstrating great vision in
placing culture firmly at the heart its plans for regenerating the Gateshead
Quays. The Council’s drive and ambition to create new, internationally
important cultural assets during the 1990s (the Baltic, Angel of the North
and SAGE) provided the platform upon which NG’s renaissance has been
built. The transformation of the Gateshead waterfront is perhaps the
most iconic symbol of UK urban regeneration in the 1990s.
1.32.
Perhaps the most significant (and certainly one of the most iconic) pieces
of the jigsaw, the Millennium Bridge, was critical in creating not only a
physical, but psychological link between the two communities. Suddenly
the Tyne waterfront spanned both sides of the river – and the cultural
icons on the south of the river were complemented by the bars and
restaurants on the Quayside. The waterfront became a destination in its
own right.
1.33.
Here, the first real signs of collaboration can be found in the
establishment of the Newcastle Gateshead Initiative (NGI); the
establishment of NGI was pivotal in NG’s ability to capitalise on public
investment in iconic cultural facilities. NGI played a key role in the rapid
development of NG as a major UK short break destination and conference
centre on the back of both its cultural renaissance and its ‘party city’
persona, leveraging further private investment in hotels and other visitor
infrastructure.
1.34.
This built the confidence for NG to bid for – and came desperately close to
winning – the 2008 European Capital of Culture programme – and put in
place the ‘Culture 10’ legacy programme to ensure that the momentum
was sustained.
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1.35.
The Newcastle City Centre retail offer continued to evolve, with the
development of new malls and the start of the still ongoing expansion of
Eldon Square. The construction of the St James Boulevard to the west of
the City Centre opened up a range of new office and leisure opportunities
in the area loosely known as the ‘Discovery Quarter ‘, including the Centre
for Life.
1.36.
Gallowgate has become a new focus for large floor space office
development in the City Centre, and in Gateshead, the opening up of land
behind the waterfront has created a major new office location in Baltic
Business Quarter – one which is offering the market something different
from the City Centre. At the same time, the North Tyneside Enterprise
Zone sites along the A19 corridor have acted as significant competition for
City Centre office investment. We return to this issue in section 5 of the
baseline report.
1.37.
Also beyond the urban core, Team Valley Trading Estate began to evolve with office and retail components to complement the traditional industrial
users; this was kick started by Enterprise Zone status but has gone on to
achieve commercial viability. Newburn Riverside has the potential to
become a very similar, prestige employment site on the north bank of the
river.
1.38.
In Gateshead, innovative new housing developments- whether the Wayne
Hemingway-inspired Staithes South Bank (on the Garden Festival site) or
the BoKLoK housing at St James Village – made an equally important
impression.
1.39.
The regeneration of the waterfront continues – spreading eastwards to
encompass Spillers Wharf and the Ouseburn valley where a cluster of
creative industries businesses is emerging.
1.40.
The long awaited regeneration of Gateshead town centre is to commence,
including the demolition of Owen Luder’s hugely symbolic ‘Get Carter’
multi storey car park. The potential to achieve physical and functional
linkage between Gateshead Quays and the town centre is now a real
possibility.
1.41.
Similarly in Newcastle, the transformation of the Swan House roundabout
through the ‘55 degrees north’ development and the revitalisation of the
Manors area to the east of the urban motorway could merely be the
precursor to a much more comprehensive regeneration of the southern
part of the City Centre, through the ambitious East Pilgrim Street scheme.
1.42.
It is clear that the impacts of Newcastle and Gateshead’s renaissance
have been wider than merely physical transformation. NG’s reputation as
a city in transformation has played an important role in building a
significant visitor economy, and in attracting skilled people, and inward
investment, in other sectors. We evidence these trends throughout this
report.
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Role and function
1.43.
The accompanying Workstream 2 report argues that Newcastle and
Gateshead are still (largely) separate places; this report considers the
extent to which their economies are connected. Both also play distinct
roles in the city region/region and these provide an important starting
point from which to explore their individual and collective
competitiveness. Recent research14 by the Core Cities group is helpful
here, noting that the English Core Cities:
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are leaders in the knowledge economy;
are the source of much of England’s creativity and innovation;
contain many of our top educational institutions;
are important retail centres;
contain a large share of high value employment;
are the location of many of our most important businesses;
are the location of many of our greatest cultural assets; and,
have very diverse and vibrant communities,
yet despite all this, are still the setting for much of this country’s
disadvantage.”
1.44.
This is a helpful checklist. The Newcastle City Region (as defined by
OECD15) functions as the growth centre of the North East – it contains
65.4% of total regional employment and 43% of its working age
population. The City Region is also home to the greatest share (66.6%) of
higher and middle professional and management jobs within the region16.
1.45.
NG accounts for over 15% of the Region’s population but just over 25% of
jobs. Over 100,000 individuals commute into NG every day for
employment. Employment density in Newcastle is above 1 – greater than
elsewhere in Tyne and Wear and also other Northern Cities such as
Liverpool and Sheffield. According to IPPR, there are more economic
migrants resident in Newcastle than in any other part of the North East.
1.46.
Newcastle is the administrative capital of the Region – housing the
Government Office for the North East, the Regional Development Agency
and a wide range of other Government Agencies. The North East’s only
company in the national top 100 is also located in Newcastle which is a
regional hub for both knowledge intensive business services (it contains
30% of regional employment in these sectors) and financial services
(43%)17.
14 Cities Outlook, 2009, Centre for Cities
15
OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
16 ibid
17 Annual Business Inquiry, 2007
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1.47.
Newcastle is acknowledged in the Regional Spatial Strategy as the
regional shopping centre – and, according to Experian18, is ranked as the
UK’s 12th most important retail centre (see section 5). The Metro Centre is
also ranked within the UK’s top 25 shopping centres.
1.48.
NG is also recognised as the leading cultural destination in the Region.
Gateshead’s Baltic Centre for Contemporary Art and the SAGE Gateshead
are both internationally significant cultural facilities. The Theatre Royal is
the most important touring theatre in the North East, and the regional
home of the Royal Shakespeare Company, the National Theatre, Opera
North and Rambert Dance Company. The Hancock – soon to be re-opened
as the Great North Museum: Hancock – is the North’s only natural history
museum and incorporates the most significant interpretation of Hadrian’s
Wall.
1.49.
There are four universities in the Newcastle City Region (University of
Newcastle, University of Northumbria at Newcastle, University of Durham
and University of Sunderland). NG is also home to the regional office of
the Open University. All are important and growing employers and sources
of wealth creation. The University of Northumbria at Newcastle has more
than 30,000 students – making it the largest in the North East and one of
the largest in the UK. Together both universities host around 50,000
students at any one time, many of which come from outside the region
(30% more students come from outside the region than locally19.)
1.50.
The Higher Education Institutions are the main source of Research and
Development (R&D) investment in the Region. Newcastle University
improved its position from 32nd to 27th of the UK HEI in the 2008 Research
Assessment Exercise20, with 14% of its research classed as ‘world leading’
or 4*. Durham University slipped from 12th to 14th although 20% of its
research is classed as 4* - yet neither were placed in the Times Higher
Education’s ‘top 100’ world universities in 2008.
The recession and the 1NG Plan
1.51.
The Workstream 1 report has been written at the start of a recession –
the first to hit the UK since the early 1990s – which is likely to last for at
least two years but the effects (on investment, unemployment etc) are
likely to impact for several more. The recession is worsening and HM
Treasury, and other forecasters, are continually revising their estimates of
its impact. The impact and implications of the recession for NG are
considered in detail in section 6.
1.52.
In this challenging context, it is very difficult for the public sector to ‘pick
winners’ and even more so where it is required to make long-term
investment decisions on the basis of imperfect market information. The
success of the 1NG Plan will rest on the sponsors’ ability to create the
18 Experian’s Retail Ranking, 2008
19 HEFCE, 2007.
20 Times Higher Education RAE Table of Excellence, December 2008
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conditions – business infrastructure, labour market flexibility, quality of
place – for the private sector to invest.
1.53.
The current recession brings the validity of some long-term economic
forecasts into question – and as a result, we have not placed great
reliance on economic forecasting as a tool in the development of the 1NG
Plan. New economic forecasts were not commissioned as part of this
research. Where appropriate, and with suitable caveats, we have made
reference to existing forecasts including those which underpinned the
most recent iterations of the Regional Spatial and Economic Strategies
and upon which much of recent regional economic/ spatial policies have
been based.
A Competitiveness Framework for NG
1.49
The Workstream 1 report is based on a clear research framework – around
which baseline data can be structured, and to provide a basis for
comparison to allow the significance of the data to be assessed. To enable
a degree of comparison with the earlier State of English Cities21 research,
we have chosen to model our approach on the research framework set out
in that report and in particular the ‘performance pyramid’ (see overleaf)
which creates a hierarchy of key drivers and measures of performance.
From the bottom up, the pyramid captures 
the basic determinants or building blocks of city performance - a city’s
business environment, educational base, urban, social and cultural
infrastructure and governance structures and organisation, which
provide a platform for….

the key drivers of urban competitive performance –innovation,
investment, human capital, economic structure, connectivity, quality of
life and the structures of decision making….which are measured
through productivity (GVA per worker), employment rates and wage
levels….

and which in turn combine to inform a City’s standard of living,
measured through GDP per capita.
21 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
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1.54.
Thus the initial phase of the 1NG Plan is about understanding the
‘fundamentals’ set out in the above diagram – the business environment;
educational base (the labour market) and the property market – to assess
the extent to which the key drivers of competitive economic performance
are present, or can be developed, in NG. In doing so we explore some of
the underpinning economic and spatial theories cited in the
competitiveness framework. We have not considered social/cultural
infrastructure or governance in detail as part of the WS1 report.
1.55.
In some circumstances this research has a wider focus than the SEC
framework. For example, this report has a stronger emphasis on
understanding the changing sectoral composition of the NG economy and
on enterprise and new firm formation. Where this divergence occurs it is
noted in the report and the rationale for moving beyond the framework is
explored.
1.56.
Whilst the SEC provides the framework for Workstream 1, the Work
Foundation’s Ideopolis22 research also provides a useful context for
considering NG’s economic competitiveness. The Work Foundation
consider the factor conditions which drive growth in the knowledge based
industries, including place – defining an Ideopolis as:
“a sustainable knowledge city region, with a core city which drives economic
growth in the wider city region.”
and developing a framework which sets out the relationship between the
‘nine drivers of success’ of an Ideopolis:
22 How can cities thrive in the changing economy? Ideopolis II final report, Work Foundation July 2008
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1.57.
The Ideopolis research is wide ranging and considers the performance of
UK cities under each of these measures. It suggests that the growth of
the ‘knowledge economy’ and cities are inextricably linked and the drivers
identified in the above diagram resonate with many of the attributes –
existing or desired – sought by the 1NG partners. Thus appropriate
reference is made to the Ideopolis research throughout this report.
Spatial geographies
1.58.
The Workstream 1 report presents data and analysis at various different
spatial levels for the purposes of comparison. However, it is neither
possible nor helpful to present a wholly consistent data set throughout as
some comparisons are much more relevant/significant than others.
1.59.
First and foremost the report is concerned with understanding the drivers
of economic and demographic change. NG - both local authority areas
combined– is the primary spatial geography used for the purposes of the
report although no official data is collected by ONS or others at this level.
In other circumstances the synergies – and differences – between
Newcastle and Gateshead are explored but only where they are of real
significance. For example, the basic sectoral structure of both economies
is very different and worthy of more detailed exploration; so too are rates
of new firm formation. Newcastle and Gateshead have commuting
relationships with adjoining districts which are as strong as those with
each other.
1.60.
Some data – primarily Gross Value Added (GVA) – is only statistically
robust at a higher spatial level, in this case the NUTS3 geography of
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Tyneside (i.e. the Newcastle, Gateshead and North and South Tyneside
local authority areas). This is the primary spatial geography for OECD’s
Territorial Review of the ‘Newcastle City Region’23 which is coterminous
with the NUTS3 definition. Some GVA data for NG and for individual
sectors of the NG economy is produced but this has more limited
reliability for comparative purposes.
1.61.
Placing the data for NG in its proper context and understanding its true
significance requires comparison with other spatial levels. The spatial
geographies chosen for comparative purposes vary dependent on the
data; in some circumstances it is appropriate to demonstrate NG’s
significance at city-regional or regional level – for example in exploring
differing growth patterns of GVA and NG’s role in driving up regional GVA.
In others comparison with some or all of the English Core Cities (and,
where appropriate, London and the other major UK cities) demonstrates
that NG shares a particular socio-economic characteristic with its peers, or
that it has a distinctive attribute worthy of note. On occasion data for NG
is compared to the England or GB average but only where there is a stark
contrast in performance which justifies such comparison.
Structure of the report
1.62.
Section 2 sets out the policy context for the EM. Section 3 - ‘The
NewcastleGateshead Economy’ considers the question ‘how will NG earn
its living in the future.’ Within the framework of the CLG urban
competitiveness model it presents our initial analysis of NG’s economic
structure and business base; considers its likely economic resilience in the
short term and identifies those sectors or economic activities with the
potential for longer-term economic growth.
1.63.
Section 4 – ‘The NewcastleGateshead Labour Market’ – considers the very
significant challenges facing NG’s labour market in detail, highlighting the
skills and participation challenges which are likely to have the greatest
impact on NG’s economy in future, again firmly within the CLG urban
competitiveness framework. Section 5 considers the performance of NG’s
office, industrial, retail and housing markets. Quality of place remains a
key determinant of successful cities and this material complements the
analysis of urban design and transportation matters in Workstream 2.
1.64.
Section 6 considers ‘the recession…and beyond 2011’ when the economic
upturn is expected. Section 7 draws together the research, setting out the
conclusions from the baseline analysis and formulating some economic
propositions which will be integrated with the spatial and urban design
propositions emerging from Workstream 2 and tested as part of the next
stage of the development of the EM.
23 OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
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2.
POLICY CONTEXT
2.1.
The Government is committed to making sustainable improvements in the
economic performance of all regions and reducing the gap in growth rates
between them. It has also set out its commitment to granting greater
devolution to local areas to take forward these improvements in economic
performance.
2.2.
The Government’s Sub National Review of Economic Development and
Regeneration24 (SNR) seeks to refocus powers and responsibilities for
economic development and spatial planning at the regional, sub/cityregional and local levels. The Bill currently progressing through the
Commons sets out a range of measures. Local authorities will have a new
duty to provide a clear economic vision and leadership, informed by
comprehensive analysis of economic circumstances and challenges.
2.3.
Groups of local authorities will also be supported to work together more
permanently, through voluntary Multi-Area Agreements (MAAs) and/or
through statutory Economic Improvement Boards which will need to meet
various governance criteria in return for the devolution of some powers
and resources.
2.4.
RDAs will be tasked with producing a new single Integrated Regional
Strategy for coordinating jobs, economic growth, housing, planning and
environmental objectives. Key national agencies must ensure that their
activities complement and contribute to the priorities agreed in regional
strategies. RDAs will also be given a new’ tasking framework’, which will
be simpler and focused on regional growth objectives.
2.5.
As part of these changes, RDAs will be expected to delegate funding,
where possible, to local authorities and sub-regions and there will be a
new duty on local authorities to “promote the economic well-being of an
area.” This will provide a statutory underpinning to new and existing
financial levers and incentives. Further financing arrangements promoted
include Regional Infrastructure Funds, Local Asset-Based Vehicles and City
Development Companies.
2.6.
This emphasis on promoting growth and eliminating regional disparities
together with moves to increased devolution of responsibility for the
economic development agenda is underpinned by the recognition that
regions and the sub-regions and local areas within them have a better
understanding and ability to respond to the economic challenges faced
within their localities.
2.7.
In the North East the challenges facing the region and impacting on its
ability to achieve its growth potential are well rehearsed. Headline
challenges identified from the range of policy documents are:
24 Review of Sub-National Economic Development and Regeneration (SNR), Department of Communities and Local Government and the Department for Business,
Enterprise and Regulatory Reform, 2006
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








2.8.
based on GDP per head, the North-East performs below the UK and
many of its constituent regions, performance is even poorer when
compared to European average levels;
the region has nearly half of its jobs in manufacturing and around one
third in the public sector: yet manufacturing jobs are steadily
disappearing, and public sector jobs are vulnerable to forthcoming cuts
in public spending across the UK;
the North-East has too few businesses, and low levels of
entrepreneurial activity;
the region’s trade is small, and it is predominantly closed to the world
economy;
there are too few economic clusters/specialisms which can truly
generate agglomeration economies;
promotion of science, creativity and innovation need to be enhanced to
generate improved growth;
there is significant out-migration of key working age groups and
families and a forecast stagnation of the working age population;
economic under-performance is exacerbated by lower employment,
weaker productivity, a high proportion of workless households, a
smaller proportion of highly qualified workers, and skill shortages; and,
there is a lack of clarity about the role of different places in the Region
and some disconnect between economic and spatial objectives.
In providing a solution to the challenges the suite of policies highlight the
need to increase the number of businesses and business growth; promote
and develop key sector specialism; increase investment in science,
innovation and creativity; enhance linkages between the Region’s
universities and businesses; increase productivity and participation via
efforts to tackle worklessness and improve skills; attract and retain talent;
and invest in the quality of place of the Region for residents, businesses
and visitors. The way in which these challenges are outlined in the suite
of regional, sub-regional and local policies and reviews is outlined below.
The Regional Economic and Spatial Strategies
2.9.
The RES25 provides a blueprint to 2016 to achieve a “vibrant, self-reliant,
ambitious and outward looking region, featuring a dynamic economy, a
healthy environment and a distinctive culture.” It also identifies the key
challenges that will need to be overcome for the North East to meet these
objectives.
2.10.
Challenges identified include the relatively low rate of business formation
in the North East and low levels of self-employment. Productivity levels
are also below average in most sectors. This is mostly attributed to the
25 Leading the Way, Regional Economic Strategy, One NorthEast, July 2006
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region’s industrial mix and relatively high proportion of businesses
towards the lower end of the value chain.
2.11.
These sectors are more vulnerable to competition in the global economy
because they face competition from low cost low wage overseas
economies. The region has more branch plants and fewer company
headquarters compared to other UK regions and less R&D spend. Lower
levels of economic activity and fewer highly skilled individuals are also
identified by the RES as a further reason for lower levels of productivity in
the Region.
2.12.
To address these challenges the RES:



sets a headline aim of increasing regional output to 90% of the
national average by 2016, to be achieved through a rise in the number
of firms (18,500-22,000) and gains in productivity and employment
(61,000-73,000);
identifies a range of activities implemented primarily at the regional
level, including an image strategy, enterprise and business support
functions and an employability framework; and
sets out a series of sub-regional and local activities the delivery of
which One North East will support and which in turn will support the
delivery of RES targets.
2.13.
Priorities for investment are identified across the themes of business,
people and place. Central to all these themes is the importance of
innovation in growing the Region. The RES identifies the Three Pillars of
energy and the environment; healthcare and health sciences and process
industries as being those areas where there is likely to be the greatest
return on investment. The RES also promotes what it refers to as a “Triple
Helix” partnership of business, universities and the public sector as being
essential to achieving the potential of these Three Pillars. Each of the
Pillars will be supported by physical developments termed Innovation
Connectors. The Innovation Connectors which fall within the NG area are
Science City, Baltic Business Quarter and Design Centre for the North.
2.14.
The RES also promotes the City Regions of Tyne and Wear and Tees
Valley as the drivers of regional growth. In NG priority areas for
investment are identified as Science City, Central Gateshead, Discovery
Quarter and Design Centre for the North. The RES also prioritises
investment in the housing stock via the Bridging NG Housing Market
Renewal Pathfinder and states the importance of Newcastle Airport and
Central Station as Gateways to the Region.
2.15.
Priority activities, regional, sub-regional and local are outlined in more
detail in the Regional Economic Strategy Action Plan. One of the
challenges set out in the Action Plan is to Local Authorities and other
stakeholders to develop proposals for fewer, bigger transformational
interventions that will add genuine economic value.
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2.16.
Again the RES Action Plan26 sets out priority activities across the themes
of Business, People and Place. Improving regional leadership is also a
central theme of the RES Action Plan and within this the desire to promote
new ways of working – including the City Development Company model –
is prioritised.
2.17.
In terms of the Business theme priority activities range from the desire to
invest in generating a more entrepreneurial culture and pursuit of an
“enterprise surge” to boost the number of businesses in the region to
investments to support productivity enhancements, supply chain
development and export potential. Efforts will be focused on identified
priority sectors of: process industries, healthcare and health science,
energy and environmental technologies, digital and creative industries,
automotive, knowledge intensive business services, defence and marine,
tourism and hospitality, and food and drink. Again science, innovation and
creativity are identified as central to the business agenda with efforts
being focused on the Three Pillars and Innovation Connectors.
2.18.
The People agenda is focused on improving productivity and participation.
Again supporting the needs of priority sectors is prioritised as is meeting
the skills needs of the Three Pillars and Innovation Connectors. While
much of the activity within this theme is focused within a regional
framework for employment and skills, sub-regional priorities for
investment are identified. For example, in terms of addressing economic
inclusion and boosting participation the Tyne and Wear City Strategy
initiative is identified as a priority for investment, Newcastle is also
identified as a potential pilot area for initiatives which support talent
attraction and retention.
2.19.
In terms of Place the Action Plan states that investment in the economic
hearts of the region will focus on accelerating the regeneration of the
centres of Newcastle and Gateshead with specific priorities including:
driving forward the delivery of Discovery Quarter and Science Central; the
further
development
of
Newcastle
International
Airport;
the
comprehensive redevelopment of Gateshead Town Centre and the Baltic
Business Quarter. It also sets out the desire to explore options for the
development of a convention centre in NG. The Place theme of activity
also highlights as priorities the need to invest in the general quality of
place of the region and its constituent parts encompassing investment in
business premises; culture and leisure facilities; ensuring the housing
stock which will support growth aspirations and efforts to attract and
retain talent; and improving connectivity and infrastructure.
2.20.
Work has commenced on the development of an Integrated Regional
Strategy (IRS) which will bring spatial and economic priorities for the
Region together in a much more co-ordinated way. It is envisaged that
within this City Regions will continue to be a key building block. In the
face of future cuts in public spending it is also expected that this Strategy
26 Leading the Way, Regional Economic Strategy Action Plan, 2006-2011, One NorthEast, 2007
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will continue the theme of the need to invest in fewer, bigger, more
strategic projects that will bring maximum value to the region.
2.21.
The Regional Spatial Strategy (RSS)27 for the North East to 2021 sets out
the regional planning context and promotes an overarching vision for a
Renaissance of the North East. It splits the North East into two city
regions – Tyne and Wear and Tees Valley – and the rural areas.
2.22.
The RSS highlights the importance of the Tyne and Wear City Region as a
driver of regional GVA and as home to four of the North East’s five
universities. The RSS also emphasises the importance of Newcastle for the
Region’s economy and identifies it as a public transport hub as well as the
most significant shopping, leisure and administrative centre within the city
region and the region as a whole.
2.23.
Policy 9 of the RSS outlines the main goals for regeneration; within NG
these are stated as the central parts of the Tyne River including BNG,
Newcastle City Centre, Gateshead Quays, and Gateshead City Centre.
Economic development priority locations are states as central Newcastle,
Newburn Riverside and Baltic Business Quarter. Policy 9 also supports the
Science City initiative and encourages development of complementary
nodes e.g. Baltic Business Quarter, it also encourages development of the
universities and promotes enhancement of university and business links.
A new conference and exhibition centre is also identified as a priority.
2.24.
BNG is identified as a priority, housing targets 2004-2021 are identified
for Newcastle at 880 net per annum and 589 net per annum for
Gateshead. Enhancing connectivity between the regional centres and
between Newcastle City Centre and the airport are identified as priorities.
Central Station is identified as a key transport node and Gateway. Policy
18 of the RSS outlines the provision of general employment land of up to
200 hectares in Newcastle and 130 hectares in Gateshead and identifies
key employment locations of Newcastle Great Park, Newcastle and Baltic
Business Quarter.
2.25.
Much of this ambition outlined in these regional strategies cannot be
achieved without a major contribution from NG. Tyne and Wear is
recognised as a key driver for growth but to fully realise its potential it
needs to punch above its weight. A key question for the EM is the
extent to which strengthening the role and economy of NG can
drive this growth in much the same way as Leeds and Manchester
have led the transformation of their regions.
City Region Strategies
2.26.
Under the auspices of the Northern Way the Tyne and Wear City Region
partners have been working to identify the actions that are best taken at
City Region level. This work identifies that the City Region economy needs
27 The North East of England Plan: Regional Spatial Strategy to 2021, Government Office for the North East, July 2008
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to expand to build stronger critical mass and that greater spatial
concentration and key sector strengths are needed to drive accelerated
growth – in response strategy is set around the themes of human capital;
infrastructure; innovation; and quality places.
2.27.
The Tyne and Wear Business Case28 submitted to Government in 2006 has
a focus on 4 areas:




2.28.
improvements in connectivity and infrastructure to support sustainable
economic growth objectives;
addressing labour market issues such as low participation and skill
levels, including a successful bid and designation as a DWP City
Strategy Pathfinder;
the need to better manage assets and release surpluses for
reinvestment in economic infrastructure, possibly through a property
regeneration partnership; and,
improving economic analysis to ensure that the City Region develops
the capacity to think collectively and thus to make the best possible
policy choices
City Regional working has been further reinforced by the recent
development of the Tyne and Wear Multi-Area Agreement (MAA). The
MAA sets out how the City Region will raise its game in tackling economic
underperformance and strengthening key assets and drivers of the
economy. The MAA states that all available evidence suggests that if the
City Region is to grow in a sustainable economic manner it needs to:




expand the number of people in employment;
equip more of the current and future workforce with the higher level
skills that will drive innovation, business creation and competitiveness;
attract and retain talented people – including graduates; and
ensure the transport infrastructure to support sustainable economic
growth, to contribute towards stronger integration between places in
CR and to enhance connection with external markets.
2.29.
The MAA seeks to enable the City Region Employment and Skills Board to
become the statutory body for skills provision, extend its influence over
higher level skills provision and have greater flexibility to fund higher
levels skills provision. It also seeks that the City Region secures flexibility
around the length of stay of visas for international graduates. A further
request is for flexibility around statutory provision of transport funding to
give the City Region greater opportunities to support sustainable transport
investment.
2.30.
Newcastle and Gateshead are recognised by the City Region, together
with the other Tyneside districts as a key driver of growth. However, it is
recognised that City Regional policy needs to be clearer about the role,
28 Building the Prosperity of the Tyne and Wear City Region: A Business Case, June 2006.
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function and contribution of each part of the City region, and to develop
policies which reinforce these strengths.
2.31.
A new strand of policy and analytical activity is currently being developed
at a City Region level by a co-ordinated team working with key partners.
Early activities of the new team will focus on: undertaking an economic
audit of the City Region and commencing a study to examine the spatial
and economic linkages between communities across the City Region, the
interaction between urban and rural settlements, labour markets and
trends in the location and needs of businesses. The results of this study
will inform further stages of the EM development.
OECD Territorial Review of Newcastle
2.32.
In 2006, the OECD29 prepared a Territorial Review of the ‘Newcastle City
Region’30. The Territorial Review found that whilst NG (and the wider Tyne
and Wear city region) were displaying signs of both a growing economy
and population, growth rates still lagged those of the UK as a whole. It
argued that the City region had only achieved partial success in shifting
towards knowledge based economy and still retained a strong dependence
on public sector employment and manufacturing.
2.33.
While the review quoted some diversification into high value added
manufacturing in areas such as the offshore industry, pharmaceuticals
and biotechnology and automotive assembly this was not as extensive as
in other parts of the UK, for example the North West. The report also
argued that the City Region’s economic output is constrained by a lack of
skills and investment within the existing workforce and stubbornly high
levels of worklessness.
2.34.
OECD present the City Region as a “medium sized metropolitan area” and
as such quote it as facing greater challenges in exploiting agglomeration –
the labour pool is smaller and less skilled, the sectoral base both less
diverse and less specialised and the rate of innovation lower than in
competing City Regions. This, they argue – a point reinforced in the SEC
research – highlights the need for the City Region to develop an economic
strategy that is both differentiated and relatively narrowly focused.
2.35.
However, despite these challenges OECD also reports a number of
untapped assets including:


the region’s strength in Higher Education and University based R&D
and the potential if business collaboration and graduate retention could
be increased;
The rich natural and cultural amenities which provide a base for
attracting mobile businesses and people; and,
29 OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
30 in essence Newcastle City Region is defined as per the Northern Way definition of Tyne and Wear City Region which is based on commuting flows and includes
the five municipalities in the former Tyne and Wear county (Newcastle, Gateshead, North and South Tyneside and Sunderland) together with adjacent parts in
Northumberland and Durham. At times, the report presents data using the narrower, NUTS 3 definition of Tyneside (excluding Sunderland and the adjoining parts
of Northumberland and Durham) or just for Newcastle
.
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
good connectivity in terms of national and international transport links
and ICT infrastructure.
Local Strategies
2.36.
Many of the challenges and priorities outlined in the regional and City
Regional strategies and policies flow through to local policy – both
planning and economic development.
Planning
2.37.
In terms of planning the key policy document covering Newcastle is the
Local Plan which was adopted in 1998, this is due to be replaced by a
Local Development Framework (LDF). The Core Strategy was to be
subject to an examination in public but this has been postponed to enable
further development of the supporting evidence base. In addition an Area
Action Plan for Newcastle City Centre and Options for East Pilgrim Street
have been progressed but these are also now in abeyance until the Core
Strategy moves forward.
2.38.
The Unitary Development Plan (adopted in July 2007) for Gateshead
forms part of the statutory development plan for Gateshead.
Neighbourhood Plans have also been drawn up for the areas of Bensham
and Saltwell, Deckham, Felling, Sunderland Road and Teams. It is
intended that these plans will be replaced by a Local Development
Framework which is currently in development. These documents and
policies outline the importance of investment in the urban core as a driver
of growth together with complementary investments in the wider area.
2.39.
Given the issues around the Newcastle core strategy both authorities are
currently in discussions to examine the potential for producing a single
Core Strategy and joint central area action plan. This provides a key
opportunity to enshrine in the planning system the joint working which
has been commenced via the creation of the NG City Development
Company. It also provides the opportunity for the proposals outlined in
the EM to be fully aligned with the statutory development plan.
Economic Development
2.40.
Newcastle City Council has published a Regeneration Strategy for the
period to 2021 in which it aims to show how various aspects of
regeneration activity fit together to create a comprehensive approach to
creating opportunity and sustaining quality of life. It recognises two key
underlying factors on which sustained regeneration in Newcastle will
depend: the future growth of the city’s population; and improvement of
the long-term performance of the city’s economy.
2.41.
To address these factors it promotes action to encourage skilled workers
to come and live in the City; to enhance the business base, diversify
employment, promote and support sector specialisms and improve skills
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levels among the population. The Strategy also places considerable
emphasis on enhancing the quality of place via investment in transport,
housing, culture and leisure facilities and green spaces.
2.42.
Gateshead’s Sustainable Community Strategy Vision 2030 promotes an
outwardly focused stance on economic and employment issues and
outlines an objective to place increasing emphasis on Gateshead’s
national and international profile, seeking City status by 2012.
2.43.
Gateshead is also in the process of approving the Gateshead Regeneration
Delivery Strategy. This sets out the long term vision which will guide the
regeneration and delivery of Gateshead Centre over the next 15-20 years,
addressing key issues such as the poor retail offer, leakage of spend and
accessibility constraints by investing not only in the physical fabric of the
centre but also on efforts to attract and support investment, businesses
and people.
2.44.
The Gateshead Regeneration Delivery Strategy also defines a strongly
complementary relationship with Newcastle and promotes the role of the
two areas as the heart of the City Region. The ultimately unsuccessful bid
to the Local Enterprise Growth Initiative in September 2006, argued that
“Areas like Newcastle and Gateshead, which perform an “urban core” function on
behalf of the region, face challenges that are not common to all areas. Essentially
if the region is to prosper, it needs Newcastle and Gateshead to develop a strong
“city” economy, which uses urban assets such as universities, good transport
links, attractive business locations and proximity to retail and leisure activities to
develop high-value, knowledge-based industries.”
2.45.
There are also a range of other local strategies and public sector
initiatives which are of importance to the development of the EM, which
are informed by the same underlying challenges and priorities identified
elsewhere in this chapter. This includes the Bridging NG Housing Market
Renewal Initiative and associated Growth Point programme. We do not
describe these in detail here as in part they are covered in the
Workstream 2 report.
CDC Proposal Document
2.46.
The proposal document “Setting up a City Development Company in
NewcastleGateshead” by Professor Stuart Gulliver (prepared in 2007),
went somewhat further in outlining the challenges facing Newcastle
Gateshead. The document characterises the NG economy as a “low
equilibrium economy about 10-15 percentage points off the pace” on a
number of key indicators, and outlines 2 key structural problems facing
NG:


the modest scale and dynamism of the private sector in terms of
business base, employment levels and investment rates; and,
human capital – NG has a highly polarised population in terms of skills,
this is coupled with high levels of inactivity and high vacancies which
act together to constrain economic growth.
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2.47.
The report does note, however, a number of more positive signs of
economic and population growth. Against this backdrop it argues that
there is a need to radically improve the cities competitiveness and that
these improvements should be secured through what Gulliver calls “city
building sectors” – some of which are clearly brought into question by
current economic events:




Professional and business services – generally regional in scale;
Company Headquarters;
Visitor economy – city-breaks and potentially growth in business
tourism; and,
Education and research-related commercial activity.
Implications for the EM
2.48.
The range of policy documents reviewed outline the same core challenges
facing the region, sub-region and constituent local areas and make, to a
greater or lesser extent, the argument for investment in NG, or Tyne and
Wear as the driver for long-term economic growth. Few of them, however,
provide compelling evidence to justify this approach – and some come
with a high risk of failure attached because they do not translate vision
into a realistic framework for delivery or prioritise resources to achieve
their goals.
2.49.
In addition, OECD in particular are critical of existing regional, city
regional and local governance arrangements and capacity, advocating that
economic policy should place greater emphasis on the urban core and that
there should be a “de-cluttering” of the existing institutional landscape to
facilitate a more coherent approach.
2.50.
The establishment of the CDC should be viewed as an important next step
in achieving a more streamlined and focused approach to economic
development and physical regeneration in the urban core. However, the
EM must provide more compelling evidence to support a greater
focus of policy and resources on NG.
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3.
THE NEWCASTLEGATESHEAD ECONOMY
Introduction
3.1.
This section of the baseline analysis is concerned with NG’s business base
and, in terms of the SEC model, the key drivers of economic diversity and
specialism; levels of innovation and creativity; and investment. In line
with the CLG research, we consider:





3.2.
Two cross-cutting themes are explored throughout section 3:


3.3.
recent trends in output (GVA), productivity and employment growth;
the structure of the company base, including new firm formation;
structural trends in employment;
the knowledge base – trends in innovation, exports and R&D; and,
the performance of key sectors of the NG economy – and those with
post-recession growth potential.
the extent to which NG is driving regional economic growth and can do
so in future,
the linkages – and indeed differences - between the economies of
Newcastle and Gateshead.
Section 4 of the baseline report addresses those other key elements of
the urban competitiveness model more closely associated with the labour
market including employment rates, skills and earnings.
Recent growth trends
Regional growth
3.4.
Any analysis of the performance and prospects of the NG economy must
take account of the regional context and the historic performance of the
North East’s economy. Disparities in regional economic growth and the
establishment of a regional ‘economic hierarchy’ can be traced back to the
inter-war period31.
3.5.
On GVA per head32– a widely accepted and comparative measure – the
North East has consistently lagged the performance of UK economy by
between 10 and 20%33 since the 1970s. In 2007 GVA per head in the
North East was just 78.6% of the UK average – placing it ninth out of nine
English regions. The North East contributed just 3% of UK GVA in 2007
31 Productivity in the UK3 – the regional dimension, HM Treasury 2001
32 Regional, sub-regional and local Gross Value Added, First Release, Office for National Statistics December 2008
33 Professor John Tomaney, CURDS in The Future of the North East, ed Tomaney, The Smith Institute March 2009
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but housed 4.2% of its population34. In UK terms, only Wales performed
worse than the North East.
3.6.
Although the North East’s relative economic performance has worsened
over the last two years, GVA per head has fluctuated quite dramatically
over the last twenty five years. Between 1985 and 1992, the annual
growth rate exceeded the UK average for five of those seven years – yet
from 1992-2002 the performance gap widened significantly35. This is a
familiar story, but it is not “somebody’s fault”; the North East has been
faced with huge structural challenges: the decline of traditional industries,
the dominant role of London in the UK economy, a low base in terms of
knowledge-based industries and a small labour pool.
3.7.
The OECD Territorial Review36 reviewed GVA growth from 1995-2001,
noting the importance of ‘knowledge intensive business services’
(explored in detail in later paragraphs) in driving national growth and that
“a relative emphasis on declining or low growth sectors within Tyneside, the city
region and the North East, combined with an under-representation of high growth
sectors in each account for the continued ‘poor performance’.”
3.8.
From 2002-2006, the North East once again narrowed the gap in GVA,
exceeding UK growth rates each year as a result of



the shift towards higher value added sectors such as finance and
business services;
a consistent rise in employment and economic activity rates37 – the
latter increased by 7% from 2000-2007; and,
an increase in labour productivity,
before falling behind the UK rate (+6%) once again in 200738.
34 Release of Regional and Sub-Regional GVA estimates: North East England, December 2008 Office for National Statistics
35 ibid
36 OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
37 Source: Annual Population Survey
38 Release of Regional and Sub-Regional GVA estimates: North East England, December 2008 Office for National Statistics
SHARED INTELLIGENCE
26
United Kingdom, North East and Tyne & Wear (nominal) gross value
added annual growth rates, 1990-2007
6%
4%
2%
0%
1990
-2%
1992
1994
1996
1998
United Kingdom
3.7
2000
North East
2002
2004
2006
2008
Tyne & Wear
Despite its mid-decade ‘spike’ in performance, the output gap with the
rest of the UK in 2007 was wider than at the beginning of the decade and
in fact since the mid 1970s. In research for the Smith Institute39,
Professor John Tomaney argues that the improvements in regional
economic performance, productivity, and employment rates were short
lived, and have eroded rapidly over the last two years. He poses an
important question:
“did these improvements…signal the first signs of the successful restructuring of
the regional economy, or do we need to re-assess them in light of what we now
know about the nature of the ‘growth’ occurring during this period, which created
an economy based upon debt-fuelled speculative property development, leisure
and shopping?”
whilst IPEG40 simply reflect on the distributional geography of the
economic cycle:
does it reflect a national investment cycle that sees money and activity move
from the core to the periphery over time as returns on speculation decline, in
which case the policy implications would be more about capturing the benefits of
temporary investment booms most effectively.
Tyneside/NG
3.8
So in the context of long-term regional under-performance, how has
Tyneside and NG fared? Actually, quite well. Before the recession began to
bite there were some promising signs of recovery with GVA per capita
(in Tyneside) and employment (Newcastle Gateshead) both growing faster
than in the rest of the UK. Tyneside – the smallest economic geography
(NUTS 3) at which we can make accurate assessments of GVA –
significantly increased its contribution to regional GVA between 19952006, along with Sunderland:
39 The Future of the North East, Prof John Tomaney Ed, The Smith Institute, 2009,
40 The Northern Connection: assessing the comparative economic performance and prospects of Northern England, Institute for Political and Economic
Governance/Centre for Policy Studies, University of Manchester January 2008
SHARED INTELLIGENCE
27


between 1996 and 2006 GVA in Tyneside increased from 86% to
93% of the national average,
between 1995 and 2007, employment in NG increased by 16% (GB
9%), although half of this growth was in the public sector41.
Sub-regional
GVA per head in the North East (UK=100)
Sub-regional GVA per head in the North East (UK=100)
Sunderland
Tyneside
Northumberland
UK = 100%
Durham CC
Darlington
South Teesside
Hartlepool and Stockton-on-Tees
0
0.1
0.2
0.3
0.4
0.5
0.6
% of UK GVA 1995
0.7
0.8
0.9
1
1.1
% of UK GVA 2006
Source: Office for National Statistics
3.9.
The evidence suggests that the North East has become increasingly
dependent on the contribution of Tyneside and Sunderland towards
regional economic output; the remaining NUTS 3 areas reduced their
share of UK GVA between 1995-2006, some quite dramatically. OECD
argue that
Newcastle is the dominant centre within the North East for services and in
particular knowledge intensive business services and this has helped to drive
Tyneside’s relative success within the North East region.
3.10.
The SEC research42 considers the performance of 56 English cities –
characterised by the degree of self-containment of their travel to work
areas – on GVA per head over the period from 1995-2002. It reinforces
the strong divergence in economic output performance between the
best and worst performing of the 56 cities/travel to work areas studied.
3.11.
Ten of the 56 cities studied demonstrated growth of more than 10%
above the England average – but 15 others lagged the English average by
more than 10%. The bottom five – in reverse order Grimsby, Telford,
Stoke, Middlesbrough and Blackburn – achieved 50% or less of average
growth. Of the Northern cities only Manchester substantially outperformed the English average in GVA growth per capita over this
41
Office for National Statistics, Regional Accounts
42 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
SHARED INTELLIGENCE
28
period, with Leeds and Newcastle marginally outperforming the England
average of 42.7% and separated by just 1%, closely followed by
Liverpool.
Source: State of the Cities, The Competitive Economic Performance of English Cities,
Simmie et al, Department of Communities and Local Government, 2006
3.12.
Thus, whilst the North East economy was in the middle of a strong
dip in performance, Tyneside/NG continued to perform relatively
strongly. More recent research from the Northern Way43 (see above)
clearly shows Tyneside’s distinct contribution to absolute GVA and GVA
growth from 1995-2004 – in marked contrast to the rest of the North East
with the exception of Sunderland, where performance has been driven by
the automotive sector.
3.13.
The table below shows that NG generated GVA of over £9.8 billion in 2006
– 25.7% of the regional total of some £38.24 billion -while housing just
18% of the North East’s population. Public administration, education and
health accounted for more than one quarter (25%) of NG’s GVA in 2006,
followed by business services (22%), manufacturing (14%), distribution
and retail (11%) and financial intermediation (7%).
43The Northern Connection: assessing the comparative economic performance and prospects of Northern England, Institute for Political and Economic
Governance/Centre for Policy Studies, University of Manchester January 2008
SHARED INTELLIGENCE
29
NG GVA by broad sector, 2006
Sector
Agriculture, fishing, energy and water
Manufacturing
Construction
GVA (%)
GVA (£)
1
101,659
14
1,351,085
6
59,755
Retail and Distribution
11
1,066,505
Hotels and restaurants
2
36,694
Transport and communications
7
660,596
Financial intermediation
7
733,783
22
2,188,175
Public administration and defence; compulsory social security
9
843,403
Education
8
806,627
Health and social work
9
843,831
Other services
5
458,152
100
9,850,264
Business Services
TOTAL
Source: Office for National Statistics (cebr)
3.14.
Tyneside, of which NG forms a substantive part, has ‘punched
above its weight’ from a regional perspective. However, placing this
in the context of the UK geography of GVA growth shows that Tyneside
has been outperformed by parts of London and the M4 Corridor; much of
the Greater South East; Cornwall; small pockets of the West Midlands;
Nottingham and Derby; in the North of England by Leeds, Manchester,
York, Sheffield and in Scotland by Glasgow, Edinburgh and the large
NUTS3 area centred on Inverness.
3.15.
Recent research by Centre for Cities44 presents a less positive view;
placing Newcastle, Middlesbrough and Sunderland 45th, 53rd and 62nd out
of 64 cities in their Economic Prosperity Index (only Warrington of the
Northern Cities makes the top 10, with Leeds 17th, Manchester 19th and
York 21st). Of the Core Cities, only Liverpool performs worse than
Newcastle.
3.16.
The Centre for Cities Outlook45 tracks a series of ‘snapshot’ indicators –
including public sector employment, skills levels, employment rates and
GVA per capita – so provides a more rounded, if short-term perspective
on city economic performance. Thus, whilst Newcastle (in effect the
Tyneside NUTS3 area for the purposes of the Centre for Cities report)
performs well on GVA per capita its performance trails off when the other
measures are factored in. Liverpool – which demonstrated comparable
GVA growth to Tyneside – suffers a similar fate.
44 Cities Outlook, 2009, Centre for Cities
45 ibid
SHARED INTELLIGENCE
30
Conclusions – recent growth
3.17.
There is compelling evidence to suggest that Tyneside’s/NG’s
performance on the key measure of GVA per head has held up over
the long-term – and continued to demonstrate strong growth
when the region as a whole was performing less well.
3.18.
There is an increasing body of evidence suggesting that
knowledge intensive firms tend to prefer urban locations. Cities
offer ‘agglomeration benefits’ - greater interaction with suppliers
and customers, a critical mass of the specialised, skilled labour
and enhanced opportunities for knowledge exchange. In cities,
infrastructure – and knowledge – can be shared by different users,
generating economies of scale; businesses can specialise in the knowledge
that they will find a market for their products or services and workers will
be incentivised to invest in higher level skills where there is competition
for labour.
3.19.
Moving forward, the relationship between Tyneside/NG and the
Region as a whole remains a key determinant of future growth.
Can Core Cities drive city regional or even regional growth? London
demonstrates very strong ‘spillover’ effects on the wider economy of the
Greater South East and the UK GVA maps overleaf also demonstrate this
to a lesser extent in the Bristol, Leeds and Manchester City Regions.
3.20.
In the North East, the spillover from Tyneside/NG appears much
less pronounced. Arguably Tyneside/NG is still not wealthy
enough or large enough to create significant spillover or
agglomeration benefits46 or indeed to truly impact on the economic
performance of the region as a whole. Recent research by Overmans and
Rice47 (2008) suggests that, based on international comparisons, even the
larger second tier cities in the UK (including Leeds, Manchester, and
Birmingham) may be too small to generate large scale agglomeration
benefits, based on a simple rank size rule model.
3.21.
This notwithstanding, both Leeds and Manchester have much larger labour
markets and higher business densities than Newcastle Gateshead and
these are the critical factors in creating agglomeration and spillover
benefits within and between City Regions. Recent research for the
Northern Way48 reinforces the importance of these links:
46 Agglomeration benefits are effectively the economies of scale derived by businesses by locating close to their key markets; having access to large or ‘thick’
labour markets (where workers are willing to invest in upskilling if there is a wider range of employment opportunities that will utilise their skills) and ‘knowledge
spillovers between proximate firms.
47 Resurgent Cities and Regional Economic Performance, Overman, H & Rice, P SERC Policy Paper 1, June 2008
48 The Northern Connection: assessing the comparative economic performance and prospects of Northern England, Institute for Political and Economic
Governance/Centre for Policy Studies, University of Manchester January 2008
SHARED INTELLIGENCE
31
“more mileage is likely to accrue from greater investment in understanding the
interconnectedness between urban economic fortunes and those of other areas,
and how they might be encouraged more effectively.”
3.22.
It is important to encourage the conditions where agglomeration
benefits will flow to NG – by creating much thicker labour markets and
driving up business density – but conventional economic theory suggests
that these effects may not be significant enough to drive up the economic
performance of the North East as a whole. The EM will explore
whether, and how, NG can realise a further step change in its
economic performance to create the conditions for much greater
levels of agglomeration – and to realise significant economic
spillover benefits for the rest of the City Region.
The company base
3.23.
The size and structure of NG’s business base are important indicators of
its dynamism. Firstly, high growth economies are also those which
demonstrate high levels of business start-ups with few barriers to
enterprise and a high level of churn with new market entrants displacing
others. There is a body of evidence to suggest that new firms make a
significant contribution to employment generation, innovation and
productivity49.
3.24.
In addition, the density of the business stock provides an indication of the
strength of the city regional and regional market place; the larger/more
diverse the business stock, the greater the scope to procure goods and
services from other firms within the region. As we highlight earlier in this
chapter, size also matters in that the economies of scale created by cities
and city regions offer opportunities for agglomeration.
Finally, the
average size of firms is an important indicator of the degree of local
ownership/control of the company base. A predominance of larger firms,
alongside an absence of headquarters, points to a branch plant economy
where key investment decisions are taken elsewhere.
Basic structure
3.25.
The NG business base (i.e. both VAT registered and non-VAT registered
businesses comprises around 15,400 firms, the majority of which (9,100)
are located in Newcastle. 64% of the stock is VAT registered. In 2007,
more than 50% of firms were in just two sectors - business services
(29%) and a further 23% in wholesale and retail; the next largest private
sector grouping was hotels and restaurants with just 8% of firms50.
49 Ashcroft, B & Love (1996). Employment change and new firm formation in UK counties – M.W Danson Small firm formation and regional economic development
London: Routledge
50 Annual Business Inquiry, 2007
SHARED INTELLIGENCE
32
Firms by broad industrial structure, 2007
Firms by broad industrial structure, 2007
Primary industries
Manufac turing
Other servic es
0%
6%
8%
Construc tion
Health and soc ial
7%
work
Educ ation
3%
Public administration
1%
Wholesale, retail trade and
repair
23%
Business servic es
29%
Financ ial servic es
3%
Hotels and restaurants
8%
Transport, storage and
c ommunic ation
4%
Source: Annual Business Inquiry
Source: Annual Business Enquiry, 2007
3.26.
This notwithstanding, both business services and wholesale/retail firms
are still under-represented compared to the England average – as this
graph, drawn from the evidence base for the NG LEGI bid shows; only
predominantly public sector employers were over-represented in the
business stock in 2004.
200
100
Business Services
FIRMS MISSING
-600
Construction
Manufacture
Wholesale & Retail
Transport Storage &
Communications
Education
-500
Other Community & Personal
Services
Source: Annual Business Inquiry 2004 TBR ref(W2/C2a)
-400
Agriculture Hunting & Forestry
Fishing
Mining
Electricity Gas and Water
Hotels & Restaurants
-300
Financial Intermediaries
-200
Public Administration
-100
Health & Social Work
0
Source: Newcastle Upon Tyne LEGI Evidence Base, TBR Economics, 2006
3.27.
Like some other post-industrial cities, NG continues to depend heavily on
medium and large firms employing 200+ people. There are almost
twice the number of larger employers, compared to the GB average (1.2%
of firms, compared to 0.7%) and they account for 41% of employment51.
51 Annual Business Enquiry, 2007
SHARED INTELLIGENCE
33
Workplaces by Sizeband,Workplaces
2007
by sizeband, 2007
Great Britain
North East
Tyne and Wear City Region
NewcastleGateshead
0%
10%
20%
1-10 employees
30%
40%
11-49 employees
50%
60%
70%
50-199 employees
Source: Annual Business Enquiry, 2007
80%
90%
100%
200 or more employees
Source: Annual Business Inquiry
3.28.
At face value the structure of NG’s company base52 is almost the exact
opposite of the GB norm, with fewer micro-businesses (employing 1-10
staff), and more small SMEs (11-49 employees) and larger firms.
However, just under half (48%) of the ‘large firms’ identified through the
Annual Business Inquiry data are in fact public sector employers; almost
60% of public sector employees work in large public sector organisations
with more than 200 employees. With these employers stripped out, the
structure of the company base is much less skewed towards larger firms.
3.29.
20% of NG’s firms with more than 200 staff are in banking, finance and
insurance (employing 38% of all those working in these sectors) and 11%
are in manufacturing (employing 47% of all manufacturing employees).
The NG economy therefore remains particularly vulnerable to the
investment decisions of larger firms and to those of larger public
sector employers.
52
Annual Business Enquiry, 2007
SHARED INTELLIGENCE
34
Businesses by Industry and Size Band
Businesses by Industry and
Size band
40
Percentage of Businesses
35
30
25
1-10 employees
11-49 employees
50-199 employees
200+ employees
20
15
10
5
an
d
es
O
th
er
s
er
v
ic
he
al
th
&
Pu
bl
ic
ad
m
in
is
t
an
ce
fin
in
g,
Ba
nk
tio
n
in
su
ra
nc
e,
et
c
m
co
an
d
or
t
an
sp
Tr
ra
tio
n,
ed
uc
a
m
re
un
ic
at
io
ns
st
au
ra
nt
s
io
n
an
d
D
is
tri
bu
tio
n,
ho
te
ls
C
on
st
ru
ct
ur
in
g
an
uf
ac
t
M
an
d
y
En
er
g
Ag
ri c
ul
tu
re
an
d
fis
w
hi
ng
at
er
0
Industry
Source: Annual Business Enquiry, 2007
3.30.
3.31.
Density
Low business density53 (the number of businesses per 10,000 adult
population), as we have already highlighted, is a significant challenge for
NG. Although above the regional average, Newcastle (318 per 10,000
adults) and Gateshead (327) have lower business densities than any of
the other Core Cities with the exception of Liverpool (327). Leeds (375)
and Manchester (392) have higher densities and Bristol (434) is the best
performing Core City on this measure; all are dwarfed by London with a
density of 628 – almost double that of NG.
Interestingly, both the OECD Review54 and the SEC55 research are silent
on this issue although there is some discussion in Overmans and Rice56
linking business density with agglomeration. In some ways the business
density challenge can be viewed as a self-fulfilling prophecy – the
comparatively small North East market place simply constrains business
opportunities for new firms, the majority of which are likely to trade
locally and regionally, and in turn acts as a disincentive for new firm
formation. The Regional Economic Strategy57 recognises the importance of
breaking this cycle – through its efforts to transform the rate of new firm
formation (discussed in subsequent paragraphs) – but recognises that this
will be a long-term challenge.
53 Annual Business Inquiry, 2007/ ONS Mid-year population estimates, 2007
54 OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
55 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
56 Resurgent Cities and Regional Economic Performance, Overman, H & Rice, P SERC Policy Paper 1, June 2008
57
Leading the Way, Regional Economic Strategy, One NorthEast, July 2006
SHARED INTELLIGENCE
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3.32.
Growth in business stock
Gateshead experienced a higher absolute and percentage rate of growth
in the number of firms (+840 firms, or +15%) compared to Newcastle
(+710 firms, or +8%) from 1998-200758. The vast majority of growth
came in the business services sector – with 1,600 new or relocating firms
over this period. Business services are considered in more detail later in
this chapter.
Businesses by broad sector,
1998-2007
Businesses
by broad sector, 1998-2007
Business services
Construction
Health and social work
Wholesale, retail trade and repair
Education
Financial services
Primary industries
Gateshead
Newcastle
Utilities
Public administration
Transport, storage and communication
Manufacturing
Hotels and restaurants
Other services
-300
-200
-100
0
100
200
300
400
500
600
700
800
900
Source: Annual Business Inquiry
Source: Annual Business Enquiry, 2007
3.33.
Growth has been skewed towards larger employers - which grew by 40%
between 1998-200759. Newcastle in particular has had a degree of success
in attracting/retaining major headquarters operations including of SAGE,
BT Sytegra and TSG (software/e-commerce), although the loss of others
including Barratt, Proctor and Gamble (from adjoining North Tyneside)
and the downsizing of both Northern Rock and Newcastle Building Society
suggests a fundamentally mixed picture. London continues to dominate
this sector (76% of major UK firms are headquartered in the city) 60 and
anecdotal evidence suggests that other locations (for example Leeds and
Edinburgh in the financial services sector) have been more successful than
NG.
3.34.
However, whilst growth in micro-businesses is just below the GB average
(15% and 18% respectively), most significantly, the number of small
SMEs in NG fell by 3% over this period compared to a 5% increase for GB.
3.35.
Conventional economic theory61 suggests that NG’s reliance on larger
employers – including those in the public sector – and lack of microbusinesses and small SMEs is likely to constrain the growth and dynamism
of the NG economy. Typically, small firms drive innovation and
58 Annual Business Inquiry 1998-2007
59 ibid
60 OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
61 Baumol, W, J The Free Market Innovation Machine: analysisng the growth miracle of capitalism. Princeton University Press, 2002
SHARED INTELLIGENCE
36
productivity. However, recent research62 commissioned through the
Manchester Independent Economic Review (MIER) on both domestic and
overseas investment by large firms stresses the importance of these
embedded large local companies in driving up employment and
productivity. The research showed that the greatest impacts resulted from
investment by large domestic firms rather than overseas inward investors.
3.36.
The OECD Review63 considered the impact of foreign direct investment on
the North East over the period from 1998-2001 during which time the
region was a considerable beneficiary of Foreign Direct Investment (FDI).
Since 2001 the scale of FDI has fallen significantly with waves of
investment redirected from the UK to Eastern Europe and the Far East.
The study notes that
“although UK investment is more significant at the national level, the foreign
owned component in the North East is sometimes almost as significant, and in
2001 the foreign element accounted for 54% of manufacturing investment in the
region.”
3.37.
In NG, arguably the productivity and employment benefits flowing from
investment by larger firms will be less than those identified in the MIER
study, diluted by the predominance of public sector employers.
Nonetheless, the evidence base for the NG LEGI64 base does suggest that,
at least in 2004, four major Newcastle employers had a disproportionate
effect on GVA. Including the ‘big four’ (Northern Rock, SAGE, Barratt and
Northern Electric) Newcastle’s GVA per employee was £39,400 in 2004 –
but excluding them, GVA per employee fell to just £29,000 – some way
below the regional average. These effects will be further complicated by
the recession which has had a significant impact on financial services and
construction.
3.38.
The MIER65 research suggests that business support agencies should have
a much stronger focus on facilitating investment by larger firms, including
both domestic and overseas businesses. The EM should consider
whether this should be a core element of the economic
development programme for NG.
New firm formation
3.39.
The North East lacks a strong enterprise culture; it has the lowest number
nationally of people considering whether or not to start a business66. The
RES highlights the need to rebuild an entrepreneurial culture in the North
East and to create a larger pool of people considering starting up a
business as a pre-requisite to increasing the business birth rate – the
‘enterprise surge’. Interestingly both the OECD Review and the SEC
research are silent on the role of enterprise in driving employment and
62 Manchester Independent Economic Review – Growing Inward and Indigenous Investment, 2009.
63 OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
64 Newcastle Upon Tyne, LEGI Evidence Base, TBR Economics, 2006
65 Manchester Independent Economic Review – Growing Inward and Indigenous Investment, 2009.
66 SBS (2003). Household Survey of Entrepreneurship. http://www.sbs.gov.uk/ content/analytical/ household-survey-2003.pdf
SHARED INTELLIGENCE
37
productivity growth and to date analysis of this issue in a regional/city
regional context has been limited.
Data from the Global Entrepreneurship Monitor67, which draws on
research on entrepreneurship in 43 countries - shows that total
entrepreneurial activity (TEA) in the UK – a survey-based measure of
those individuals engaged in the pre-start and early post-start up phases
of running a business – remained around 6% between 2002-2007,
tracking the average for the G7 Countries, but much lower than in China
(16%) and India (12.5%).
TotalActivity
entrepreneurial
activity (TEA)
Total Entrepreneurial
(TEA)
11.0
10.0
2002
'
9.0
2003
8.0
% of adult population
3.40.
7.0
2004
6.0
5.0
2005
4.0
3.0
2006
2.0
2007
1.0
0.0
NE
NW
YH
EM
WM
E
L
SE
SW
GSE
NMW
Eng
Region/Country
Source: Global Entrepreneurship Monitor, 2007
67Global Entrepreneurship Monitor United Kingdom 2007.
SHARED INTELLIGENCE
38
3.41.
Total Entrepreneurial Activity (TEA) for the North East was 4.7% in 2007,
having increased from 2.9% in 2002 and peaked at 5% in 2004. There is
a convergence in the performance of London and the Greater South East
and the other English regions although the North East continues to
demonstrate the lowest levels of TEA68.
Business demography: births and deaths per 10,000 working age adults
Business demography: births and deaths per 10,000 working age adults 2007
2007
200
180
160
Births/deaths
140
120
Deaths per 10,000
Births per 10,000
100
80
60
40
20
ld
Lo
nd
on
he
ffi
e
S
Le
ed
s
ris
to
l
irm
in
gh
am
B
B
he
di
st
nb
er
ur
gh
,C
ity
of
G
la
sg
ow
C
ity
E
yn
e
er
po
ol
M
an
c
Li
v
ea
d
up
on
-T
le
-
C
ity
at
es
h
N
ew
ca
st
G
t
as
E
th
gh
am
N
ot
tin
N
or
E
ng
la
nd
0
Source: ONS - Business Demography, Mid-year Population Estimates, 2007
3.42.
Within this context, the performance of both Newcastle and Gateshead on
business start ups remains disappointing although Gateshead has
generally achieved higher rates of new firm formation than its near
neighbour in recent years. Firstly, dealing with the new ‘business
demography’ data from ONS69 (which essentially includes VAT and PAYE
registrations to capture self employment activity below the VAT
threshold), both Newcastle and Gateshead have lower rates of business
births and deaths than any of the other English Core Cities, Edinburgh or
Glasgow. Gateshead has a higher birth rate (49 per 10,000 working age
adults) and a lower death rate (31) than Newcastle (41 and 33
respectively).
3.43.
However, only Manchester (64) has a birth rate that is higher than the
England average. The performance of all of the Core Cities is dwarfed by
that of London, which generated 104 births per 10,000 working age adults
in 2007 and 74 deaths. The business demography data70 suggests a
degree of correlation between the size of the existing business stock and
the rate of new births/deaths. It would seem reasonable to assume that
the size and maturity of the market place are important factors in
determining the number of new starts.
68 ibid
69 Business Demography, ONS, 2007
70 ibid
SHARED INTELLIGENCE
39
3.44.
Newcastle, with the lowest business density of the core cities, also had
the lowest number of new starts in 2007 – at 12.9% of the total business
stock. Most of the Core Cities have an annual start up rate of between 1314% of the total stock. London has a much higher business density and
correspondingly higher rate of new starts – but new starts still only
represented just 16.5% of the total stock in 2007 – suggesting that this
relationship is not an exponential one71.
3.45.
Put another way, it might be wholly unrealistic to expect start up rates in
NG to more than double to match London’s – but a more realistic
aspiration might be for NG to match the ratio of new starts to business
stock achieved in London. This would involve the generation of around
300 additional start ups per annum in NG – an increase of 20%.
3.46.
The graph overleaf also highlights that London has much greater levels of
churn – the totality of business births and deaths – than the other Core
Cities. Research by NIESR72 considers the significance of churn on
productivity and growth:
“There are two reasons why churn is thought to raise productivity. Firstly,
through the competitive effect whereby entrants create an environment in which
incumbent businesses must ‘raise their game’ in order to remain in the industry.
The second positive impact on productivity is through the introduction of new
technology…(relating) to the Schumpeterian concept of ‘creative destruction’, by
which new firms enter markets introducing new technologies and then displace
older, less efficient firms.”
3.47.
The NIESR research broadly supports the theory that stimulating churn
has a positive effect on productivity and employment. It is significant that
both Newcastle and Gateshead have the lowest rates of churn of all of the
Core Cities, suggesting that the dynamic market conditions implied in the
theory are not present to the same extent in NG.
3.48.
Furthermore, NIESR suggest that, to date, Government enterprise policy
has been overly concentrated on increasing the overall volume of business
births and that a more sophisticated approach is required to optimise the
wider impacts of new entrants on productivity and employment.
3.49.
VAT registration data73 – which is now being replaced by the new business
demography statistics – provides a more historic if incomplete perspective
on start up activity. VAT registration rates (per 10,000 adult population)
for Newcastle and Gateshead have generally outperformed the North East
average but have remained broadly static since the mid 1990s.
Registrations per 10,000 adult residents increased from 24 to 28 between
1994 and 2007 for Newcastle Gateshead – but still lag behind the UK
average of 41.
71 ibid
72 Business start ups, closures and economic churn: a review of the literature, NIESR for Small Business Service, 2006
73 ONS, VAT Statistics
SHARED INTELLIGENCE
40
VAT registration perVAT
10,000
working
adults
1994-2007
registrations
per 10,000age
working
age adults
1994-2007
80
70
VAT registrations
60
England
North East
London
Newcastle
Gateshead
Leeds
Manchester
Bristol
50
40
30
20
10
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: ONS, VAT Statistics, Mid-Year Population Estimates 2007
3.50.
The rate in many of NG’s comparator cities is significantly higher –
44 in Bristol, 42 in Manchester, 40 in Edinburgh, and 38 in Leeds74 – and
has this remained so since the late 1990s. Generally VAT registration
rates for the English Core Cities – and Edinburgh/Glasgow – are
converging but whilst NG has narrowed the gap in enterprise
performance, this has remained constant since 2002.
3.51.
Between 2003 and 200775 (when the sharp increase in VAT registration
rates across the board may be a result of an anomaly), the data shows a
downwards trend. This is at a time when GVA, both regionally and at
Tyneside level, was growing rapidly – suggesting that in this case, GVA
growth was not the result of a significant increase in start ups and/or a
broader ‘churn’ effect.
Conclusions – business stock
3.52.
It is clear that the North East and Newcastle Gateshead continue
to demonstrate a substantial ‘enterprise deficit’ compared with
the other Core Cities and London. However, the limited scale of the
regional market – in terms of both population and business density –
constrain opportunities for start up activity. The next stages of our
research will explore whether achieving a significant increase in
business start up rates – and market churn – should be a priority
for the EM.
3.53.
NG’s apparent dependence on larger employers is also a key issue
for the EM. Half of the ‘large firms’ which are so over-represented in the
NG economy are in fact public sector employers; nonetheless, the
74 ONS VAT Statistics, Mid-year population estimates, 2007
75 ONS, VAT Statistics
SHARED INTELLIGENCE
41
remaining half in the private sector represent both an opportunity and a
threat. On the one hand, the economic downturn has highlighted
the vulnerability of larger firms across a spectrum of sectors
ranging from financial services, through construction, retail and
manufacturing and also some of the business services firms which serve
them. On the other hand, they remain an under-utilised asset –
with the weight and critical mass to achieve significant impacts on
productivity and employment.
Employment structure
3.54.
The OECD Review76 highlights the scale of the industrial restructuring
which has taken place across the City Region over the last 50 years, with
the ‘virtual elimination’ of mining and heavy industry and a major decline
in agricultural employment offset by growth in public sector, financial and
business services jobs. OECD note the ongoing importance of the
manufacturing sector – with chemicals and metals both demonstrating
relatively high productivity – and that
“Inward investment has contributed to a considerable diversification of the
economic base into new areas such as microelectronics, the offshore industry,
pharmaceuticals and biotechnology, and automotive assembly. The recent growth
in foreign owned branch plants has, however, failed to compensate for the
closure of UK-owned branch plants over the same period.”
3.55.
The SEC77 does not present a broad analysis of the changing employment
structure of the English cities; instead the research is primarily concerned
with exploring the concentration and spatial distribution of employment in
Knowledge Intensive Business Services (KIBS). Indeed Tyneside shows
strong growth in business and financial services jobs, and the defining
features of change in the employment structure of NG have been
continuing growth in the public sector (which accounts for a third of all
jobs) and the rapid shift towards a post-industrial, services-based
economy. These trends have been particularly marked in Newcastle;
Gateshead has moved in the same directions, but more slowly, and it
retains a significant manufacturing base.
3.56.
In 2007 there were just over 265,000 people (excluding the selfemployed) working in NG78. Together, public administration, health and
education accounted for 33% of all jobs of which the majority are in the
public sector.
76
OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
77 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
78 Annual Business Inquiry, 2007
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Employment Structure for Newcastle, Gateshead and NG: 2007
Sector
Manufacturing
Construction
Distribution and Retail
Hotels and restaurants
Transport and Communications
Financial intermediation
Business Services
Public Administration
Education
Health and social work
Personal Services
Total
Gateshead
%
No. jobs
16
14,703
7
6,273
22
19,663
5
4,736
6
5,175
2
1,461
14
13,019
7
6,010
7
6,611
10
9,294
4
3,912
100
90,857
Newcastle
No. jobs
%
7
11,582
3
4,594
12
20,605
6
10,283
6
9,739
6
10,800
18
31,820
13
22,403
11
19,284
14
23,792
5
9,359
100%
174,261
Newcastle Gateshead
No. jobs
%
26,284
10
10,867
4
40,268
15
15,019
6
14,914
6
12,261
5
44,838
17
28,413
11
25,895
10
33,086
12
13,271
5
265,116
100%
Source: Annual Business Enquiry, 2007
3.57.
Business services (defined in SIC terms as real estate, renting and
business activities) now accounts for 17% of all employment, overtaking
distribution and retail as the largest wholly private sector employer in
2005. Manufacturing accounts for 10% of employment in NG.
Structural comparisons
3.58.
There are some significant differences in broad economic structure in
comparison with the other Core Cities, based on 2007 data79. NG has a
similar proportion of manufacturing jobs to Leeds (9.5%) and Birmingham
(10.6%) but a lower one than Sheffield (12.1%). This figure would be just
7% if Newcastle is considered in isolation. Just 4.5% of employee jobs in
Manchester remain in manufacturing.
3.59.
NG retains a much higher proportion of jobs (33%) in public services than
either Manchester (29.4%) or Leeds (26.4). Conversely, both Manchester
(30%) and Leeds (27.1%) have more employment in financial and
business services than NG (22%). In all three cities around 20% of jobs
are in retail distribution and hotels.
3.60.
There are also some very significant differences in the economic structure
of Newcastle and Gateshead. The first significant difference is one of scale
– 65% of total employee jobs are in Newcastle, reflecting the role of the
city centre as a high density location for retail, office and leisure
employment.
3.61.
Distribution and retail is the largest sector in Gateshead in absolute and
percentage terms – and accounts for a much higher proportion of
employment in Gateshead than Newcastle. Gateshead is an important
location for distribution/warehousing activity which has tended to colonise
edge/out of centre locations with good access to the highway network.
3.62.
Newcastle has four times the number of public sector jobs than
Gateshead, reflecting its role as a regional administrative centre.
79 ibid
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Similarly, although small compared to other Core Cities, Newcastle’s
financial services sector is seven times larger than Gateshead’s.
3.63.
Although manufacturing employment is distributed comparatively evenly –
55% Gateshead and 45% in Newcastle – it comprises a much higher
proportion of total employment in Gateshead at just over 16%.
Construction employment is also higher in Gateshead than Newcastle.
3.64.
To some extent, the distribution of employment (and land uses) does
support a view of Newcastle and Gateshead as a coherent ‘city’. Their
roles are different but complementary – with Newcastle City Centre
serving as the dominant retail and office location and transport node, and
Gateshead providing a strong industrial and residential base with, of
course, its iconic cultural facilities complementing the leisure focus of
Newcastle Quayside.
3.65.
In some respects, viewed together, it could even be argued that
Newcastle and Gateshead demonstrate aspects of the classic ‘concentric
ring’ model of urban development which evolved in the 1920s – with a
central business district (the City Centre) surrounded by lower value
industrial land uses and a zone of transition (East Gateshead Industrial
Estate and parts of the Discovery Quarter) adjoining inner residential
neighbourhoods
(Newcastle’s
West
End
and
Felling/High
Felling/Bensham). This suggests that the ‘decade of change’ described in
the introduction paragraphs has not fundamentally altered NG’s urban
structure.
Employment Growth
3.66.
Employment in NG increased by 34,200 jobs (or 16%) between 19952007, above the North East (13%) figure but below the England average
(17.2%). Over the same period, employment grew in the Tyneside NUTS3
area (OECD’s ‘Newcastle City Region’) by 49,240 jobs – thus 70% of the
employment growth in the area took place in NG. Newcastle (+17%)
witnessed higher levels of employment growth than Gateshead (+14%)
over this period80.
3.67.
NG sits at the top of the ‘second division’ of UK Cities for
employment growth, well behind London (+627,500) Glasgow
(+63,190), Manchester (+ 51,600) and Leeds (+47,790) but comparable
with Edinburgh (38,800) Sheffield (+35,800) and Cardiff (+31,150) and
ahead of some of the other major UK cities including Bristol (+17,100),
Birmingham (+15,200) and Nottingham (+14,000).
3.68.
In percentage rather than absolute terms, Manchester out-performed all
of the major UK cities for employment growth, achieving 20% growth
over this period and closely followed by Liverpool (+19.6%) Cardiff
(+19.2%) and Glasgow (+19%). Sheffield (16.8%) and NG (16%) are
also closely matched. At the other end of the spectrum the under-
80
AES 1995-1997, ABI 1998-2007
SHARED INTELLIGENCE
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bounded Nottingham (8%) and Birmingham (3.2%) significantly underperformed the England average.
3.69.
The shift towards a post-industrial economy accelerated rapidly during the
1990s – but much more rapidly in Newcastle than Gateshead. In 1995,
86.5% of employment in Newcastle was already in services (compared to
69% for Gateshead and 76% for GB). By 2007, service sector
employment in Newcastle had increased to 90% of all jobs but still lagged
in Gateshead (76.8%) which had reduced the gap to the GB average only
marginally. Newcastle has a higher proportion of jobs in services than
Leeds (84.5%) but a lower proportion than Manchester (93.4%).
Change in Employment
broad sector
(%)
1995-2007
Changeby
in employment
by broad
sector
(%), 1995-2007
Educ ation
Real estate, renting and business ac tivities
Financ ial intermediation
Hotels and restaurants
Health and soc ial work
Newc astleGateshead
Public administration
North East
GB
Wholesale, retail trade and repair
Construc tion
Other servic es
Transport, storage and c ommunic ation
Primary industries
Manufac turing
Utilities
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
Sourc e: AES 1995-97, ABI 1998-07
Source: AES 1995-1997, ABI 1998-2007
3.70.
Public sector employment – which increased by 23% over this period –
accounted for 47% of total net growth in jobs. The education sector in
particular grew more in NG than the regional or GB average and the only
other sector to outperform the NE or GB average was financial services.
3.71.
Some of the Core Cities have witnessed a steep decline in manufacturing
employment between 1995-2007. NG had the lowest absolute or
percentage decline in manufacturing employment of any of the Core Cities
over this period – losing just under 5,900 jobs or 18% of the workforce.
3.72.
Sheffield (-28%) and Leeds (-35%) had the next ‘best’ performing
manufacturing sectors. Birmingham lost a staggering 55,900 jobs – 52%
of the workforce in 1995 and Nottingham, whilst witnessing a much
smaller absolute decline (-18,600 jobs) lost an even higher proportion of
its manufacturing employment (-59%).
3.73.
In some Cities the loss of traditional employment has been cushioned by
growth in other sectors. ‘The Northern Connection81’ research for the
81 The Northern Connection, Assessing the Comparative Economic Performance and Prospects of Northern England, Institute for Political and Economic
SHARED INTELLIGENCE
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Northern
economy
Tyneside
alongside
Way shows how the shift from industrial to post-industrial
has been manifest in different parts of the North – identifying
as a ‘hotspot’ for growth in financial and business services
Leeds, Manchester and Liverpool.
Employment change in business, professional and financial services for
northern NUTS 3 areas, 1998-2005
Source: The Northern Connection, Assessing the Comparative Economic
Performance and Prospects of Northern England, Institute for Political and
Economic Governance, University of Manchester, January 2008
3.74.
Over the period from 1995-2007, Leeds achieved the highest absolute
growth in banking, finance and insurance services (+36,632 jobs, an
increase of 49.5%) followed by Manchester (+34,466 or a 59.1%
increase). Employment in these sectors in NG increased by 18,257 jobs
(48.1%) – placing NG 5th of the 8 Core Cities both in terms of absolute
and percentage growth. Nottingham achieved the largest percentage
(+66.1%) from a relatively low base of employment; Bristol ranked 8th
with the lowest absolute (+12,542) and percentage (+20.6%) growth.
3.75.
The Work Foundation82 express particular concern about what, until
recently, has been the almost exponential growth of financial services in
UK Cities – with places like Norwich, Leeds and of course London having
between 7-10% of total employment in core financial services (explored in
Governance, University of Manchester, January 2008
82 How can cities thrive in the changing economy? Ideopolis II final report, Work Foundation July 2008
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more detail later in this section). The research highlights two important
phenomena; firstly the rapid decentralisation of those UK financial
services jobs which can be outsourced to reduce costs and secondly
evidence that other major European cities have diversified away from
financial services into other high value knowledge activities - Stockholm,
Helsinki, Oslo and Paris have seen much higher levels of growth in high
technology services than London or any of the English Core Cities.
3.76.
The Work Foundation83 further argues that places with a higher level of
private sector knowledge intensive industries are more productive than
those with a predominance of public sector organisations in this field;
however, in practice employment in public sector ‘knowledge services’
outgrew private sector knowledge jobs by a ratio of six to one over the
period from 1998-2006.
3.77.
Growth in public sector employment has also been characteristic of the
growth of the Core Cities. Much of the jobs growth in NG since 1995 has
been driven by public sector employment – which increased by 23% but
accounted for 47% of total net employment growth over this period.
3.78.
However, five of the other Core Cities had higher levels of public sector
jobs growth between 1995-2007, including Bristol (+27%), Manchester
(+29%), Birmingham (+32%), Liverpool (+36%) and Sheffield (+44%).
More pertinently, in Nottingham (69%), Bristol (81%) and Birmingham,
where the shift towards financial and business services employment has
been much less pronounced, the public sector makes an even more
marked contribution to overall net jobs growth.
In Birmingham, a
substantial increase in public sector employment has been insufficient to
compensate for the loss of almost 56,000 manufacturing jobs and thus
net employment growth has been negligible84.
Conclusions – employment structure
3.79.
Returning to the question posed by Professor John Tomaney85 at the start
of this section of the report, has the growth of the NG economy been
driven by “debt-fuelled speculative property development, leisure
and shopping?”
3.80.
Certainly NG’s retail and leisure sectors have not witnessed major
employment growth since 199586, and section 5 will show that its housing
and commercial property markets remain in equilibrium.
3.81.
NewcastleGateshead has achieved a middle ranking performance
in employment growth when compared to the other English Core
Cities, but has achieved higher levels of jobs growth than OECD’s
‘Newcastle City Region’ or indeed the Region as a whole. Unlike some
other cities, most notably Birmingham, the NG economy has
83 ibid
84
AES 1995-1997, ABI 1998-2007
85
Professor John Tomaney, CURDS in The Future of the North East, ed Tomaney, The Smith Institute March 2009
86 AES 1995-1997, ABI 1998-2007
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diversified rapidly to replace the jobs lost through the decline of
manufacturing and other traditional industries during the 1980s and
1990s.
3.82.
NG ranks 5th of the 8 Core Cities on the growth of financial, banking
and insurance services. Like many of the Core Cities, jobs growth
in NG has been driven by the expansion of the public sector, with
the education sector in particular expanding rapidly, rather than
exponential growth in business and financial services. Its manufacturing
sector has demonstrated notable resilience, losing far fewer jobs in this
sector than its peers.
Innovation and R&D
3.83.
In today's global, information-driven society, economic success is
increasingly based upon the effective utilisation of intangible assets such
as knowledge, skills and innovative potential. The concept of the
‘knowledge economy’ has its roots in the research of Peter Drucker87 in
the late 1950s; growth has been driven by demand for higher valueadded goods and services from increasingly discerning and sophisticated
consumers.
3.84.
Thus innovation is one of the key measures of urban competitiveness
identified in CLG’s State of the English Cities research88, and is also given
prominence in OECD’s Territorial Review89. The CLG research90 asserts
that
“The most significant driving forces of knowledge driven economies are ideas,
innovation, highly educated people and risk investment…. .Innovative capacity is
the most significant basis of productivity and competitiveness – the critical factor
in the ability of an urban economy to compete is its adaptive capacity and how
easily innovations are diffused around the relevant firms and sectors in the
locality. The evidence suggests that innovation diffusion is a key requirement for
overall competitiveness rather than major breakthroughs.”
A European perspective
3.85.
The European Union’s Innovation Scoreboard91 suggests that the UK’s
position is declining as a world leader in innovation. Based on a series of
Eurostat measures including the proportion of firms receiving public
funding for innovation; private sector investment; collaborating and
networking and sales of new to market products, the UK is placed
alongside the US, France and Ireland in a group of ‘innovation followers’
behind Sweden, Finland, Denmark, Germany, Switzerland and Japan.
87 Drucker, P, The Age of Discontinuity: Guidelines to our Changing Society, 1968
88 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
89 OECD Territorial Review of Newcastle and the North East, CURDS 2006
90 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
91 European Innovation Scorecard, 2008, Maastricht Economic and social Research and training centre on Innovation and Technology (MERIT), January 2009
SHARED INTELLIGENCE
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3.86.
At regional (NUTS2) level, the EU’s Community Innovation Survey92
benchmarks the performance of just over 200 European regions. The top
5 regions were Stockholm, Vastswerige (Sweden) Oberbayern (Germany);
Etela-Suomi (Finland) and Karlsruhe (Germany) and eight of the top ten
were Swedish or German. The South East ranked 12th and the North East,
North West and Yorkshire and the Humber all placed outside the top 50.
A regional perspective
3.87.
The North East continues to under-perform on innovation and R&D, and
the regional picture is fairly well rehearsed:





16.1% of North East businesses fell into the OECD definition of
‘knowledge based’ in 2005, compared to 20.5% for the UK and 28.4%
for London;
using the same definition, only Wales (12%) had a lower proportion of
employment in knowledge based firms than the North East (12.3%)
against a GB average of 17.2%;
expenditure by businesses on R&D as a % of GDP fell from 0.9% in
2004 to just 0.5% in 2005 – making the North East, with Yorkshire
and the Humber, the poorest performing region in the UK;
however, R&D expenditure by North East Higher Education institutions
(at 0.5% of GDP) gives the region a mid ranking performance;
Scotland led the way in 2005 with Universities spending the equivalent
of 0.7% of GDP;
8.6% of the designs registered by the UK Intellectual Property Office in
2007 originated from the North East; the region ranked 6th of the 9
English regions on this measure; and,
92 Community Innovation Survey, in European Innovation Scorecard, 2008, Maastricht Economic and social Research and training centre on Innovation and
Technology (MERIT), January 2009.
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
in contrast, the region’s recent export performance has been very
promising; although only around 3% of NE firms are exporters, the
value of exports increased by 28% in the year to September 2008
from £9 billion to £11.5 billion; the process industries, offshore and
renewables sectors are the region’s key exporters and the US, Russia
and the Netherlands its key markets.
3.88.
The OECD review93 explores the CLG report’s second key measure of
innovation/investment in some detail but much of the data suffers from a
time lag, covering the late 1990s and very early part of this decade.
Whilst noting a significant widening of the gap in private investment in
R&D, the report states that ‘almost complete absence of Government R&D
(funded) outside of the University sector’ which distinguishes the North
East.
3.89.
In this context, OECD highlight the role of the Higher Education
Institutions as the region’s key knowledge resource – whilst noting that its
academic research base is much smaller than in other English regions.
They also point to a “relative weakness in the research base in North East
business” which limits the scope for collaboration, whilst acknowledging
the potential for the regional Centres of Excellence emerging at that time
in biotechnology, nanotechnology etc to address this in sectors “for which
there are no industrial precursors within the region.”
3.90.
The Work Foundation94 further highlight the critical importance of ‘public
sector knowledge intensive institutions and workers’ in the economic
downturn:
“during the credit crunch, both thriving and struggling cities should do more to
work with their education and healthcare institutions in order to enable economic
growth.”
Innovation in NG
3.91.
In practice, the SEC95 research is not especially helpful as a framework to
benchmark NG’s innovation performance; it is concerned only with two
specific measures of innovation; applications to the European Patents
Office (EPO) and investment, considered in terms of venture capital flows
and Higher Education Funding Council (HEFCE) investment in research
grants. The OECD also explores historical patenting data.
3.92.
The EPO argues that the volume of patent applications is no indication of
their quality, recognising a trend in both the semi-conductor and mobile
phone industries for manufacturers to protect very modest product
innovations. The number of applications to the EPO almost doubled over
the period from 1997-2005.
93
OECD Territorial Review of Newcastle and the North East, CURDS 2006
94 How can cities thrive in the changing economy? Ideopolis II final report, Work Foundation July 2008
95
State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
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3.93.
The SEC research96 provides data from the late 1990s which suggests, at
that time, Cambridge generated 6 times more patents than the England
average on a per capita basis. It provides no meaningful comparators for
NG. However data for the period 1995-2005 from the then UK Patents
Office suggested that the UK average was 6 patent applications per 100
firms whilst the corresponding figure for Newcastle was just 1.43.
3.94.
Turning to CLG’s second key measure – investment - the SEC97 notes that
the UK venture capital industry is centred on London and the South East –
with 92% of the members of the British Venture Capital Association
(BVCA) located there. The BVCA’s latest annual review98 notes that
private equity investments by UK firms topped £31 billion in 2007 having almost tripled since the start of this decade - of which £12 bn was
invested in the UK.
3.95.
64% (by value) of UK investments supported management buyouts or
buy-ins and just 4% was for start up or other early stage support.
Nonetheless, the average start up investment was just over £900,000.
3.96.
Consumer services is the largest sector for private equity investment;
investment in technology firms fell by 9%, to £820m in 2007. Most
significantly, however, the BVCA report indicates that around 70% of UK
private equity investment was focused on firms in London and the Greater
South East.
3.97.
The first report of the Northern Way’s Private Investment Commission99
highlighted the ‘equity gap’ – a market failure which limits opportunities
for finance at particular stages of business development, particularly in
the provision of equity finance in the £500,000-£2.5m range. It also
recognises the apparent inequity of the geography of private sector
investment in the UK, suggesting two alternative explanations:
“a demand-side explanation: that northern businesses are different, more averse
to equity, less growth-orientated and entrepreneurial. The ‘equity gap’ is a
rational market response to this relative lack of demand.
A supply-side explanation: that institutions focused in the South East are too
remote from the business base and don’t recognise the opportunities there are.”
whilst acknowledging that neither is entirely satisfactory. The report notes
that whilst strong personal links are important – the venture capital
market in the ‘Oxford Cambridge’ Arc clearly reflects this – the underlying
reason may be one of market coordination; no single investor is able to fill
the ‘investment gap’ on their own. In addition, whilst a number of regional
funds have been created by the public sector, most are comparatively
small in comparison and have not leveraged private equity investment.
96 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
97 ibid
98 British Venture Capital Association (BVCA), Annual Review 2008
99 The Northern Way Private Investment Commission, Financing the Long-term future of the Region’s, Issues Paper, Dec 2008
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3.98.
The North East secured just 1% - or £156m – of private equity
investment in 2007 although BVCA100 argue that, based on its share of
VAT registered businesses, the North East outperformed all of the English
regions bar London. There is no comparable data for NG. In practice this
is largely a result of the region’s low business density; between 19982007 the North East was the worst performing of the English regions,
attracting 1.5% (by value) of investment over this period; the next worst
performer – the South West – attracted almost 3 times the level of
investment than the NE. London – the best performing region – secured
almost twenty four times as much investment.
3.99.
The CLG research101 also emphasises the role of investment in Higher
Education research and development, citing evidence from 2005/6 HECFE
investments which shows that both Cambridge and Oxford received twice
the level of research grants, on a per capita basis, than third placed York
University. Newcastle ranked just outside the top 15.
3.100. Updated (to 2007) by the Centre for Cities102, this data shows that the
gap in research funding per capita between Cambridge and Oxford has
narrowed – but that it has widened with the other UK Universities.
Newcastle comfortably exceeds the England average for HEFCE funding –
but is outperformed by four other Core Cities, and also some of the
smaller University cities including Southampton, York and Brighton.
100
British Venture Capital Association (BVCA), Annual Review 2008
101
State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
102 Innovation, Science and the City, Centre for Cities, 2008
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Research Funding per head of Population, 2007
Source: Innovation, Science and the City, Centre for Cities, 2008
Conclusions – innovation
3.101. The North East continues to under-perform other regions on many
of the traditional measures of innovation – and this must be set in
the context of the UK’s declining position; we are no longer a
global innovator. The low level of R&D spend in the private sector
has been a longstanding drag on the regional economy but the position
has not improved.
3.102. The lack of Government spending, outside its support for
University research (for example through Government research
institutions like York’s Central Science Laboratory), was
highlighted as a major concern by OECD103. Thus the Universities
remain the major source of research spend and activity – and the region
has a middle ranking performance in terms of R&D spend by its
Universities, and its ability to attract HEFCE research grant.
3.103. This notwithstanding, NG’s Universities and Colleges are vital assets
for its long-term economic growth and its ability to attract and
retain skilled, entrepreneurial knowledge workers. It’s further and
higher education institutions need a vibrant, successful place to
support the attraction and retention of students and investment. The EM
should explore how the 1NG partners can further support the
long-term growth of NG’s Universities and Colleges.
3.104. The North East appears to perform well on only one key measure
of innovation. Recent export performance – to September 2008 –
was very strong, driven by a small number of manufacturing
103 OECD Territorial Review of Newcastle and the North East, CURDS 2006
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exporters in the process industries, offshore and renewables
sectors. Whilst this performance is unlikely to be sustained as the global
recession deepens the export market could offer real opportunities in
these and other manufacturing activities in the medium-term. The EM
should explore whether export activity should play a more explicit
role in the Science City programme as part of efforts to connect
the research/knowledge base with NG export businesses.
3.105. Overall, the North East attracts a very low level of private equity
investment compared to London and the South East, and
compared to any of its regional neighbours (Scotland attracted 2.5
times more investment than the North East between 1998-2007,
Yorkshire and the Humber 3.5 times and the North West more than 5
times)104.
3.106. Whilst current market conditions are challenging, the Northern Way’s
Private Investment Commission is exploring how the North can be
more competitive in leveraging private equity investment. The EM
should consider whether – and then how – to promote NG as the
centre for private equity investment in the North, linked to the
Science City programme.
Diversity or specialism?
3.107. The relative merits of economic diversity and specialism as drivers of
economic growth is a recurring theme of much of the research that has
informed this section of the Workstream 1 report. The SEC report105
suggests that the right question to ask in this context is:
which is more conducive to the external economies associated with the localised
spill-over of technology and the promotion of local innovation?
3.108. Porter’s competitiveness theories106 suggest that competitive economies
are those with clearly identifiable specialisms or clusters of economic
activity which stimulate productivity growth through the spillover of
technology and innovation. The SEC107 research supports this view, on
balance, stating:
“our analysis suggests that localised industrial specialization possibly makes a
greater contribution to economic performance than diversity. This reflects the
need for highly sophisticated knowledge and competence in modern goods and
services. However…highly specialised urban economies can become stuck in
particular structural and technological trajectories that make them very
vulnerable to shifts in competition, trade and technology….this has certainly
happened to some English cities that continued to specialise in such industries as
ship building and steel making long after those industries were in decline. The
best combination is specialisation and diversity, ‘clustered diversity’, combined
with adaptive capacity.
104 The Northern Way Private Investment Commission, Financing the Long-term future of the Region’s, Issues Paper, Dec 2008
105
State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
106 Competitive Advantage of Nations, Porter, M, 1990
107 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
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3.109. The Work Foundation108 also support the concept of ‘diverse specialisms’
in knowledge intensive industries as a means of addressing their concerns
surrounding over-specialisation in financial services:
“For cities such as London, Leeds and Manchester, who have a more diverse
economic base, a reduction in highly skilled roles may be challenging in the shortterm but these...workers are flexible and able to seek employment in other
industries…for cities that have specialised even more heavily or are reliant on
employment in intermediate level financial services jobs…financial cutbacks may
impact on productivity and employment levels without there being alternative
industries for those workers to move into.”
3.110. So whilst there is a degree of consensus about the importance of ‘diverse
specialisms’ or ‘clustered diversity’, the fact that London and its
networked satellite towns and cities in the Greater South East are much
better at achieving this equilibrium is also a fundamental point. IPEG, in
its Northern Connections research109, considers how – and even whether –
the economy of the North can delineate itself for the purposes of
competitive advantage and identifies two clear scenarios:
The first (assumes) there is no longer anything particularly distinctive about the
northern economy’ vis a vis that of the south….rather, the future of the North…
should be seen as significantly influenced by (its) relationship with London; the
…issues that flow…from this…are how, and which parts of, the North can feasibly
derive most benefit from the development in the London superregion? What sort
of firms or economic activities…are most likely to relocate?... what is it that
triggers or prevents such movements….and what might change to make such
spill-overs from London increase?”
3.111. IPEG110 also propose a second, and more positive economic future for the
North which characterises its relationship with the ‘London super region’
very differently:
an alternative, or perhaps additional, position on North-South economic
relationships, consistent with the general thrust of the Northern Way…is that
there continue to be aspects of the northern economy that are relatively
independent of what happens in the South…the clearest differentiation between
London and the North rests in the manufacturing sector… (which) generates only
a very small proportion of value-added in London…this would in turn focus on
familiar debates about innovation and ‘smart’ manufacturing….the emergence of
attractive, low-cost production capacity in Eastern Europe emphasise(s) the need
to carve out a high specification northern manufacturing offer.”
3.112. In the context of developing an approach to ‘diverse specialisms’
the EM will explore the relative merits of both these approaches.
Whilst the second scenario is consistent with the general tenet of regional
economic policy making – and is certainly more politically acceptable than
the first – this approach has been only partially successful to date. This
108 How can cities thrive in the changing economy? Ideopolis II final report, Work Foundation July 2008
109 The Northern Connection: assessing the comparative economic performance and prospects of Northern England, Institute for Political and Economic
Governance/Centre for Policy Studies, University of Manchester January 2008
110 ibid
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was recognised by OECD111, who suggest that the Tyne and Wear City
Region have only two ‘traditional’ industry clusters remaining – the
marine/offshore sector and automotives – and that:
“since the decline of traditional industrial clusters in the region the trend to
diversification through foreign direct investment has resulted in an economy
without strong specialism…claims are made for environmental industries, creative
industries, call centres and life sciences, although evidence of cluster-based
competitive advantage is difficult to identify”.
3.113. One NorthEast, through the Regional Economic Strategy112, has adopted a
variety of different approaches to the prioritisation of economic sectors or
clusters since its establishment in 1999. The RDA has moved from an
approach based on support for inclusive clusters to one based on a
narrower set of sectoral priorities, some (but not all) of which are linked
to the ‘three pillars’ - areas in which the region has an acknowledged
research or technological competitiveness:



Energy and the environment
Healthcare
Process industries
and around which five specialist Centres of Excellence (e.g. the Centre for
Process Industries, CELS (healthcare) and the New and Renewable Energy
Centre) have been established to drive commercialisation of research etc.
Research by Arthur D. Little113 underpinned the agency’s Strategy for
Success programme which launched the Centres of Excellence and
NorthStar, a commercialisation fund subsequently reconfigured as North
East Finance.
3.114. The shift in the policy framework is set out in the table below:
1999 RES Clusters
High Volume
Manufacturing
Process Industries
2002 RES Clusters
Automotive
Food and Drink
Base Chemicals
2006 RES Sectors
Automotive
Food and Drink
Process Industries
Pharma/Speciality
Chemicals
Nanotechnology
Low Volume
Manufacturing
Defence and Precision
Engineering
Environmental Industries
Defence and Marine
Energy/Offshore
Offshore
Tourism, Heritage,
Leisure, Culture and
Sport
Bioscience
Tourism
Health and Social Care
Tourism and Hospitality
Creative Industries
Creative Commercial
111 OECD Territorial Review of Newcastle and the North East, CURDS 2006
112 Leading the Way, Regional Economic Strategy, One NorthEast, July 2006
113 Realising the potential of the North East research base, Arthur D. Little, 2001
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1999 RES Clusters
2002 RES Clusters
Digital
Transnational Services
2006 RES Sectors
Knowledge Intensive
Business Services
(KIBS)
Bespoke Services
Public Services
Voluntary sector
Electronics
Clothing and Textiles
3.115. By making explicit links with the Three Pillars, ‘Leading the Way’ identifies
the process industries, energy and environmental industries and the life
science industries as the region’s implicit key sectoral priorities.
3.116. Further research by Cardiff Business School114 sought to review the
sectoral strengths of the North East using a multi-sectoral qualitative
approach to identify those sectors in which the North East has
acknowledged competencies, with clear growth opportunities and
acceptable levels of risk. The study – which was underpinned by a
business survey which generated a comparatively small response –
reinforced some of the RDA’s sectoral priorities but questioned others.
114 Identifying and Assessing Sectoral Strengths in the North East”, One North East, 2005
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3.117. Chemicals/pharmaceuticals, healthcare, higher education, knowledge
intensive business and commercial creative were identified as sectors with
low risk and high levels of competency – with strong growth potential
identified for health and social care, chemicals/pharma and higher
education. Tourism and hospitality was identified as the only high
competency/high growth/high risk sector – which does not entirely sit
with its current, comparatively modest contribution to regional GVA and
employment.
3.118. More controversially, the study identified four key manufacturing sectors
(food and drink, automotive, machinery, iron and steel) together with
energy, renewables and waste/recycling which had high levels of risk and
a below average level of competency. The Cardiff Business School
research suggests that the growth potential of the North East’s energy
and renewables sector will be modest.
3.119. It is clear that One NorthEast did not wholly endorse the findings of this
research. A ‘policy statement’ prepared by the RDA to accompany the
report notes that the agency chose not to change its sector strategy as a
result of the research:
“This work was a mix of hard and soft data and tried to bring a significant amount
of previous knowledge together in one report. However, while this proved a
strong starting point, good practice is to …..ensure a balanced view is taken….. in
arriving at the RES sectors we therefore augmented this report with existing work
around the region’s three pillars strategy, previous regional and national sector
reports, business views….(which)together pointed strongly to the list of key
sectors identified in the latest RES.”
One NorthEast
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Specialism in NG
3.120. Does the NG economy have any of the characteristics of ‘diverse
specialisms’ which are acknowledged as critical for sustainable economic
growth in the future? There is a strong fit between the ‘three pillars’
strategy and associated sector priorities and some of NG’s acknowledged
economic assets:



the healthcare and life sciences pillar is underpinned by NG’s research
and knowledge base, through the internationally recognised work of
the Institute for Ageing and Health, based at Newcastle General
Hospital; the North East England Stem Cell Institute, which brings
together Newcastle and Durham Universities and the NHS; Newcastle
Biomedicine; CELs and the International Centre for Life;
Newcastle University makes a significant contribution to the energy
and environment pillar through the work of the Sir Joseph Swan
Institute which has a particular focus on low carbon energy; and,
NG has a strong representation in the following regional sector
priorities: tourism and hospitality, KIBS, culture and creative,
marine/offshore and higher education.
3.121. Whilst there is a ‘fit’ in policy terms between some of these sectors and
the NG economy, how have they been performing in practice? The final
part of section 3 presents a detailed consideration of sectoral growth
trends in GVA and employment and explores some sectors in more detail.
3.122. The starting point for consideration of this issue was to explore data –
initially at SIC 2 digit level115 – on sectoral employment and GVA growth
in NG. There are some issues associated with accurate measurement of
GVA data below NUTS3 level and as such the data below should be viewed
as indicative of ‘order of magnitude’.
3.123. The sectors demonstrating the highest absolute and percentage growth
are identified in the table below (all of the identified sectors contribute a
minimum of 1% of NG’s total jobs and GVA). Data covering the period
1998-2006 is used (more recent GVA data is not available).
3.124. Interestingly the same 10 (2 digit) SIC codes which demonstrated the
highest compound annual growth rate (cagr) in employment also
displayed the highest cagr in GVA – although in a different order116:


computer and related activities was the fastest growing sector for
employment and the second fastest in terms of GVA;
financial intermediation was the fastest growing sector for GVA,
generated the second highest absolute increase in GVA and was
second only to computer and related activities for employment growth;
and,
115 AES 1995-1997, ABI 1998-2007
116 Source: Office for National Statistics, Annual Business Enquiry 1998-2007 (cebr)
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
‘other business activities’ (one of the key KIBS SIC codes) generated
the highest absolute increase in GVA (£530 m) and the highest
absolute increase in private sector employment.
Highest employment and GVA growth divisions for NG: 1998-2006 (at 2
digit SIC code)
SIC
Description
Change in
employment
1998-2006
Change in GVA 19982006
cagr
Net
increase
Cagr Net increase
(£m)
10.2%
3,037
12.8%
176
72
Computer and related activities
65
Financial intermediation, except insurance and
pension funding
8.8%
4,698
14.3%
389
70
Real estate activities
6.7%
2,234
9.2%
141
60
Land transport; transport via pipelines
6.1%
1,884
5.8%
142
92
Recreational, cultural and sporting activities
3.7%
2,151
7.5%
109
85
Health and social work
3.5%
8,577
6.7%
342
80
Education
3.4%
6,128
7.5%
354
74
Other business activities
3.1%
6,473
5.5%
530
75
Public administration and defence; compulsory
social security
2.9%
5,868
5.8%
305
45
Construction
1.4%
1,225
5.5%
267
Source: cebr analysis- Annual Business Enquiry, 1009-2006, National Accounts
1996-2008
3.125.
No manufacturing activities appear within the top 10 for employment of
GVA growth (perhaps unsurprisingly) and predominantly public sector
activities (health and social work, education, public administration and
defence) occupy three of the top 10 slots.
3.126. Analysing the employment growth data (to 2007) at 3 digit SIC level, the
picture is very similar to that at 2 digit level; the public sector dominates,
accounting for four of the top 10 sectoral increases at this level; five if
Higher Education is considered as public sector employment.
Highest employment growth divisions for NG: 1998-2007 (at 3 digit SIC
code)
Sector
1998
751 : Administration of the State and the
economic and social policy of the
community
7,554
651 : Monetary intermediation
4,369
851 : Human health activities
741 : Legal, accounting, book-keeping
2007
Increase %Increase
LQ (GB
=100)
19,926
12372
164%
225
9,314
4945
113%
195
17,635
22,093
4458
25%
107
5,486
9,631
4145
76%
94
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Sector
1998
2007
11,594
14,667
748 : Miscellaneous business activities not
elsewhere classified
1,944
4,971
803 : Higher education
9,139
722 : Software consultancy and supply
Increase %Increase
LQ (GB
=100)
and auditing activities; tax consultancy;
market research and public opinion
polling; business and management
consultancy; holdings
524 : Other retail sale of new goods in
specialized stores
3073
27%
127
3027
156%
93
11,634
2495
27%
216
1,699
4,133
2434
143%
120
801 : Primary education
6,222
7,979
1757
28%
78
853 : Social work activities
9,038
10,754
1716
19%
93
Source: Annual Business Enquiry, 1998-2007
3.127. Public sector employment, financial (or monetary) intermediation and
accounting/management consultancy each achieved very significant
increases, along with ‘miscellaneous business services’ (which includes an
eclectic mix of activities including photography, packaging, secretarial and
translation services, specialist design and credit collection).
3.128. Software consultancy and supply also demonstrated strong growth over
the period from 1998-2007. SAGE account for around 1,500 jobs – more
than one-third of the sector in NG.
3.129. Other retail also demonstrated strong growth. This is in effect non-food or
comparison retailing and includes clothing, footwear, furniture, electrical
goods etc.
3.130. At the other end of the spectrum, those 3 digit sectors with the greatest
decline in employment over the period 1998-2007 were:




compulsory social security activities (-6,000 jobs or -49%) – which has
an LQ of 605; this is the only significant public sector activity to have
witnessed a reduction in employment;
insurance and pension funding (-1,500 or - 75%); there are now only
500 people working in this sector in NG, highlighting the apparent lack
of diversity within the financial services sector;
retail sale of food, tobacco and beverages in specialist stores (-1,200
or
-42%); and,
manufacture of machinery for the production and use of mechanical
power (not engines) (-1,100/-39%).
3.131. Analysis of employment location quotients at 3 digit SIC level117 is
particularly instructive; not only is NG under-represented in employment
117 Annual Business Enquiry, 1998-2007
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a number of key knowledge business sectors (e.g. legal/accounting) – but
nine of the top 10 location quotients (i.e. in which NG is most overrepresented in employment terms) are in manufacturing:






manufacture of tubes (1,053 employees in 2007, +416% growth 9807, LQ of 963 where GB=100);
manufacture of paints, varnishes (1,300 jobs +45% growth, LQ 720);
manufacture of insulated wire and cable (700, -10%, LQ 845)
manufacture of weapons and ammunition (1,000, +2%, LQ 608);
manufacture of machinery for the production and use of mechanical
power (1,700 jobs – 39%, LQ 267);
manufacture of other special purpose machinery (1,400, -2%, LQ
259); and,
forging, pressing, stamping and rolling of metal (600, -6%, LQ233)
3.132. Each of these manufacturing sub-sectors is small – the largest accounts
for just 5% of manufacturing jobs in NG – and specialised. NG’s share of
GB employment in some of these sectors is very significant; just under
10% of the remaining jobs in the manufacture of tubes are in NG
(including the German-owned RTR); 7% in the manufacture of paints and
varnish, and 6% in weapons and ammunition.
3.133. Analysis of the company base and then employment growth at 2
and then 3 digit SIC level reinforces OECD’s view118 of a diverse
economy lacking in nationally or internationally significant
specialisms. Although the company base is dominated by business
services and wholesale/retail distribution, the business services sector is
very diverse and actually under-represented compared to the GB average
in some key areas of activity (most notably in tradeable services).
3.134. The under-representation of business services firms is, in part, a
result of the lack of a ‘core’ economic activity to generate demand
for/procure business services support. OECD119 note that the
diversity of the City Region economy means that the supportive
relationships between sectors are not particularly strong. The Tees Valley
process industries cluster provides perhaps the best example of this,
generating a supporting infrastructure of engineering and design firms
which is not replicated to the same extent elsewhere in the Region.
3.135. Manufacturing still matters – and is one of the most significant
distinguishing features of the NG economy. NG has high location
quotients for employment in a handful of small, specialised manufacturing
sectors which, though employing just under 7,000 people (around 2% of
the workforce) do not appear to relate particularly well to each other, or
to the rest of the economy.
118 OECD Territorial Review of Newcastle and the North East, CURDS 2006
119 ibid
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3.136. Finally, in understanding the NG economy it is important to distinguish
between the presence of:



complex, integrated business clusters – OECD argue120 that the City
Region retains only two – marine/offshore and automotives;
regionally significant sectors – where NG makes an important
contribution to employment and GVA growth but, with the probable
exception of software, does not have real specialisms; and,
NG’s knowledge/research assets, which are, in some fields, of
international significance but have yet to be fully commercialised or
have a significant impact on economic output or employment.
3.137. Thus, drawing on the available evidence, seven sectors are analysed in
more detail. These are a mix of the high performing sectors identified in
our analysis of employment and GVA growth, and some more aspirational
sectors/clusters which nonetheless feature prominently in the thinking of
policy makers. It is important to note that full sector studies have not
been undertaken as part of Workstream 1 – this is simply a snapshot of
their current performance to inform future stages of the EM.
3.138. The seven sectors analysed (using ABI data from 1998-2007 and ONS
GVA data 1998-2006) in the final part of section 3- some of which are
overlapping- are







financial services
business services (including software)
the creative industries
tourism and hospitality
manufacturing and engineering - including marine/offshore
science and technology – including healthcare
Higher Education.
Financial services
3.139. The financial services sector has been NG’s ‘star performer’ in terms of
GVA and employment growth, increasing its contribution by almost £400m
and growing – from a low base – at more than 14% per annum. In 2007 it
had just over 12,700 employees and accounted for 43% of financial
services employment in the North East.
3.140. Although growth (to the end of 2007) had been significant, NG remains a
comparatively minor centre for UK financial services. It ranks 5th of the 8
core cities for employment growth; a number of other UK cities –
including London, Leeds, Edinburgh and Norwich have a much higher
proportion of the overall workforce employed in core financial
intermediation.
120 ibid
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3.141. However, the nationalisation of Northern Rock and the subsequent
announcement of 1,500 redundancies, substantively from Northern Rock
but also from the Newcastle Building Society have already had a large
impact on employment in the sector.
3.142. Estimates of the future impact of the recession on financial services
employment vary wildly. Oxford Economic Forecasts research for the Core
Cities121 suggests that at least 125,000 UK financial services jobs could be
lost over the period to 2011; Business Monitor International122 suggest
that the figure may be in excess of 570,000. cebr’s latest projections
produced for the purposes of this study suggest that output from the
sector will fall by 7% in 2009 with a further 2% contraction in 2010123.
3.143. The differential impact of the recession on financial services employment
is very dependent on the mix of financial services employment – and of
course their overall dependency on financial services jobs. A high
proportion – 75% of financial services employment in NG is in financial
intermediation – effectively ‘good old fashioned’ retail banking, serving
the domestic and consumer market, rather than in corporate finance or in
the ancillary activities (call centres, related business services) which
support the financial services sector –so called financial and related
business services, or FRBS.
3.144. This is in direct contrast to Leeds, which has a much larger financial
services sector (employing 84,900 people in 2007, almost seven times
larger than the sector in NG); has a higher absolute number of jobs in
core financial intermediation (just over 19,500) but, importantly, has a
much larger financial and related business services sector (FRBS) which
accounts for over 75% of financial sector jobs in Leeds.
3.145. The Centre for Cities124 note that
It is helpful to consider job losses…in four tranches. Firstly losses have occurred
in core financial services as a direct result of restructuring; secondly professional
services have excess capacity, having seen a reduction in the volume of work
required by the financial sector; thirdly the wider supporting services, such as
recruitment and marketing have suffered as costs have been cut, and fourthly the
wider..economy…will see spending fall.
3.146. Thus it is arguable that the first phase of restructuring of the sector has
taken place – and the second and third are underway in the associated
FRBS activities. By simple virtue of relative scale, ancilliary job losses in
NG are unlikely to be as significant as they may be in Leeds.
3.147. The nationalisation of Northern Rock may well create some short/mediumterm stability for employment. The recent report of the Office of Fair
Trading125 notes that, under public ownership, Northern Rock has almost
doubled its retail savings balances (now standing at some £19.6bn, near
121 Oxford Economics Forecasts for the Centre for Cities, Nov 2008
122 Business Monitor International, 2009
123 Cebr, February 2009
124 Into Recession: vulnerability and resilience in Leeds, Brighton and Bristol, Kieran Larkin and Malcolm Cooper, Centre for Cities 2008
125 Northern Rock: The Effect of Public Support on Competition, Office for Fair Trading, March 2009
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2006 levels) and has repaid £18bn of the £27bn of loans received from
the Government. Although its share of mortgage lending has reduced, it is
to restart lending in 2009/10.
3.148. Whilst the immediate prognosis may be good for both savers and
employees, the medium-term disposal of Northern Rock to the private
sector will create further uncertainty. As Centre for Cities126s note
“for banks, domestic and consumer finance has become a less attractive and
profitable activity. As a result it is likely to be the target of a concerted drive to
cut costs and improve efficiency – in which job losses will feature.”
3.149. The 1NG partners will wish to engage with Northern Rock and
other key financial sector firms to identify their support needs and
to support long-term investment in the sector.
Business services
3.150. In recent years it is in fact business services, rather than financial
services, which has been the driver of employment growth in the UK, as
illustrated in the following graph:
800
600
200
Other
personal
Health
Education
Public admin.
Transport &
comms
Financial
services
Business
services
Hotels
Distribution
Utilities
Construction
-400
Manufacturing
-200
Extraction
0
Agriculture
Jobs (000s)
400
-600
Source: Oxford Economics, 2009
3.151. The North East and NG have both followed the national trend, with
significant growth in both business services employment and GVA over
the last decade. As highlighted earlier in the research, business services
firms dominate the business stock.
3.152. Employment in business services in NG is skewed by the fact that 22% of
employees in this sector work in labour recruitment and provision (this is
126
Into Recession: vulnerability and resilience in Leeds, Brighton and Bristol, Kieran Larkin and Malcolm Cooper, Centre for Cities 2008
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not just recruitment services but also covers those temporary workers
who are provided with positions as clients of these services). In addition:



13% are in software consulting;
11% in legal activities; and,
10% in architectural and engineering services.
3.153. Around two-thirds of business services employment is classed as
knowledge intensive business services, or KIBS. The North East has
the lowest employment in KIBS of all nine English regions (just over
90,000 jobs) – of which just over 32,200 (35%) are in NG, and in fact
80% of them work in Newcastle. NG has a smaller proportion of KIBS
workplaces in the region (23%) – suggesting that on average NG firms
are larger than their counterparts elsewhere in the region.
3.154. Compared with other Core Cities, NG fared well for the growth of business
services employment – behind Manchester (+22,000 jobs 1998-2007)
but, with growth of 13,600 jobs, ahead of Leeds (+12,900), Liverpool
(+12,600) and Sheffield (+7,000).
3.155. In NG, the majority of business services growth took place in three core
sectors (see 3.126 et seq):



Legal/accounting/management consultancy (+4,145 jobs or 76%);
Miscellaneous business services (+3,027 jobs/+156%); and,
Software consultancy and supply (+2,434 jobs/+143%).
3.156. Despite this, business densities are very low – the first two of these
growing sectors have location quotients of 94 and 93 respectively. Only
four sub- sectors (at SIC 3 digit level) stand out in having a high location
quotient:




Data processing (LQ 227);
Architecture and engineering (LQ 126);
Software consultancy and supply (LQ 120); and,
Investigation and security activities (LQ 119).
3.157. cebr forecast a contraction of approximately 5% for professional and
business services GVA in 2009 and 2% in 2010, with those activities
linked to support housing or construction particularly badly affected.
However, the longer-term prognosis for the sector – at least nationally - is
strong, with Oxford Economic Forecast’s recent research for the Core
Cities suggesting that around 40% of post-recession jobs growth in the
UK over the period from 2011-2015 will be in business services.
3.158. Will business services lead NG out of the recession? If specialisation is the
key, then NG faces a significant challenge. Much of the previous growth in
the sector has, at least in part, been linked to the expansion of NG’s
financial services and commercial/residential property sector, then it is
unlikely that this will be mirrored in future. There is little specialised or
distinctive about the business services firms that have supported this
activity.
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3.159. Si’s forthcoming research(with Gavurin) on the North East Knowledge
Intensive Business Services sector for One NorthEast suggests that the
North East has just two distinct business services specialisms which
underpin future growth, both regionally and in NG – software consultancy
and supply, and architecture and engineering design. As many European
cities diversify out of financial services and related activity and into high
technology KIBS127 this may provide an important lesson for NG.
3.160. SAGE is a major global player in the development and supply of business
software – supporting accounts, payroll, forecasting and business
intelligence, customer relationship management and e-business activities.
The firm employs 14,000 staff worldwide (of which just over 10% are
based in the North East) and supports more than 760,000 SMEs in the
UK. SAGE distributes its software directly and via a network of business
partners who both sell software and provide implementation support fort
businesses.
3.161. The other – albeit much smaller – element of the software sector in NG is
computer gaming – NG is home to an emerging cluster of software design
companies including Mere Mortals and Eutechnyx, both of whom specialise
in the full development of new game titles as well as providing technical
support and facilities to other games developers and publishers.
3.162. The UK games development sector grossed some £1.24 billion in 2007.
Some £370 million was invested in games development and the UK is the
fourth largest games producer behind the US, Japan and Canada. 28,000
people were employed in games development, publishing and retail and
there are clusters of activity in a number of other UK cities including
Brighton, Dundee, Guildford, Leeds, Cambridge, Liverpool, Manchester
and Coventry/Leamington Spa128.
3.163. Although the industry has grown significantly in recent years, there are
increasing concerns about its future competitiveness as many of its
international competitors receive national or regional/state tax breaks.
There are also significant skills shortages as demand for maths, physics
and computer science courses is falling.
3.164. TIGA, the industry body, claim that many UK games developers are
relocating and claim that over the next five years, the sector will in fact
contract by between 5-10%. It is pressing the Department for Business,
Enterprise and Regulatory Reform for a new system of tax breaks to
mirror those developed for the UK film industry129.
3.165. The computer software sector is small, but growing. Its core components
– SAGE, and a small but significant games development cluster – are
largely unrelated – but face common issues in accessing highly skilled
labour.
127
Work Foundation
128 TIGA, 2009
129 ibid
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3.166. The 1NG Partners, through the EM, should consider whether to
prioritise support for the software development/digital content
sector in NG, through:




working with SAGE to secure further inward investment to
build on its headquarters presence and to extend supply chain
development opportunities for firms throughout the region;
working with the University of Northumbria to further develop
the provision of relevant graduate and postgraduate degree
courses in line with employer needs to support long-term
growth of the sector;
supporting NG firms to access appropriate private investment;
and,
upgrading and modernising NG’s digital networks and
infrastructure –including Next Generation Access Networks.
3.167. Turning finally to NG’s apparent strengths in architecture and engineering
design, the sector will of course form part of One NorthEast’s proposed
Design Centre for the North (DCN). Developed in response to the Cox
Review130 on design and creativity and announced in the 2005 Budget, the
DCN will support SMEs to develop their competitiveness and productivity
by promoting design across a range of sectors, products and processes
and bring together science, technology and design disciplines. DCN will
deliver a range of activities including:




showcasing new technologies and developing new research
programmes;
developing workforce skills;
working with SMEs to embed high quality design in new products and
processes; and,
providing specialist facilities and services, including testing,
prototyping and virtual realisation.
3.168. The DCN is to be built by developer Terrace Hill at the Baltic Business
Quarter. The £13 million project, to be funded by One NorthEast and
ERDF, was recently granted planning consent by Gateshead Council.
3.169. The EM will explore how the region’s acknowledged strengths in
architecture and engineering design can be developed through the
Design Centre North project.
Creative Industries
3.170. The creative industries include a wide range of activities encompassing
film, television and radio; art and crafts; the performing arts; advertising
and publishing; designer fashion; architecture and computer and video
games. Creative industries GVA increased from £31.5 bn in 1997 to
£57.6bn in 2006, increasing its share of UK GVA from 1.7% to 2.7% over
130 The Cox Review of Creativity in Business: Building on the UK’s Strength, Cox G, 2005
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this period131. Thus the overall picture is one of steady growth in GVA
and employment over the last decade – with the creative industries
narrowing the gap in overall GVA growth in recent years.
3.171. 42% of total GVA is generated through software, computer games and
electronic publishing, which also generates 30% of creative industries
exports. The next largest contributor – publishing – generated 16.6% of
creative industries GVA in 2007.
3.172. Creative industries employment increased from 1.56 million to 1.98
million between (or 26%) between 1997-2007. The largest employer is
also software, computer games and electronic publishing, with 32% of
jobs, followed by publishing (14%) and music and the visual and
performing arts (13.2%). Employment in both software and
design/designer fashion grew at 5% per annum over this period.
3.173. The North East has long been recognised as a vibrant and creative region,
supported by enviable cultural infrastructure and a growing creative
economy. The region spends a higher proportion of its disposable income
on recreational and cultural activities (16%) than London (11%).132
3.174. NG’s major cultural regeneration projects – particularly the Baltic and
SAGE – are a major part of the area’s transformation. It also has some
significant creative industries assets – including the BBC’s regional
presence, a small independent film and television production sector and
critical infrastructure including the Tyneside Cinema (the first fully digital
cinema in the UK); Waygood Gallery and studios (currently subject to a
major extension/refurbishment) and the groundbreaking Live Theatre.
3.175. Based on the accepted DCMS definition133 in 2006, there were 18,700 jobs
in the creative industries in NG – around 7% of total employment, which
is just below the GB average of 7.7%. Since 1998 the sector has
demonstrated modest growth in employment – of around 3% per annum
– and annual GVA growth of 5.6% which is in line with the output growth
achieved by Tyneside over this period.
3.176. By virtue of the wide ranging DCMS definition the sector overlaps with the
professional and business services sector. The largest employers are




specialist retail - 22% of employment;
architecture/engineering design -21%;
software consultancy -21% - included here, but see also ‘business
services’; and,
just 4% of jobs are in ‘artistic and literary creation; 3% in advertising
and 2% in radio and television activities.
3.177. Manchester, Leeds, Birmingham and Bristol have a larger base of creative
industries employment than NG, which is on a par with Sheffield and
131 Creative industries economic estimates, DCMS/ONS January 2009
132 Expenditure and Food Survey, Office for National Statistics, 2007
133 The definition is based on the mapping between creative industries and official data classifications provided by the Department for Culture, Media and Sport.
This mapping clearly cuts across many different broad sections to separate out the creative aspects of each industry.
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Liverpool. Liverpool experienced the highest percentage increase in
employment in the creative industries (+40% or +3,500 jobs) over the
period from 1997-2007, whilst NG saw an increase of 3,600 jobs (38%),
the same as Sheffield. Manchester and Leeds saw creative industries
employment grow by just over 15% over the same period.
3.178. Research for Culture North East134 identified advertising, design and brand
communication; new media, games and software and film, TV and video
as the commercial creative sectors most capable of optimising the
benefits of their IPR for the economic benefit of the North East – and with
the most potential for growth in the short-term.
3.179. Evidence presented in a recent report for Culture North East by NMP135,
suggests that there is increasing evidence of critical mass and a ‘brain
gain’ to the region. Some of this critical mass is demonstrated in the NG
area particularly with regard to the design and new media, games and
software subsectors. Convergence the ability to develop different types of
product across a range of platforms and media outlets - is
critical.Nonetheless, a number of barriers to growth remain including:





a lack of purchasers of creative content - stimulants of production are
scarce if not entirely missing from supply chain;
lack of venture capital;
poor networks across sub-sectors – a key issue when a lot of growth is
stimulated via community building;
shortage of high-level experienced talent; and,
lack of critical mass to attract specialist services to the area.
3.180. Has the investment in ‘big’ cultural infrastructure paid off for NG, and
served as a catalyst for cultural consumption as well as production? The
hard economic facts are that progress has been modest; employment
growth has been limited and the sector’s contribution to GVA, whilst
outpacing the creative industries nationally has been on a par with many
other sectors.
3.181. The historic model of creative industries development in cities like
Manchester and Bristol – with growth anchored by the presence of a
major commissioning institution like the BBC – has not been followed in
NG although it has nonetheless had success in attracting smaller national
organisations including Dance City and Creativity, Culture and Education.
3.182. NG’s physical infrastructure for the cultural and creative industries –
primarily workspace/studio space – continues to evolve. The expansion of
the Waygood Gallery and studios in the heart of Grainger Town is
scheduled for completion in 2010.
3.183. The Lower Ouseburn Valley, to the east of the City Centre has been a
focus for the creative industries since the mid 1990s and retains much of
its historic character developed during the industrial revolution when the
134 Commercial Creative Sector Report (North East Region), NMP, 2007
135 Commercial Creative Sector Report (North East Region), NMP, 2007
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area was a focus for glass making, milling, pottery and other industrial
development.
3.184. A number of studios/workspaces have been developed through the
conversion of former mills and other industrial buildings including 36 Lime
Street and The Biscuit Factory. Northern Film and Media – as the key
agency driving the growth of the commercial creative sector – is exploring
proposals to relocate to the historic Hoults Yard to anchor a mixed use
development that could include café’s, studios and gallery space and could
further cement Ouseburn’s role as a hub for the commercial creative
industries.
3.185. Nationally, regionally and in NG software/computer games and
architecture and design are driving the economic growth of the creative
industries and make the most substantive contribution to GVA and
employment. These are also the most distinctive elements of NG’s
business services sector (the overlap is the result of the wide ranging
DCMS definition of the creative industries).
3.186. The 1NG partners should consider whether they wish to prioritise
support for the growth of these two key sub-sectors of the
creative industries in NG.
Manufacturing
3.187. The North East retains a higher dependency on manufacturing
employment than England as a whole, accounting for 12.5% of jobs in
2007 against a national average of 10.6%. The North East has shed
manufacturing jobs more rapidly than England as a whole – with
manufacturing as a proportion of total employee jobs falling from 20.9%
in 1995 to the current figure of 12.5%. The England average fell from
17.7% to 10.6% over the same period.
3.188. Manufacturing GVA for England fell sharply during the first part of this
decade, recovering to near 1999 levels in 2006, when it stood at £126.9
bn. Over this period the North East’s share of national GVA increased
marginally from 5.2% to 5.4% - although the region ranks 9th of the 9
English regions based on the scale of its contribution. The largest
contributors to regional manufacturing GVA – which totalled £6.81 bn in
2006 – were:





chemicals and chemical products (19.7%);
basic metals and fabricated metal products (13.6%);
transport equipment (13.3%);
machinery and equipment (11.5%); and,
food products, beverage and tobacco (9.5%).
3.189. Manufacturing GVA in the South West – ranked 8th – is 1.9 times greater
than that of the North East. The three southern regions (South
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West/South East and London) now make a greater contribution to
manufacturing GVA than the three ‘Northern Way’ regions combined136.
Thus whilst manufacturing remains of regional significance, the North
East’s manufacturing sector is only of limited significance nationally.
3.190. Whilst sectoral GVA figures for 2007 and 2008 are of course not yet
available, they will tell a very different story. The recession has had a
massive impact on global manufacturing as the collapse of demand has
crushed the prospect that the falling value of Sterling would create
significant export opportunities for UK manufacturers.
3.191. Output fell by 2.9% between December 2008 and January 2009 – and
decreased by 6.4% in the three months to January 2009, the most
severe contraction since records began in 1968. Year on year output is
10.4% lower than in January 2008. Some sectors – e.g. basic metals and
metal products – have seen even greater falls in output – with only food
and drink and refined petroleum holding up. cebr forecast a contraction of
around 5% in 2009 real GVA, with a return to growth in 2011 and 2012 of
around 2% per annum.
3.192. In response, Lord Mandelson has called for ‘a new industrial activism137’ in
Government to support the long-term growth of the UK’s ‘modern
manufacturing and knowledge based industries’:
“The pressure from globalisation to continue to improve our productivity and
focus on the specialist bases of the British economy will be relentless. We have to
get better at growing smaller companies into bigger ones. I…set out the case for
a new British industrial activism in Government that complements markets to
produce better long term economic outcomes…especially in ensuring that we
continue to develop the skills, innovation and infrastructure that will support a
world class manufacturing sector as part of a modern mixed economy.”
3.193. The Government’s recently launched Manufacturing Strategy138 highlights
the significance of five ‘major dynamics’ likely to shape global
manufacturing in the future:





“the increasing prevalence and complexity of global value chains,
underpinned by developments in information and communication
technology, and consequent fragmentation of processes, encouraging
specialization
the accelerated pace of technology exploitation as the demand for
change implementation has increased
the growing importance of investment in intangibles such as design,
branding and R&D
the increased recognition that investment in people and skills is among
the most important for companies to make
the move to a low carbon economy as the response to climate change
creates new challenges and opportunities for manufacturing firms.”
136 Kevin Rowan, ‘Manufacturing now’ The Future of the North East, ed Tomaney, The Smith Institute March 2009
137 A new industrial activism, RSA Lecture, December 2008
138 Manufacturing: new challenges, new opportunities, BERR September 2008
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and sets out a range of proposals to support manufacturers to source
products globally – and participate in global supply chains; potentially roll
out a network of manufacturing technology centres, based on a pilot in
Coventry; further enhance support from the Design Council and the
Manufacturing Advisory Service and expand apprenticeships.
3.194. The strategy specifically highlights the opportunities for manufacturing
across the low carbon economy – the Government’s Low Carbon Industrial
Strategy139 has also just been launched – and renewable and nuclear
energy.
3.195. Within this rapidly changing global context, the key role of manufacturing
in the NG economy is nonetheless a recurring theme throughout this
section of the report. The sector accounts for 10% of employment in NG
as a whole but 16% in Gateshead. Manufacturing contributed £1.35bn to
NG’s GVA in 2006 – 14% of the total and more than tourism and the
creative industries combined. NG’s manufacturing GVA grew by 26%
between 1999-2006, increasing its share of the regional total from 16% to
19.8% over the same period and compared with negligible growth in GVA
nationally.
3.196. The OECD Territorial Review140 highlights evidence of diversification in the
manufacturing sector, particularly in areas such as offshore sector,
automotive assembly and supply, pharmaceuticals and biotechnology,
however, the report also highlights that only 2% of manufacturing firms in
Tyne and Wear are engaged in high technology manufacturing. OECD also
highlight low levels of private sector R&D and low levels of innovation.
This is evidenced by applying OECD’s definitions of high/medium-to high
tech etc manufacturing to the 3 digit SIC data:
High technology
Meduim to high tech
Meduim to low tech
Low technology
Pharmacueticals
Chemicals (less
pharmacueticals)
Rubber and plastics
Food, drink, tobacco
Areospace
Engineering (less
areospace)
Minerals and metals
Paper, print and
publishing
Fuel production
Other manufacturing
Electronics
139 Low Carbon Industrial Strategy, BERR March 2009
140
OECD Territorial Review of Newcastle and the North East, CURDS 2006
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High, medium
andhigh
medium
low tech
manufacturing,
2007
High,high
medium
and meduim
low
tech manufacturing,
2007
% of total manufacturing employment
80%
Mediuim-low tech manufacturing
70%
Medium-high tech manufacturing
High Technology Manufacturing
60%
50%
40%
30%
20%
10%
0%
Great Britain
Gateshead
Newcastleupon-Tyne
Liverpool
Manchester
Leeds
Sheffield
Source: Annual Business Inquiry
Source: Annual Business Enquiry, 2007
3.197. Thus whilst Gateshead has a low level of high technology manufacturing,
it has a much higher proportion of jobs in medium-to high-tech but a
comparatively large ‘tail’ of potentially vulnerable medium to low tech
manufacturing jobs. Newcastle has a higher proportion of high tech jobs –
in part because of the presence of BAe Systems – whilst Sheffield faces a
very similar challenge in terms of the vulnerability of its low tech
manufacturing activities.
3.198. Location quotient analysis for NG’s manufacturing sector is presented
earlier in section 3, highlighting significant over-representation of a
handful of small but specialised sub-sectors (including the manufacture of
tubes, which may pick up some of NG’s offshore sector); insulated wire
and cable and paints and varnishes.
3.199. Thus whilst much of the Tees Valley sector operates as an integrated
cluster centred on the process industries, there is much less evidence of
cluster formation in NG – with the exception of the offshore/marine sector
which was identified as one of the region’s few cluster strengths in the
OECD report.
3.200. Centred at Walker Riverside – which affords access to specialist port and
marine infrastructure (deep water berths, cranage etc) – and with strong
links to NaREC in Blyth, NG is home to three key marine employers- Duco,
Wellstream and Shepherd Engineering – who specialise in subsea
technology, marine fabrication and repair and offshore decommissioning.
3.201. Wellstream manufacture a range of pipeline products to support oil and
gas production at their Walker Riverside factory, and completed a further
60,000 ft² purpose-built unit in 2008. Despite strong results, the firm
recently announced 90 redundancies as part of global cost reduction.
3.202. Other key players in this sector based in NG include Anson – who
manufacture valves, manifolds and flowline equipment for the offshore
sector and now employ 400 staff at their Team Valley premises – and
Express Engineering, also Team Valley-based, who manufacture precision
parts for the offshore, medical and aerospace sectors and employ 160
staff.
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3.203. The Marine Design Centre, recently established by One NorthEast and
located in central Newcastle aims to encourage collaboration between
businesses and Higher Education Institutions to open up new markets and
to share access to specialist facilities and skills, targeting commercial
shipping; defence; oil and gas and the renewables sector.
3.204. The long-term prospects for the marine/offshore sector remain closely
tied to fluctuating oil prices – which have fallen by almost two-thirds over
the last year – and their impact on investment in further North Sea oil
exploration. ‘Peak oil’ – the point at which global demand for oil and gas
moves into decline – is expected to occur over the next fifteen to twenty
years.
3.205. Opportunities in offshore wind and wave power may create further
opportunities for North East manufacturers, including the established
marine/offshore sector where a number of processes and skills are highly
transferable.
3.206. The UK retains a commitment to increase the proportion of UK energy
generated from renewable sources to 15% by 2020 – requiring a ten fold
increase on current generation from renewables - and to reduce carbon
emissions by at least 26% by 2020 and by 80% by 2050 through the
Climate Change Act. The Government has committed at least £7bn to the
Offshore Wind Round 3 programme and the Crown Estates have also
committed to supporting the generation of up to 33GW off the UK
coastline. The UK is expected to have installed around 20GW of offshore
capacity by 2020.
3.207. The British Wind Energy Association has identified the North East as the
potential ‘capital city of the UK’s wind industry’ for the construction and
servicing of offshore wind turbines across the UK and Europe. The region
has a number of critical strengths including world-class expertise in
manufacturing and ports which provide access to key development sites in
the North Sea.
3.208. To date, the UK has no wind turbine manufacturing capacity. US-based
Clipper Wind has confirmed that it is to establish a manufacturing
operation in the North East – to develop the world’s largest offshore
turbine. The production facility will have the capacity to produce around
200 turbines per annum, and is expected to be located in Tyneside.
3.209. The Land Systems division of BAE Systems is another world class
manufacturer based in NG employing more than 650 people at its
Scotswood Road site where it builds the British Army’s Warrior and
Challenger tanks and a wide range of armoured support vehicles. Almost
all of the British Army’s armoured vehicles have been built by Alvis
Vickers. BAe could also benefit from the diversification opportunities being
created for offshore wind.
3.210. The analysis suggests that NG’s manufacturing base is not strongly linked
to the automotive cluster centred on Nissan’s Washington base. The
recent wave of 1,200 redundancies at the Sunderland plant is expected to
lead to up to 8,000 job losses in the supply chain and whilst much of the
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sector is clustered outside NG, Johnson Controls, based at Team Valley,
may be impacted. A significant number of NG residents will also commute
to jobs outside the area.
3.211. Manufacturing still matters for NG. There is at least one ‘minicluster’ present in the marine/offshore sector which could extend its
supply chain reach still further and another major opportunity
emerging in the form of the offshore wind sector which could create
significant diversification opportunities for offshore, defence and other
manufacturers. Securing a site for Clipper Wind in the north of the
region must be a priority for the 1NG partners and the EM should
explore the wider opportunities for NG firms associated with the
development of the offshore wind sector.
3.212. Design is also a recurring theme. The Design Centre for the North
and the recently established Marine Design Centre could both have a
significant long-term impact on the manufacturing sector – but only
if they can be harnessed effectively and are led by the needs of
North East businesses. The EM will explore this issue further in later
workstreams.
Tourism
3.213. Tourism is the sixth largest industry in Britain. It generates £86bn p.a. for
the UK economy (6.4% of GDP), directly supports 2.2 million jobs (7.7%
of the total workforce). The 32.8 million overseas visitors who came in
2007 spent £16.0 billion in the UK. 2007 was a record year for the
volume of visits, but spending fell in cash terms for the first time since
2001; the UK now ranks sixth in international tourism earnings behind
the USA, Spain, France, Italy and China
3.214. Other tourism markets have grown more rapidly – the UK Tourism
Alliance141 claims there is now a £20bn gap between the UK visitor
economy and the best performing visitor economies; that the UK's share
of global tourism receipts has fallen by almost 20% and revenue from
domestic tourism has fallen by more than 25%.
3.215. The United Nations World Tourism Organisation predict that in 2009
international tourism is set to grow by between 0% and 2%. UNWTO
argue that there is a very real chance international tourism trips will fall
during 2009 - this has only happened twice in the past forty years.
Similarly the International Air Transport Association (IATA) is pessimistic
about current prospects for global air travel; in the year to September
2008, demand fell by almost 3%.
3.216. VisitBritain has forecast that inbound tourism to the UK will fall by 1.1
million visitors from their 2007 peak, although visitor expenditure is
expected to rise by around 0.7% in 2009. The impact of the recession on
141 The UK Tourism Alliance, January 2009
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the US economy has been identified as the major risk facing the UK visitor
economy.
3.217. Whilst international tourism will be hit hard by the recession this could be
tempered by the lower value of the pound as more people seek to visit
the U.K and domestic travel increases. cebr forecast a fall in GVA of over
3% in 2009, followed by a further modest (0/2%) fall in 2010 before a
return to growth of 1.7% in 2011.
3.218. To some extent, the North East appears to be bucking some of these
trends. The value of tourism in the North East has grown by 30% between
2003 and 2007 and is now worth £3.9 billion to the regional economy. 8.9
million overnight tourists visited the North East in 2007 – of which
around 500,000 were from overseas - spending almost 25 million nights
in the region, and there were 74 million day visits. Day visitors contribute
just under 40% of revenue. Approximately 60,000 jobs (full time
equivalents) were supported by direct tourist expenditure in the North
East, and a further 15,800 jobs were supported by indirect revenue from
tourism142.
3.219. Tyne and Wear accounts for 37% of all overnight visitors to the region
and 51% of all tourism revenue. Tourism in NG generated £1.225 billion
in 2007 – almost one-third of regional tourism revenue - and there were
21.91 million tourist visits in 2007, representing growth of 3% from 2006.
The number of overnight visitors staying in serviced accommodation in NG
has risen by 18% since 2003143.
3.220. Employment in hospitality and tourism has also increased significantly in
recent years. 22,681144 people are employed either directly or indirectly
by the sector. Two-thirds of employment in NG is in hotels, bars and
restaurants.
3.221. NG experienced an increase of 2,600 jobs in tourism and hospitality
between 1998-2007 which represents modest growth compared to Leeds
(+8,100 jobs) or Manchester (+6,700) over the same period.
3.222. NG’s vibrant nightlife, sports events and developing cultural offer have
established it as a leading city break destination over the last ten years.
NG was ranked 13th in the list of the UK cities most visited by overseas
residents145. Newcastle was ranked 6th most popular destination in the
British conference venues survey 2006. The top 10 most visited
attractions in Tyne and Wear in 2007 are set out below – demonstrating
that major investments in the SAGE, Baltic, the Laing and Centre for Life
are having a significant impact:
142 STEAM, 2007
143 STEAM, 2007
144 STEAM, 2007
145 2005 International Passenger Survey
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Attraction
Visitors
Saltwell Park, Gateshead
4,035,092
Sage Gateshead
600,000E
Discovery Museum, Newcastle
442,706
BALTIC, Gateshead
379,479
Theatre Royal, Newcastle
341,590
Sunderland Museum and Winter Garden
331,296
Empire Theatre, Sunderland
292,692
Laing Art Gallery, Newcastle
257,231
Life, Newcastle
254,662
Customs House, South Shields
188,813
Source: Tourism North East
3.223. City centre hotel occupancies and achieved room rates in Newcastle are
some of the highest in the UK and many city centre hotels are regularly
denying business both during the week and at weekends. Corporate
demand is strong and growing and the city is rapidly developing as a
major national and European conference destination. The supply of hotel
bedspaces increased by more than 40% between 2002 and 2007, with the
opening of 12 new hotels146.
3.224. Business tourism is an important and growing share of tourism sector the potential to expand this market in the North East has been
highlighted. NG and Durham City are the leading market destinations for
Business Tourism in the North East. There were just under 1.4 million
conferences held in the UK in 2006147 – of which around 50% were
corporate events.
3.225. Most of the larger conference centres (e.g. Birmingham’s NEC,
Edinburgh’s
International Conference Centre) are in urban areas,
benefiting from the supporting infrastructure for large scale events. The
majority are owned and operated by the public sector because of the
economic benefits generated.
3.226. The number of UK exhibitions increased to just under 1,000 in 2005. In
that year, there were 44 UK venues offering more than 2,000 sq.m of
indoor exhibition space; the largest is the NEC in Birmingham.
3.227. There has been a significant growth in demand for exhibitions which are
part of conferences (sometimes called the ‘confex’ segment). This
segment generated around 90 exhibitions in 2005, with one-third focused
on medicine, healthcare and pharmaceuticals. It has been identified as a
potential growth opportunity for NG.
146 NewcastleGateshead Hotel Futures study, Hotel Solutions, 2007
147 Sage Gateshead – Exhibition and Events Centre Feasibility Study – Tribal HCH
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3.228. NG’s central location and links to other attractions are positive attributes
but there is an acknowledged lack of accommodation (constraining the
ability to attract conferences/exhibitions for 1,500 delegates or more).
There is an identified gap for a medium sized conference and exhibition
centre venue of around 4-5,000 seats in NG148.
3.229. The last ten years have seen significant growth in NG’s short
break and business conferencing markets. NG has emerged as a
major UK destination in both – yet it is clear that further investment is
now required to 

further develop/refresh the visitor product – the reopening of the
Hancock as the ‘Great North Museum’ will make a significant
contribution but it will be vital to identify the ‘next wave’ of
cultural investment as NG develops a new cultural vision/strategy;
this could include the development of proposals for a World Heritage
Site, centred on the Tyne Bridges (although the timing window is a
narrow one) and/or the attraction of a further, national scale gallery or
museum,
further develop the business conferencing infrastructure – a
feasibility study is ongoing, alongside the EM to review the market
opportunity for a new conference/exhibition centre, to develop a clear
facilities brief and to identify a preferred site; a number of locations,
including Science Central and the SAGE Gateshead are under
consideration.
Science and technology
3.230. The ‘Innovation Nation’ White Paper149 highlighted the vital significance of
science and technology to the UK economy. In 2007, the UK exported
around £75 billion of knowledge services, representing a near doubling
over the last decade. The UK’s share of the top 1% of cited papers in
peer-reviewed journals is second only to the United States and we lead
the G8 Countries on science productivity and efficiency measures.
3.231. According to Cancer Research UK, the UK is spending more per capita on
cancer research than any other country in Europe. Yet the White Paper
also highlights the increasing competition for mobile science and
technology investments from China, India and the Middle East, driven by
an increase in both the volume and quality of research.
3.232. The sense that the UK punches above its weight in developing new
innovations – but below its weight in commercialising them continues to
pervade. The productivity of UK technology firms is growing at a much
slower rate than their competitors – and some of the other challenges150
include:
148 North East England Business Tourism Action Plan (July 2007)
149 Innovation Nation – Science and Innovation White Paper, DUIS, March 2008
150 Dr Nicholas Miles, Oxford to Cambridge ARC
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




a strong dependence on biotechnology, other life sciences and
pharmaceuticals, which are facing increasing globalisation pressures;
other global centres of technology and innovation have a much more
diverse sectoral base (e.g. Silicon Valley) and are increasingly
developing a business model which brings together innovation with
service delivery;
many fledgling UK biotechnology or pharmaceuticals businesses are
unable to secure funding for clinical trails and have to license their
Intellectual Property to other players to achieve this; there have been
some notable examples of ‘decapitation’ where small UK firms have
been bought by larger organisations only to have their IP shelved, or
destroyed;
many technology firms continue to report a lack of science based
graduates – and this is resulting in the relocation of some UK
technology firms to North America and South and East Asia where
there are much larger pools of graduates, and technology businesses;
the availability of venture capital and other investment to support
innovation; the returns on UK early stage technology companies are
often low – and some UK venture capitalists now focus on the US
market; and
a limited critical mass of higher value added manufacturing businesses
– compromising the ability of UK technology firms to take product to
market here.
3.233. In this context, the North East’s comparative under-performance on
innovation is highlighted in paragraphs 3.85-3.108. Just under 10,000
people were employed in science and technology in NG in 2006 – around
one-third of the regional total – but this includes a significant number of
workers in architecture and engineering and software consultancy. When
those are removed, the jobs figure is around 2,000. However, the wider
Higher Education sector – which is of course inextricably linked – employs
around 12,150 people in NG and has grown rapidly (+2,500 jobs or 27%)
over the period from 1998-2007.
3.234. Although the science and technology sector does not make a significant
contribution to employment at present its potential has been widely
acknowledged and underpins the Newcastle Science City initiative.
Newcastle Science City – a partnership between Newcastle University,
Newcastle City Council and One NorthEast – and is focused on four key
areas of science:



ageing and health – through the internationally recognised work of the
Institute for Ageing and Health, based at Newcastle General Hospital
and focused on research themes including the biology of ageing;
nutrition and oral health; experimental medicine and the links between
ageing, health, society and technology;
stem cells and regenerative medicine through the North East England
Stem Cell Institute, which brings together Newcastle and Durham
Universities and the NHS; Newcastle Biomedicine; CELs and the
International Centre for Life;
energy and environment, primarily through the work of the Sir Joseph
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
Swan Institute which has a particular focus on low carbon energy; and,
molecular engineering, where the University is seeking to exploit
opportunities for nanotechnology, plastic electronics and bioprocessing.
3.235. Four main strands of activity have been developed, with the aim of
building on and accelerating the commercialisation activities of the
University and the Centres of Excellence:




Science Central – the science and technology-led redevelopment of
the former Newcastle Brewery Site – described in more detail in
section 4 of the report;
the Innovation machine which will focus on encouraging technology
start ups through a new approach to commercialisation which focuses
on unmet needs; this has an ambitious target of creating up to 500
new technology businesses by 2025 and could have a physical
presence as part of the Science Central project;
Science Enterprise – which seeks to accelerate commercialisation
from within the region’s HE/FE sector and market these globally via
exploitation of networks, communications and inward investment; and,
Education and public engagement – efforts are focused on
promoting science and technology to school children and the wider
public.
3.236. OECD151, IPPR152 and others highlight the importance and value of
developing a long-term approach to building Newcastle’s reputation for
the commercialisation of science and technology, citing productivity and
output benefits. Both are more reticent about the short-term impacts on
employment and output.
3.237. This theme is further developed in recent research by the Centre for
Cities153, who, whilst noting that the Science City brand has been a
catalyst for successful partnership working in York and Newcastle in
particular, that a realistic assessment of the prospects for University-led
growth is required:
“but is it realistic to expect a powerful life sciences cluster to develop in the city?
If not, how much time and money should Newcastle dedicate to trying to build
one up? Unfortunately, the answer to the first question is that this seems unlikely
– at least in the medium term. Life sciences activity tends to cluster
disproportionately around the very best research universities (Library House,
2007), and while Newcastle University performs very well in research it does not
rank alongside the likes of Cambridge, Oxford and others either in research
performance or economic impact.”
3.238. In York, which has pioneered the collaborative Science City approach, ten
years worth of investment has led to 100 start ups and created 3,000
jobs. Whilst the ‘Cambridge Cluster’ of technology firms is around ten
151 OECD Territorial Review of Newcastle and the North East, CURDS 2006
152 OECD Review of Newcastle in the North East: One Year On; IPPR North, 2007
153
Innovation, Science and the City, Centre for Cities, 2008
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times this size and employs 42,000 people – this is itself dwarfed by the
sheer scale of the technology clusters in Shanghai or Malaysia154.
3.239. In addition, despite the comparative lack of private equity investment in
the North East, the public sector innovation and commercialisation
landscape appears quite crowded, with the University, Centres of
Excellence, NorthStar and Science City all having potential roles in the
commercialisation process. BERR’s Business Support Simplification
Process acknowledges that innovation is an important area of business
support which can be fragmented and confusing for the customer.
3.240. Science City – and the wider growth of the Higher Education
sector in NG – represent significant and long-term opportunities
for the economy of the twin cities, and for the region as a whole.
OECD, IPPR and the Centre for Cities all highlight the reputational benefits
that will accrue to NG – whilst adding a note of caution that a realistic
approach must prevail which recognises firstly that the UK is facing
increasing competition for research and commercialisation investment;
and secondly that, international strengths in ageing and stem cell
research not withstanding, some technology investments will continue to
focus on the Cambridge/Oxford/M4 research triangle.
3.241. The EM will explore the ‘factor conditions’ which would require to
be satisfied to attract a higher proportion of research, scientists
and investment to NG.
3.242. NG’s Universities and Colleges are also increasingly significant
employers and play a key role in attracting and retaining talent;
they depend on NG’s continued vitality in order to do so. The EM
will seek to identify both the academic and wider place factors to
enable NG to become even more popular as a student destination.
154
Innovation, Science and the City, Centre for Cities, 2008
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4.
4.1.
THE NEWCASTLEGATESHEAD LABOUR
MARKET
The demographics of Cities and the operation of labour markets have
fundamental impacts on their competitiveness. The State of the Cities
research155 argues that the wider demographic changes taking place in
society create a strong environment for sustained population growth in
cities
“National population growth, the strong net immigration from overseas, the rapid
growth of the ethnic minority population, the increasing proportion of younger
adults without children, the growth in the financial services sector and rising
participation in higher education all suggest bright demographic prospects for
urban England, especially its larger cities.”
whilst recognising that other factors – including the lifestyle choices of an
increasingly ageing population and an apparent inability to deliver
affordable, family housing in urban rather than suburban locations – could
mitigate against this.
4.2.
England’s population growth (the population increased from 46.8 million
to 51.1 million between 1981-2007) has also been unevenly distributed;
typically the population of London and the Greater South East has
increased more rapidly than that of the other English regions but there
have been periods when growth rates have converged. Most notably
between 1991 and 1997 the population of the North fell, and again for the
early part of this decade156. Migration from within and beyond the
expanded EU has also been an important feature in recent years.
4.3.
At the same time, the Work Foundation157 note that the changes in the UK
labour market have been driven by:

structural change with the contraction of employment in manufacturing
and other traditional industries and the corresponding increases in
service-based employment, some of which has created an increased
demand for knowledge-based jobs,
technology driven change which has created and enhanced some jobs
and removed others.

4.4.
Whilst the population of some English Cities has increased since the mid
1990s, employment rates have also improved significantly over this
period. The SEC158 research notes that
“much of the increase in rates of employment was a reflection of the upturn in
the business cycle. It should not, therefore, necessarily be regarded as an
155 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
156 ONS, Census and mid 2007 population estimates
157
How can cities thrive in the changing economy? Ideopolis II final report, Work Foundation July 2008
158
State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
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indication of increasing competitiveness.”
whilst highlighting the apparent disparity between high employment rates
and low levels of productivity that appears to characterise the UK
economy. Yet employment rates for those with low skills levels remain
very low. We return to this issue later in section 4.
4.5.
In considering NG’s urban competitiveness it is important to link the
underlying structure of and changes in the economy with demographic
change and the dynamics of the labour market; the SEC159 research
captures this relationship:
“human capital is the third essential ingredient of successful knowledge driven
economies….the importance of a highly qualified workforce as a prerequisite to
compete among the knowledge driven economies can hardly be over-emphasised.
While many of the largest English cities have one or more universities and
produce their own graduates, some have difficulties in recruiting and retaining
them in their own local economies.
Another critical underlying factor is the educational base. Indigenous educational
strengths are important. But urban economies also need sectors that provide
returns to education…. (emphasising) the need to encourage high quality,
productive and knowledge based employment. In too many cases these types of
employment are mainly provided by the public sector in northern cities…
(creating) employment that provides greater returns to education…could
encourage cultural and aspirational shifts in local attitudes towards education.”
4.6.
Much of the agglomeration theory described in section 3 is relevant here.
High rates of economic growth can be best sustained by a combination of
increases in productivity and participation fuelled by a growing working
age population. Firms locate in places where people want to live in order
to optimise the pool of skilled labour. A wide pool of skilled labour can
drive up productivity by increasing access to specialist skills. In turn
workers are more willing to invest in acquiring specialist skills if they are
able to access a wider pool of employers.
4.7.
The SEC competitiveness framework160 highlights the pivotal importance
of labour productivity, employment rates and wage rates as the key
indicators of the revealed competitive performance of urban economies;
each contributes to the Gross Domestic Product or standard of living of a
city or city region.
4.8.
Yet we know that NG has achieved above average growth in economic
output and employment over the last decade almost in spite of the
underlying trends of a relatively low skills base (discounting the large
student population), low workforce productivity and at best sluggish
improvements in economic activity and employment rates, particularly in
Newcastle.
4.9.
In this context, section 4 considers:
159 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
160 ibid
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




demographics and population growth;
commuting patterns, including the relative earnings of both incommuters and residents;
employment, self-employment and economic activity rates;
deprivation and worklessness; and,
future labour demand.
Population and demographic change
4.10.
The population of the North East actually fell from 2.64 million in 1981 to
2.56 million in 2007 (-2.7%), reaching a low point of 2.54 million in 2001
before an upturn. In comparison the population of England increased by
9% over the same period.
4.11.
In 2007, NG had a total resident population of 462,100, having declined
from a peak of 497,600 in 1981161. The steepest decline was between
1993 and 2001 when the population fell by 5% through a combination of
higher rates of net out-migration and falling birth rates. Gateshead’s
population declined significantly during the 1980s and 1990s Newcastle’s
population fell between 1981-1992; increased between 1992 and 1996
and then fell again between 1996 and 2001 before increasing again from
2005 onwards.
NG components ofNewcastleGateshead
population change
components of population change
6,000
Total C hange
4,000
Natural C hange
Migration
2,000
0
-2,000
-4,000
-6,000
91-92
92-93
93-94
94-95
95-96
96-97
97-98
98-99
99-00
00-01
Annual change
Source: ONS Components of population
01-02
02-03
03-04
04-05
05-06
06-07
Source: ONS Components of population
4.12.
Population change has been manifest quite differently across the Core
Cities. Leeds saw a significant decline in population during the 1980s,
followed by a period of stabilisation during the 1990s and a significant
increase in this decade; in overall terms its population has increased by
6% between 1981-2007.
4.13.
In contrast Manchester witnessed a steep decline in population throughout
the 1980s and 1990s with an upturn commencing in 2000. In 2007 the
161 ONS Population data 1981-2007
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City’s population, at 458,100, was still marginally less than the 1981
figure. Similarly Birmingham’s population fell into a long but
comparatively shallow decline between 1981-2001 but has grown rapidly
since then and has almost returned to 1981 levels162.
4.14.
In contrast, Liverpool’s population has declined by 15.8% since 1981 and
continues to fall, although the rate of decline has reduced significantly
during this decade. The following graph, from the SEC research163,
highlights the changing demographics of some of the Core Cities, and
London, during the 1990s:
4.15.
During the late 1990s, the Cities accounted for just over 40% of
population growth – a significant improvement on their performance
during the 1980s. However London accounted for almost 80% of the total
growth. Towards the end of the 1990s, the growth rates of the English
cities began to converge; between 2004 and 2007 they were as follows:









162
Manchester +5.1%
Bristol +4.75%
Leeds +4.4%
Nottingham +3.7%
Sheffield +2.6%
London+2.3%
Newcastle +1.7%
Birmingham +1.5%
Gateshead +0.05%
ONS Population data 1981-2007
163
State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
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
Liverpool -0.4%
4.16.
Thus population growth has increased in a number of the Core Cities at a
higher rate than London since 2004, overturning a long-term trend.
However, there is considerable variation in the rate of growth across the
Core Cities; only Birmingham and Liverpool performed worse than
Newcastle. The rate for NG combined would be + 0.9%, behind
Birmingham.
4.17.
Some 65% of NG’s population – 301,000 residents – were of working age
in 2007, slightly higher than the North East as a whole. A lower proportion
of Gateshead’s population (61.5%) is of working age than Newcastle’s
(65.7%). However, most of the other Core Cities have a higher proportion
of their population of working age – Nottingham (69%), Manchester
(68.8%), Bristol (67.9%); Leeds (65.6%) and Liverpool (65.4%) all
outperform NG on this measure.
4.18.
Although more than one-fifth of the population of Newcastle falls into the
20-29 age group – this is the largest single group - a significant
proportion of this group are students; NG has 107 students per 1,000
residents, more than 2.5 times the England average. Perhaps more
significantly, there has been a significant reduction in the number of
young people under the age of 14 over the last decade (-15% or -13,000)
164
.
4.19.
The impact of in-migration on population change in NG is evidenced by
the increase in National Insurance registrations of overseas workers,
rising from just over 2,000 in 2002/03 to a peak of around 5,500 in
2006/07165. Tyne and Wear has accounted for the greatest increase in
migrants coming to the region. However, the North East continues to
under-perform in its ability to attract migrants; both Wales and Northern
Ireland have received almost double the number of registrations of
overseas workers.
4.20.
Evidence suggests that a number of migrants are returning to their home
countries and the rate at which new migrants are arriving is slowing, with
an estimated 30,000 fewer migrant workers arriving in the UK in the
second half of 2007 than 2006166. As economic conditions in the new
member states improve in comparison to those in the UK and the
Government seeks to apply more stringent migration policies which focus
on the attraction of skilled labour, this trend is likely to continue.
Population forecasts
4.21.
The latest sub-regional population forecasts167 suggest a continuation of
the recent upwards trend in population growth for NG. Overall the
population is expected to rise to 494,000 by 2031 - growth of 7%.
164 ONS 2007 mid-year population estimates
165 NINO Registrations to Overseas Nationals Entering the UK, DWP
166 Floodgates or turnstiles?, Post-EU enlargement migration flows to (and from) the UK, IPPR, 2008
167 ONS 2006 Based Sub-National Population projections
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Newcastle’s population is expected to grow by around 23,000 (+8%),
Gateshead is also expected to experience growth but at a slower rate
(+5% or 10,000 people).
4.22.
The population of England as a whole is forecast to rise by 19% over the
period, more than twice the projected growth for NG. Most significantly
the working age population is expected to remain relatively unchanged (0.2%), compared to a 9% increase for England as a whole; the proportion
of children aged 0-15 is also expected to increase at almost half the rate
for England, suggesting that a low working age population will be an
enduring feature of the NG economy.
2006 Population
Projections
NG Projections NewcastleGateshead
2006
Based Population
Index of population change (2006=100)
108
Total Population
106
Working age
104
102
100
98
96
2006
2008
2010
2012
2014
2016
2018
2020
2022
Source: ONS Sustainable Population Projections
2024
2026
2028
2030
Source: ONS Subnational Population Projections
4.23.
The proportion of children aged 0-15 is projected to rise by 8% (+6,300)
over the period 2006-2031, again below that for England as a whole
(+14%). This will impact on the size of the working age population in the
longer-term and could well reduce NG’s competitiveness in relation to
some of the other Core Cities who have a younger and faster growing
population.
4.24.
The older population, on the other hand (aged 65 plus) is forecast to grow
by 34% (+25,000) over the period 2006-2031, compared to 63% for
England as a whole. This could cushion the impact of increased demand
for health and social services and for lifetime housing.
Commuting patterns
4.25.
NG is the principal employment centre for a regional labour market that
extends into Northumberland, Co Durham and Sunderland as well as the
Tyneside conurbation. Despite the recent revival of “living in the city”, a
traditional travel-to-work pattern prevails, with a large daily net inflow of
commuters (especially into Newcastle) from a wide catchment area.
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4.26.
Over 100,000 people commute into NG every day168. This is reflected in
very high job densities, particularly in Newcastle, where the number of
jobs available is greater than the working age population (1.17 jobs per
working age resident).
4.27.
In fact this is the highest jobs density of all of the Core Cities – eclipsing
even Manchester’s 1.15 – and reinforcing the critical importance of
commuting in sustaining the Newcastle economy. In contrast Gateshead is
a net exporter of labour – some of it to Newcastle; as are Birmingham,
Liverpool and Sheffield.
In-commuting
and out-commuting
flows,
NG NewcastleGateshead
2001
In-commuting
and out-commuting
flows,
2001
North Tyneside
Northumberland CC
Durham CC
NewcastleGateshead out
Sunderland
NewcastleGateshead in
South Tyneside
Elsewhere in UK
Elsewhere in NE
-15,000
-10,000
-5,000
0
5,000
10,000
20,000
25,000
30,000
35,000
Source: 2001 Census
Source: 2001 census
4.28.
15,000
The charts show separate commuting flows for Newcastle and Gateshead,
highlighting that:




flows into Newcastle (88,900 in-commuters) are much larger than
those into Gateshead (41,500 in-commuters);
in-flows from North Tyneside to Newcastle are larger than those from
Gateshead to Newcastle;
inflows from County Durham to Gateshead are marginally larger than
those from Newcastle to Gateshead; and,
over half of all out-commuters from Gateshead work in Newcastle, but
just 30% of out-commuters from Newcastle work in Gateshead;
168 ONS, Census 2001
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In-commutingIn-commuting
and out-commuting
flows, Gateshead
2001 2001
flows, Gateshead
and out-commuting
Durham CC
Newcastle upon Tyne
Sunderland
Northumberland CC
Gateshead flows out
South Tyneside
Gateshead flows in
North Tyneside
Elsewhere in UK
Elsewhere in NE
-10,000
-15,000
-20,000
0
-5,000
10,000
5,000
15,000
Source: 2001 Census
Source: 2001 census
and out-commuting
flows, Newcastle
In-commutingIn-commuting
and out-commuting
flows, Newcastle
2001 2001
North Tyneside
Northumberland CC
Gateshead
Durham CC
Newcastle flows out
Sunderland
Newcastle flows in
South Tyneside
Elsewhere in UK
Elsewhere in NE
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
30,000
Source: 2001 Census
Source: 2001 census
Workplace and resident earnings
4.29.
Workplace earnings is one of the key measures set out in the CLG
competitiveness framework. As in other major cities, people who travel to
work in NG from the outer suburbs and the countryside are more likely to
work in higher level occupations and to earn more than local residents.
There is a significant gap between workplace earnings and resident
earnings.
4.30.
This notwithstanding, workplace earnings in NG are also substantially
below the GB average. Average weekly workplace earnings in Gateshead
stood at £396 in 2007, just 86% of the UK figure of £459. Earnings in
Newcastle in 2007 were slightly higher at 90% of the UK average or £412
per week169.
4.31.
NG falls bottom of the core cities league table in terms of workplace
earnings at an average of £434 per week, compared to £491 in
169 Source: Annual Survey of Hours and Earnings (ASHE)
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Manchester, £461 in Leeds, £458 in Liverpool and £452 in Sheffield. Since
2002 workplace earnings growth in Newcastle has kept pace with the
regional and UK average, while Gateshead has enjoyed an even faster
rate of growth (+20%) but from a lower base170.
Deprivation
4.32.
Low average resident earnings – and persistently high levels of economic
inactivity – contribute to poverty, deprivation and benefit dependency in
NG, and to some of the most acute income disparities of any UK city (rank
49 of 56). Newcastle was ranked 37th most deprived local authority in the
2007 IMD, Gateshead was 52nd.
Index of Multiple Deprivation, 2004 & 2007
Area
Newcastle
Gateshead
City Region
North East
England
Within 20% most deprived in England 2007
Total
Number
% of Total
173
69
40%
126
44
35%
1,089
371
34%
1,656
566
34%
32,482
6,496
20%
Area
Newcastle
Gateshead
City Region
North East
England
Within 20% most deprived in England 2004
Total
Number
% of Total
173
80
46%
126
56
44%
1,089
422
39%
1,656
631
38%
32,482
6,496
20%
Source: Index of Multiple Deprivation 2004 and 2007
Source: Index of Multiple Deprivation, 2004 and 2007
4.33.
40% of neighbourhoods in Newcastle fall with the 20% most deprived in
England, compared with 35% for Gateshead, and the overall position on
deprivation has improved. The SEC research171 notes that some cities can
combine economic growth with acute deprivation, citing apparent
polarisation in both Derby and Manchester.
4.34.
In ‘The Economies of Deprived Neighbourhoods172’ CLG suggest that the
“relationship between local economic performance and concentrations of
unemployment is complex. The ‘disconnect’ between some deprived
neighbourhoods and the wider economy persists, unaffected by sometimes
inappropriate and ineffective policy responses. The evidence suggests that the
case for targeting job creation initiatives on disadvantaged neighbourhoods is not
strong, because of the difficulty attracting businesses and substantial leakage
effects, i.e. many new jobs will not go to the existing residents.”
170 Source: Annual Survey of Hours and Earnings (ASHE)
171 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
172 The Economies of Deprived Neighbourhoods, North, D et al Department of Communities and Local Government, 2006
SHARED INTELLIGENCE
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4.35.
A significant proportion of the population is still not benefiting from new
economic opportunities. Many live in deprived communities which have
become trapped in a cycle of deprivation, poor health, low aspirations,
inter-generational unemployment and low skills. The EM will explore how
to better connect Newcastle and Gateshead’s most deprived
neighbourhoods to the economic opportunities in the urban core.
Employment,
Inactivity
Self-Employment,
Unemployment
and
4.36.
Participation in the labour market is a central driver of economic growth
not just because a larger workforce increases the productive capacity of
the economy – by as much as 40% - but because it raises consumption
and reduces the social and economic costs of worklessness.
4.37.
NG has made significant progress in raising participation in recent years;
however there is still a large cohort of residents who remain disengaged
from the labour market, many of which are concentrated in disadvantaged
communities as discussed above.
4.38.
Evidence suggests that much of the recent growth seen in NG has been
driven by increases in economic participation. However, while progress
has been made less than optimal participation continues to act as a drag
on growth – low participation is a key contributor to the output gap –
together with low productivity this makes up around 80% of the gap in
core cities173.
4.39.
In June 2008 Newcastle had a much lower proportion of its working
age population in employment – just 65.2% - compared to the
regional (70.8%) and GB (74.5%) averages whilst Gateshead (74.8%)
had a much higher employment rate174. This is well short of the
Government objective of full employment (80%). To achieve even the
current GB average would require an additional 16,800 Newcastle
residents to enter the labour market.
173 Leading the Way, Regional Economic Strategy, One NorthEast, July 2006
174 Annual Population Survey, 2008
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Percentage of Percentage
the Working-Age
Population in Employment, 2008
of the Working-Age Population in Employment, 2008
80%
75%
70%
65%
60%
55%
50%
Newcastle
Gateshead
Tyne & Wear City Region
Source: Annual Population Survey, 2008
North East
GB
Source: Annual Population Survey, 2008
4.40.
Just 6% of NG’s working age population are self-employed against a
national average of 9%175. This is manifest in NG’s small business stock
(see section 3). NG continues to under perform in this area which acts as
a constraint on innovation and growth. Self-employment is notably higher
in Bristol (10%) and Nottingham (7.4%)
4.41.
Economic inactivity in NG has fallen but remains stubbornly above the
England average. This is demonstrated among all age groups, although
strikingly over one-third of those age 50 to retirement age were classed
as economically inactive in 2007, which is significantly above the national
average176. The gap with the national average is also wide amongst those
aged 25-49 years.
4.42.
NG’s total benefit caseload has dropped by 18% over period 2000-2008, a
much faster rate of decline than the national average (-6%). In 2008 the
benefit claimant rate was 18.5%177. This was markedly above the national
average of 14.1% but slightly below the regional rate (18.8%).
Nonetheless, a number of the other Core Cities have significantly higher
rates – most notably Liverpool (25.9%), Manchester (21.1%) and
Birmingham (21%).
4.43.
The most commonly claimed type of benefit in NG is Incapacity Benefit
(28,500 claimants), followed by Jobseekers Allowance (9,300 claimants)
and Lone Parents Benefit (7,400 claimants).
4.44.
The IB claimant rate in 2008 stood at 9.7% of the working age population
above the national figure of 7.1%, this accounts for 1 in 10 of the working
age population. A large number of these claimants are aged 50 years
plus, and 78% of claimants have been claiming for over 2 years and the
proportion of Incapacity Benefit claimants in NG who have been claiming
for over 5 years is significantly above the national average.
175 Annual Population Survey
176 Annual Population Survey
177 Department of Work & Pensions Longitudinal Survey (WPLS)
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4.45.
The IB caseload in Newcastle fell from a peak of 19,800 in 2002 to 15,800
in August 2008; Gateshead has seen a similar decline from 15,830 in
2001 to 11,900 in 2008.
4.46.
The number of Jobseekers Allowance claimants has fallen dramatically
since the 1992 from 10.4% to a June 2005 low of 2.9% for Newcastle
and, for Gateshead from 9% to a December 2007 low of 2.7%178.
However, in the year from January 2008, the number of JSA claimants
living in NG increased by almost 4,000. The composition of claimants is
also likely to have changed significantly, with a significant number of
people being made redundant for the first time.
4.47.
Whilst NG does have a greater proportion of Jobseekers Allowance
claimants that the national average it has less long-term (2 years plus)
claimants (2%) than the UK as a whole (4%). However, there are a
greater proportion of younger Jobseeker Allowance claimants in NG,
accounting for 34% of all claimants compared to a national average of
32%.
4.48.
The majority of those commencing a new Jobseekers Allowance claim in
NG are repeat claimants, suggesting a “revolving door” for many between
benefits and low paid employment. This lack of ability of many individuals
to sustain employment can be due to a combination of lack of support and
lack of skills and opportunities to develop skills and progression
opportunities in the workplace.
4.49.
This is point is reinforced by research by Sheffield Hallam University179
which estimates that up to one million of the 2.7 million on Incapacity
benefits in the UK should be regarded as the ‘hidden unemployed’ and
would almost certainly be in work during times of ‘full employment’.
4.50.
However, recent research in Easington and Wansbeck by the Centre for
Regional Economic and Social Research180 identified that the majority of
IB claimants feel that their condition prevents them from doing any work
or limits the work that they could do. As the nature of worklessness
changes, with new, perhaps more qualified people entering
unemployment for the first time, maintaining long-term support for those
most excluded from the labour market will continue to be a significant
challenge.
Occupational structure, educational attainment and skills
4.51.
A highly qualified workforce is a pre-requisite for local areas to compete in
the knowledge driven economy. Higher skilled workers are more
productive and provide the ideas which in turn lead to innovation. Skills
are central to increasing employment, helping people stay in work and
giving them the opportunities to get on in work.
178 Source: DWP Claimant Count
179 The Real Level of Unemployment 2007
180 Easington’s Incapacity Claimants; Wansbeck’s Incapacity Claimants, CRESR (2007)
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4.52.
Research181 demonstrates a powerful connection between skills and city
growth and that the most important determinant of firm location is access
to skilled workers. This was reinforced by the recent Leitch review182
which highlighted the need for the UK to urgently raise achievements at
all levels of skills and commit to becoming a work leader in skills by 2020,
requiring at least a doubling of current skills levels. The review also
highlighted that employment opportunities for the lower skilled would
significantly decline in future. This is especially pertinent in NG, as
discussed below, given the projected grater demand for higher levels skills
and a lower demand for people with no qualifications.
Occupational Structure
4.53.
The demand for higher skilled workers is demonstrated by significant
structural change in occupational classes during the 20th century.
Elementary occupations have declined substantially and have been
displaced by growth in managerial, professional and sales based
occupations as cities become more successful in attracting knowledge
intensive activities.
4.54.
However, NG still retails a higher proportion of lower skilled occupations
that the national average – 14% of the areas workforce is employed in
elementary occupations, compared to national and regional averages of
11% and 13% respectively. NG has a higher proportion of its workforce
in professional and sales/customer services occupations; however, much
of this is made up of lower value call centre type employment. NG is also
over-represented in admin and secretarial occupations – these sectors are
also expected to decline in future. There are negligible differences in the
occupational structure of Newcastle and Gateshead.
4.55.
Analysis of the workplace occupational structure of NG also reveals a
deficit of higher level occupations; this is reinforced by earnings levels
below other core cities (discussed above) and reinforces the view – set
out in section 3 – that NG has been less successful than other Core Cities
in capturing high value, knowledge based employment.
4.56.
There is also evidence183 to suggest that migrants employed in the UK are
under employed – this could be applied to NG also. Many tend to be
employed in administrative and manual services and in the hospitality
sector and in low wage “entry level” jobs despite a large number having
skill levels at NVQ3 equivalent level and above. Anecdotally the underemployment of students is also a significant factor.
181 Glaser E and Saiz A (2004) the rise of the skilled city
182 Prosperity for all in the Global Economy – Work Class Skills, Lord Leitch, 2006
183 Floodgates or turnstiles?, Post-EU enlargement migration flows to (and from) the UK, IPPR, 2008, The Impacts of Migration – A View from the North East IPPR,
2008
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Employment by occupation,
2007 by occupation, 2007
Employment
managers & senior officials
professional occupations
associate prof & tech occupations
administrative & secretarial
occupations
skilled trades occupations
personal service occupations
sales & customer service
occupations
process, plant & machine operatives
elementary occupations
0%
2%
GB
4%
North East
6%
8%
10%
Tyne & Wear City Region
12%
14%
16%
NewcastleGateshead
Source: Annual Population Survey, 2007
Source: Annual Population Survey 2007
Labour Demand
4.57.
Comparing the current occupational structure and skills base with future
demand for labour is an important exercise. Forecasts of labour demand
are not available at the local authority level; however, we can draw on
regional and sub-regional information to provide a perspective of future
labour demand in NG.
4.58.
The Working Futures research184 suggests that over the period to 2014
net employment in the North East is forecast to grow by 27,000 with
replacement demand – i.e. workers retiring or moving jobs - accounting
for a further 369,000 jobs.
4.59.
Demand for corporate management, managerial and professional, sales
and customer service and health staff is set to increase whereas there will
be a decline in demand for metal and electrical skills trades and manual
and clerical elementary occupations.
4.60.
The sectors/industries forecast to account for highest growth in jobs were
call centres, other services, automotive and culture and creative, albeit
that the current restructuring of the economy brings some of this into
question185.
4.61.
Similarly, for Tyne and Wear sales and customer services occupations
were forecast to see the largest increase in employment over this period,
followed by managers and senior officials, and professional occupations.
Elementary occupations were forecast to bare the burnt of projected jobs
184 Working Futures 2004-2014 Spatial Report
185 http://www.nerip.com/reports_briefing.aspx?id=656
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losses. Jobs losses were also predicted
administrative and secretarial occupations186.
for
skilled
trades
and
4.62.
This is broadly in line with the forecasts developed as part of the Leitch
Review of World Class Skills187 - achieving the aspirational target set by
Leitch in terms of 90% of the adult workforce with at least a Level 2
qualification by 2020 would require an additional 71,600 working age
residents to obtain a Level 2 qualification in NG. To achieve the
corresponding Level 4 target would require a further 46,700 people to
acquire a Level 4 qualification in NG. This is a massive challenge.
4.63.
There is already some evidence that recruitment difficulties and skills gaps
exist. Tyne and Wear LSC has a higher incidence of skills gaps than the
national average. In 2007 21% of employers reports skills gaps with in
their current workforce.
4.64.
More worryingly, in Tyne & Wear a high proportion of employers reported
skills gaps among managerial staff. In terms of the types of skills lacking
the most commonly reported –in order of importance - were: technical,
practical of job specific skills; customer handling skills; problem solving
skills and oral communication skills.188 There is a real threat of these
recruitment difficulties and skills gaps increasing in future as the skills
levels demanded by employers goes up, while skills levels in NG remain
low, this is examined in more detail below.
Skills and Qualifications
4.65.
North East GVA per worker for 2006 was around 85% of the UK
average189, the second lowest regional proportion (only slightly ahead of
Wales) – much of this low productivity can be attributed to low skills. We
explore the position in NG in section 2 – where productivity per worker is
skewed by the presence of larger firms. The NG position on skills is less
favourable than the other core cities - the percentage of the population
with at least a level 4 qualifications is 26.7% in NG, compared to 30.3%
in Manchester, 27.6% in Leeds, 27.9% in Sheffield and a staggering
44.2% in Edinburgh190.
4.66.
There are significant differences in the performance of both authorities on
skills. Newcastle appears to have a well qualified pool of labour – 30.4%
of the population have qualifications at NVQ level 4 (although this is in
part skewed by the high student population many of whom are
economically inactive or in further study). Of the Core Cities Bristol has an
exceptionally high rate of residents with at least an L4 qualification (36%)
4.67.
The number of residents with intermediate (L3) skills in Newcastle is also
above the GB average. Gateshead, on the other hand, performs poorly –
186 Working Futures 2004-2014 Spatial Report
187 Prosperity for all in the Global Economy – Work Class Skills, Lord Leitch, 2006
188 Source: National Employers Skills Survey 2007
189 ONS, cebr analysis
190 Annual Population Survey, 2007
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just 21.1% of the local population hold degree level skills and there is also
a deficit in terms of intermediate skills.
Qualifications – January 2007-December 2007
Newcastle
Gateshead
Great Britain
Level 4 or above
30..4%
21.1%
28.6
Level 3 or above
51.7%
40.5%
46.4
Level 2 or above
66.1%
63.3%
64.5
Level 1 or above
77.7%
76.8%
78.1
No qualification
13.3%
17.1%
13.1
Source: Annual Population Survey
4.68.
The high proportion of residents with no qualifications among the
prime working age group in NG which is of particular concern. The gap
with the national average is widest amongst those age 30-39 years, 16%
of this age group in NG have no qualifications, almost double the national
figure (9%). As outlined above these low levels of skills in the working
age groups act as a significant constraint on productivity and growth and
the ability to attract high value firms to the area.
4.69.
Attainment of young people in NG is better than the national average –
75% of pupils in Gateshead and 67% of pupils in Newcastle achieved 5 or
more GSCE passes at grades A-C compared to a national average of
65.3%. Attainment against other core cities is also favourable with both
Newcastle and Gateshead outperforming the other core cities.
4.70.
However, when Maths and English are included attainment in Newcastle
(39%) and Gateshead (47%) is lower than the national average of 47.6%.
Pupils in Newcastle also under perform compared to regional and national
averages at key stage 2 and 3191.
191
DCSF, 2007/08
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5.
THE NEWCASTLEGATESHEAD PROPERTY
MARKET
Introduction
5.1.
Workstream 1 is concerned primarily with the current and future
prospects for the commercial office, industrial and retail property markets
in NG. In particular, the analysis seeks to answer a number of key
questions:







what are the key drivers of the NG office market and which are its
main competitors?
how will the recession impact on demand/supply of office space?
does the City Centre office market compete with Team Valley and the
emerging opportunities at Baltic Business Quarter?
is there a continued demand for industrial (B2) or warehousing (B8)
floorspace and where is this to be met in future as Team Valley and
Newburn Riverside become mixed use locations?
how competitive is the Newcastle City Centre retail offer? What are the
respective roles of the City Centre and Gateshead town centre and how
can they complement each other?
what is the long-term potential for growth of retail provision?
what role could the urban housing offer play in attracting and retaining
talent?
Office Market
Introduction
5.2.
The estimated office stock for the Newcastle and Gateshead area at the
end of 2007 was 11.0 million ft². This is roughly comparable with
Birmingham Central and London Midtown.
5.3.
In recent years Newcastle and Gateshead and the surrounding out of town
areas have experienced a very buoyant office market with annual take up
being sustained between 400,000 and 600,000 ft² per annum. 2008 was
another successful year, albeit demand is now slowing due to the current
global economic challenges.
5.4.
As the regional capital Newcastle has been the predominant location for
major office development in the North East. For some firms, a City Centre
location continues to be vital and many of the city’s larger office occupiers
have been located there for some time.
5.5.
The Newcastle City Centre office market is distinct from the Gateshead
market, although the distinction is blurring. Gateshead has a much
smaller supply of office accommodation – much of which has been centred
on the Team Valley Industrial Estate. Here the mix of industrial and office
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space has changed with a number of former industrial premises being
redeveloped to provide offices, albeit achieving lower rents than City
Centre floorspace. However, the development of the Baltic Business
Quarter – to the north and east of Gateshead town centre – affords the
opportunity to extend the central office core south of the river.
5.6.
North Tyneside - and in particular the Enterprise Zone sites along the A19
have also have a significant impact on the market for offices in the NG
urban core. Cobalt Business Park has been developed over the last ten
years and offers good quality buildings, with good car parking and access
to the Metro and to the A19.
5.7.
Although take up in NG and the surrounding out of town areas has
remained consistently at between 400,000-600,000 ft2 per annum, office
take up rates in the wider Leeds, Manchester and Edinburgh areas were
much higher, if more fluctuating, between 2000-2008, and prime rents,
particularly in Manchester and Edinburgh, are significantly higher:
Office Market Take Up Rates: City Comparison
Prime Office Rents: City Comparison
2,500,000
35.00
30.00
2,000,000
20.00
Newcastle and Gatehead
Leeds
Manchester
Edinburgh
15.00
Take Up Rate (ft²)
£'s per ft²
25.00
1,500,000
Newcastle and Gateshead
Leeds
Manchester
Edinburgh
1,000,000
10.00
500,000
5.00
0
0.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2000
Year
2001
2002
2003
2004
2005
2006
2007
2008
Year
Source: King Sturge
Demand
5.8.
Despite Newcastle’s dominance as a regional office location the current
equilibrium between supply and demand has not always been in place.
During the recession of the early 1990s, there was a clear over-supply of
office space on the market – driven in part by the completion of major
developments at East Quayside and elsewhere in the City, supported by
the former Tyne and Wear Development Corporation.
5.9.
Over-supply acted to constrain rental growth during the late 1990s and
consequently the amount of new floorspace coming onto the market fell
significantly during this period. As demand increased in the early part of
this decade - driven by a combination of growth in financial services,
consolidation of the professional/business services sector and public
sector relocations – the supply of new floorspace has increased in
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response, although the majority of this space continues to be pre-let or
purpose built rather than built speculatively, is also tends to be
undertaken by regional rather than national developers. The availability of
land – particularly in the City Centre – also serves to limit supply. We
explore this later in this chapter.
Office Completions in Newcastle and Gateshead
1000
900
800
000s ft²
700
600
Pre-let/PBlds
500
Speculative
400
Completions
300
200
100
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
0
Year
Office Market Take Up Rates: Newcastle City Centre and Gateshead Town Centre
700,000
600,000
Take Up Rate (ft²)
500,000
Newcastle and
Gateshead
Centre
400,000
Out of town
300,000
Total
200,000
100,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
Year
Source: PROMIS
5.10.
Over the period 2000-2008 take up in central Newcastle and Gateshead
has averaged at around 210,000 ft². Newcastle has been successful in
attracting the back office functions of a number of major financial services
companies – including RBS and GE Money – with relocation driven by
comparatively cheap wages and property costs.
5.11.
At the same time the growth of the professional/business services sector
– through both the consolidation of the property requirements of existing
firms and the creation of new regional offices for others – has also been
key. PWC, Sitel, Wise Speke, Eversheds and Dickenson Dees all employ
over 250 staff in the city and have created demand for large floorplate
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office accommodation in the City. However, most of the larger firms have
now upgraded their offices and, like financial services, this sector is not
expected to drive demand in the next 2-3 years.
5.12.
Take up in central Newcastle and Gateshead in 2008 was 172,000 ft², an
increase from 2007 despite the slow down in economic conditions and a
significant drop on office space requirements.
5.13.
Although demand has tailed off during the second half of 2008, the
longer-term trend, coupled with a limited supply of large floorplate, Grade
A quality office space entering the market has seen a significant increase
in City Centre prime office rents which have effectively doubled over the
past decade. At the end of 2008 Grade A office space was achieving
£23.00 per ft².
Office Market Prime Rents
Rental Value (£ per ft²)
25
20
15
Newcastle
Gateshead
10
5
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
0
Date
5.14.
Until recently there has been little demand for office space in Gateshead
Town Centre, due to the lack and quality of the office stock. Office
requirements for Gateshead have traditional have been focused on Team
Valley, as a result of the competitive rents and good quality stock.
5.15.
At present Gateshead is regarded as a clearly separate market by
developers and occupiers alike and has not achieved comparable rents to
the City Centre. However, the recent letting of over 100,000 ft² of new
office accommodation to nPower and further space to the Open University
could well be the catalyst to change perceptions of Gateshead – and Baltic
Business Quarter –as an office location. Baltic Business Quarter offers a
compromise between close proximity to the City Centre as well as out of
town parking and other facilities. The scheme is now quoting asking rents
of £17 per ft².
5.16.
Generally rental growth has not been as significant as in the City Centre –
asking rents have increased from around £11 per ft2 to £16.50-£17 per ft2
over the last decade – yet demand, particularly for the North Tyneside
Enterprise Zone sites, has remained strong with several major lettings to
both public and private sector occupiers.
5.17.
Cobalt Business Park has continued to attract occupiers including some
formerly in the City Centre or who would have undoubtedly have
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considered the City Centre as an investment location. In 2007 there were
major lettings to North Tyneside Council (114,000 ft²) and Newcastle
Building Society (50,000 ft²) – formerly in the City Centre - whilst GE
Money extending their presence on Cobalt by taking a further 100,000 ft².
The adjacent Quorum site has also seen some significant lettings over the
past 12 months, including 30,000 ft² to MWB Business Centres and 9,935
ft² to Aesica Pharmaceuticals.
5.18.
The attraction of cost-sensitive back office/call centre operations (e.g. GE
Money, EDS) has been a result of the significant incentives (primarily tax
allowances and rent free periods) which have resulted in average rents
(over a 15 year term) being reduced by approximately one third from the
quoting figure of £17 per ft2. The City Centre market cannot compete on
the basis of cost. In addition, unlike other Enterprise Zone sites, the
quality of new development has been very high (most new buildings have
a BREEAM ‘excellent’ rating) and public transport access is good.
5.19.
The North Tyneside Enterprise Zone will continue to attract occupiers
seeking low cost/good quality accommodation for whom a City Centre
location is less important. It is undoubtedly the most cost effective
business location in the north of the region.
5.20.
Business Parks without EZ status such as Newburn Riverside and
Newcastle Great Park have also continued to attract tenants with Esh
Plaza’s recent announcement of the 37,500 ft² pre-letting to the NHS in
the first quarter of 2008.
Supply - Newcastle
5.21.
As we highlight in the introduction, the over-supply of Grade A office
accommodation in Newcastle City Centre which was prevalent in the
1990s has reversed in recent years – and this has, until very recently,
driven the trend of many schemes being substantially or entirely pre-let
during construction.
5.22.
Much of the new office development since the late 1990s has taken place
in out of centre locations – including the A19 corridor sites, Newburn
Riverside, Great Park and Team Valley – as a result of the difficulties
associated with assembling city centre sites, lower out of town land values
and, in the case of the North Tyneside Enterprise Zone, a range of
developer and occupier incentives.
5.23.
Dealing firstly with City Centre supply, there are now three core office
locations:



The traditional core business area around Grey Street and Pilgrim
Street;
The Quayside and the western fringe around St James’s Boulevard;
and,
Gallowgate.
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5.24.
The traditional core business area around Grey Street and Pilgrim Street is
generally made up of period buildings that comprise small suites. These
buildings tend to suffer from functional and physical obsolescence. Agents
have reported, in the past, difficulties in letting these buildings due to
their small floor plates and lack of parking. There are also a number of
1960s/70s buildings adjoining the Grainger Town area which have been
refurbished in recent years, partly due to a lack of modern supply. These
include, most notably, Cathedral Square in 2004.
5.25.
The Quayside area, to the east of the Tyne Bridge, has witnessed a
significant change of over the past two decades. There have been a
number of high quality office developments attracting occupiers by
offering high car park ratios and a high quality environment – and new
schemes are continuing to come to the market.
5.26.
In 2005 the mixed use Trinity Gardens scheme was completed, providing
115,000 ft² of office space along with retail, residential and hotel uses.
More recently Argon/Whelan have brought forward the East Quay 5
scheme – providing around 35,000 sq.ft of accommodation – and it is
anticipated that this will be ready for occupation in March 2009.
5.27.
The completion of the St James Boulevard has opened up a number of
sites around Gallowgate and the area to the west and south of Central
Station for office development. Major developments in this area include:




phase 1 & 2 of the Citygate scheme which in total produced 156,000
ft² of office space;
St James’ Gate (145,000 ft²);
the recently completed Time Central (83,000 ft²); and,
the cube (24,500 ft²)
5.28.
At the end of 2008 Mandale completed the West One scheme at Forth
Banks. This is quoting asking rents of £18 per ft², due in part to its off
pitch location and the perception that the building is not of Grade A
specification.
5.29.
There are two schemes currently under construction in the city centre,
namely Wellbar Central and Fusion, Clavering Quarter. Wellbar Central
will provide a 9 storey office building providing 120,000 ft² of Grade A
accommodation and is expected to complete at the end of 2009.
5.30.
In addition, there is the Haymarket Hub, which is a speculative mixed use
development. The scheme comprises the redevelopment of the Metro
Station at the north end of Northumberland Street to provide a multi story
building providing improved station facilities as well as ground floor retail
and leisure and 3 floors of office accommodation totalling 28,738 ft²; the
office component is therefore coming forward as part of a mixed use
scheme with an anchor tenant and is expected to be completed during
2009
5.31.
Downing Developments is to speculatively develop approximately 75,100
ft² of offices at Gallowgate along with a major pre-let (100,000 ft²) to
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Newcastle Business School with completion of this phase anticipated by
the end of 2010
5.32.
Buccleuch have commenced groundworks at Fusion although the
redevelopment of the former British Engineering and Manufacturing
Company site had been put on hold given current market conditions. It is
not known when this project will be completed.
5.33.
In total, we estimate that no more than around 120,000 sq.ft of City
Centre office space will be completed and come onto the market in 2009.
In addition, there are a number of City Centre schemes with planning
permission:



in November 2008, Silverlink gained planning permission for the 10
acre Stephenson Quarter; this mixed use scheme to the south of
Central Station will comprise 280,000 ft² of office space in addition to
a new four-star Crowne Plaza hotel, another boutique hotel, 155 flats,
art gallery space, a new post office sorting facility, shops, restaurants
and a 300-space multi-storey car park;
Hanro’s Strawberry Place mixed-use scheme has Travelodge as its
anchor hotel but the serviced office provider Stonemartin has now
withdrawn; the developer is now looking to achieve pre-lets of over
60% on the space before starting construction and as such completion
must be considered unlikely during 2009; and,
Hanover Square – a 20,049 ft² office building – has been on the
market seeking a pre-let, has been marketing the site for circa 2 years
and has not secured a pre-let, so timing of delivery of this scheme is
uncertain.
5.34.
At City Road, Buccleuch has masterplanned a mixed use scheme which
will incorporate 100,000 ft² Grade A office accommodation to sit alongside
one or possible 2 hotels. However development of this site will not
commence until the Fusion scheme is completed – and with the latter on
hold, it is far from certain when the Tyne Tees site will come to the
market.
5.35.
In addition, of course, Newcastle Science City Partnership, a public sector
joint venture, is formulating a masterplan for a science park on 19.6 acres
at the former Gallowgate brewery site in Newcastle. The scheme as
originally conceived proposes to deliver 1.25million ft² of dedicated
science space; 540,000 ft² of serviced offices; 155,000 ft² of retail and
leisure space; 1,423 units of student accommodation; 60,000 ft² of
educational space; two hotels; and 2,412 residential units – although as
configured a substantial level of public sector subsidy would be required to
bring the site forward for development.
5.36.
It is likely that the mix of uses will be reconsidered to reduce the
requirement for gap funding, including considering the long-term demand
for science floorspace. The CDC is working with Science City to develop
proposals for the first phase of the Science Central project which is likely
to include incubation facilities.
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Supply – Gateshead
5.37.
In Gateshead, office development has traditionally been focused on Team
Valley, which had Enterprise Zone status during the 1980s and 1990s.
Today many international companies, lured by cheap rents and good out
of town office provisions (i.e. high car park ratios), are based here. These
include HSBC and TNT who set up a new call centre in 2006.
5.38.
UK Land Estates has over 200,000 ft² masterplanned for their scheme at
The Point and Phase 1 will comprise 60,000 ft², although the scheme has
now been put on hold – almost certainly until Queens Court is fully let with completion not expected before 2010.
5.39.
Traditionally Gateshead Town Centre has not been a major office location
although it is estimated that there is around 100,000 ft² of poor quality
accommodation in and around the town centre, including the 1960’s
blocks on Sunderland Road, one of which is occupied by DHB which
provides serviced office space.
5.40.
However, Terrace Hill has been appointed as preferred developer by
Gateshead Metropolitan Borough Council for the development of the
139,355 m² / 1.5 million ft² at Baltic Business Quarter, on the banks of
the Tyne. The Baltic Business Quarter will offer City Centre office space
with the benefits of an out-of-town business park – including high levels
of car parking provision. The scheme has been anchored by Gateshead
College - which opened in 2008.
5.41.
The Open University has also purchased a 20,000 sq.ft unit and Baltimore
House, a speculative 24,000 ft² office block, has also just been
completed.
5.42.
Baltic Place is a scheme by City & Northern and the Robertson Group
two speculative office buildings totalling 131,000 ft², comprising
eleven-storey tower blocks linked by a shared entrance foyer
underground car park with 100 spaces. This is likely to be the
scheme completed at Baltic Business Quarter during 2009.
with
two
and
only
Supply – out of town
5.43.
With a distinct lack of Grade A stock in Newcastle city centre in recent
years there have been an increasing number of occupiers seeking out of
town floorspace, where there is a much greater supply of Grade A
accommodation. There is currently 255,000 ft² available at Cobalt and
275,000 ft² at Quorum over several buildings. Cobalt is now one of the
largest business parks in the UK with a further 1.2m ft² built-out with
proposals for a further 1.3 million ft² master planned as part of the Atmel
site which has recently been acquired around 1 million ft² now
constructed and planning consent for the scheme to double in size.
5.44.
Quorum Development Partners have recently raised a further £75 million
of investment which will bring forward the construction of the rest of
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Quorum. This new development will provide a further 451,000 ft² of
varying sized buildings over the next four years.
5.45.
At Newcastle Great Park, up to 3 million ft² can be developed.
5.46.
The large out of town office parks (Team Valley, Cobalt and Quorum)
attract both local and national companies on the back of their competitive
cheap rents and out of town service provisions (i.e. high car parking
ratios).
Industrial market
5.47.
The
decline
of
Newcastle's
and
Gateshead’s
historical
industrial/manufacturing base has led to the redevelopment of a number
of former industrial and warehousing sites for other uses, most notably
offices and retail. This has resulted in a more dispersed pattern of
industrial occupation.
5.48.
Team Valley remains a regionally significant location for manufacturing
and engineering activity, comprising over 700 acres adjoining the A1.
Enterprise Zone status played a key role in stimulating development at
Team Valley during the 1980s and 1990s.
5.49.
Over 550,000 ft² of industrial units have been completed since 1998 with
major occupiers including Royal Mail, York International, Del Monte and
Headlam Flooring. UK Land Estates completed Queen’s Court in the last
quarter of 2008, which is a new development consisting of 6 units
totalling 100,000 ft². Prior to this, UK Land Estates’ developed Princes
Park in 2001 and City & Northern built a 20,000 ft² speculative scheme in
2003.
5.50.
Whilst the site is almost built out a number of areas have been
redeveloped for a broader mix of office and retail units and it is likely that
the ‘reinvention’ of the industrial estate will continue, with UK Land and
others seeking to capitalise on a well established, high profile location.
5.51.
Follingsby Park Industrial Estate, located adjacent to the A194(M), has
good links to the A1 and A19, and unlike Team Valley Trading Estate has
mostly large scale units. Just under 500,000 ft² of industrial floorspace
has been completed since 2000. The park is home to a number of
important occupiers including; Fila UK, Northern Electric, Mailcom,
Logistics North East, Royal Mail and Pioneer Food Distribution.
5.52.
Newburn Riverside Industrial Park, which lies 4.5 miles west of Newcastle
City Centre, is the other major industrial location in NG. Completed
developments on the park include a 65,000 sq ft production and
distribution unit for Stannah Stairlifts in July 2005, and a speculative
development by UK Land Estates in April 2006. Other occupiers at the
Park include MacFarlane Packaging, DEFRA, ONE North East and the North
East Ambulance Trust.
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5.53.
Caddick Developments is constructing 180,000 ft² of speculative space
over 12 units between 5,000 ft² and 50,000 ft². It is due to complete in
the first half of 2009.
5.54.
Newburn Riverside was originally to have a strong focus on advanced
manufacturing although the development has evolved into a mixed use
scheme – in much the same way that Team Valley is also evolving.
5.55.
Walker Riverside provides a range of specialist port and marine/offshore
related infrastructure and is the home of three key marine employersDuco, Wellstream and Shepherd Engineering. In 2008, Wellsteam
completed their 60,000 ft² purpose-built unit at Walker Riverside
Industrial Park and the estate also includes small starter units.
Demand
5.56.
Take up in the Newcastle Gateshead area was estimated to be 378,000 ft²
in 2007, which is up by 17% from the 2006 figure of 323,000 sq ft.
5.57.
Although in 2008 there have been few deals over 50,000 ft², the 170,000
ft² pre-sale to the Co-op in Gateshead, along with a couple of medium
sized deals at Follingsby Park, has meant that take up for 2008 will be
slightly above the five year average.
5.58.
Prime rents in Newcastle and Gateshead currently lie at £5.50 ft² and
have remained unchanged for the past few years. Over the past decade
the Newcastle Gateshead area has witness greater rental volatility
compared to the national average.
5.59.
There has been a significant reduction in the number of Industrial
requirements over the past six months, due to the weakening economic
conditions. There is expected to be a surplus of industrial stock come on
to the market in 2009, resulting in longer void periods and a small drop in
industrial rental values.
5.60.
The combination of Newcastle and Gateshead’s, geographical location and
poor motorway links mean that it holds little attraction for distribution and
logistics firms except on a very localised basis. Consequently the market
share for such space is well below the national average.
Supply
5.61.
The following diagram illustrates there has been a steady provision of
industrial space for the past 6 years across Newcastle and Gateshead,
with supply peaking in 2007 at 768,000 ft².
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NG Industrial Market
Newcastle and Gateshead Industrial Market
900
800
700
000's ft²
600
500
Completions
400
300
200
100
0
2003
2004
2005
2006
2007
2008
Years
Source: PROMIS
5.62.
According to Promis there is a substantial pipeline of industrial
development in Newcastle, Gateshead and North Tyneside – around 8.3
million ft² - although only 270,000 ft² is currently under construction. A
further 5.1 million ft² has planning consent but it must be considered
unlikely that the majority of this floorspace will be constructed unless prelets can be secured.
5.63.
The largest scheme with planning permission is at Cobalt South in North
Tyneside, where outline consent has been granted for around 975,000 ft²
of industrial development. Phase 2 of the park, totalling around 374,000
ft², also has outline planning permission.
5.64.
There are a number of other large pipeline schemes located in North
Tyneside. These include additions to Tyne Tunnel Trading Estate, Cobalt
Business Park and Gosforth Business Park. The Orion Business Park, which
commenced development in 2007, has seen more than 140,000 sq.ft of
speculative development constructed. The second Tyne Tunnel, due to
open in 2011, will alleviate local congestion and could lead to a
resurgence of demand at the Tyne Tunnel Trading Estate and the
adjoining area.
Retail market
Newcastle
5.65.
Newcastle City Centre has a catchment population for comparison (nonfood) shopping of just over 1.4 million people – encompassing much of
Northumberland, County Durham as well as Tyne and Wear - and
estimated comparison retail sales of over £1.43 billion.
5.66.
Newcastle has an above average supply of retail floorspace (2.42 million
sq.ft) for its catchment population. The city’s prime retail pitch lies
between the Eldon square entrance on Northumberland Street, along
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Eldon Way and Douglas Way, and into Blackettbridge. Northumberland
Street, the historical prime pitch, is host to a number of national multiple
retailers, including Marks and Spencer, Primark, Next, H&M and Fenwicks.
5.67.
Eldon Square is by far the largest of the City Centre’s four managed
shopping centres and, at just over 960,000 ft2 accounts for approximately
40% of the total City Centre retail floorspace.192 The mall is jointly owned
by Newcastle City Council and Capital Shopping Centre. It is situated on a
sloping site and has a complex internal layout on a number of different
levels. A John Lewis department store is located in Eldon Square, along
with Waitrose, Fenwick, Marks and Spencer, which all have entrances into
the centre. The other main shopping centres are:

Monument Mall, owned by St Martins Properties and providing 125,000
ft² of gross retail floorspace over 4 floors with frontages onto
Northumberland Street and Blackett Street; although historically
Monument Mall has suffered from a high turnover of tenants, the
attraction of TK Maxx and JJB has stabilised the situation.

Eldon Gardens, which is linked to the north-western corner of Eldon
Square, provides 79,000 ft² of gross retail floor space and is owned by
the Peer group; focusing on quality niche retailers, its tenants include
Crombie, Ortak Jewellers, Rohan, Lakeland Ltd and the Sony Centre
but it has also suffered from high turnover rates.

The Newgate Shopping Centre, which is the smallest and oldest of the
city centre malls, is situated south of the city centre’s prime retail pitch
and owned by McAleer & Rushe, providing 50,000 ft² of gross retail
floorspace; despite its refurbishment in 2003 it is considered dated and
tenants include Halfords & Games Workshop, along with a number of
independent retailers.
5.68.
In addition, there are a number of important retail areas adjoining the
prime pitch including Grainger Street, Grey Street, Market Street and the
Central Arcade. A substantial proportion of the city’s quality fashion
retailers such as Reiss, Coast, Jigsaw, Kurt Geiger, French Connection, T
M Lewin, Oasis, Karen Millen and Sassoon Salon locate here.
5.69.
Newgate Street is now considered a secondary retail location with retailers
including Wilkinsons having taken space there. West of Newgate Street
The Gate provides the City Centre’s main leisure complex, housing a 12
screen cinema, a casino and a range of restaurants and bars.
5.70.
Prime rents in Eldon Square are around the £330 per ft² ITZA mark and
prime rents from Northumberland Street to Greys Monument range from
between £200-£330 per ft² ITZA.
5.71.
Rental growth in Newcastle has outperformed the majority of the core
cities – and current rental levels are significantly higher than in
Manchester – where Zone A rents peaked at £315 per ft2 and are have
now fallen to around £295 per ft2.
192 PROMIS Newcastle upon Tyne Retail Report 2008
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Retail Market Prime rents
Retail Market Prime Rents
£350
Prime Rents ITZA per ft²
£300
£250
£200
Newcastle-Upon-Tyne
Gateshead
£150
£100
£50
19
8
19 7
8
19 8
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
0
20 5
0
20 6
0
20 7
08
£0
Date
5.72.
Newcastle’s city centre’s main retail completion comes from the
MetroCentre, which was the first of the large out-of-town regional
shopping centres. The centre was extended in 2004, is nearly 2 million ft²
in size. Anchored by House of Fraser, Debenhams and Marks & Spencer, it
provides a range of multiples. In addition, it has a number of leisure
provisions, including a multiplex cinema, a bowling alley, an amusement
park, and several pubs and restaurants.
5.73.
The Metro Centre experiences strong demand from retailers, with prime
rents being broadly similar to those in Newcastle city centre, at around
£335 per ft² ZA.
5.74.
In 2009 the UK economy witnessed a significant economic downturn and
the outlook for consumer expenditure growth looks poor. Consequently
the environment for retailers across the UK, over the next two years, will
undoubtedly be difficult. The consolidation of the high street banking
sector and the increased completion from the internet has resulted in
retailers facing significant cost pressures.
5.75.
As a result, the retail sector as a whole is forecast to see a slight drop in
rental values over the next two years. The out-of-town market is due to
fair slightly better, due to the restrictions in supply, compared to the intown market, where there is a significant amount of floor space coming on
to the market over the next few years. So far, prime rents have remained
steady but the expansion of Eldon Square, which will have increased in
size by a third by 2010, could have an impact.
5.76.
The City Centre has already seen a significant reduction in retailer
requirements for representation in the City Centre. As of November 2008
this figure was at its lowest for a decade and 8.3% of City Centre retail
units were vacant - higher than the corresponding figure in 2006.
5.77.
Despite the downturn, work is underway on the final phase of the Eldon
Square extension which will create an additional 323,000 ft² of gross
retail space. The first stage, which was completed in autumn 2006,
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involved the creation of new units on the eastern side of Blackett Bridge
and two restaurant units on the Old Eldon Square, now let to Strada and
Wagamama’s.
5.78.
The north extension, which completed in mid February 2008, involved the
redevelopment of the former bus station. This part of the mall now leads
to the newly landscaped Old Eldon Square. The final stage, which is due
for completion in 2010, will create a new 180,000 ft²mall at the southern
end of Eldon Square called St Andrews Way. Debenhams and Waitrose
have signed up as the anchor tenants and the majority of the space is
now pre-let – so should be somewhat sheltered from the current economic
condition.
5.79.
The City Council, as part of its preparatory work on the Local
Development Framework, has forecast significant capacity in the City’s
provision of comparison floorspace by 2016, based on modest population
growth within the City Centre retail catchment – but a significant increase
in catchment spending of some 31% over this period.
5.80.
Based on various market share scenarios embracing both the City Centre
and the Metro Centre, the increase in catchment spend has been
translated into capacity for an additional 75,000 sq.m of comparison
floorspace over the period to 2016. The East Pilgrim Street area has been
identified by the City Council as a location with the potential to meet this
requirement.
5.81.
The area is in multiple ownership, but Brookfield (formerly Multiplex) and
its joint venture partner Aldersgate own around 17 acres of the 42 acre
site and are working up plans. Brookfield have proposed a retail-led,
mixed use scheme that could accommodate up to 700,000 ft² of retail
space with the aim of extending the prime retail pitch from New Bridge
Street to the Swan House roundabout.
5.82.
The scheme would target high end fashion retailers and other quality
multiples not currently represented in the City, as part of a mixed use
destination. Thus East Pilgrim Street would compete with Grainger Street,
Market Street and Grey Street for occupiers of this type and could have a
significant impact on those locations outside the prime retail pitch.
5.83.
However, the recession will of course impact on both occupier demand
and on the catchment expenditure assumptions upon which this future
requirement is based; at present the East Pilgrim Street scheme is
expected to commence construction in 2014; it is highly likely that the
scheme will be pushed back several years at the very least.
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Retail choice
2008
Rank
Total
Comparison
Spend
2018
Rank
2008
Total
Comparison
Spend
%
Spend
Gain
/Loss
2018
London West End
1
1
£5,347,830,712 £4,874,965,161
-9%
Glasgow
2
2
£2,331,692,868 £2,386,044,798
2%
Birmingham
3
3
£2,135,419,378 £2,197,103,694
3%
Manchester
4
4
£2,092,705,293 £1,985,732,106
-5%
Liverpool
5
7
£1,989,748,030 £1,929,404,340
-3%
Nottingham
6
6
£1,722,639,411 £1,946,852,048
13%
Leeds
7
5
£1,679,812,753 £2,003,762,991
19%
Edinburgh
8
10
£1,666,075,446 £1,677,596,623
1%
Bluewater
9
9
£1,550,272,844 £1,649,977,770
6%
Cardiff
10
8
£1,528,533,853 £1,718,473,278
12%
White City
11
12
£1,436,694,964 £1,422,999,737
-1%
Newcastle upon Tyne
12
11
£1,432,998,469 £1,653,223,910
15%
Norwich
13
13
£1,384,715,982 £1,370,202,580
-1%
Bristol
14
14
£1,276,036,745 £1,210,566,068
-5%
Southampton
15
18
£1,239,819,025 £1,119,737,998
-10%
Source: Experian
5.84.
There is some evidence to suggest that Newcastle is under-represented in
high end fashion retailers compared with other cities, including Leeds and
Manchester. Research developed in support of Newcastle’s LEGI bid in
2006 suggested that, using a ‘Retail Variety Index’, Leeds typically has
more stores (i.e. more choice) than Newcastle in most aspects of its retail
offer. Newcastle ranks just 12th in Experian’s 2008 ranking of major
shopping centres as a result, behind other centres including Liverpool and
Cardiff
Gateshead
5.85.
Gateshead town centre plays a very different role and offers a wholly
different mix of retail provision from Newcastle City Centre. The
Gateshead 2002 Retail Capacity Study estimates the net retail floor space
within the Town Centre to be 288,000 ft² and estimates that the
catchment population for the purposes of comparison retailing is just
88,000 – highlighting the significant degree of leakage of expenditure to
both the Metro Centre and the City Centre.
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5.86.
In 2007 the total in-store comparison retail expenditure was only £191
million, significantly below the average for a town of its size.193 In
comparison, Newcastle’s is £1.4 billion. Prime rents in Gateshead town
centre are quoted as £33 ft² Zone A - around 10% of those in Newcastle
City Centre.
5.87.
Gateshead is no longer the important comparison shopping centre it was
during the 1970s; today the town centre meets the convenience retail
needs of the local population. The retail offer is focused on four principal
retail areas, namely:




The Interchange Centre;
Jackson Street;
Trinity Square; and,
Tesco.
5.88.
All four areas have a similar retail mix, combining basic convenience
provision with lower middle fashion, pharmacies, banks and building
societies and charity shop. Most of the accommodation in the town centre
is outdated, small units which are ill-suited to the modern requirements of
retail occupiers.
5.89.
Reef Estates recent redevelopment of the former Co-Op department store
represents the first major investment in the town centre for 20 years. The
110,000 ft² scheme has secured lettings to traders including Argos,
Peacocks and Halifax Bank of Scotland. A new surgery, backed by
Gateshead PCT, has also taken space however 6 units remain un-let.
5.90.
In 2007 Gateshead Metropolitan Borough Council, in partnership with
Spenhill, Tesco’s development arm, submitted plans to redevelop the
Trinity Square area. The scheme will include 40 shops, cafes, bars and
restaurants as well as student accommodation, offices and a hotel. It
aims to strengthen the role of the town centre whilst complementing,
rather than competing with major schemes in Newcastle City Centre.
5.91.
The vast majority of retail space requirements for Gateshead are for the
out of town, Metro Centre or Team Valley Retail World. As a retail
location, the town centre is not widely recognised by the retailer
requirement lists of any national, higher quality brands.
193 PROMIS Newcastle upon Tyne Retail Report 2008
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Retailer Requirements
No. of Retailer Requirements
350
VenueScore
2007 Retail
Rank
Score
Rank
Manchester
419
2
300
Birmingham
418
3
250
Nottingham
357
6
Liverpool
282
12
266
15
York
247
21
Cardiff
242
23
Gateshead,
Metrocentre
241
25
200
Newcastle
GatesheadNewcastle Upon
150
Tyne
100
50
Date
Apr-07
Apr-06
Apr-05
Apr-04
Apr-03
Apr-02
Apr-01
Apr-00
Apr-99
Apr-98
0
Gateshead, Team
60
Valley
414
Gateshead
628
39
Housing market
5.92.
Richard Florida194, Charles Landry195 and others have argued that quality
of life, including but by no means limited to the housing offer, is one of a
number of factors which impact on economic competitiveness and in
particular the ability to attract and retain skilled knowledge workers. For
Florida, non-market lifestyle factors are having an increasingly significant
impact on where those more economically mobile (and talented)
individuals choose to settle.
5.93.
The link between quality of life/quality of place and economic growth has
been an important focus of the Northern Way. Research196 on the quality
of the residential offer in Tyne and Wear found that:
5.94.

Gateshead and Newcastle have separate and quite distinctive markets;
this view is supported to some extent by travel to work patterns (see
section 3)

Newcastle has strong links with North Tyneside and the southern part
of Castle Morpeth district, whilst Gateshead forms a separate housing
market area with Derwentside

Historically, average house prices across the City Region have been
around 2/3rds of the England and Wales average.
In Newcastle there is a strong distinction between the popular/leafy inner
suburbs of Gosforth/Jesmond/Sandyford and Heaton and the remaining
communities to the west – Elswick, Benwell, Scotswood - and east (Byker
and Walker) which have a mix of deprivation, low demand and poor
194 The rise of the creative class, Richard Florida, 2002
195 The Creative City, Charles Landry and Franco Bianchini, 1995
196 Quality of Place: The North’s residential offer phase IIa, Tyne and Wear City Region Case Study, Llewelyn Davies Yeang for Northern Way 2006
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quality stock and present an under-utilised asset; much of the demand –
particularly for family housing -that might otherwise have been met in this
areas is displaced to North Tyneside
5.95.
Gateshead and the communities along the A1M corridor are seen as more
affordable than those to the north of the river; the Borough has some
housing challenges but these tend to be more concentrated in
communities including Felling, Bensham and Saltwell; the area has also
seen a significant volume of new housing development, particularly for
first-time buyers.
5.96.
The Northern Way research considers those groups which should be a
priority for efforts to attract and retain talent through quality of life/place
measures, including recent graduates and family builders. The research
suggests that Newcastle is comparatively successful at graduate retention
– citing 45% of graduates remaining within Tyne and Wear – although as
house prices increased (at the time of the research), a lack of affordable
housing in traditional first time buyer or renting locations (including the
City Centre/Quayside) could impact on graduate retention in future.
5.97.
In contrast, the Northern Way research further notes that
“The first-time buyer market has flourished south of the Tyne with areas such as
Low Fell, Saltwell Road and Dunston offering young professionals an affordable
route onto the property ladder.”
“Family builders” – couples with young children not yet at primary school, with
some freedom of movement – have fewer choices in the Newcastle/North
Tyneside or Gateshead housing markets. Access to good quality schools is a key
factor.
5.98.
As house prices increased to a peak in 2007, the research noted a
narrowing range of affordable housing options for ‘second movers’ – with
only west Gosforth, High Heaton, Monkseaton and West Monkseaton
retaining comparatively affordable two and three bedroomed homes.
5.99.
The recession has of course had a significant impact on the housing
market, both in terms of falling values and more limited access to
mortgage finance. In the UK, house prices fell by up to 15-18% in 2008
(apartment values fell by more than 20%) and are likely to fall another 15 to -20% in 2009, and by up to a further -4% in 2010, a drop of over
30% from their peak in early 2007. In the North East, prices fell by 10.3%
in the year from November 2007; in Newcastle they fell by 10.8% over
the same period but by only -6.3% in Gateshead.
5.100. Bridging Newcastle Gateshead, the Housing Market Renewal Pathfinder
which has a focus on rebuilding sustainable communities and widening
housing choice in neighbourhoods which have ceased to become desirable
places to live. BNG is focused on the neighbourhoods of Benwell,
Scotswood, Elswick, Byker and Walker in Newcastle and Felling, Bensham
and Saltwell in Gateshead. BNG has now delivered over 220 new homes,
facilitated site assembly for the development of up to a further 4,000 new
homes and improved 4,500 houses.
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5.101. In light of the recent downturn in the housing market, the dual challenge
now facing BNG is to sustain the renewal and enhancement of existing
neighbourhoods whilst accelerating the pace of new housing growth to
ensure that the housing needs and aspirations of graduates, family
builders and other key groups can be met. BNG, with both Gateshead and
Newcastle Councils, were successful in bidding for Round 2 of the
Government’s Growth Point programme in 2008.
5.102. The adopted Regional Spatial Strategy (July 2008) sets out and ambitious
target for the Region to develop around 157,000 new homes (a gross
figure, ignoring completions) over the period from 2004-2021 – of which
just under 45% are planned for Tyne and Wear.
5.103. Net of demolitions – which are relatively high in NG as a result of the
housing market renewal programme – the RSS requires Newcastle and
Gateshead, together, to deliver 15,600 net additional completions by
2016 and 24,800 by 2021.
5.104. Before the downturn in the housing market, NG was achieving around
1,500 gross completions p.a – but only around 600 net as a result of the
high level of demolitions. The Growth Point programme aims to deliver
just over 14,000 dwellings over the period from 2008/09-2016/17 –
representing a 21% increase over the RSS target. The Growth Point
programme will deliver





a series of linked sustainable communities in the Tyne Corridor
creating a more integrated urban form, enhancing existing high quality
public transport
transformational new developments on sites identified for growth in
the BNG area, including the housing expo at Scotswood
new urban living environments at Gateshead Quays and Gateshead
Town Centre
new quality residential offers associated with Science City in Newcastle
a new urban village in the Metro Centre area (Metro Green) providing
new neighbourhood and community facilities, a new riverside park and
a new Tyne bridge connecting Metro Green to Scotswood
focusing on the following key locations:
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Conclusions
Office market
5.105. Since the end of the 1990s, demand for City Centre office floorspace has
increased significantly and rental levels have increased but the lack of
large floorplate, City Centre office schemes has left some occupier
demand unmet. Some occupiers have been forced to look to the out of
centre business parks – most notably in North Tyneside but also Newburn
and the Great Park – to meet their requirement.
5.106. Thus a two tier market has been in operation, with some occupiers
continuing to seek the cache of a City Centre location (albeit at a higher
cost) and others seeking lower cost, out of town accommodation. The
supply of the latter has increased significantly during the last decade.
5.107. For the office market, we conclude that:

over the next five years, it is likely that demand for prime Newcastle
city centre space will not exceed 150,000 sq ft per annum and
schemes underway will meet this demand over the next three years.
It is important to ensure that schemes in the development pipeline in
the city centre – including key schemes at Gallowgate and the
Stephenson Quarter - are “ready to go” when the economy moves out
of recession
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


historically, the Cobalt Business Park in North Tyneside has attracted
many occupiers seeking an “out of town” location, Baltic Business
Quarter could compete with North Tyneside in future and may
complement the Newcastle centre locations
over the next decade, it is essential to ensure that a market
equilibrium is maintained – i.e. an oversupply of new office space is
avoided – to maintain investor and developer interest – whilst ensuring
that a lack of supply does not constrain demand;
it could be argued that the pipeline of supply in Newcastle centre and
Gateshead will far exceed forecast demand for at least a decade; at
present there is at least 2 million sq.ft of office development in the
pipeline which probably represents 8-10 years supply at current levels
of take-up proposals for major office developments at Science Central
should be considered in this context; the 1NG Plan, and the joint study
of employment land requirements being undertaken by the Councils
should consider whether the planned supply of sites could be reduced
more in line with forecast demand.
Industrial market
5.108. There has been sustained demand for industrial floorspace in NG although
the supply of poor quality accommodation has led to a concentration of
demand including Team Valley, Newburn Riverside and Follingsby. Our
conclusions on the NG industrial market are that:


There is a significant pipeline of supply but much of it lies outwith NG;
the 1NG Plan should identify clear proposals to secure the long-term
supply of high quality industrial sites and premises and consider
whether the planning policy regime should seek to introduce a degree
of control over the redevelopment of industrial land for non B2 uses in
key locations like Team Valley and Newburn
the 1NG Plan should incorporate the emerging findings of the River
Tyne North Bank Study to identify the infrastructure and other growth
requirements of the emerging marine cluster at Walker Riverside
Retail market
5.109. Newcastle City Centre’s retail sector continues to demonstrate strong
performance, supporting a higher than average quantum of floorspace for
a catchment population of its size and sustaining higher rental levels than
competing centres including Manchester; this is material in that it is high
comparison retail spend per capita, rather than a significant increase in
the catchment population, which has been the key driver of retail growth.
5.110. To date, the recession appears to have resulted in only a modest increase
in retail vacancies although retailer requirements have tailed off quite
significantly.
The expansion of Eldon Square – with a number of
important, pre-let anchor tenants in place – will ensure that the City
Centre continues to refresh its retail offer over the next 2-3 years.
5.111. On the retail market, we conclude that
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




whilst the prime pitch is likely to robust, the recession could impact on
the performance of some secondary retail areas – even in places like
Monument Mall, which has shown some vulnerability, the Newgate
Centre or Grainger Street/Clayton Street
in this context, the economics of the major, retail-led redevelopment
of East Pilgrim Street – which would increase City Centre retail
provision by around 30% - must be questionable at this stage;
at the very least we argue that the significant increase in forecast
retail spending upon which the scheme is predicated will take longer to
materialise and it must be considered doubtful that the City Centre will
be able to support an additional 75,000 sq.m of floorspace by 2016;
the 1NG Plan should identify how this key part of the City Centre will
be regenerated in this context
the 1NG Plan should also define the relationship between Newcastle
City Centre and Gateshead Town Centre as shopping centres; the City
Centre is the regional comparison shopping centre and Gateshead
town centre a district convenience centre which could nonetheless play
this role much more effectively for residents on both sides of the river
– and for visitors attracted to the Gateshead Quays;
the market sees this distinction very clearly and the 1NG Plan should
be predicated on this clear delineation of roles and develop investment
plans which are complementary rather than competing
Housing market
5.112. We did not undertake a detailed analysis of the housing market – this
work is being done outwith the 1NG Plan by BNG and others. However,
there is a strong interface between NG’s ability to attract and retain talent
and its urban housing offer.
5.113. Newcastle and Gateshead’s housing markets are quite separate. In
Newcastle, there are concerns around the affordability of first time buyer
accommodation for graduates and young professionals; whilst prices have
fallen, access to mortgage finance has tightened considerably and this
remains a very significant challenge for BNG.
5.114. Similarly, the lack of ‘second move’ options for young families in the inner
city has resulted in a drift of this group to North Tyneside, which
demonstrates wider housing choice and greater affordability. There is a
significant opportunity to address both issues in the urban core. the 1NG
Plan should also explore the implications of significantly increasing the
residential population of Gateshead town centre and quays – the
Workstream 2 report sets out specific housing proposals for land to the
south and east of the town centre.
5.115. As a Growth Point, BNG plans to complete over 1500 homes per annum.
The 1NG Plan could identify sites for additional homes in the centre of NG.
The 1NG Plan and the two local authorities should consider whether this
would fit in the wider housing strategy for NG.
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6.
THE RECESSION – AND BEYOND 2011
Where are we today?
6.1.
There has been much analysis of the underlying causes of the current
global recession and its supposed origins in the sub-prime lending
decisions of the US banks. Perhaps inevitably the story is more complex
than that – and we reproduce only the headlines here before considering
a more detailed analysis of the implications for NG.
6.2.
Essentially, the global recession is a result of the unravelling of two
related elements – corporate and consumer debt, and asset values. In
both cases, the bubble has burst with unparalleled consequences.
6.3.
We borrowed too much, particularly in the US and UK. The aggregate of
the UK’s consumer, corporate and public sector debt is around £4000bn –
or 300% of our annual GDP. This is a record.
6.4.
For the major UK banks, it became impossible to fuel this level of debt
through borrowing from British households (savers), businesses or other
financial institutions – and hence the level of borrowing from overseas
institutions increased dramatically. The Bank of England’s ‘customer
funding gap’ increased from zero in 2001 to £740 bn in 2008.
6.5.
In summer 2007, the realisation that billions of dollars of loans were going
bad – the US sub-prime mortgage crisis - was the trigger for the rapid
closing down of wholesale lending from the overseas institutions,
particularly those in China, other parts of Asia and the Middle East.
6.6.
This fundamentally undermined trust within the banking system – and led
to the catastrophic withdrawal of funds that has seen some of the world’s
biggest financial institutions go to the wall and others in the UK require
effective re-nationalisation to the tune of almost £1,000 bn in the UK
alone. Central banks and government authorities attempted to deal with
these issues to contain the problem within the financial markets instead of
having it feed into the real economy.
Bank rates were lowered,
extraordinary liquidity schemes and loan facilities were introduced and
even capital injections and nationalisations took place.
6.7.
The debt ‘bubble’ is also inextricably linked to falling asset values. The
easy availability of debt pushed up the value of assets – houses, property
investments, company buyouts – which in turn fuelled the demand for
more lending. As the asset bubble bursts – most visibly through falling
house prices, property investment values and commodity prices – the fall
in values has resulted in a spiral of decline with asset sales driving down
prices and causing loses for other borrowers, leading to a further
contraction of lending.
6.8.
When asset values find their floor, the financial economy can begin the
process of rebuilding and make available the finance upon which the ‘real
economy’ is dependent – and the recovery will have begun. This hasn’t
happened yet – it is clear that, during 2009 at least, worse is to come.
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6.9.
Central bank interest rates are continually reaching all time lows. The
United States federal funds target rate is now at a range between 0 and
0.25 per cent while the Bank of England base rate has fallen to 1 per cent
– half of the lowest rate prior to this year. Furthermore, inflation has
receded enough to cause fears of a deflationary spiral.
6.10.
In the UK, house prices have fallen around 20% from their peak and
claimant count unemployment has already increased by almost 350,000
since November 2007.
Where are we going?
6.11.
The International Monetary Fund’s January 2009 projections197 show world
growth in real terms falling to ½ per cent in 2009 – the lowest rate in
over 60 years. This forecast represents a downward revision of about 1¾
percentage points from their November 2008 projection.
World:
Growth
WorldGDP
: GDP
growth
% annual
5%
Forecast
4%
3%
2%
1%
0%
1995
1997
1999
2001
2003
2005
2007
2009
2011
-1%
-2%
Source: Oxford Economics
Source: Oxford Economics, 2009
6.12.
What might lead us out of the recession? Resurgent domestic confidence
in the US plus a sizeable stimulus package could be enough; the US
Government recently launched an $800 billion stimulus package and the
recent G20 summit saw further efforts to encourage the major global
economies to develop a consistent approach. Equally, the structural
growth in the Asian tiger economies could both drive demand as well as
provide global liquidity.
Thirdly, an improvement in liquidity via
institutional changes led by centralised and coordinated Government
efforts could be the driving force.
197 International Monetary Fund, “World Economic Outlook Update”, January 2009.
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Impact on the UK economy
6.13.
HM Treasury’s February 2009 economic forecasts suggest a contraction of
GDP of some 2.8% on 2009 followed by growth of 0.5% in 2010.
Source: HM Treasury, February 2009
6.14.
cebr’s latest projections for the United Kingdom economy for 2009 involve
a 2.9 per cent contraction in GVA followed by a 1% contraction in 2010
and a return to growth in 2011.
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United Kingdom real gross domestic product annual growth, actual and
forecast 1990-2013
5%
4%
3%
2%
1%
0%
-1% 1990
-2%
1994
1998
2002
2006
2010
-3%
-4%
Source: cebr, 2009
Northern
Ireland
Scotland
Wales
South West
South East
London
East
West
Midlands
East Midlands
Yorks and
Humber
North West
North East
Real gross value added by industry, projected annual growth rates for
2009 and 2010
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
-3.5%
-4.0%
2009
2010
Source: cebr, 2009
6.15.
Furthermore, the recovery will be a long drawn out process.
cebr
estimate that it will take four and a half years before GDP returns to its
most recent peak in the second quarter of 2008. The recession will also
have a differential impact on the output of UK sectors, with financial
intermediation, construction and manufacturing all expected to contract
by more than 4% during 2009.
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6.16.
In recent research for the Core Cities, Oxford Economics198 explored the
potential impact of the recession on employment in each of the key
sectors; together, they are particularly over-represented in financial
services (almost 13% of total UK employment in this sector) and business
services (9%) but also in public services employment.
6.17.
The OE assessment – based in fact on a slightly lower fall in GDP (-2.2%
in 2009) than cebr’s latest estimates – suggested that around 70,000 jobs
would be lost, with business services and manufacturing experiencing
much greater job losses than the financial services sector.
Sectoral job loss across core cities, 2008-2011 (000s)
Other personal services
Total job loss = 69,700 jobs
Health
Education
Public admin & defence
Business services
Financial services
Transport & comms
Hotels
Distribution
Construction
Electricity, gas & water
Manufacturing
Extraction
Agriculture
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Jobs loss 2008-2011 (000s)
Source: Oxford Economics for Core Cities
6.18.
Based on their dependency on these sectors, Oxford Economics then
distribute these forecast job losses across the Core Cities. Birmingham (20,000 jobs) is expected to bear the brunt of the forecast change in
employment (in part due to its continued dependency on manufacturing
alongside business services). Leeds (-12,700 jobs – financial services
dependent) and Manchester (-10,000) are also expected to shed large
number of jobs.
6.19.
To place this in context, the City of London/Westminster and Tower
Hamlets – the heart of London’s financial services sector – are forecast by
OE to lose just over 70,000 jobs – more than the Core Cities combined –
over the same period.
198
Oxford Economics Forecasts for the Centre for Cities, Nov 2008
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6.20.
A further assessment of the impact of the recession was carried out by
PACEC for the Local Government Association199 in November 2008. The
research explored a range of measures including an assessment of the
impacts of the 1979-82 and 1990-92 recessions and detailed modelling of
the potential impact on 22 sectors. This paints a less optimistic picture for
the North East – in effect identifying it as an area of ‘medium risk’:
Overall At Risk Index for 2008-2010
Source: Annual Business Enquiry, Annual Population Survey, ONS with PACEC
analysis
199 From Recession to Recovery, The Local Dimension, PACEC, Local Government Association, November 2008
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6.21.
Finally the Centre for Cities, in its ‘Cities Outlook 2009’ 200, identifies a
series of vulnerability measures based on the snapshot of economic
performance captured in its Economic Prosperity Indices; the North East is
vulnerable as a result of its above average concentration of employment
in distribution, hotel and restaurants and banking, finance and insurance.
Sectors at risk – 10 cities with highest concentration of employment in
distribution and hostelry, financial service and construction (Great
Britain=100)
Source: NOMIS, 2008. ABI employee analysis broad sectoral groups (2006 data).
Rochdale excluded from banking index due to errors in the underlying data
Impact on regional growth scenarios
6.22.
In 2003, cebr generated some economic growth scenarios which
underpinned the assumptions set out in the Regional Spatial Strategy and
Regional Economic Strategy. The baseline scenario was essentially a
continuation of North East’s recent performance – during the 1990s, it
had the lowest GVA growth of all the English regions – and assumed a
compound annual growth rate of 1.3% over the period from 2001-2016.
6.23.
A range of more optimistic scenarios were also modelled and the North
East Assembly chose a 2.8% cagr to underpin the RSS which was highly
ambitious, given previous performance. In practice, the North East
surpassed even that ambitious target growth rate, achieving 3 per cent
real growth in gross value added in 2003 and 2004 – higher even than the
national rate of growth. This growth rate lowered a bit subsequently, but
still remained at a better than baseline value of approximately 2 per cent
for the next three years.
6.24.
Based on the model developed for the RSS, for GVA cebr forecast that NG
or Tyneside will see a worsening of its position relative to the region over
the period to 2011. Whereas previously financial and business services
and manufacturing (all of which are strongly represented in NG) drove
regional GVA growth, these sectors will also bear the brunt of the impact
in reduced output and unemployment.
200
Cities Outlook, 2009, Centre for Cities, 2009
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6.25.
If, as cebr forecast, the North East economy contracts by around 2.5% in
2009 and 0.5% in 2010, this will make it extremely difficult for the region
to return to its previous growth trajectory. Even over a four year period to
2012, cebr forecast that the North East economy will show a negative
compound annual growth rate of some - 0.02%, suggesting it will be 2013
before the region returns to the pattern of growth witnessed in the first
part of this decade.
6.26.
In addition, as we highlight elsewhere in this report, it is less likely that
output growth in NG post-2011 will be driven by financial services; and
there are significant questions – see section 2 – over the scale and nature
of business services growth in NG and the strength of the relationship
between the business services sector and those sectors which it serves.
6.27.
Nonetheless, the OE forecasts suggest that over the period from 20112015, the UK economy will create around 1.8 million new jobs to counter
the anticipated increase in employment of up to 1 million claimants over
the next two years.
Agriculture
Extraction
Manufacturing
Electricity, gas & water
Construction
Distribution
Hotels
Transport & comms
Financial services
Business services
Public admin & defence
Education
Health
Other personal services
Total
6.28.
UK 2011-2015
(000s)
-8.4
-5.5
-111.7
3.1
204.8
289.8
184.7
14.2
80.6
745.4
12.9
63.9
173.7
163.8
1810.8
Core cities 20112015 (000s)
0.0
-0.1
-10.6
0.1
11.5
20.1
15.0
0.7
5.0
57.5
0.9
8.6
14.2
11.8
134.7
Longer term, the OE research for the Core Cities201 suggests that,
Newcastle will see a return to peak levels of employment by 2016 and a
modest net increase over the 2004 peak by 2018 – with both Leeds and
Manchester witnessing more substantial levels of jobs growth from 2012
onwards.
201
Oxford Economics Forecasts for the Centre for Cities, Nov 2008
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Forecast Employment trends, selected Core Cities to 2018
350
330
310
290
000s
270
250
230
210
190
170
Manchester
Newcastle
Nottingham
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
150
Sheffield
Source: Oxford Economic Forecasts, 2009
6.29.
OE forecast that Newcastle will create 9,000 jobs over the period from
2011-2015 to compensate for the anticipated loss of some 2,000 jobs
from 2008-2010. This is around 80% of the annual employment growth
achieved by NG since the mid 1990s.
A resilient economy?
6.30.
The majority of economic forecasters tend to agree that those regions
with a strong dependency on financial services, business services and to a
lesser extent construction and manufacturing are likely to witness the
greatest falls in output and increases in unemployment over the forecast
period of recession, to 2011. It has been argued that the North East, by
virtue of its limited exposure (in relative terms) to each of these sectors
and its strong dependency on public sector employment could be
comparatively well-cushioned from the worst effects of the recession.
6.31.
Other forecasters are less optimistic and the evidence, in terms of
redundancies and increased unemployment, appears to support this view.
Of the Core Cities in January 2009 Newcastle had the 5th highest JSA
claimant count in percentage terms, behind Birmingham and Liverpool
(6.6%); Nottingham (4.9%) and Manchester (4.6%)202.
202 JSA Claimant Count, January 2009, DWP
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6.32.
Post 2011, the picture may look a little different; NG may have fewer of
the attributes required to demonstrate strong and sustainable postrecession growth. In particular:




the anticipated reduction in public sector spending may have a
significant impact on employment;
low levels of innovation and private sector R&D may constrain the
ability of NG firms to drive up GVA;
the dependency on large firms and low levels of business start ups
may limit opportunities for new market entrants and churn
other factors – most notably workforce skills and economic activity
rates (considered in the next chapter) could impact on
competitiveness.
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7.
CONCLUSIONS AND KEY ISSUES AND
CHALLENGES
Workstream 1
7.1.
The Workstream 1 report presents our baseline analysis of the structure
of the NG economy and was carried out using the framework of CLG’s
‘urban competitiveness’ model, developed through the SEC203 research.
7.2.
The State of the Cities research204 defines urban competitiveness as the
City’s response to changes in its technological, competitive, market and
regulatory environment – in which some industries and institutions
survive and others are replaced.
7.3.
In sections 3, 4 and 5 of the Workstream 1 baseline report we consider
the business environment; educational base and physical infrastructure in
turn, exploring the relevance to NG of some of the underpinning economic
and spatial theories cited in the competitiveness framework – to inform an
assessment of the extent to which the key drivers of competitive
economic performance are in place, or can be developed, in NG.
7.4.
Thus the report has considered whether the NG economy will be resilient
in light of the current recession and whether it has the right ‘foundations
for growth’ for the long term; explores the competitiveness of the existing
labour market and reviews the performance of the retail, office, industrial
and housing property markets.
Key findings
Complementary roles
7.5.
Newcastle and Gateshead play distinct and complementary roles:
Newcastle is the regional capital, and the North East’s principal centre for
retail, government, learning and business, yet still has a number of
deprived communities, some in close proximity to the City Centre.
7.6.
Gateshead is a post-industrial town still facing major challenges – but
provides an established manufacturing base, a strong housing offer and
some key cultural infrastructure. By many of the available economic
measures there is still a gap in economic performance between them;
Newcastle has made a more rapid transition to a post-industrial economy.
Yet Gateshead out-performs Newcastle on measures including business
start ups, employment rates and a sustained programme of investment
203 State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
204 Ibid
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means that the centre of Newcastle and Gateshead are starting to
work together as a coherent place, centred on the waterfront.
Closing the output gap?
7.7.
Any analysis of the performance and prospects of the NG economy must
take account of the regional context. On GVA per head – a widely
accepted comparative measure – the North East has consistently lagged
the UK economy by between 10 and 20% since the 1970s.
7.8.
In the decade to 2002, the performance gap between the North East and
GB widened, but the region has held its own since then, with several
years of above-average increases in output, employment and
economic activity before a dip in 2007 which saw the GVA gap widen
still further.
7.9.
In 2007 GVA per head in the North East was just 78.6% of the UK
average – placing it ninth out of nine English regions205, and leading
commentators to question whether the performance gains achieved in the
earlier part of the decade were representative of structural changes in the
regional economy, or merely a temporary result of the ‘long boom’ since
the last recession.
7.10.
Before the recession began to bite, there were some promising signs of
recovery with GVA per capita (in Tyneside) and employment (Newcastle
Gateshead) both growing faster than in the rest of the UK, and driving
improved performance at the regional level:


between 1996 and 2006 GVA in Tyneside increased from 86% to
93% of the national average, as a result of a shift towards higher
value added sectors, rising employment and economic activity rates
and a modest increase in productivity206
between 1995 and 2007, employment in NG increased by 16% (GB
9%), although half of this growth was in the public sector207.
7.11.
The evidence suggests that North East has become increasingly
dependent on Tyne and Wear’s contribution to regional economic output;
whilst the North East economy was in the middle of a strong dip in
performance during the early part of this decade, Tyneside/NG continued
to perform relatively strongly on GVA per head. Yet the output of many
other UK city/sub-regions has grown more rapidly since the mid 1990s,
including London and much of the Greater South East; Cornwall; small
pockets of the West Midlands; Nottingham and Derby and in the North of
England by Leeds, Manchester, York and Sheffield.
7.12.
Cities offer ‘agglomeration benefits’ - greater interaction with
suppliers and customers, a critical mass of specialised, skilled labour and
enhanced opportunities for knowledge exchange. London demonstrates
205
Release of Regional and Sub-Regional GVA estimates: North East England, December 2008 Office for National Statistics
206
ONS, Regional Accounts, 1996-2006, cebr analysis
207 Annual Business Enquiry
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very strong ‘spillover’ effects on the wider economy of the Greater South
East along with some other UK City Regions, albeit on a smaller scale. Yet
whilst Tyne and Wear is the largest conurbation in the North East, and has
had some success in attracting knowledge-based firms and knowledge
workers, like some other medium-sized cities it is still not wealthy or
big enough to drive further economic growth in the wider region.
7.13.
This is a familiar story, but it is not “somebody’s fault”. Like the North
East as a whole, the Newcastle city region has been faced with huge
structural challenges: the decline of traditional industries, the dominant
role of London in the UK economy, a low base in terms of knowledgebased industries and a small labour pool.
7.14.
Tackling this post-industrial legacy is a huge, long-term task and there
is some evidence that, pre-recession, the partners’ efforts were beginning
to make a difference. Nonetheless, much of the analysis in the OECD
Territorial Review208 still applies - progress has been made on population
change, employment growth and average earnings. In practice, however,
the gap between the City Region and the England average has not
narrowed sufficiently to indicate a more structural or sustainable change
in its economic fortunes.
Employment structure
7.15.
The defining features of change in the employment structure of NG
have been continuing growth in the public sector (which accounts for a
third of all jobs) and the rapid shift towards a post-industrial, servicesbased economy. These trends have been particularly marked in
Newcastle; Gateshead has moved in the same direction, but more slowly,
and it retains a significant manufacturing base.
Sector
Manufacturing
Construction
Distribution and Retail
Hotels and restaurants
Transport and
Communications
Financial
intermediation
Business Services
Public Administration
Education
Health and social work
Personal Services
Total
Gateshead
No. jobs
%
14,703
16
6,273
7
19,663
22
4,736
5
Newcastle
No. jobs
11,582
4,594
20,605
10,283
%
7
3
12
6
Newcastle Gateshead
No. jobs
%
26,284
10
10,867
4
40,268
15
15,019
6
5,175
6
9,739
6
14,914
6
1,461
2
10,800
6
12,261
5
13,019
6,010
6,611
9,294
3,912
90,857
14
7
7
10
4
100
31,820
22,403
19,284
23,792
9,359
174,261
18
13
11
14
5
100
44,838
28,413
25,895
33,086
13,271
265,116
17
11
10
12
5
100
Source: Annual Business Enquiry, 2007
208
OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
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7.16.
Data from a variety of sources (on wages, occupation, property market
transactions etc) confirm that high order economic activities are
under-represented in NG, especially in the private sector: few private
sector businesses are headquartered in the city; and managerial/senior
officer occupations are under-represented, while elementary occupations
are over-represented.
7.17.
Employment in NG increased by 34,200 jobs (or 16%) between
1995-2007, above the North East (13%) average but below the
England average (17.2%)209. NG accounted for 70% of the jobs growth
in the Tyneside NUTS3 area – the geography used in the OECD Territorial
Review – over this period.
7.18.
NG sits at the top of the ‘second division’ of UK Cities for
employment growth, well behind London (+627,500) Glasgow
(+63,190), Manchester (+ 51,600) and Leeds (+47,790) but comparable
with Edinburgh (38,800) Sheffield (+35,800) and Cardiff (+31,150) and
ahead of some of the other major UK cities including Bristol (+17,100),
Birmingham (+15,200) and Nottingham (+14,000)210.
7.19.
Local government and public sector bodies, higher education and
the health service account for a high proportion of the twin cities’
top jobs – although the public sector has played a key role in driving
employment growth in many of the English Core Cities.
7.20.
Some of the Core Cities have witnessed a steep decline in manufacturing
employment between 1995-2007. NG had the lowest absolute or
percentage decline in manufacturing employment of any of the Core Cities
over this period – losing just under 5,900 jobs or 18% of the workforce.
Sheffield (-28%) and Leeds (-35%) had the next ‘best’ performing
manufacturing sectors211.
7.21.
Over the period from 1995-2007, Leeds achieved the highest absolute
growth in banking, finance and insurance services (+36,632 jobs, an
increase of 49.5%) followed by Manchester (+34,466 or a 59.1%
increase). Employment in these sectors in NG increased by 18,257 jobs
(48.1%) – placing NG 5th of the 8 Core Cities both in terms of absolute
and percentage growth212.
The company base
7.22.
Like some other post-industrial cities, NG continues to depend heavily on
medium and large employers employing 200+ people; they account for
41% of employment but around half are public sector organisations. NG
has disproportionately few SMEs and microbusinesses. Whereas the public
209
AES 1995-1997, ABI 1998-2007
210
Ibid
211 ibid
212 AES 1995-1997, ABI 1998-2007
SHARED INTELLIGENCE
134
sector is the dominant employer, the vast majority of businesses in NG
are in business services (29%) and wholesale distribution213.
Businesses
by Industry and Size Band
Businesses by Industry and
Size Band
40
Percentage of Businesses
35
30
25
1-10 employees
11-49 employees
50-199 employees
200+ employees
20
15
10
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Industry
Source: Annual Business Enquiry, 2007
7.23.
Recent research for the Manchester Independent Economic Review214 has
stressed the importance of these embedded large local companies, and
the need to promote their growth and profitability through innovation
and productivity improvement and ‘spinning out’ new businesses.
By the same token, the NG economy remains vulnerable to the
investment decisions of larger firms and to those of larger public
sector employers.
7.24.
NG has the lowest business density (per 10,000 working age adults) of
any of the Core Cities215; London has almost twice the number of firms on
this measure. In some key sectors – most notably retail, construction and
business services – there is a significant shortage of businesses to drive
up competition and realise ‘churn’ impacts.
7.25.
As a general rule, prosperous cities have a higher business birth rate, but
progress in NG has been slow. The level of business start ups is also low;
Newcastle and Gateshead have lower business birth (and death) rates
than any of the other Core Cities although the limited size of the business
stock constrains the growth of new firms.
213 Annual Business Enquiry, 2007
214 Manchester Independent Economic Review – Growing Inward and Indigenous Investment, 2009
215 Annual Business Enquiry, ONS Population Estimates, 2007
SHARED INTELLIGENCE
135
Business Demography: births and deaths per 10,000 working age adults
Business demography: births and deaths per 10,000 working age adults 2007
2007
200
180
160
Births/deaths
140
120
Deaths per 10,000
Births per 10,000
100
80
60
40
20
ld
Lo
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on
he
ffi
e
S
Le
ed
s
to
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am
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Source: ONS
Diversity vs. specialism
7.26.
The State of the Core Cities research concludes
cities combine economic specialisation with
drives wealth creation and builds sustainable
diversity makes cities more resilient and less
shocks.
7.27.
The OECD report216 noted that the challenge for the Newcastle city region
was to “reinvent specialisation” in the post-industrial era. Some
progress has been made, but NG has not yet achieved significant
competitive advantage through specialisation:


216
that the most successful
diversity. Specialisation
competitive advantage;
susceptible to economic
financial services was the star performer at the start of the century,
and NG is the headquarters of two significant institutions; but the
collapse and subsequent nationalisation of Northern Rock presaged the
global crisis in the finance sector; although NG remains a
comparatively small financial services centre with a very different
structure to that of Leeds or Edinburgh, after large scale redundancies,
future prospects must be considered uncertain and there is limited
scope for the sector to ‘reabsorb’ those made redundant in other jobs
professional and business services for the North East have
traditionally been concentrated in Newcastle, and this continues to be
the case; but the evidence suggests that there is little that is
specialised or distinctive and that tradeable services are underrepresented; analysis suggests there may be scope to develop the
computer software sector, building on SAGE’s presence, and for
OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
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


further growth of architecture, design and engineering activity
the region has made a major (and very successful) investment in
cultural infrastructure, designed in part to act as a catalyst for the
creative industries; to date, however, employment growth has been
modest,
although there a few “hotspots”, notably in the design and
development of computer games, there is as yet no evidence of
nationally significant strengths;
advanced manufacturing, though much reduced in employment
terms, continues to make a significant contribution to economic
output: the OECD217 identified the marine/offshore industries as a key
strength with potential for further growth, and there are a number of
key firms in defence, steel and coatings among others; there are
significant opportunities to align the area’s manufacturing strengths
and deep water port facilities to support the proposed construction of
large scale offshore wind turbines by Clipper Wind; the Design
Centre for the North and Marine Design Centre are also important
assets with the potential to strengthen our manufacturing capabilities
the value of tourism has grown significantly, and NG has become a
popular city break/business tourism destination: more work needs to
be done to improve the visitor infrastructure, especially for the
conference market; the reduction in overseas travel arising from the
recession and low dependency on overseas visitors could further
strengthen NG’s position in the UK market
7.28.
The Higher Education sector is also growing rapidly. NG has in excess of
50,000 students and a strong reputation as a student friendly City. NG
(and the surrounding region) has significant, but not outstanding,
research strengths.
7.29.
Times Higher Education218 (based on RAE 2008) ranks the University of
Newcastle 27th in the UK (up from 32nd in 2001): 14% of research
submitted for RAE 2008 was rated as world-leading (4*), with another
44% rated internationally excellent (3*). Northumbria University was
ranked 81st (up from 99) with 6% of its research rated as 4* and 28% as
3*. These are strengths to build on.
7.30.
Higher education and research are important economic activities in their
own right, but translating research excellence into wealth creation
and employment growth is a challenging and sophisticated process
requiring high level skills. Nationally, the Science City programme has met
with mixed fortunes, but Newcastle Science City has been recognised
for its success in bringing partners together to both commercialise and
popularise science.
7.31.
Science City aims to create up to 500 new technology businesses by
2025, with a new science and technology quarter at Science Central.
There are significant opportunities to capitalise on research strengths in a
217
OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
218 Times Higher Education, University Rankings 2008
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range of areas including ageing and health, stem cells and
regenerative medicine, nanotechnology and the low carbon economy.
7.32.
It is important, however, to place these aspirations in a wider context; the
global market for research and commercialisation investment is
increasingly competitive. Over ten years, York’s Science City programme
has led to the creation of around 100 companies employing just under
3,000 people219.
Demographic change
7.33.
The long-term relative decline of the North East economy has resulted in
an ageing and declining population, and (as in many city regions) the
depopulation of the urban core. Between 1991 and 2004 the population of
NG fell by about 40,000220, but the regeneration of NG, including
residential development on the riverside and elsewhere, has seen this
trend reversed.
7.34.
Since 2004, the population increased by 5,000, driven largely – but
not exclusively – by an influx of migrant labour, with almost all of the
growth in Newcastle. NG’s population is growing modestly compared with
most of the other Core Cities – only Birmingham has seen a slower rate of
population growth since 2004221.
7.35.
ONS forecasts that this recent trend will continue, with the population of
NG increasing to 494,000 (up 32,000) by 2032. However, there will be
little change in the working age population, at a time when it will be
growing substantially at the GB level.222
Labour market
7.36.
NG is the principal employment centre for a regional labour market
that extends into Northumberland, Co Durham and Sunderland as well as
the Tyneside conurbation. Despite the recent revival of “living in the city”,
a traditional travel-to-work pattern prevails, with a large daily net inflow
of commuters (especially into Newcastle) from a wide catchment area.
In practice Newcastle’s commuting links with North Tyneside, and
Gateshead’s with Derwentside and Durham City, are as strong as those
with each other.
7.37.
Commuting is not necessarily a bad thing – as NG needs to access a
comparatively large labour market to realise some of the agglomeration
benefits described earlier. Nonetheless, there may be opportunities to
diversify housing options in NG in the future, with family housing as
well as apartments in the core urban area, to capture some of the
projected population increase.
219 Science, Innovation and the City, Centre for Cities, 2008
220 ONS Population data
221 ONS Components of Population Change
222
ONS 2007 mid-year population estimates
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7.38.
As in other major cities, people who travel to work in NG from the outer
suburbs and the countryside are more likely to work in higher level
occupations and to earn more than local residents. There is a significant
gap between workplace earnings and resident earnings (which are
the lowest of any major city).
7.39.
Low average resident earnings – and persistently high levels of economic
inactivity – contribute to poverty, deprivation and benefit
dependency in NG, and to some of the most acute income disparities
of any UK city (rank 49 of 56). Newcastle was ranked 37th most deprived
local authority in the 2007 Index of Multiple Deprivation, Gateshead was
52nd.
7.40.
Things have been changing for the better in NG in the past decade, but a
significant proportion of the population is still not benefiting from new
economic opportunities. Many live in deprived communities which have
become trapped in a cycle of deprivation, poor health, low aspirations,
inter-generational unemployment and low skills. This is not unique –
although other places have been better at linking need with economic
opportunity.
7.41.
Low levels of skills and qualifications are a key factor here and these,
together with the small size of the labour market pool compared with (for
example) Manchester or Leeds, are constraints on business growth, new
firm formation and future inward investment. NG – like the North East –
suffers from a low skills equilibrium, a cycle of low demand from
employers for higher level skills which disincentivises individuals to
upskill.
7.42.
Yet this is a function of the region’s economic structure – the high
proportion of public sector jobs, the ‘branch plant’ economy and
comparatively low levels of knowledge based employment have all stifled
demand for higher level skills. Creating a larger, more skilled and
better qualified workforce is an imperative: this will involve action to
raise skill levels and create entry-level jobs for the unskilled – but also to
create more opportunities that will attract and retain highly skilled
knowledge workers.
Property market
7.43.
Until the recession, the office market in NG was relatively buoyant,
although even at the peak there was very little speculative development
and prime rents were well below the levels achieved in high performing
core cities. Annual take-up in NG has been in the order of 400-600,000 sq
ft, of which about half was in Newcastle city centre.
7.44.
Demand has been driven by financial services (back office functions of
large firms), through consolidation of established professional/business
service companies and by the public sector. However, the centre of NG
will continue to face very strong competition from modern city centre
fringe locations including Cobalt in North Tyneside and Great North Park.
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7.45.
The recession is causing a reduction in demand and the supply of finance
for development has tightened considerably. No more than about 150,000
sq ft of city centre floorspace will come onto the market in 2009.
However, many other schemes are in the pipeline and have
planning consent. There are plans for more than 500,000 sq ft of
speculative development at Gallowgate, the Stephenson Quarter, City
Road, Strawberry Place and Hanover Square. In addition, extant proposals
for Science City include some 540,000 sq ft of offices and 1.25 million sq
ft of “science space.”
7.46.
In Gateshead, the Baltic Business Quarter could accommodate over 1.5
million sq ft of new offices and other schemes are planned for over
250,000 sq ft. Extant consents in North Tyneside exceed 1.5 million sq ft
and a further 3 million sq ft of offices could be developed at Newcastle
Great Park. At a take-up rate of 300,000 sq ft per annum in the centre of
NG alone, implementation of major extant consents and known schemes
would be sufficient for almost a decade.
7.47.
NG is the dominant retail centre in the North East. Newcastle city centre
is one of the UK’s top 12 shopping centres with a catchment population
for comparison (non-food) shopping of just over 1.4 million people. Rental
growth has outperformed the majority of core cities; current rental levels
are higher than in central Manchester, although the latter have dipped in
the past year.
7.48.
There is a perceived need to improve representation of quality/luxury
brands, including fashion retailers, to match the appeal of Manchester and
Leeds, and to make NG more attractive to visitors. Gateshead’s Metro
Centre is also one of the largest shopping centres in the UK; the
competing attractions of the city centre and the Metro Centre have
squeezed Gateshead town centre.
7.49.
The Growth Point programme aims to deliver over 14,000 homes between
2008/09 and 2016/17 in NG, an average of more than 1,500 new
homes per annum. Sites have already been identified, including 4,000
homes in Bridging NG’s HMR pathfinder areas.
The recession
7.50.
The economic forecasters, Oxford Economics (OE)223 argue that Newcastle
may not be as exposed to the effects of recession as some other cities.
They forecast about 2,000 net job losses in the Newcastle city region
between 2008-2011, compared with 12,700 in Leeds and 10,000 in
Manchester. This is probably an over-optimistic forecast – in the year
from January 2008 claimant count unemployment increased by almost
4,000 people in NG.
7.51.
OE also predicts a slow recovery for Newcastle with employment not
returning to 2007 levels until 2016. The prospect of a slow recovery
223
Oxford Economics, 2009
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in employment has significant implications for the business property
market, especially with many new developments in the pipeline.
7.52.
In contrast with OE, the Centre for Cities ranks Newcastle high in two of
its sectors at risk categories (finance and retail). PACEC224, in research for
the Local Government Association, reviewed the impacts of the last
(1990-92) recession and identified the North East as a medium risk area
where employment could fall by between 5-6%.
7.53.
Risk may be greater in cities where there is either narrow specialisation
or over dependence on potentially vulnerable low wage/low skill jobs.
Despite these differences, there is a broad consensus that the recession
is deep, recovery will be slow and there is no prospect of an early
return to “the way we were” between 1997 and 2007. Furthermore,
Professor John Tomaney, writing in The Smith Institute’s recent
publication ‘The Future of the North East’225 argues that “responses to the
global financial crisis are likely to intersect with a series of other
challenges, notably climate change and looming energy shortages…the
‘triple crunch.’”
NG and urban competitiveness
7.54.
The baseline study has been undertaken within the framework of CLG’s
SEC urban competitiveness226 research which sought to develop both
quantitative and qualitative benchmarks of city performance. The research
identifies three core measures – labour productivity, employment rates
and wage rates which, together, inform Gross Domestic Product or the
standard of living of our major cities.
7.55.
Taking the quantitative measures first, the research shows that despite an
increase in economic output (GVA) productivity per worker remains
comparatively low – and very low if the effect of large firms like SAGE is
factored out. Yet the increase in GVA for NG/Tyneside is partly a result of
increased participation in the workforce – a boost in employment rates –
and partly a consequence of the changing sectoral mix and a shift towards
financial and business services employment. As the recession deepens,
both of these factors may prove temporary.
7.56.
Wages, particularly for NG residents rather than commuters, are
comparatively low. Thus an assessment of NG’s competitiveness in these
terms seems unsatisfactory – GVA is comparatively high, suggesting a
correspondingly high GDP and yet the underlying evidence is much more
complex and illustrative of the economic challenges faced by NG.
7.57.
In broader terms the CLG model is a means of understanding how a City
responds to changes in its technological, competitive, market and
regulatory environment. The research suggests in turn that the export
base; a highly educated and skilled labour force; high rates of innovation
224
From Recession to Recovery, The Local Dimension, PACEC, Local Government Association, November 2008
225
The Future of the North East, Prof John Tomaney Ed, The Smith Institute, 2009
226
State of the Cities, The Competitive Economic Performance of English Cities, Simmie et al, Department of Communities and Local Government, 2006
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and
entrepreneurship;
socio-cultural
assets;
communications
infrastructure and strategic decision making capacity are all critical
aspects of ‘urban competitiveness.’
7.58.
To these elements we might add ‘diverse specialisation’ and ‘investing in
communities to link economy and regeneration’ and ‘investing in
Universities, FE and schools’ from the Work Foundation’s Ideopolis
framework227.
7.59.
Benchmarked against a wider set of competitiveness measures, the story
remains one of mixed success. NG has – or has the potential for – a
strong export base, driven in part by its manufacturing firms; it has
many, but by no means all, of the socio-cultural assets which Richard
Florida228 and others argue are fundamental to the location decisions
made businesses and individuals. The lack of affordable, family housing in
the urban core remains a significant barrier.
7.60.
It has a comparatively strong communications infrastructure with good
road and rail connections and a lack of congestion in real terms. Yet rail
and air connectivity can always be improved; the upgrading of the A1 to
motorway status remains a long-term priority and Tyne and Wear Metro
remains accessible to only 25% of the population of the City Region.
7.61.
The NG economy is inherently not specialised although there are some
niche sectors upon which future economic growth could be built. Although
Newcastle has a high proportion of resident graduates, this masks a
significant skills and worklessness challenge.
7.62.
NG has some important strengths and assets upon which it can build –
but has yet to achieve its true potential as a competitive city.
Key issues and challenges
7.63.
These headlines raise a series of issues and challenges which will
inform the development of the 1NG EM.
Components of economic growth
7.64.
With some exceptions, the economy of NG lacks competitive edge. This is
generally acknowledged, and it demands a constructive and pragmatic
response, with action on a broad front. The key elements of the
approach should include action to


encourage entrepreneurship and new firm formation, particularly in
those sectors which are growing or demonstrate growth potential
grow existing businesses, including established local firms employing
200+
227 How can cities thrive in the changing economy? Ideopolis II final report, Work Foundation July 2008
228 The Rise of the Creative Class, Richard Florida, 2002,
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


7.65.
attract inward investment – there are particular opportunities to grow
‘domestic’ firms including SAGE as well as attract footloose
investment, although this was in decline before the onset of the
recession
commercialise the science base – particularly in acknowledged
international research strengths including ageing and stem cells
nurture the development of competitive industry clusters; here the
only cluster acknowledged by the OECD229 (marine/offshore) could play
a key role in the developing a new, nationally significant cluster in
offshore wind
None of this is new, and initiatives are under way on all these fronts. The
partners may want to consider how well current interventions are
working, and whether more effective interventions are needed on some
fronts. Some recent studies suggest that not enough attention has been
given to the performance of existing established businesses, even
through they may be more likely to deliver employment and export
growth than “sexier” high tech start ups; they may also generate more
business births through spin outs.
Diversity vs. specialism – striking the balance
7.66.
The research evidence suggests that diverse specialisation is the ideal
for core cities like NG. We need to develop and strengthen sources of
specialisation and distinctiveness, but we must also be realistic about our
real competitive strengths, including the lack of specialised infrastructure
in a small region.
7.67.
Turning science into sustainable businesses and significant numbers of
high-tech jobs is a complex, long-term task, and it may take a long time
for jobs to trickle down to lower-skilled workers. The development of the
offshore wind sector could create a cluster of international significance
with the potential to support a diverse range of manufacturing and portrelated jobs – but there are also risks attached to this initiative. It’s vital
for the long-term prosperity of NG and the wider region, but expecting too
much of science or clusters would be a high risk strategy.
7.68.
There is therefore a continuing need for jobs in retail, distribution,
tourism and other sectors that contribute to the quality of life in the
region, improve the visitor experience – and create entry-level jobs for
unskilled people, which can become a platform for fulfilling careers. This
balanced approach may raise questions, not about the principle of science
and technology development, but about the level of demand – for
property and skilled workers – that it will generate in the next decade.
229
OECD Territorial Review of Newcastle in the North East, Organisation for European Co-operation and Development (OECD), 2006
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Tackling worklessness
7.69.
Worklessness is one of the enduring challenges for NG, and for every
other major city in the UK. It is part of a recognised syndrome of
poverty and deprivation in urban Britain. A decade of strong demand
for labour has drawn many more people into the labour market: in a
recession, some of them may be at risk of slipping back into
unemployment while the hard core of workless people may find
themselves even further removed from the labour market.
7.70.
Again this is not a new issue, but we need to re-examine our responses to
it in the light of worsening labour market conditions and the prospect
(according to some forecasts) that it will take 7-8 years for employment
in NG to return to 2007 levels230. This may require imaginative new
interventions on the supply side, but also a renewed focus on stimulating
the demand for low-skilled workers in retail, tourism and other sectors. As
NG1’s transformational regeneration projects come on stream how can we
ensure that they will be effective vehicles for linking opportunity and
need?
Office pipeline
7.71.
Looking over the next 5-10 years, we may wish to review some of the
extant land use consents, particularly for offices. This would enable us
concentrate our investments to transform relatively few locations.
The consents already granted represent a generous supply of new office
space in the centre of NG – perhaps sufficient to meet demand for a
decade or more.
7.72.
Perhaps some of these sites would be better developed for housing, rather
than left vacant for ten years. If we focus our investment in new housing
in the same areas where new offices, hotels, shops and conference
centres will be built we may be more likely to achieve the true urban
transformation that we are seeking.
Repopulating the City
7.73.
One of the positive messages of this report is that the regeneration of the
urban core of NG has stimulated an appetite for urban living, on the
waterfront, in the city centre and in new urban quarters. This has resulted
in a significant increase in the resident population of the urban core, after
decades of decline.
7.74.
But the experience in NG and other major cities is that the new housing
stock – dominated by apartment dwellings – is too one-dimensional. It
is not sufficiently attractive to families who may be looking for homes
across the price spectrum. There is a growing recognition of the need for
230 Oxford Economics, 2009
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a wider choice of housing – by type, price and tenure – but we need to
dig deeper to understand what will make families (especially higher
income families) to choose to live in the centre of the city, as they do in
Bristol and Edinburgh. This will mean thinking about schools, healthcare
and the whole panoply of social infrastructure required if people are to live
a good life in the city.
7.75.
We will also wish to ensure that our housing Growth Point/BNG
programme/HCA investments are fully aligned with the priority
locations that will be set out in the 1NG Plan. The HCA will probably be
investing as much and possibly more in NG over the next five years than
One NorthEast. If we set the right priorities, this investment could trigger
massive private sector investment to realise the priorities set out in the
1NG Plan. Mortgages will be available soon, and we need more affordable
housing. Most important, the headlines suggest that we need to create
more opportunities for middle and higher income families to live in NG,
particularly in the centre – and not in apartments. The resources
mobilised by 1NG could be used to de-risk some of those sites.
Aligning our investment priorities
7.76.
The realisation of the main high level physical development
proposals in the NG1 will depend on a steady stream of private
investment in new homes, offices, hotels, factories, and facilities such as
a conference and exhibition centre. At present few developers, investors
and occupiers are investing and after the recession, many will remain
highly risk averse for several years. During the recession some private
investment may be triggered – if resources permit – by investment from
the public sector.
7.77.
Government will continue to invest in transport and community facilities
and infrastructure. During the recession the Government will be using
additional public expenditure to pump prime the economy. However,
when the economy starts to move out of recession – and it will – it
appears likely that there will be severe limits on public expenditure.
7.78.
This has several important implications for the EM. First, it means we
must develop clear public sector investment priorities – covering at
least the next five years – for the use of ONE NorthEast, HCA, local
authority prudential borrowing, and Government funding sources. We
may want to give priority to the projects which will leverage the most
private investment – or those that will create the most direct and indirect
jobs.
7.79.
We may want devise unconventional cases for public investment which
are designed specifically to boost economic activity during the recession
and immediately thereafter. We see very high levels of worklessness and
deprivation in NG and relatively weak economic prospects; unemployment
is certain to rise. We need to assess whether there is case for
Government, One NorthEast and the local authorities supporting major
capital projects primarily because they will be jobs-intensive.
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7.80.
Obvious candidates for this approach include the emerging proposals for a
Conference and Exhibition Centre and the proposed retail scheme at East
Pilgrim Street – all of which would create a relatively large number of low
skilled jobs that would be attractive to those currently excluded from the
labour market – as well as making NG a more attractive and competitive
destination for business tourism.
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