msap-volume_1.2_-_the_evidence_base_-_statistical_analysis

The Modern Manufacturing Strategy andAction Plan for the Northwest

Volume 1.2 – The Evidence Base - Statistical Analysis July 2008

The Modern Manufacturing Strategy and Action Plan for the Northwest Volume 1.2 – The Evidence Base - Statistical Analysis

www.sqw.co.uk

Contents

Introducing the Evidence Base ..............................................................................................1

1: Statistical analysis - introduction ......................................................................................1

2: Background statistics on the North West economy ........................................................1

3: Manufacturing businesses in the North West ..................................................................1

4: Concluding comments and SWOT implications...............................................................1

Annex A: Location quotient diagrams for sub-regions ................................................... A-1

Contact: Simon Pringle Tel: 0161 475 2101 email: [email protected]

Simon Pringle Date: 21 July 2008 Approved by:

Managing Director


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Introducing the Evidence Base

1. In the summer of 2007. the Northwest Development Agency (NWDA), the Regional Development Agency (RDA) for England, commissioned, SQW Consulting (SQW) to provide consultancy support to the North West development of a Modern Manufacturing Strategy and Action Plan (MSAP) for the region.

2. Phase 1 of our study has been to establish an evidence base to underlie the subsequent development of the MSAP. Our approach to this task has been built around first understanding what manufacturing means, in a modern sense, and where it sits within the broader context of economy.

Knowing modern manufacturing… 3. The starting point for understanding is the use of the definition provided by the steering

group. Manufacturing is defined as:

“The full cycle of activities, from research, design, development, production, logistics, after sales service, maintenance/repair, to end of life management”

4. This ‘modern’ definition recognises manufacturing as a process, with production being one essential element of that process. This is not the same as the traditional appreciation of manufacturing as a term, which has focussed on just the production element. Development of the MSAP takes account of the ‘modern’ appreciation of manufacturing and how it operates within the context of the North West economy.

5. However, the modern definition has presented the research team with a significant challenge. Statistical and other research methods for assessing the performance of components of an economy tend to be reliant on a more simplistic (‘old fashioned’) approach to industry classification – based on the primary output or activity of a business. Therefore, for pragmatic reasons, in developing the MSAP it has been necessary to accept different definitions when exploiting different sources of evidence, whilst always trying to get as close to the modern definition as possible.

The approach taken… 6. In Figure below we illustrate diagrammatically our approach to developing the evidence base

for the MSAP. The chart shows that the modern definition of manufacturing is our starting point for this process. Following this, we have used a number of different evidence strands – applying a flexible interpretation of our definition of manufacturing – to identify the key underlying messages relevant to the development of the MSAP. Taken together, the key messages from each of these evidence strands justify, support and inform the MSAP and will allow for the downstream monitoring of manufacturing activity within the region.


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Approach undertaken in developing the evidence base for the MSAP

Source: SQW Consulting

7. The evidence document presents the five strands of evidence that have been used to characterise the evidence base for the MSAP:

• Volume 1.1 : Document Review presenting the key information available from a range of documents that have been reviewed as part of the strategy development process

• Volume 1.2: Statistical Analysis provides, using a range of definitions, a characterisation of modern manufacturing.

• Volume 1.3: Econometric Analysis which sets out econometric projections provided by Cambridge Econometrics (CE) and represents the base projections data on which the sector’s forecasts are based.

• Volume 1.4: Business Survey reports on a web-based survey of manufacturing businesses’ needs that was undertaken between November 2007 and January 2008.

• Volume 1.5: Market Failure Considerations presents a consideration of market failures and why it is important that these are considered when developing the strategy.

Modern definition of manufacturing:

The full cycle – research, design, development, production, logistics, after sales service and end life management

Key messages extracted from each method:

Each research method provides a range of messages relating to manufacturing and it various components

Evidence Strand 1

Evidence Strand 2

Evidence Strand 3

Evidence Strand 4, etc…

Collation of messages:

The various messages from the different strands of research are collated and assessed in relation to manufacturing in its broadest sense

Contributes to strategy


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1: Statistical analysis - introduction

1.1 This report focuses on just one strand of the evidence base, namely statistical evidence relating to manufacturing within the North West economy. It uses a range of definitions to enable the analysis: each is explained as encountered. The structure of the report is as follows:

• firstly, there is an overall discussion of the North West economy and comparison with the national context. Further context is provided by consideration of data at the sub-regional scale. The matters covered include regional level performance with regard the five drivers of productivity upon which Government has increasingly focussed attention with regard improving regional and sub-regional economic performance

• secondly, we provide a detailed analysis of manufacturing performance and change in the North West, including assessments at the sub-regional scale, using a range of sources. In the main, ‘manufacturing’ is considered in terms of the 4 digit SIC classes definition provided to SQW by the NWDA research team. NWDA have previously obtained various data-sets using this classification, analyses are include here.


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2: Background statistics on the North West economy

2.1 We include here overall measures of socio-economic performance within the region. These figures do not specifically relate to manufacturing (although, it is possible in places to see linkages between overall trends and trends in manufacturing specifically) but they do set the overall context within which NWDA interventions are made.

GVA performance of the North West region

GVA per head

2.2 GVA per head is a key indicator of regional economic performance and will be one of the key impact indicators against which future RDA performance will be measured1. Increasing GVA per head is therefore an essential concern of all RDA interventions within an economy. As Figure 2-1 shows, GVA per head in England has been consistently higher than in the North West. Of greater concern is the fact that the GVA gap between the North West and England has actually grown between 1995 and 2004. This represents a considerable challenge for the region to address.

Figure 2-1: GVA per head, 1995-2004

9

11

13

15

17

19

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

GVA

per

hea

d (£

000s

)

England North West

+12%

+17%

Source: ONS

2.3 However, the sub-regions which comprise the North West possess markedly different rates of GVA per head. Figure 2-2 shows that Cheshire and Warrington has the highest GVA per head and has consistently outperformed the national (England) average over recent years (although the gap between the two has narrowed most recently). All the other sub-regions lie below the national average, although each has seen increases over the period shown. Interestingly, Figure 2-2 also shows that over the last decade, the sub-regions have generally

1 See the Sub-national review of economic development and regeneration, HMT, BERR and CLG (2007)


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maintained their relative positions within the North West economy, the only exception being Cumbria which saw little change in its GVA per head figure from 1995 to 2000.

Figure 2-2: GVA per head in North West sub-regions, 1995-20042

7

9

11

13

15

17

19

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

GVA

per

hea

d (£

000s

)

Cheshire Cumbria Greater Manchester Lancashire Merseyside

England

Source: ONS

Overall GVA growth

2.4 GVA growth rates have varied considerably across the North West: as Figure 2-3 shows, the Greater Manchester South area has boomed over recent years with average growth rates above 5%, as have considerable parts of Merseyside. Lancashire too has witnessed relatively strong overall GVA growth, but Greater Manchester North, which includes the traditional textile towns of Wigan, Bolton, Rochdale and Oldham, has experienced lower GVA growth.

2.5 As will be discussed later, there remains a concentration of manufacturing businesses within the economic base of Lancashire and northern part of Greater Manchester. These areas show very different performance in terms of GVA growth rates. The reasons for the differences could be multiple or may be a simple reflection of the NUTS2 geographies rather than an actual difference in economic performance. It is worth considering, however, that if manufacturing (which continues to have higher than average GVA per worker relative to other sectors) declines further in these areas, there may be a further adverse impact on overall GVA.

2 Please note that the sub-regions in this particular diagram refers to NUTS 2 geographies. This means Cheshire includes Halton - Merseyside does not include Halton.


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Figure 2-3: Average Growth in GVA per annum (%), 1995-2004 (NUTS2 areas – over district boundaries)

Source: Regional Economic Forecasting Panel

GVA per worker (productivity)

2.6 Increasing productivity, the volume of output or value produced by an individual, has been regarded as an essential mechanism for improving regional performance. The Regional


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Economic Strategy states that £10bn of the £13bn GVA gap faced by the North West is due to productivity deficits3 and it is therefore a significant factor for NWDA interventions to address. Furthermore, evidence from our literature review and consultations suggests that increasing productivity is a key strategic concern for the North West region overall4.

2.7 The pattern seen earlier with regard to GVA per head is mirrored by GVA per employee figures (shown in Figure 2-4). Although GVA per employee levels in the region have increased, the gap between the North West and England has continued to rise. By 2004, GVA per worker in the North West stood at approximately £35,000 per worker – some 12% lower than in England.

Figure 2-4: GVA per employee, 1999-2004

26

28

30

32

34

36

38

40

1999 2000 2001 2002 2003 2004

GVA

per

em

ploy

ee (£

000s

)

England North West

+8%

+12%

Source: ONS

2.8 At the sub-regional scale, GVA per employee is highest in Cheshire and Warrington, the only sub-region to have a rate higher than England (although the gap, as with GVA per head, has narrowed). All other sub-regions have seen their GVA per employee increase, whilst their relative positions within the region have again remained unchanged. Figure 2-5 shows that three sub-regions in particular face a stark productivity challenge with levels of GVA per employee significantly below the national average, namely Lancashire, Merseyside and Cumbria.

2.9 Although the Greater Manchester figure appears to have been relatively constant over time, this masks a considerable difference between North Greater Manchester5 and South Greater Manchester6. Relative to England, South Greater Manchester (which includes the commercial core) has performed exceptionally well: however, the North of the metropolitan area has seen its performance decline when indexed to the national average.7

3 SQW Consulting are aware that further work, defining the true value of the Region’s GVA gap has been produced since the release of the RES which suggested the actual gap is higher than reported. 4 This has obvious linkages to the Government’s overall drive of improving economic performance with a concentration on the five drivers of productivity (skills, enterprise, innovation, investment and competition) as well as PSA Target 1. 5 The local authority areas of Oldham, Rochdale, Bury, Bolton and Wigan. 6 The local authority areas of Tameside, Trafford, Salford, Manchester and Stockport 7 This commentary is based on an analysis of NUTS3 scale GVA performance which is not shown in this report – an analysis can be found in the reports of the Regional Economic Forecasting Panel.


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Figure 2-5: GVA per employee in North West sub-regions, 1999-20048

22

26

30

34

38

42

1999 2000 2001 2002 2003 2004

GVA

per

em

ploy

ee (£

000s

)

Cheshire Cumbria Greater Manchester Lancashire Merseyside

England

Source: ONS

Key Messages on GVA performance

GVA performance in the region is below that for England. This is not a recent feature however but is a situation which appears to be getting worse. The gap in both GVA per head of population and GVA per worker has widened over the last decade.

This said, the pattern varies between sub-regions within the North West – Cheshire and Warrington has maintained higher levels of GVA per head and GVA per worker, and the urban cores of Liverpool and Manchester have both experienced particularly high growth rates in overall GVA. It is in areas associated with traditional manufacturing production that GVA performance is of concern, particularly Lancashire and parts of North Greater Manchester.

Headline population statistics 2.10 It is also important to understand key changes in population numbers when setting the context

for wider economic change. Population statistics provide a useful indication of the potential availability of labour in an economy and are also indicative of wider economic trends, with buoyant economies often attracting a larger workforce and with it, larger populations.

Changes in total population

2.11 Figure 2-6 shows that the total population in England has increased relatively steadily over the last 25 years, with some acceleration in recent years driven largely by immigration. The North West trend, in contrast, has been slightly downwards albeit with some fluctuations. Since the year 2000 however, total population in the North West has begun to increase, albeit less steeply than for England as a whole.

8 Please note that the sub-regions in this particular diagram refers to NUTS 2 geographies. This means Cheshire includes Halton - Merseyside does not include Halton.


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Figure 2-6: Change in population, 1981-2006

95

100

105

110

1981 1986 1991 1996 2001 2006

Cha

nge

in p

opul

atio

n (1

981=

100)

North West England

Source: Midyear population estimates

2.12 Figure 2-7 reveals that the overall decrease in the North West population since 1981 has largely been driven by sharp falls in the populations of the metropolitan areas of Greater Manchester and Merseyside. Indeed, the population of Merseyside fell by more than 10% over the 25 year period. The areas of Lancashire, Cumbria, and most notably, Cheshire and Warrington, have seen their populations rise: the latter probably reflects the strong economic growth performance of this sub-region and its desirability as a place to live.

Figure 2-7: Change in population in North West sub-regions, 1981-2006

85

90

95

100

105

110

1981 1986 1991 1996 2001 2006

Cha

nge

in p

opul

atio

n (1

981=

100)

Cheshire & Warrington Cumbria Greater ManchesterLancashire Merseyside

England


2.13 The working age population (WAP)9 measured as a proportion of the total population has consistently been lower in the North West than in England, although the gap has narrowed since 1981. Moreover, although overall population level has decreased in the North West (as shown earlier), the proportion of that population which is of working age has increased. Fluctuations in the North West WAP rate have largely mirrored the experience in England overall.

9 WAP is defined here as males aged 15-64 and females aged 15-59


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Figure 2-8: Proportion of total population who are of working age, 1981-2006

60

61

62

63

64

65

1981 1986 1991 1996 2001 2006

Prop

ortio

n of

tota

l pop

ulat

ion

(%)

England North West


2.14 At the sub-regional level, the proportion of working age people in Cheshire and Warrington is now lower than the proportion in England (having been higher in 1981) reflecting a considerable decline in the proportion of the population aged between 20 and 39yrs of age10. An area experiencing the opposite trend is Greater Manchester: this sub-region now has a higher proportion of people of working age than England as a whole, reflecting its growth as an urban centre that has undergone considerable renewal and attracted a greater number of young people. Lancashire and Merseyside have also seen their proportions rise markedly.

Figure 2-9: Proportion of total population who are of working age in North West sub-regions, 1981-2006

58

59

60

61

62

63

64

65

1981 1986 1991 1996 2001 2006

Prop

ortio

n of

tota

l pop

ulat

ion

(%)

Cheshire & Warrington Cumbria Greater ManchesterMerseyside Lancashire

England


Key Messages on population

Population trends in the North West have tended to match, although slightly lag behind, national trends. At the sub-regional level, there have of late been rapid rises in the WAP in Greater Manchester, Merseyside and Lancashire.

10 See the ‘Cheshire and Warrington Economic Review and Forecasts’ produced by SQW for NWDA and CWEA in August 2007 for a greater discussion on this issue.


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The five drivers of productivity 2.15 The five drivers of productivity have been identified by Government as the key domains

within which the UK, and its constituent geographies, can improve the overall level of economic performance, as measured by GVA. The five drivers are: enterprise, skills, innovation, investment and a competitive environment. To improve the GVA performance of the regional economy, action against these five drivers is required.

2.16 Below we detail some of the key indicators and trends relating to these drivers.

Driver 1 - Enterprise

2.17 Increasing levels of enterprise has come to be an important focus for the NWDA, as well as for sub-regional partnerships and local authorities across the North West. For the NWDA, increasing enterprise is particularly important in the context of its cluster programmes, addressing areas of economic activity in which the region is felt to have a competitive advantage.

2.18 Figure 2-10 below shows the change in VAT registrations per 10,000 working age people as a headline measure of enterprise activity in any given year. For the duration of the period shown, the proportion of VAT registrations has been higher in England than in the North West (although the gap has narrowed slightly recently).

Figure 2-10: VAT registrations per 10k WAP, 1998-2005

35

40

45

50

55

60

1999 2000 2001 2002 2003 2004 2005

VAT

regi

stra

tions

per

10k

WA

P

England North West

Source: VAT registrations and APS/LFS

2.19 The table below shows the VAT registration data at the sub-regional level. From the 1999-2005 data, it is evident that Merseyside has experienced the lowest levels of enterprise by some margin. This is not an issue which has gone unnoticed by local authorities in Merseyside and interventions have been put in place to try to address this (such as LEGI in St Helens and North Liverpool/Sefton). The data show an increase in the VAT registrations towards the end of the period.

Table 2-1: VAT registrations per 10k WAP, 1998-2005

1999 2000 2001 2002 2003 2004 2005

1999-2005 average

Cheshire & Warrington 48.4 50.8 50.5 52.7 55.3 54.7 53.4 52.2


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1999 2000 2001 2002 2003 2004 2005

1999-2005 average

Cumbria 34.7 38.6 38.1 44.8 52.8 43.6 40.7 41.9

Greater Manchester 46.5 46.6 43.1 45.7 47.7 46.2 45.5 45.9

Lancashire 43.2 43.0 42.5 43.3 48.7 45.4 42.2 44.0

Merseyside 30.4 30.5 29.4 29.8 34.8 33.4 32.2 31.5

North West 41.7 42.3 40.6 42.6 46.5 44.2 42.7 42.9

England 52.5 53.0 49.8 51.6 55.5 52.8 51.0 52.3


2.20 VAT registration is only one measure of enterprise. Figure 2-11 shows that the rate of self- employment in the North West has risen since 1999, indicating a growth in entrepreneurial activity. This is in line with wider national trends. However, there still remains a significant disparity in levels of self-employment between the North West region and England overall.

Figure 2-11: Self-employment rates, 1998-2006

10

11

12

13

1999 2000 2001 2002 2003 2004 2005 2006

% o

f WA

P in

em

ploy

men

t who

are

self-

empl

oyed

England North West

Source: APS/LFS

2.21 Self-employment levels in the North West sub-regions vary. Interestingly, it appears that the more sparsely populated sub-regions – Cumbria, followed by Cheshire and Warrington and Lancashire – are also those with the highest levels of self-employment. Greater Manchester and Merseyside have relatively low self-employment rates and have seen little change since 1999.

Table 2-2: Self-employment rates in North West sub-regions, 1999-2006

1999 (%) 2006 (%) Percentage point change, 1999-2006

Cheshire and Warrington 11.3 12.8 1.5

Cumbria 12.6 13.9 1.3

Greater Manchester 10.1 10.9 0.8

Lancashire 11.4 11.2 -0.2

Merseyside 9.7 10.1 0.4


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North West 10.7 11.3 0.6

England 11.9 12.7 0.8

Source: APS/LFS

2.22 In later sections of this report data are provided on levels of manufacturing business start-ups, on changes in the proportions of businesses that are manufacturing, and on the changes in manufacturing business density.

Key Message on enterprise

The North West has relatively low levels of enterprise, based upon VAT registrations data and self-employment rates. Action to address this has come to be a key priority for the region, particularly in those sub-regions and local areas with the lowest rates of enterprise activity, e.g. in Merseyside. Nevertheless, there have some been significant increases since 1999, particularly in Cheshire and Warrington and in Cumbria.

Driver 2 - Qualification levels and skills

Qualifications

2.23 One of the key issues affecting the performance of the North West economy is the skills available within the region. Interestingly, the cluster mapping studies undertaken in the region present a mixed picture on skills: although almost all cluster organisations recognise a need for higher skill levels, a number discuss the competitive advantage the region already has with regards to the skill-sets the workforce already possesses11. Where deficits are acknowledged, they are often regarded as being in the Level 3 and Level 4 qualification categories directly linked to manufacturing industries.

2.24 Figure 2-12 below reinforces this message to some degree. It shows that whilst the North West has a similar proportion of working age people possessing NVQ Level 2+ qualifications as in England overall, there is a shortfall in the proportion of people with Level 4+ qualifications. This suggests that converting Level 2+ qualifications into higher level skills is a key challenge for the region. More positively, the disparity between the North West and England in terms of Level 4+ rates is now slightly narrower than it was in 1999.

11 Evidence taken form the cluster documents and from discussions with partners are featured within separate evidence reports. The point being made here is that skills is an important issue for the region as a whole which is recurrently stressed by different sources of research evidence.


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Figure 2-12: Proportion of WAP with NVQ level 4 or above and NVQ level 2 or above, 1999-2006

10

20

30

40

50

60

70

1999 2000 2001 2002 2003 2005 2006

Prop

ortio

n of

WA

P w

ith N

VQ 2

+ an

d N

VQ 4

+ (%

)

England North West

NVQ 2+

NVQ 4+

Source: APS/LFS

2.25 Getting people with no qualifications onto the skills ladder is a significant challenge, not only for the North West but also nationally. However, Figure 2-13 shows that despite significant improvements in reducing the proportion of people possessing no qualifications, the North West still has a larger problem to overcome than is the case nationally.

2.26 Although the manufacturing sector itself now requires a higher proportion of qualified individuals than it once did, evidence from the Leitch Review of Skills in the UK has suggested that encouraging people with no qualifications to gain Level 1 and Level 2 qualifications may have a greater impact on productivity overall than increasing the number of Level 4 qualified people within the economy12. However, the Sainsbury Review of Science and Innovation stresses how essential high-end skills will be in making the UK more competitive in global markets13.

Figure 2-13: Proportion of WAP with no qualifications, 1999-2006

12

14

16

18

20

1999 2000 2001 2002 2003 2005 2006

Prop

ortio

n of

WA

P w

ith n

o qu

alifi

catio

ns (%

)

England North West

Source: APS/LFS

2.27 Table 2-3 shows a breakdown of skills levels within the North West sub-regions. It reveals some interesting characteristics:

12 Leitch Review of Skills: Prosperity for all in the global economy – world class skills (December 2006) 13 Sainsbury Review of Science and Innovation - The Race to the Top: A Review of Government’s Science and Innovation Policies (October 2007)


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• all sub-regions have witnessed an increase in the share of their workforce possessing higher-level skills. However, Lancashire and Merseyside in particular still face a significant gap relative to regional and national levels, a gap which has increased since 1999

• Cheshire and Warrington has the highest proportion of working age people with NVQ Level 4+ qualifications. (It is also the most productive area of the North West economy as shown earlier, reinforcing the link between skills and productivity)

• within all the sub-regions, there is a sizeable proportion of the working age population possessing Level 2+ skills, either comparable to or above national levels

• positively, all sub-regions have seen decreases in the proportion of working age people with no qualifications. Nevertheless, the issue remains especially pertinent in Greater Manchester and Merseyside where the proportion is still much higher than the national average.

Table 2-3: Qualifications held by WAP in North West sub-regions, 1999-2006

NVQ 4+ NVQ 2 + No Qualifications

1999 2006 % point change 1999 2006

% point change 1999 2006

% point change

Cheshire and Warrington 26.9 33.1 6.2 64.7 69.3 4.6 15.2 11.1 -4.1

Cumbria 16.6 25.0 8.4 57.7 66.0 8.3 14.1 9.0 -5.1

Greater Manchester 18.7 25.3 6.6 55.9 63.4 7.5 20.0 17.0 -3.0

Lancashire 20.0 22.3 2.3 58.2 63.4 5.2 17.6 14.7 -2.9

Merseyside 17.6 21.3 3.7 53.7 59.6 5.9 23.1 19.9 -3.2

North West 19.6 24.8 5.2 57.2 63.5 6.3 19.1 15.8 -3.3

England 22.4 27.1 4.7 57.7 63.3 5.6 16.5 13.6 -2.9

Source: APS/LFS

Skill deficits

2.28 The 2005 National Employers Skills Survey (NESS) showed that 16.4% of employers surveyed in the North West reported skills gaps within their workforce. This replicates the proportion at the national level.

2.29 Of these employers, the main types of skills which were reported as in need of improvement are summarized in Table 2-4. It is noticeable that the most acute skills gaps were in customer handling, technical or job-specific skills, team working, problem solving and oral communication skills. Across all the skill sets, there is a greater deficit in the North West relative to England. This indicates that workers in the North West need up-skilling to a greater extent than is the case nationally if the gap is to be closed.


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Table 2-4: Skills that need improving among the workforce according to employers with skills gaps14

Type of skill

% of employers with skills gaps North West

% of employers with skills gaps in England

Percentage point difference (NW vs. England)

Customer handling skills 53.2% 46.4% 6.8%

Technical, practical or job-specific skills 52.6% 49.5% 3.1%

Team working skills 51.3% 41.7% 9.6%

Problem solving skills 51.1% 41.6% 9.5%

Oral communication skills 48.9% 40.7% 8.2%

Management skills 32.7% 30.2% 2.5%

Written communication skills 32.5% 28.0% 4.5%

Office / admin skills 30.3% 25.3% 5.0%

General IT user skills 29.6% 27.1% 2.5%

Literacy skills 24.1% 19.0% 5.1%

Numeracy skills 22.6% 17.9% 4.7%

Source: 2005 NESS

Key Messages on qualifications and skills

The North West region as a whole has a skills deficit when compared to the national picture. Priority issues are around raising the number of people with NVQ Level 4 qualifications and reducing the number possessing no qualifications. However, there has been an improvement in recent years: data at the regional level masks sub-regional and local variability. Although the proportion of people with Level 4+ qualifications is increasing it is still felt to be a key issue based on evidence from other sources.

Businesses in the region have reported particular skills gaps among their workforce in customer handling, technical, practical or job-specific skills, team working and problem solving.

The continued deficit, and widening of the ‘skills gap’ in Lancashire, may be regarded as being a key concern given that, as we will show later, the Lancashire area continues to have a concentration of manufacturing businesses. As other evidence sources suggests (e.g. from our consultations) manufacturing businesses are in urgent need of higher-end skills. The requirements of the sector may not be met without intervention.

Driver 3 - Innovation

2.30 Developing innovative capacity is seen as an essential to generate extra economic wealth and economic activity. This was a key conclusion of the Sainsbury Review. The logic is simple: economies which are able to innovate are better able to generate competitive advantages relative to competitor economies. The implication is that increasing employment and enterprise levels is not enough: there needs to be a focus on innovation and high-end skills to have the largest possible effect on raising the region’s GVA performance. The cluster strategies that are being developed have highlighted the need to increase innovative capacity, including by businesses with the university research-base.

14 All skill types which over 20% of employers with skills gaps in the North West reported as in need of improvement.


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Knowledge Intensive Businesses

2.31 A SIC code based definition of knowledge intensive businesses (KIBs), developed to conform to an OECD definition, exists and can be used to provide an indicative assessment of innovative capability.

2.32 Figure 2-14 shows that the proportion of employment in KIBs in the North West has risen slightly since 1998 to 9.1% of the workforce by 2005. Employment in KIBs is still below the national average, but the gap has narrowed since 2001. However, this is due to the England level dropping off rather than the North West improving dramatically. A later section of this report considers the same data for manufacturing businesses specifically.

Figure 2-14: Employment in knowledge-intensive businesses, 1998-2005

8.5

9

9.5

10

10.5

11

11.5

1998 1999 2000 2001 2002 2003 2004 2005Prop

ortio

n of

em

ploy

men

t in

KIB

s (%

)

North West

England

Source: ABI

2.33 Turning to the sub-regions, it is evident that the proportion of people employed in KIBs has barely changed since 1998. The familiar picture of Cheshire and Warrington being the best performing sub-region in the North West is continued: this area has a strong performance is GVA per capita, GVA per worker, qualification levels and KIBs. Cumbria remains the sub-region with the largest deficit relative to England in terms of employment in KIBs.

Figure 2-15: Employment in knowledge-intensive businesses in North West sub-regions, 1998-2005

4

6

8

10

12

14

1998 1999 2000 2001 2002 2003 2004 2005Prop

ortio

n of

em

ploy

men

t in

KIB

s (%

)


England

Source: ABI


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Key Message in knowledge intensive businesses

Innovation is a key driver of economic growth and is closely linked to the growth of high-knowledge sectors. Although employment in KIBs in the North West is below the national level, recent data suggest the region is steadily moving towards more knowledge-based employment.

Use of ICT

2.34 The utilisation and application of information and communication technology (ICT) is one of the most significant ways in which a business can increase productivity. Although more readily associated with ‘new’ industries and professional services, the adoption of ICT is as relevant to manufacturing businesses.

2.35 The Regional Intelligence Unit of NWDA has undertaken various research projects into ICT take-up in the region (e.g. see Figure 2-16 below) which have shown that use is greatest in Cheshire and Warrington, and lowest in Lancashire where there remains a considerable manufacturing presence. Although not possible to assess the types of businesses using ICT, it is reasonable to assume that there remain opportunities for manufacturing businesses in Lancashire to consider the benefits of ICT to their businesses.

Figure 2-16: Proportion of firms using IT systems, by North West sub-region

62

64

66

68

70

72

74

76

78

80

Cheshire &Warrington

GreaterMerseyside

GreaterManchester

North West Cumbria Lancashire

Com

pute

r sys

tem

usa

ge b

y bu

sine

sses

ac

ross

the

regi

on (%

)

Source: NW RIU research

2.36 With regard the take up of broadband technology there has been a surge of use across the whole of the region in recent years, as shown in Figure 2-17. This reflects wider national trends. By March 2006, Cheshire and Warrington had the highest broadband take-up rate with Greater Manchester and Merseyside the lowest. However, some caution should be taken when interpreting these figures because they represent BT’s broadband take-up volumes rather than total market volumes.


19

Figure 2-17: ADSL broadband take-up by households and businesses, March 2003-March 2006

0

5

10

15

20

25

30

35

March 2003 March 2004 March 2005 March 2006

Bro

adba

nd ta

ke-u

p (B

T da

ta)

Cheshire & WarringtonCumbriaGreater ManchesterLancashireMerseysideNorth West United Kingdom

Source: BT

Key Message on ICT

Utilisation of ICT can lead to significant productivity increases. The North West has witnessed increasing take up of ICT and broadband technology. Interestingly, Lancashire again performs poorly. Whether this correlates with the area’s higher concentration of manufacturing businesses cannot be determined from these data. However, it is a matter worthy of further consideration in developing the MSAP.

Driver 4 - Investment

2.37 Investment takes many forms. One emergent area where data are available is in the domain of investment in R&D. As identified by a number of our consultees and in the literature (e.g. in the Sainsbury Review), investment in R&D is important for the future of manufacturing.

2.38 The North West has a similar rate of business expenditure on R&D to that in England, but lags behind in terms of total R&D expenditure. The gap between the North West and England in terms of total R&D expenditure is now narrower than it was in 2000. Business R&D expenditure is now higher in the North West than in England, weighted to population size.

2.39 Interestingly, SQW Consulting undertook an economic review of the Cheshire and Warrington sub-region on future priorities in 2007. The study considered the exceptionally high levels of R&D in Cheshire and Warrington and recognised that this was largely due to the activities of a single business – AstraZeneca15. This single business will undoubtedly have a significant impact on the figures for the North West overall.

15 See also work undertaken by Regeneris Consulting for Astra-Zeneca which estimated that close to one third of R&D expenditure in the North West was resultant of Astra-Zeneca activity.


20

Figure 2-18: R&D expenditure per head (total and business), 2000-2004

200

225

250

275

300

325

350

375

2000 2001 2002 2003 2004

R&

D e

xpen

ditu

re p

er h

ead

of p

opul

atio

n (£

)

North West England

Total R & Dexpenditure

Business R & Dexpenditure

Source: ONS

Key Message in investment

The overall level of R&D expenditure by businesses in the region is in line with national expenditure. However, a large part of this is dependent on AstraZeneca (which puts regional performance at risk should this company decide to ‘downsize’ or relocate its R&D activities). There is a deficit in terms of total R&D expenditure, including spend by universities and the public sector.

Driver 5 - Competitive Markets

2.40 Measuring the competitiveness of sub-national geographies is often difficult. In many ways, the national regulation and taxation regime is the major determining factor for competitive market transactions and is therefore out of the hands of regional players. Indeed, reducing tax was something many businesses stressed as the key to improving their competitiveness when responding to the business survey undertaken as part of the research process. Although responding to these issues is not directly within the remit of the MSAP strategy it is relevant to highlight these concerns as a means of seeking to influence Government.

Business survival

2.41 The Small Business Service (SBS) has for some time provided data on business survival rates with sub-national geographies.

2.42 The chart below shows that one-year business survival rates in the North West are now broadly consistent with the rates in England, having started off slightly lower in 1995. Similarly, for businesses that began in 2002 (the latest year for which there are data i.e. still surviving in 2005), the North West three-year survival rates has converged with the rates in England. This points to some increase in the durability and competitiveness of new firms in the North West over the period.


21

Figure 2-19: One year and three year business survival rates, 1995-2004

60

70

80

90

100

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

% o

f bus

ines

ses

still

trad

ing

North WestEngland

One year survival rates

Three year survival rates

Source: DBERR Small Business Service

2.43 Figure 2-20 confirms that the strong regional performance in the most recently published survival rate figures is replicated throughout the North West sub-regions. Only Greater Manchester has survival rates lower than the rates in England: all other sub-regions have survival rates broadly equal to or above national rates.

Figure 2-20: One year and three year business survival rates in North West counties16, 2002 and 2004

60

65

70

75

80

85

90

95

Chesh

ire

Cumbri

a

Greater

Man

ches

ter

Lanc

ashir

e

Mersey

side

North W

est

Chesh

ire

Cumbri

a

Greater

Man

ches

ter

Lanc

ashir

e

Mersey

side

North W

est

% o

f bus

ines

ses

still

trad

ing

One year survival rates (2004 figures)

Three year survival rates (2002 figures)

England

England

Source: Small Business Service

2.44 These data are not broken down by business type. However, in later sections we do consider the business de-registration rates for manufacturing.

Key Message on competition

Business survival rates have improved over recent years and are now in line with national rates – this suggests that new business starts in the North West have become more robust.

16 The geographies here refer to counties – hence data for the unitary authorities of Blackburn with Darwen, Blackpool, Halton and Warrington are not included in the data.


22

Labour market dynamics 2.45 As well as factors associated with the five drivers of productivity, the other key area where

the region can improve its economic performance is in the area of increased labour market activity. Indeed, the current RES attributed £3bn of the regions £13bn GVA gap to reduced labour market activity.

Economic activity

2.46 Economic activity rates represent the proportion of the working age population who are available and looking to work. Between 1999 and 2006, economic activity in the North West has increased from 75.8% to 76.7%, reflecting a more buoyant labour market. Over the same period, the rate of economic activity in England has remained fairly constant. Overall, this means that the North West has started to catch up with the national average in terms of economic activity.

Figure 2-21: Economic activity rates, 1999-2006

74

75

76

77

78

79

80

1999 2000 2001 2002 2003 2004 2005 2006

Prop

ortio

n of

WA

P w

ho a

re

econ

omic

ally

act

ive

(%)

England North West

Source: APS/LFS

2.47 Unsurprisingly, the nature and buoyancy of local labour markets varies significantly across the region. Looking at the sub-regional picture, it is clear that whilst Cheshire and Warrington and Cumbria have very active labour markets, the same is not true for Merseyside. However, of all the North West sub-regions, Merseyside has witnessed the largest percentage point rise in economic activity rates over the last seven years.

Table 2-5: Economic activity rates in North West sub-regions, 1999-2006


Cheshire & Warrington 80.0 80.3 0.3

Cumbria 77.3 80.0 2.7

Greater Manchester 76.1 76.8 0.7


Merseyside 69.6 72.7 3.1

North West 75.8 76.7 0.9


23


England 78.9 78.6 -0.3

Source: APS/LFS

Unemployment

2.48 Raising levels of economic activity is just one side of the coin however in creating a stronger and more active labour market. The other side is making sure there are enough employment opportunities to satisfy demand. It is therefore important to look at unemployment levels, which show the proportion of the economically active population not in employment (and as economically active individuals, unable to find employment).

2.49 As displayed in Figure 2-22, the unemployment rate in the North West has generally mirrored the national picture, with a downward trend in unemployment in both until 2004.

Figure 2-22: Unemployment rate, 1999-2000

4.5

5.0

5.5

6.0

6.5

7.0

1999 2000 2001 2002 2003 2004 2005 2006

Prop

ortio

n of

eco

nom

ical

ly a

ctiv

e W

AP

who

are

une

mpl

oyed

(%)

England North West

Source: APS/LFS

2.50 Similarly, at the sub-regional level, unemployment rates have fallen since 1999 in all the North West sub-regional economies, with the sole exception of Cheshire and Warrington (which admittedly started from a very low base). As with many of the other indicators analysed in this report, Merseyside has performed least well in relation to unemployment rates although there has been a considerable improvement over the years, alongside other positive trends in this area.

Table 2-6: Unemployment rates in North West sub-regions, 1999-2006


Cheshire & Warrington 3.6 3.8 0.2

Cumbria 5.8 4.5 -1.3

Greater Manchester 6.7 5.5 -1.2


Merseyside 9.1 6.9 -2.2

North West 6.5 5.4 -1.1


24


England 5.8 5.5 -0.3

Source: APS/LFS

Occupational classifications

2.51 The following chart shows the percentage point difference between the North West and England in terms of the proportions of people employed in different occupations. These are important with regard the current purpose as many of the cluster studies considered in the other evidence strands report on the need to increase the proportion of workers in higher end occupations (managers, professional and technical).

2.52 In 2001 and 2006, the North West was under-represented with regards to managers and senior officials, with the gap increasing over the period. However, the gap in terms of the under-representation of professional occupations and associate professional and technical occupations – the other high value added occupations17 – narrowed between 2001 and 2006. The North West was over-represented in terms of all other occupations, particularly with regard to sales & customer services and process plant & machine operatives, with the latter presumably reflecting the greater presence of manufacturing in the North West relative to England.

Figure 2-23: Occupational structure of the North West relative to England, 2001 and 2006

-2-1.5

-1-0.5

00.5

11.5

2

Man

ager

s &

seni

orof

ficia

ls

Prof

essi

onal

occ

upat

ions

Asso

ciat

e pr

of &

tech

nica

l

Adm

in &

sec

reta

rial o

ccs

Skille

d tra

des

Pers

onal

ser

vice

occ

s

Sale

s &

cust

omer

ser

vice

soc

cs

Proc

ess

plan

t & m

achi

neop

erat

ives

Elem

enta

ry o

ccs

Perc

enta

ge p

oint

diff

eren

ce

rela

tive

to E

ngla

nd

2001 2006

Source: APS/LFS

2.53 In all the North West sub-regions, the top three occupational groups, taken together, comprise the greatest number of employees, although the proportions vary as shown in Figure 2-24. Merseyside and Cumbria have the lowest proportions, whilst Cheshire and Warrington has the largest. Cumbria has the largest proportion of administration & secretarial and skilled trade occupations and Merseyside has the largest proportion of personal service occupations.

17 As recognised in the Leitch Review of Skills: Prosperity for all in the global economy – world class skills (December 2006)


25

Figure 2-24: Proportion of employment in each occupational group by North West sub-region, 2006

0%

20%

40%

60%

80%

100%

Che

shire

&W

arrin

gton

Cum

bria

Gre

ater

Man

ches

ter

Lanc

ashi

re

Mer

seys

ide

Nor

th W

est

Engl

and

Prop

ortio

n of

all

in

empl

oym

ent (

%)

Managers & senior off icials, professional, associate prof and technical occsAdministration & secretarial; skilled tradesPersonal service, sales and customer service occupationsProcess plant & machine operatives; elementary occupations

Source: APS

Wages

2.54 The median gross weekly pay of full time workers in both England and the North West has increased consistently over the last decade. However, throughout this period, levels have been higher in England than in the North West and most recently the gap has widened slightly.

Figure 2-25: Median gross weekly pay of full-time workers, 1998-2006

300

320

340

360

380

400

420

440

460

480

1998 1999 2000 2001 2002 2003 2004 2005 2006

Med

ian

gros

s w

eekl

y pa

y (£

) England North West

Source: ASHE workplace analysis

Key Message on labour market conditions

Economic activity and employment rate data have been moving in a positive direction for some time – generally, a greater proportion of the working age population is available to work and a greater share has been in employment. A greater proportion being economically active should mean more people are available to supply their labour to the business base (including manufacturing businesses).

Although occupational classifications do not directly mirror industry types, the higher concentrations of ‘process, plant and machine operatives’ would traditionally be associated with manufacturing type businesses. In the context of a “modern” definition of manufacturing, any deficits in the labour market in managerial, senior professional and high-end technical occupations become more important.


26

3: Manufacturing businesses in the North West

3.1 This section looks at manufacturing-specific data relating to the North West. It uses many of the same sources of data included within the previous section in an attempt to relate ‘manufacturing’ performance to that of the wider economy. It also enables a demonstration of the significance of manufacturing within the regional context.

Manufacturing GVA Performance

GVA Performance

3.2 Manufacturing GVA as a proportion of total GVA has decreased since 1989. ‘Manufacturing’ as defined in these statistics is the definition used by Government when publishing regional accounts data. The more substantive point is that manufacturing’s share of GVA within the North West economy has remained higher than that in the UK economy, although the gap between the two is narrowing. Manufacturing therefore adds more GVA to the regional economy in the North West than it does to the overall UK economy: it is a key contributor to the North West’s overall GVA.

Figure 3-1: Manufacturing GVA as a proportion of total GVA, 1989-2004

10

15

20

25

30

35

1989 1994 1999 2004

Prop

ortio

n of

tota

l GVA

acc

ount

ed fo

r by

man

ufac

turin

g se

ctor

(%)

North West United Kingdom

Source: ONS

3.3 As stated, the GVA data included here are those reported by Government within regional accounts data. The figures also break down to manufacturing sub-sectors and these data are considered below. It is important to note that the sub-sectors are those at which the data are reported and do not mirror or match definitions used within other sections of the report: as with all the data-sets reported, it is the general message rather than the specific detail that is being considered.


27

Figure 3-2: Proportion of total GVA accounted for by manufacturing sub-sectors in the North West, 1989-2004

0

1

2

3

4

5

6

1989 1994 1999 2004

Prop

ortio

n of

tota

l GVA

(%)

Chemicals & products andM an-made FibreFood Products; Beverage& TobaccoTransport Equipment

Pulp, Paper & products;Publishing & PrintingBasic M etals & FabricatedM etal ProductsElectrical & OpticalEquipmentCoke, Ref. Petro leum &Nuclear FuelsM achinery & equipmentsnecRubber & P lastic Products

M anufacture nec

Textiles & ass products

other Non-metallicproductsWood & ass products

Leather & ass products

Source: ONS

3.4 As would be expected given the data in the previous graph, most manufacturing sub-sectors provide an ever decreasing proportion of total GVA within the regional economy. Some interesting anomalies can be found in the following sectors:

• the chemicals & products and man-made fibre sector saw an increase in its share of GVA during the early 1990s before decreasing. The sector represents over 3.5% of all the GVA produced within the region

• the transport equipment sector experienced decreases up to 1996, before increasing again at the end of the decade and subsequently decreasing

• the manufacturing nec. sector has seen an increase over the period since 1989.

3.5 The general trend is consistent across all sectors: manufacturing accounts for a smaller and smaller proportion of regional GVA in the North West, yet is still a bigger contributor to the regional economy in the North West relative to nationally.

GVA per worker compared to other sectors

3.6 GVA per worker provides a measure of productivity within an economy. As GVA per worker represents the key target within Public Service Agreement (PSA) 1, it is an exceptionally significant measure of performance.

3.7 Obtaining GVA data by sector at geographical scales of use and relevant to any individual piece of analysis often proves problematic. In general, data are not reported by sector (except within Regional Accounts and as analysed above) or by useable geographies (the data are reported by ONS at the NUTS 2 and NUTS 3 scales).


28

3.8 However, as part of its work for the North West Economic Forecasting Panel, Cambridge Econometrics (CE) has produced forecasts at the broad industrial group level for the North West economy. These are based on CE’s modelling approach but use actually reported data-sets to forecast forward. Retrospectively, the modelling provides accurate GVA data for the historical period.

3.9 The CE data, as reported in the REFP Long Term Forecasts (March 2007), show the productivity (GVA per employee) by broad industrial sector for the North West relative to the UK. Manufacturing, both nationally and within the region, is the most productive broad industrial groupings: in both the North West and UK in 2005, the GVA per employee produced by manufacturing stood at just short of £45,000. The next highest in the North West was ‘other services’ at around £32,000. This compared unfavourably to the national situation in which the GVA per employee in other services stood near £40,000. Therefore, not only is manufacturing defined as a broad industrial group producing the highest GVA per worker in the region, it is a group where productivity levels are on a par with those nationally.

3.10 As part of the MSAP development process the underlying projection data on which the regional econometric forecasts were produced have been purchased from CE. An analysis of these econometrics data is provided in a separate evidence paper.

Turnover18

3.11 The following section reviews turnover data made available to SQW Consulting by NWDA’s central research team. The data come from the Inter-Departmental Business Register (IDBR) which can provide data on such things as turnover, GVA, numbers of employees etc. The NWDA team investigated the potential to obtain GVA data from the IDBR for the 17 ‘cuts’ of the regional economy which they use. However, the data were felt to be unreliable in many cases and were not purchased. It is this NWDA research team’s definition of ‘manufacturing’ that is used below although use is made of the 17 ‘cuts’ in later sections.

Turnover by geography

3.12 Figure 3-3 shows turnover per manufacturing enterprise and turnover per enterprise in the North West and England. Within the North West, manufacturing has a particularly higher level of turnover per enterprise when compared with national data.

18 Data for turnover for manufacturing, and the 17 sector cut of the North West economy was obtained by NWDA from IDBR and made available to SQW for this analysis.

Key Message on GVA

The share of GVA attributed to the manufacturing sector, based upon the narrow Government definition, has been in continuous decline for some time. The data show that this decline is occurring across all sub-sectors as defined in the Government’s Regional Accounts.

With regards to productivity, the data contained within the REFP show two key features:

• manufacturing is the most productive broad industrial group within the regional economy – in the context of looking to close the regional productivity gap, recognising this is important

• manufacturing is a broad industrial group in which the region’s GVA per employee is on a par with that nationally – in other broad industrial groups, such as ‘other services’, GVA per employee is higher nationally than in the North West.


29

Figure 3-3: Turnover per enterprise (all sectors and manufacturing sector), 1998-2006

500

1000

1500

2000

2500

3000

3500

1998 2000 2002 2004 2006

Turn

over

per

ent

erpr

ise

(£k)

NW Manufacturing England ManufacturingNW all sectors England all sectors

Source: IDBR

3.13 Figure 3-4 provides some particularly important messages. Within the North West, turnover per employee is higher in manufacturing businesses than in non-manufacturing businesses. In England overall, turnover per employee in manufacturing is less than the average across all sectors. That said, manufacturing employees in the North West produce less turnover per head than manufacturing employees in England overall.

Figure 3-4: Turnover per employee (all sectors and manufacturing sector), 1998-2006

50

100

150

200

1998 2000 2002 2004 2006

Turn

over

per

em

ploy

ee (£

k)

NW Manufacturing England ManufacturingNW all sectors England all sectors

Source: IDBR

3.14 The following chart shows the turnover of manufacturing by enterprise and per ten employees per North West sub-region. The chart shows the pre-eminence of Cheshire and Warrington, both in terms of turnover per enterprise and turnover per ten employees. The importance of Cheshire and Warrington’s manufacturing base to the regional economy is demonstrated by this chart.


30

Figure 3-5: Turnover in manufacturing sector in North West sub-regions, 2006

0

1000

2000

3000

4000

5000

6000

7000

Che

shire

&W

arrin

gton

Cum

bria

Gre

ater

Man

ches

ter

Lanc

ashi

re

Mer

seys

ide

Nor

th W

est

Engl

and

Turn

over

in m

anuf

actu

ring

sect

or (£

k)

per manufacturing enterprise

per 10 employees in themanufacturing sector

Source: IDBR

3.15 The high turnover per enterprise figures in Cheshire and Warrington are likely to be the result of some very large (and high turnover) businesses located within the sub-region (such as AstraZeneca and firms in the chemical industry – see the sub-regional location quotients presented in Annex A). In turn, this also equates to the highest turnover per employee figures within the North West. Merseyside too has turnover per manufacturing employee and per business figures that are (slightly) above the overall North West average. Perhaps more worrying are the figures for Lancashire (which has still a concentration of manufacturing businesses – see later mapping of this) and Greater Manchester (which has a concentration in manufacturing in the northern half). In these areas the turnover per enterprise and turnover per employee are relatively low relative to both North West and national levels.

Turnover by cluster/sector

3.16 The turnover data provided by the NWDA show the turnover per business and per employee across the 17 cluster/sector definitions used by the Agency. Again, this can be used as a proxy for productivity and contribution to regional wealth (although it is worth stressing that GVA data would provide a better measure of performance but these data are not available19).

Table 3-1: Turnover per business and employee and % share of total turnover (2006)

Cluster / Sector (NWDA Research Definitions) Turnover per business (£k)

Turnover per employee (£k)

% share of total turnover (of NW in terms of clusters/sectors)

England 1,956,000 145,000 -

North West 1,103,000 84,000 -

England manufacturing 3,096,000 149,000 11.3

NWDA Manufacturing 2,847,000 124,000 19.9

1 Bio-medical 14,073,000 266, 000 2.7

19 This is an important point to note. A business can be producing a high turnover yet a negative amount of GVA if the value of its sales (turnover) is less than the costs of production of goods – i.e. if the business is unprofitable.


31

Cluster / Sector (NWDA Research Definitions) Turnover per business (£k)

Turnover per employee (£k)

% share of total turnover (of NW in terms of clusters/sectors)

2 Food & drink 876,000 83,000 13.1

3 Environment and Energy 3,875,000 199,000 3.2

4 Digital & Creative 798,000 107,000 5.8

5 Advanced Engineering & Materials 1,510,000 124,000 12.4

6 Business and Professional Service 898,000 114,000 14.9

7 Mining 3,234,000 151,000 0.1

8 Manufacturing - paper & wood related 2,301,000 144,000 1.5

9 Construction related 766,000 114,000 9.7

10 Manufacture of basic and fabricated metals 1,544,000 102,000 2.0

11 Manufacture of household/office goods 2,464,000 163,000 3.7

12 Retail/wholesale not elsewhere 1,190,000 120,000 12.4

13 Leisure/tourism not elsewhere 984,000 39,000 0.7

14 Transport/logistics not elsewhere 1,522,000 123,000 6.0

15 Public Admin - not elsewhere 1,394,000 16,000 3.4

16 Services not elsewhere 261,000 35,000 1.4

17 Health & Care 1,952,000 47,000 6.8

Source: IDBR

3.17 The first point to make is that manufacturing, as defined using the NWDA definition, produces £124,000 in turnover per employee relative to £84,000 per employee on average in the wider economy. Although not an exact productivity measure (as this would normally be GVA per employee) it indicates that productivity per employee in manufacturing is higher than the average regionally. More stark is the higher turnover per employee figures recorded in some specific ‘manufacturing’ sub-sectors. Bio-medical (which includes pharmaceuticals using the definition of the NWDA research team) records a figure of £266,000 of turnover produced per employee – an exceptionally high measure. Overall, a number of ‘manufacturing’ sectors have turnover figures above the average for the region justifying he view that they should be seen as adding relatively greater value to the regional economy.

Key Message – turnover data

The turnover data provided here suggest that the manufacturing sector in the North West is more important than other sectors as measured by turnover per business and turnover per employee. Also, this is more important in the North West than it is in the national case.

Although not a perfect measure of productivity, the greater turnover produced per employee in manufacturing, and particularly in some specific manufacturing sub-sectors, suggests that the sector, and especially these sub-sectors, is contributing an above average level of added value.


32

Relative importance of manufacturing

Location Quotients

3.18 Location quotient (LQ) diagrams illustrate the broad sectoral split of employment within an economy. The horizontal axis shows the level of employment within a sector relative to a comparator for a given year. In the case below, the analysis looks at the North West relative to England in 2006; those “bubbles” to the right of the vertical axis illustrate sectors that are over-represented20 in the North West economy relative to the national average, whilst those to the left show an under-representation relative to England. The vertical axis presents the change in employment by sector since 1998 in the North West. Looking vertically, if a sector is situated above the horizontal axis, then that sector has seen an increase in employment over the time-frame shown (1998-2006), and those below the axis have seen a decrease. The size of the “bubble” indicates the absolute importance of that sector in employment terms (the sector represented by the biggest “bubble” has the most employees).

3.19 Figure 3-6 shows the LQ diagram for the 17 priority or employment based sectors into which the NWDA divides the regional economy. They are shown here to indicate the relative importance of what might broadly be seen as manufacturing-based clusters/sectors to wider clusters/sectors in the North West. In additional a bubble is included demonstrating the LQ and employment change of ‘manufacturing’ as defined using the NWDA research team’s 4 Digit SIC definition (see bubble – “NWDA Manufacturing”).

Figure 3-6: Employment structure by NWDA defined sector and overall change in employment, 1998-200621

NWDA Manufacturing

Bio-medical

Food & drink

Digital & Creative

Advanced Eng & Materials

Business & Prof Service

Transport/logistics nec

Public Admin - nec

Manufacture of household/off ice

goods

Construction related

Services nec Health & Care

Environment & Energy

Manufacture of basic & fabricated

metals

Manufacturing - paper & w ood

related

-100

-50

0

50

100

0 0.5 1 1.5 2

LQ North West vs England, 2006

% c

hang

e in

em

ploy

men

t,19

98-2

006 Retail/

w holesale nes

Source: IDBR data provided by NWDA

3.20 A number of points should be noted with reference to the above: 20 ‘Over- representation is not necessarily a bad thing - having an over-representation of a high GVA sector relative to England is a positive factor for the regional economy. 21 The priority sector of mining cannot be seen on this diagram as its employment base is too small. In addition, the ‘leisure and tourism not elsewhere specified’ sector experienced employment growth considerably above the axis values and therefore has not been shown.


33

• firstly, manufacturing has declined in employment terms since 1998 but remains over-represented in the regional economy relative to the national situation (NB: this is not necessarily a negative condition)

• the bio-medical sector has seen the greatest growth and is the most over-represented sector within the North West economy using the NWDA definition. Further investigation of this indicates that, based on the NWDA definition, the manufacture of pharmaceuticals is included within this grouping and is most likely responsible for the high LQ relative to England.

• advanced engineering and materials, which in this case includes components of aerospace, automotive and chemicals (but not pharmaceuticals), is also over-represented within the North West economy and is also a sector where the region is considered to have a specialism. However, employment within the sector has declined since 1998

• other manufacturing elements – manufacturing that is wood and paper related, manufacture of basic and fabricated metals, and manufacture of home/office goods are over-represented relative to England, but have moved closer to the England average as employment has been shed since 1998

• food and drink has witnessed a decrease in employment and now has a LQ very similar to that of England; Digital and Creative has seen employment growth, but is still under-represented.

3.21 Annex A includes the same LQ diagrams for each of the sub-regions in the North West showing their relative sectoral strengths and weaknesses compared with England.

Key Message – location quotients

‘Manufacturing’, based on the NWDA definition has seen a notable reduction in employment since 1998, although it remains over-represented in the North West in 2006 compared to its representation in England’s economy. As demonstrated earlier a “bad thing”: an over-representation of high GVA sectors is advantageous. For example, the bio-medical sector (which includes pharmaceuticals), is over-represented in the North West economy but, as was shown in the previous section, it adds a relatively high level of turnover per employee in the regional economy.

In the case of bio-medical, its actual contribution to employment in the economy is relatively small, but importantly it has grown markedly between 1998 and 2006. The other manufacturing sub-sectors in the regional economy have seen employment decrease, but again are over-represented compared to the national average.

As an aside – LQs, justifying cluster policy and market failures

3.22 LQ diagrams are very useful for determining where a particular economy has a specialism and where it does not. These can then help to inform policy – although policy requires careful consideration and can often be approached from different (and sometimes logically conflicting) perspectives. For example, having an over representation in a high GVA sector logically justifies that sector being given priority. However, an under-representation in a high GVA sector might justify intervention to grow that sector: there may be ‘space’ in the regional economy in which that sector can grow. Therefore, although the LQ diagram


34

usefully shows relative representation in the economy with England, the interpretation to inform a policy response also needs to take account of market (and market failure) issues.

3.23 Relating this discussion to Figure 3-6, the bio-medical sector is a high GVA sector and therefore, an over representation in the North West economy relative to England is a “good thing” to have. This justifies the selection of bio-tech as a priority for the North West economy. Digital and creative is more complex. It is presently under-represented but, as identified by cluster studies, the region has a concentration of valuable “assets” in this sector and with the BBC relocation and the Media: City project, the region should have real competitive advantages that are not reflected in the statistical evidence shown above.

High-point industries

3.24 A high point industry is a 4 digit SIC sector which employs more than 0.2% of the regional workforce and has a location quotient against England of more than 1.25. Like Figure 3-6 it provides an appreciation of the relative importance of sectors within the region compared to the national picture. However, in the case of high point industries the analysis is cut to a much finer scale.

Table 3-2: High point industries, 2005

SIC Code and description Number employed within sector LQ against England

8514 : Other human health activities 46,780 1.26

3530 : Manufacture of aircraft and spacecraft 17,803 1.75

5261 : Retail sale via mail order house 17,653 2.81

9271 : Gambling and betting activities 13,843 1.32

5139 : Non-specialised wholesale of food, beverages and tobacco 13,306 1.57

1581 : Manufacture of bread; manufacture of fresh pastry goods and cakes 12,863 1.67

3410 : Manufacture of motor vehicles 11,803 1.33

2442 : Manufacture of pharmaceutical preparations 11,520 2.21

7486 : Call centre activities 11,466 1.49

1513 : Production of meat and poultry meat products 8,626 1.25

2523 : Manufacture of builders ware of plastic 8,218 1.38

1582 : Manufacture of rusks and biscuits; manufacture of preserved pastry goods and cakes 7,547 2.40

2330 : Processing of nuclear fuel Confidential 7.08

1740 : Manufacture of made-up textile articles, except apparel 7,037 2.31

5142 : Wholesale of clothing and footwear 6,568 1.50

5225 : Retail sale of alcoholic and other beverages 6,485 1.69

7530 : Compulsory social security activities 6,281 1.82

Source: ABI

3.25 An assessment of all 4 digit SIC sectors has been undertaken and the table above shows the results for the manufacturing industries highlighted in yellow (again, as determined by the NWDA’s SIC code definition). Only data for the largest employing sectors in the region are shown.


35

3.26 It is notable that despite the decline in manufacturing in the region and growth in other sectors, manufacturing is still well represented within the tabulated data. This is partly due to the size of manufacturing plants relating to individual 4 digit SIC classifications. However, it is clear that the manufacture of aircraft (employing 17,800 people), motor vehicles (11,800 people) and pharmaceuticals (11,520 people) are all of significance to the regional economy, as well as sectors such as food production, and of course, textiles.

Key Message

Below the broad level, the North West has specialism in a number of manufacturing industries – in particular, the manufacture of aircraft, motor vehicles and pharmaceuticals as well as in food and drink related industries. These are therefore, at the most detailed statistical level, where the region has specialisms.

Changes in manufacturing employment

Headline changes in manufacturing employment

Absolute employment levels

3.27 Figure 3-7 below shows the change in both manufacturing employment and total employment since 1998. Whilst overall employment levels have increased in the North West and nationally, employment in the manufacturing sector has experienced a steady decline, continuing longer-term trends. However, the manufacturing employment base in the North West has shown a slightly greater degree of resilience, falling by 24% over the eight-year period compared to 29% nationally.

Figure 3-7: Change in employment (all sectors and manufacturing sector), 1998-2006

60

70

80

90

100

110

120

1998 2000 2002 2004 2006

Cha

nge

in e

mpl

oym

ent (

1998

=100

)

North West

England

Manufacturing

All sectors

Source: IDBR

3.28 As is the case nationally, all the North West sub-regions have had to adjust to falls in manufacturing employment, not just over the period analysed in this section but also over the longer-term. It is perhaps revealing that the sub-region which has had to make the smallest adjustment over the period shown in Figure 3-8 – Cheshire and Warrington – is also the most productive in GVA terms within the region. This may be due to the ‘type’ of manufacturing


36

businesses based in Cheshire and Warrington, which are more focused on higher value added activities – for example, pharmaceuticals are especially strong in the sub-region22.

Figure 3-8: Change in employment (all sectors and manufacturing sector), 1998-2006

England

North West

Lancashire

Greater Manchester

Cheshire & Warrington

Cumbria

Merseyside

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

% change in employment, 1998-2006

Manufacturing Total

Source: IDBR

Proportion of total employment

3.29 Manufacturing employment has decreased as a proportion of total employment, as the graph below shows. Manufacturing in England has seen a steady decline in employment since 1998, although the rate of decline increased between 2002 and 2004, before falling back to the previous trajectory. Manufacturing as a proportion of overall employment is still in decline within the region.

Figure 3-9: Proportion of all employment in manufacturing sector, 1998-2006

10

12

14

16

18

20

1998 2000 2002 2004 2006

% o

f all

in e

mpl

oym

ent

North West

England

Source: IDBR

22 See the ‘Cheshire and Warrington Economic Review and Forecasts’ produced by SQW and CE for NWDA and CWEA in August 2007.


37

3.30 Changes at sub-regional levels obviously reflect differences at the district scale. Figure 3-10 shows the proportion of employment in manufacturing in 1998, in 2006, and the percentage point change. A number of points should be noted:

• manufacturing, in terms of the proportion of all employed, has not declined in all districts within the region: the proportion employed in manufacturing actually grew in Allerdale and South Lakeland in Cumbria; in Wyre within Lancashire; Sefton in Merseyside; Bolton and Rochdale in Greater Manchester; and Macclesfield in Cheshire and Warrington. In these districts, manufacturing has become more important as an employer since 1998

• in two districts, the proportion employed in manufacturing fell by over 20 percentage points. Both are known as centres of traditional ‘heavy’ industry – Barrow in Furness in Cumbria, with its association with shipbuilding, and Ellesmere Port and Neston in Cheshire, with a concentration of chemical industries and car making. This indicates a considerable restructuring of local economic circumstances

• in Lancashire, much of the modern sub-region (including Burnley, Blackburn with Darwen, West Lancashire etc.), and extending into the ‘old Lancashire’ towns of St. Helens, has seen reductions in the proportion employed in manufacturing of between 10 and 20 percentage points. Again, this represents quite a considerable restructuring of the local economy.

3.31 Figure 3-8 shows how employment has dropped in manufacturing in the Lancashire sub-region between 1998 and 2006, and how relatively small the increase in new employment in the economy overall has been. Considered with the data contained in Table 2-6, which shows that Lancashire has had only a 0.6 percentage point decrease in the proportion unemployed over the same period, it demonstrates how important manufacturing has been, and still is, to many local economies within the North West.

Key Message

Employment in manufacturing has declined across much of the North West since 1998 in both absolute and proportional terms. There has, however, been an increase in other forms of employment over the same period which has absorbed much of the losses from the manufacturing base. Given the analysis that shows how manufacturing continues to provide relatively greater GVA, it is important to think through carefully the impact of further manufacturing losses. Our analysis reflects how significant manufacturing still is to economies and communities in particular locations across the region.


38

Figure 3-10: Changes in manufacturing employment as a percentage of total employment by District, 1998 and 2006 (see Figure 2-3 for District names)

Source: Produced by SQW, November 2007, © Crown Copyright, © Collins Bartholemew Data Source: IDBR


39

Manufacturing enterprises23operating within the region

Headline data on numbers of manufacturing enterprises

3.32 Figure 3-11 shows changes in the number of business enterprises, both in the total economy and in the manufacturing sector in England and the North West. The total number of enterprises in both the North West and England in 2006 was only slightly higher than in 1998 (this is despite a notable reduction in the number of enterprises in the intervening period).

3.33 Manufacturing, however, has not seen the upturn witnessed within the wider economy. Indexed to 1998, the number of manufacturing enterprises saw large decreases in both England and the North West over the period shown. The trend in England between 2004 and 2006 shows signs of evening out: however, the downward trend continued in the North West.

Figure 3-11: Change in the number of enterprises (all sectors and manufacturing sector), 1998-2006

75

80

85

90

95

100

105

1998 2000 2002 2004 2006Cha

nge

in n

o of

ent

erpr

ises

(199

8=10

0)

North West

England

Manufacturing

All sectors

Source: IDBR

3.34 At the sub-regional level, manufacturing enterprises in all areas has decreased in number between 1998 and 2006: Cumbria saw a very small decrease, whilst all other areas saw decreases of at least 15%. The rate of decrease was greatest in Greater Manchester.

23 IDBR data refers to VAT or PAYE registered enterprises


40

Figure 3-12: Change in the number of enterprises (all sectors and manufacturing sector), 1998-2006

England

North West

Merseyside

Cheshire & Warrington

Cumbria

Greater Manchester

Lancashire

-25 -20 -15 -10 -5 0 5

% change in number of enterprises, 1998-2006

Manufacturing Total

Source: IDBR

Manufacturing as a proportion of total business stocks

3.35 Figure 3-13 shows changes in the proportion of manufacturing enterprises (as a percentage of all enterprises) in both the North West and England. In essence, this shows how significant manufacturing businesses are within the total business stock (in terms of numbers of enterprises). Both England and the North West have seen decreases in manufacturing’s ‘share’ of the business base, and the pattern of decline is relatively consistent over time.

Figure 3-13: Proportion of all enterprises in the manufacturing sector, 1998-2006

6.5

7

7.5

8

8.5

9

9.5

10

1998 2000 2002 2004 2006

Prop

ortio

n of

all

ente

rpris

es (%

)

England

North West

Source: IDBR

3.36 Despite the fact that some districts within the region saw the proportion employed in manufacturing increase between 1998 and 2006, no district in the region witnessed an increase in the importance of manufacturing enterprises over the same period, as expressed by the total number of enterprises (see Figure 3-14).


41

Figure 3-14: Proportion of all enterprises which are in the manufacturing sector by District, 1998 and 2006 and change between the two (see Figure 2-3 for District names)



42

3.37 Most notable within Figure 3-14 is that in 1998 manufacturing accounted for over 8% of all businesses within a broad swathe of districts in the central parts of the region - from Wirral and Ellesmere Port and Neston in the west; extending through Merseyside (excluding Sefton); through all of Greater Manchester and much of the central and southern part of Lancashire. In east Lancashire and the north-eastern part of Greater Manchester, manufacturing in 1998 accounted for over 12% of all businesses.

3.38 By 2006, only Blackburn with Darwen, Hyndburn, and Tameside still had over 12% of businesses within the manufacturing sector. However, in eastern Lancashire and north-eastern Greater Manchester manufacturing remains significant within the total stock of businesses at a district level: Oldham, Rochdale, Rossendale, Burnley and Pendle all have between 10% and 12% of the business stock in manufacturing. The other cluster of authorities that have a similar presence of manufacturing businesses is in Merseyside where St. Helens, Knowsley and Halton also have between 10% and 12% of their total stock in manufacturing.

Key Message – manufacturing enterprises

In both absolute terms, and in terms of the proportion of the business stock, manufacturing enterprises have been in decline within the region. The decline has been greatest in those areas where there was the greatest concentration of manufacturing enterprises in 1998. These areas, however, continued to have a concentration of manufacturing in 2006 – much of ‘Pennine Lancashire’24, and also a concentration on the Merseyside/Greater Manchester boundary. These areas have witnessed a considerable structural adjustment within their economies and the evidence suggests that that adjustment might continue. These are also areas that do not demonstrate strengths in terms of the generic ‘drivers of productivity’ such as high skills, and consequently, these areas have been amongst the worst performing in terms of GVA.

Manufacturing business density

3.39 A further cut of the data at the district level provides the number of manufacturing businesses per 1,000 working age population (see Figure 3-15). This measure of manufacturing ‘density’ presents some interesting results:

• despite manufacturing appearing as relatively insignificant in the Cumbria economy in previous maps, the density of manufacturing businesses in both South Lakeland and Eden was on a par with much of the central, “core” manufacturing band of the region in 1998, and by 2006 had increased even further

• indeed, density of manufacturing businesses per 1,000 WAP increased in a number of areas, despite its share of the overall business base declining. Fylde and Wyre in Lancashire for example saw more than a 10% increase in the density of manufacturing businesses per 1,000 WAP

• in those areas already flagged as having a significant manufacturing base – across central Lancashire, western parts of Merseyside and northern parts of Greater Manchester - the density of manufacturing businesses has declined in some areas, but still remains relatively high.

24 Pennine Lancashire refers to Blackburn with Darwen, Hyndburn, Pendle, Burnley, Ribble Valley and Rossendale – and are authorities which are considering developing a joint multi-area agreement (MAA) for economic development based on the similarities and extent of economic issues in the sub-regional area


43

3.40 The significance of these density statistics is that they compensate, to some extent, for the effect of an increase in employment and businesses in other sectors negatively impacting on the manufacturing share of the economy in proportional terms. In a period of economic growth, such as that witnessed by the UK over recent years, it would be surprising if there was not growth in employment and the increase in the number of businesses in the economy which would push down manufacturing’s share, even if the actual amount of manufacturing employment and businesses stayed the same. Figure 3-8 showed that manufacturing employment has dropped in actual terms: Figure 3-15 suggests that actually the number of manufacturing businesses has not witnessed such am adverse “hit”.

Key Message – manufacturing business density

Business density statistics reveal that the manufacturing sector is still highly significant in many local authority areas across the North West and the actual density of manufacturing businesses has not diminished significantly in some areas even if the manufacturing as a proportion of the total stock has gone down.


44

Figure 3-15: Density of manufacturing businesses 2000, 2006 and change by district (see Figure 2-3 for District names)



45

Size of manufacturing businesses 3.41 Figure 3-16 shows the average number of employees per enterprise for the manufacturing

sector and all sectors in total. As expected, manufacturing firms are larger, employing more people than the average business in the wider economy. In both the North West and England, there was an increase in the number of employees per manufacturing enterprise between 1998 and 2000, but the average number has since decreased in both areas. By 2006, the average number of manufacturing employees per enterprise was lower in both the North West and England than it had been in 1998. The North West has a higher average number of employees in the manufacturing sector than is the case in England overall.

Figure 3-16: Average number of employees per enterprise (all sectors and manufacturing sector), 1998-2006

10

15

20

25

30

1998 2000 2002 2004 2006

No

of e

mpl

oyee

s pe

r ent

erpr

ise

North West England

Manufacturing

All sectors

Source: IDBR

3.42 The North West has a lower proportion of small manufacturing enterprises (employing 0-9 people) at 73% than England (76%). The North West has higher proportions of larger manufacturing workplaces than England (27% employ more than ten people in the North West compared to 24% in England). Also, 1.3% of manufacturing workplaces employ more than 250 people in the North West: this compares to 1.1% in England.


46

Figure 3-17: Proportion of enterprises by size-band (all sectors and manufacturing sector), 2006

73 7688 89

1810 96 5

19

1.6%1.7%0.4%0.5%1.1%1.3%

0

1020

3040

50

6070

8090

100

North West England North West England

% o

f all

ente

rpris

es

0 - 9 employees 10 - 49 employees 50 - 249 employees 250+ employees

Manufacturing All sectors

Source: IDBR

The drivers of productivity and manufacturing

Driver 1 - Enterprise

3.43 Figure 3-18 below shows the rate of VAT registrations by businesses in the manufacturing sector (defined by SIC D) in England and the North West. It illustrates that, over the period shown, the North West has witnessed fewer manufacturing start-ups than nationally, per 10,000 population. The other interesting message the chart relays is the steady decline in manufacturing start-ups (using the VAT registration measure) over time.

Key Message

Individual manufacturing enterprises tend to employ more people than businesses in general (so individual business closures can have a more significant effect on employment levels). The North West is particularly at risk given that it has an over-representation of large-scale and medium-sized businesses.

There is some evidence that ‘modern’ manufacturing often involves greater numbers of smaller, niche businesses that provide specialist skills and services to the value chain. However, it is important to remember that these statistics are based on a ‘manufacturing’ definition premised on SIC codes and therefore will tend to emphasise the characteristics of production-related activities.


47

Figure 3-18: Manufacturing VAT registrations per 10,000 working age population

2.0

2.5

3.0

3.5

4.0

1999 2000 2001 2002 2003 2004 2005

VAT

regi

stra

tions

per

10k

WA

P

England North West


3.44 The table below breaks down these data for the North West sub-regions. It shows that the Greater Manchester and Lancashire areas have seen higher levels of start-ups of new manufacturing businesses compared with the region overall. Cumbria and Merseyside have had relatively low rates of VAT registrations among manufacturing businesses.

Figure 3-19: VAT registrations by manufacturing businesses per 10k WAP, 1999-2005

1999 2000 2001 2002 2003 2004 2005

1999-2005 average

Cheshire and Warrington 2.35 2.67 2.85 3.13 2.94 2.55 2.83 2.76

Cumbria 2.36 1.73 2.08 2.59 3.28 1.90 2.24 2.31


Lancashire 3.51 3.40 3.09 3.36 3.23 2.75 2.57 3.13

Merseyside 2.11 1.98 2.04 2.20 2.26 2.09 1.64 2.05

North West 3.04 3.00 2.99 2.87 2.97 2.64 2.35 2.84

England 3.81 3.72 3.30 3.17 3.23 2.86 2.73 3.26


3.45 Businesses becoming VAT-registered is just one half of the story. Importantly, account must also be taken of how many businesses are ‘deregistering’ each year. The chart below shows that over the same period, the rate of VAT de-registrations by manufacturing businesses remained fairly constant before dropping after 2002. Moreover, it shows that VAT de-registrations have consistently been lower in the North West than in England: combined with the data on registrations, this indicates a lower rate of ‘churn’ in the North West relative to England. Overall, de-registrations have been higher than registrations with the result that overall the stock of manufacturing businesses has gone down.


48

Figure 3-20: VAT de-registrations by manufacturing businesses per 10k WAP, 1999-2005

2.50

3.00

3.50

4.00

4.50

1999 2000 2001 2002 2003 2004 2005

VAT

dere

gist

ratio

ns p

er 1

0k W

AP

England North West


3.46 Turning to the sub-regions, it is apparent that Greater Manchester has a relatively high rate of VAT de-registrations: therefore despite the high level of start-up activity (i.e. new VAT registrations) there has been a decline in the number of firms in the manufacturing stock, as discussed earlier. Cumbria and Merseyside have particularly low levels of VAT de-registrations suggesting businesses are surviving better in these areas. Taken together, the data on registrations and de-registrations illustrates that some areas have a higher degree of market ‘churn’ than others.

Table 3-3: VAT de-registrations by manufacturing businesses per 10k WAP, 1999-2005

1999 2000 2001 2002 2003 2004 2005

1999-2005 average

Cheshire and Warrington 3.30 3.43 3.13 3.50 2.75 2.93 2.35 3.06

Cumbria 1.52 1.73 1.90 2.07 1.55 2.07 1.55 1.77


Lancashire 3.51 3.28 3.92 3.36 3.70 3.22 3.10 3.44

Merseyside 2.40 2.09 1.92 2.31 1.97 2.09 1.92 2.10

North West 3.61 3.29 3.35 3.48 3.19 3.10 2.71 3.25

England 4.06 3.86 3.80 3.90 3.74 3.59 3.24 3.74


Key Message

As discussed earlier, the number of manufacturing businesses in the North West has been in decline for some time. The data shows that more businesses are de-registering than there are new businesses registering over time. That said, de-registration rates are lower in the North West than nationally suggesting businesses have a greater ability to survive. On the other hand, the start-up rates are lower in the region than nationally and levels of enterprise within manufacturing can be considered as having declined.


49

Driver 2 - Skills gaps in manufacturing

3.47 In the 2005 NESS, 14.7% of employers in the manufacturing sector25 in the North West reported that they had skills gaps within their workforce, slightly lower than the nationwide figure of 14.9%.

3.48 Among these employers, technical, practical or jobs-specific skills and problem solving skills were highlighted as those most in need of improvement, as shown in Table 3-4. In addition, a relatively high proportion of North West manufacturing employers reported gaps in problem solving skills, team working skills and customer handling skills in comparison to the national average. Reinforcing the findings from Table 2-4, it is observable that manufacturing workers in the North West have skills gaps across a wider range of skills, which serves to push up the disparity with England.

Table 3-4: Skills that need improving among the workforce according to employers with skills gaps in the manufacturing sector26

Type of skill

% of manufacturing employers in the North West

% of manufacturing employers in England

Percentage point difference (NW vs. England)

Technical, practical or job-specific skills 59.6% 58.8% 0.8%

Problem solving skills 54.7% 40.9% 13.8%

Team working skills 48.3% 37.7% 10.6%

Oral communication skills 39.4% 35.6% 3.8%

Customer handling skills 38.3% 31.3% 7.0%

Written communication skills 33.9% 28.2% 5.7%

Management skills 30.2% 28.1% 2.1%

General IT user skills 26.4% 26.3% 0.1%

Numeracy skills 25.1% 18.7% 6.4%

Office / admin skills 23.4% 23.4% 0.0%

Literacy skills 23.1% 19.5% 3.6%

Source: 2005 NESS

25 As defined by SIC 26 All skill types which over 20% of manufacturing employers with skills gaps in the North West reported as in need of improvement

Key Message on skill deficits in manufacturing businesses

The data from the national employers' skills survey (NESS) show that manufacturing employers in the North West experience a number of specific difficulties accessing individual skill-sets. Deficits include:

• some ‘soft skills/capabilities’ such as customer handling and oral communication

• basic skills such as literacy and numeracy

• important workplace skills, particularly relevant to manufacturing such as team-working and problem solving (these were stressed as particular areas of concern)

Skills requirements emerging from other strands of evidence include technical skills and management skills.


50

Driver 3 – Innovation and manufacturing KIBs

3.49 As the definition of KIBs generally is based on a SIC definition, and as the NWDA has a SIC definition of manufacturing, it is possible to cross-reference the two to produce an assessment of manufacturing KIBs within the region. Although the proportion of employment in manufacturing KIBs has been declining, the North West does have a higher share of total employment in knowledge intensive manufacturing businesses than nationally.

Figure 3-21: Employment in knowledge-intensive manufacturing businesses, 1998-2005

2.2

2.4

2.6

2.8

3.0

3.2

3.4

3.6

1998 1999 2000 2001 2002 2003 2004

Prop

ortio

n of

all

empl

oym

ent i

n M

anuf

actu

ring

KIB

s (%

)

England North West

Source: ABI

3.50 Across the sub-regions an interesting picture emerges. Cheshire and Warrington, and Lancashire have considerably higher proportions of employment in manufacturing KIBs relative to the England average. This is highly likely to be due to the industrial mix of these locations – with Astra-Zeneca being a major employer in Cheshire and Warrington and BAE Systems being a major employer in Lancashire. Indeed, a quick examination of the data at a district level shows that the concentrations of manufacturing KIBs are within individual districts (i.e. probably at single sites) rather than distributed across the sub-regions.

Figure 3-22: Employment in manufacturing KIBs in North West sub-regions, 1998-2005

1

2

3

4

5

6

1998 1999 2000 2001 2002 2003 2004 2005

Prop

ortio

n of

all

empl

oym

ent i

n M

anuf

actu

ring

KIB

s (%

)


England

Source: ABI


51

Driver 4 - R&D investment in manufacturing27

3.51 The table below shows R&D expenditure in manufacturing and its sub-sectors, together with comparative figures for other industry sectors where available. £1,558m is spent on manufacturing R&D in the North West which is the third highest level after the South East and East of England. Of this, nearly a third is spent in the chemicals sector, whilst around a fifth is spent in the “other manufacturing” sector. By comparison, £129m is spent on services R&D, which is the third lowest amount after the North East and Yorkshire and Humber.

Table 3-5: R&D expenditure (£ million) performed in UK businesses, 2004

Broad Product Group UK

North East

North West

Yorks & Hum

East Mids

West Mids East Lon

South East

South West

Chemicals 3,810 168 485 99 197 16 1,099 365 1,065 46

Mechanical Engineering 1,111 21 51 ... 67 95 370 195 96

Electrical Machinery 1,283 10 ... 44 ... 96 226 15 526 165

Transport Equipment 994 ... 115 21 104 262 322 ... 53 62

Aerospace 2,000 ... ... ... ... 102 70 ... 188 655

Other manufacturing 1,154 38 288 104 68 45 86 25 327 60

Manufacturing Total 10,352 248 1,558 294 796 617 2,173 497 2,354 1,085

Services Total 2,855 19 129 74 144 171 762 338 805 267

Agriculture, hunting & forestry; Fishing 107 ... ... ... ... ... 9 - ... ...

Extractive Industries 108 ... ... ... ... ... - ... ... ...

Electricity, gas & water supply 43 - ... ... ... ... ... ... ... ...

Construction 40 1 1 - 4 4 ... 2 4 -

Other Total 298 2 4 3 37 13 34 7 106 10

TOTAL 13,504 269 1,691 372 978 800 2,969 842 3,265 1,361

Source: ONS

3.52 R&D expenditure in the North West economy dominated by R&D in chemicals. As with the earlier assessment of R&D expenditure at the regional scale, in spatial terms it is likely that this R&D investment is from a limited number of major firms.

27 Manufacturing and the sub-sector definitions shown in this section are those used by ONS and reported in regional accounts.


52

Driver 5 – Competition: Trade dynamics

3.53 Total exports in 2006 from the North West amounted to £23.7bn. The majority of the North West’s exports are of chemicals, which is the highest of all regions in the UK and further highlights the importance of this component of manufacturing not just to the manufacturing sector, but to the regional (and the national) economy as a whole.

3.54 Compared to the UK, the North West is under-represented in terms of the proportions of exports of Manufactured Goods, Machinery & Transport, and of Miscellaneous Manufactures.

Figure 3-23: Proportion of total exports accounted for by each SITC section, 2006

0

20

40

60

80

100

UK

North W

estEas

t

East M

idlan

ds

Lond

on

North E

ast

South

East

South

West

West Midl

ands

York & H

umbe

r

Prop

ortio

n of

tota

l exp

orts

(%)

MiscellaneousManufacturesMachinery &TransportManufacturedGoodsChemicals

Mineral Fuels

Crude Materials

Food & LiveAnimalsAll other

Source: HMRC

3.55 Total imports into the North West in 2006 amounted to £21,7bn. The highest proportion of imports in the North West is in the Machinery & Transport sector, although the proportion is much lower than the equivalent UK sector. Compared to the UK, the proportions of imports to the North West relating to Miscellaneous Manufactures, Manufactured Goods, Chemicals and Food & Live Animals are over-represented.

Key Message

At the headline level, manufacturing businesses in the North West invest a high amount in R&D. However, there is a concentration of this within individual sub-sectors and in individual businesses. R&D investment in the chemicals industry is very high: it is a sector which has already been identified as an industry where the region already has a competitive advantage. However, the level of investment overall is low by comparison to the East and South East regions.


53

Figure 3-24: Proportion of total imports accounted for by each SITC section, 2006

0

20

40

60

80

100

UK

North W

estEas

t

East M

idlan

ds

Lond

on

North E

ast

South

East

South

West

West Midl

ands

York & H

umbe

r

Prop

ortio

n of

tota

l im

port

s (%

) MiscellaneousManufacturesMachinery &TransportManufacturedGoodsChemicals

Mineral Fuels

Crude Materials

Food & LiveAnimalsAll other

Source: HMRC

3.56 By comparing imports against exports it is possible to calculate a balance of trade within SEC defined sectors: a positive balance indicates that exports are higher than imports. Only three sectors in the North West have a positive balance of trade. These are Crude Materials, Machinery & Transport and Chemicals; the latter has the largest positive balance, at around £6bn. Five sectors have a negative balance of trade, the largest of which is Miscellaneous Manufactures.

Figure 3-25: Balance of trade by SITC section in the North West, 2006

-3000-2000

-10000

10002000

300040005000

60007000

Food

& L

ive

Anim

als

Beve

rage

s &

Taba

cco

Cru

deM

ater

ials

Min

eral

Fue

ls

Anim

al &

Vege

tabl

e O

ils

Che

mic

als

Man

ufac

ture

dG

oods

Mac

hine

ry &

Tran

spor

t

Mis

cella

neou

sM

anuf

actu

res

Oth

erC

omm

oditie

s

Bal

ance

of t

rade

(£m

illio

n)

Source: HMRC

Key Message

Trade figures for manufacturing sectors, as reported by HMRC, show the dominance of chemicals within the balance of trade of the regional economy. Few other sectors show strong positive balances – with only machinery and transport having a notable balance. Clearly then, the region has some competitive advantages in some areas on which it can build.


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4: Concluding comments and SWOT implications

Key points

On GVA…

4.1 The North West overall continues to suffer from both a GVA per capita and GVA per worker/employee (productivity) gap relative to the national average. The discrepancy between the regional GVA per capita figure and the national figure has risen from 12% in 1995 to 17% in 2004, with the corresponding GVA per worker figure rising from 8% in 1999 to 12% in 2004. This masks sub-regional differences, with Cheshire and Warrington (and increasingly, Greater Manchester South) being the more successful areas of the North West in GVA terms. The key point to note is that the Region’s GVA performance is improving, but not at a rate enabling it to close with the national average. As GVA represents a key Government target for regional performance, it is essential that activity in the region aims to close the GVA gaps.

4.2 Evidence from the Regional Economic Forecasting Panel shows that manufacturing, as a broad industrial group, is the most productive industrial group in the North West and is the only broad industrial group that is as productive as its peer grouping within the national context. At £45,000 per employee, manufacturing is a relatively high productivity sector and arguably a critical sector in the context of seeking to close the GVA gap. As other statistics in this report show, it is likely that the prominence of certain manufacturing sub-sectors, especially the chemicals industry, is what raises manufacturing GVA per employee figures to match those nationally.

On changing sectoral structures

4.3 Overall, manufacturing continues to be ‘over-represented’ in the regional economy when compared to its presence in the national economy. This includes a very high representation in bio-technology based on the NWDA research team’s definition and is also likely to be due again to the presence of the chemical industry in the North West. There is also an ‘over-representation’ in for example advanced engineering and materials. Overall, manufacturing employment is in decline and the sector is shifting to a level more similar to that in England overall.

4.4 However, over-representation brings benefits. If GVA per worker is £45,000 in manufacturing, but just £31,400 in the North West overall, then having an over-representation of manufacturing employment is a good thing in regional productivity terms and for closing the GVA gap, if it can be sustained. Retaining the highest value employment in manufacturing, which as the Sainsbury Review states should be a national priority, is therefore a key challenge.


55

On manufacturing’s changing share of employment and businesses

4.5 In absolute terms, in terms of its share of total employment and of its share of the number of businesses, manufacturing has been in decline for some time. Manufacturing in the region has shed 111,600 jobs since 1998 and its share of total employment has declined from 18.9% to 13.5% over the same period. In terms of business stock, a total of 3,675 businesses have been lost and the share of the total has declined from 9.5% to 7.7%.

4.6 However, these changes have been far from even across the region as a whole. Manufacturing remains an important sector across a large part of the North West region – extending across south-east (“Pennine”) Lancashire, northern parts of Greater Manchester, and around where the Merseyside, Lancashire and Greater Manchester sub-regions border one another. These places (and others, such as Barrow-in-Furness) had high concentrations of manufacturing employment and business stocks at the start of the period examined, witnessed declines, but still retain above average concentrations.

On the drivers of productivity

Enterprise

4.7 Business start-up rates within the region are relatively low compared to the national average. Only in Cheshire and Warrington have figures been relatively close to the national average.

4.8 Within manufacturing specifically, business start-ups rates have been below the national average, but more importantly the start-up rates for manufacturing businesses have been in decline both nationally and in the region for some time. By 2005, less than 2.5 new manufacturing businesses registered for VAT per 10,000 people. However, looking at sub-regional data, start-up rates in both Greater Manchester and Lancashire had generally been close to those nationally between 1999 and 2005, perhaps demonstrating the continued importance of manufacturing as an economic driver in Lancashire, but also Greater Manchester.

Skills

4.9 The Sainsbury Review has highlighted that to compete in the global economy there is a need for high-end skills that support innovation and take advantage of increased investment. The North West continues to suffer from a deficit of individuals qualified with high-end skills (those qualified to NVQ4+). While performance at the regional level has improved, it has been driven by the high performance of Cheshire and Warrington, as well as considerable improvements in Greater Manchester. Performance in some areas has remained poor: this is particularly true of Merseyside, but more so Lancashire where there remains a concentration of manufacturing businesses.

4.10 Of more importance perhaps are the types of skills that individual businesses require. The region’s businesses recognise a need for improved basic skills (numeracy, literacy and ICT), and general communications and customer care skills, but also a number of specific skill-sets. In the manufacturing sector, businesses within the North West, more than nationally, state that they have skills gaps in:


56

• technical, practical and job specific skills (59.9% of manufacturing businesses in the north West, 0.8% higher than in England)

• problem solving skills (54.7% amongst North West manufacturing businesses, 113.8% higher than nationally)

• team working skills (48.3% in the North West, 10.6% higher than nationally)

Innovation

4.11 Employment in knowledge intensive businesses, while not a direct measure of innovation, provides an indication of the potential for innovation within the business base. Again, the North West performs poorly relative to England in terms of total employment in knowledge intensive businesses but again this masks sub-regional variations. Cheshire and Warrington has above the national average, with Lancashire again the lowest, but on this metric by some margin.

4.12 However, when looking at manufacturing knowledge intensive businesses specifically, the pattern is very different. The North West has a greater share on employment in knowledge intensive manufacturing businesses compared to England, while Cheshire and Warrington again, but this time Lancashire too, have greater shares than the national average. In all cases, the proportions are in decline.

Investment

4.13 R&D expenditure in the North West is the third highest in the England after the South East and Eastern regions (although it lags some way behind these two). The reason for the region’s strong position is linked to R&D expenditure in manufacturing: the region has the third highest expenditure in chemicals and in transport equipment, and the second highest in ‘other manufacturing’.

Competition

4.14 The region as a whole has business survival rates that are relatively robust and on a par with those nationally. In terms of trade, and balance of trade, the regional economy is again, dominated by chemicals and to a lesser degree, transport equipment. Chemicals account for almost half the value of all exports from the region and the sector has a positive trade balance of £6bn.

The key SWOT messages emergent from this evidence… 4.15 The table on the next page shows the Strengths, Weaknesses, Opportunities and Threats

associated with manufacturing in the North West, as evidenced specifically from the statistics examined here. It is not therefore the complete SWOT for the region, but one drawn from a one strand of evidence around which the MSAP can be based.


57

Table 4-1: SWOT Table

Strengths Weaknesses

• A manufacturing base that on average produces as much GVA per worker as manufacturing nationally – this is the only sector in which this is the case in the North West

• Particular strengths in some high performance sectors – such as chemicals, which has high GVA, high R%D investment, and a high positive balance of trade

• A resilient manufacturing base in some parts of the region

• Particularly strong performance in some sub-regions across a host of indicators – especially in Cheshire and Warrington

• Higher spending in R%D relative to the majority of other English Regions – especially by manufacturing businesses

• A concentration of employment in knowledge intensive manufacturing businesses above that nationally

• Levels of enterprise in manufacturing above the national average in Lancashire

• A declining manufacturing base – but a continued reliance on a declining manufacturing base in some parts of the region

• Lower R&D investment than in the South East and East regions, especially with regard public sector R&D spend

• Considerable sub-regional variations in performance – Cheshire and Warrington very strong but Lancashire, where manufacturing is still considerable, is increasingly weak on a number of indicators

• Shortage of particular skill-sets within the workforce but wanted by manufacturing

Opportunities Threats

• Manufacturing remains a high GVA sector in the economy – retaining that ability to produce GVA can improve regional economic performance

• To utilise the existing R&D base for greater benefits (e.g. reducing the reliance on a small group of major firms within certain sectors)

• Improving skill-sets to meet the demands of manufacturing businesses targeting those skill areas that are felt to be most needed

• A considerable negative impact on local economies where manufacturing persists if the sector declines significantly – especially as other sector growth has been so small

• Risk that with R&D concentrated in certain sectors (and most likely, individual firms), the R&D base of the region could be ‘shocked’ by sudden departures/closures

• A continued failure to supply NVQ4+ trained individuals to manufacturing businesses could damage further the performance of the sector – this is especially true in Lancashire where the share with NVQ4+ has grown least

• A continued decline in new start manufacturing businesses will see the overall stock further reduce

• Concentrations of employment within large business (including some high GVA and knowledge intensive businesses) that might be exposed to future shocks


A-1

Annex A: Location quotient diagrams for sub-regions

A.1 In this annex, we will present location quotient diagrams for each of the North West sub-regions.

A.2 Location quotient (LQ) diagrams illustrate the broad sectoral split of employment in the North within a given economy. The horizontal axis shows the level of employment within a sector relative to a comparator for a given year. In the case below, the analysis looks at each of the North West sub-regions relative to England in 2006; those bubbles to the right of the vertical axis illustrate sectors that are over-represented28 in the sub-region relative to the national average while bubbles to the left show an under-dependency relative to England. The vertical axis presents the change in employment by sector since 1998 in each sub-region. Looking vertically, if a sector is situated above the horizontal axis, then that sector has seen an increase in employment over the time-frame shown (1998-2006), and those below the axis have seen a decrease. The size of the bubble indicates the absolute importance of that sector in employment terms (the sector represented by the biggest bubble has the most employees).

A.3 The figures below show the LQ diagrams for the 17 priority or employment based sectors that the NWDA divides the regional economy into. They are shown here to indicate the relative importance of what might be broadly seen as manufacturing based clusters/sectors to wider clusters/sectors in the North West. In additional a bubble is included demonstrating the LQ and employment change of ‘manufacturing’ as defined using the NWDA research team 4 Digit SIC definition (see bubble – “NWDA Manufacturing”).

28 ‘Over- representation is not necessarily a bad thing - having an over-representation of a high GVA sector relative to England is a positive factor for the regional economy.


A-2

Cheshire and Warrington

Figure A-1 : Employment structure by NWDA sector and overall change in employment, 1998-200629

Food & drink

Digital & Creative



Retail/w holesale nes


Public Admin - nes

Services nesHealth & Care

NWDA Manufacturing


related


metals


goods

Transport/logistics nes

-300

-200

-100

0

100

200

300

0 0.5 1 1.5 2

LQ Cheshire & Warrington vs England, 2006

% c

hang

e in

em

ploy

men

t, 19

98-2

006

Source: IDBR

Cumbria


Public Admin - nes

NWDA Manufacturing

Food & drink

Digital & Creative




related


Retail/ w holesale nes

Services nes

Health & Care



metals


-100

-50

0

50

100

0 0.5 1 1.5 2 2.5 3

LQ Cumbria vs England, 2006

% c

hang

e in

em

ploy

men

t, 19

98-2

006

Source: IDBR

29 The priority sector of mining cannot be seen on this diagram as its employment base is too small and figures for the bio-medical sector have been suppressed. In addition, the ‘leisure and tourism not elsewhere specified’ sector experienced employment growth considerably above the axis values and therefore has not been shown. Also, the environment and energy sector is significantly overrepresented in Cheshire and Warrington – it has a location quotient versus England of 3.5 – and is therefore not observable in this diagram. 30 The priority sector of mining cannot be seen on this diagram as its employment base is too small and figures for the bio-medical sector have been suppressed. In addition, the ‘leisure and tourism not elsewhere specified’ sector and the manufacture of household/office goods sector have both experienced employment growth considerably above the axis values and therefore have not been shown on this diagram.


A-3

Greater Manchester


Food & drink


Digital & Creative



Public Admin - nesServices nes

Health & Care


NWDA Manufacturing




goodsManufacture of

basic & fabricated metals


related

-150

-100

-50

0

50

100

150

0 0.5 1 1.5 2

LQ Greater Manchester vs England, 2006

% c

hang

e in

em

ploy

men

t, 19

98-2

006

Source: IDBR

Merseyside


Public Admin - nes

NWDA Manufacturing

Food & drink


Digital & Creative






Health & Care

Services nes


metals


goods Manufacturing - paper & w ood

related -150

-100

-50

0

50

100

150

0 0.5 1 1.5 2 2.5

LQ Merseyside vs England, 2006

% c

hang

e in

em

ploy

men

t, 19

98-2

006

Source: IDBR

31 The priority sector of mining cannot be seen on this diagram as its employment base is too small and figures for the bio-medical sector have been suppressed. In addition, the ‘leisure and tourism not elsewhere specified’ sector has experienced employment growth considerably above the axis values and therefore has not been shown. 32 The priority sector of mining cannot be seen on this diagram as its employment base is too small and figures for the bio-medical sector have been suppressed. In addition, the ‘leisure and tourism not elsewhere specified’ sector has experienced employment growth considerably above the axis values and therefore has not been shown.


A-4

Lancashire


Health & Care

Public Admin - nes

Food & drink


NWDA Manufacturing

Digital & Creative





related



metals


goods

leisure/tourism nesTransport/logistics nes

Services nes

-200

-100

0

100

200

0 0.5 1 1.5 2

LQ Lancashire vs England, 2006

% c

hang

e in

em

ploy

men

t, 19

98-2

006

Source: IDBR

33 The priority sector of mining cannot be seen on this diagram as its employment base is too small and figures for the bio-medical sector have been suppressed.

msap-volume_1.2_-_the_evidence_base_-_statistical_analysis

Documents

modern definition

manufacturing businesses

modern sense

north west development

north west economy

action plan msap

subsequent development

different sources of