House of Commons - Culture, Media and Sport

Select Committee on Culture, Media and Sport Minutes of Evidence

Annex

An Assessment of the Potential Economic Benefits of the Proposal for the Millennium Dome by Legacy PLC by PricewaterhouseCoopers

INTRODUCTION

1. This paper assesses the potential economic benefits of the development at the Dome proposed by Legacy plc.

2. The paper:

(a) outlines the economic rationale which underpins Legacy's proposals;

(b) describes the framework adopted and approach used to assess the potential economic benefits at both the local and national levels; and

ECONOMIC RATIONALE—THE ECONOMIC SIGNIFICANCE OF LEGACY'S PROPOSALS

3. Few people doubt the potential economic significance of the emergence of the so-called "new economy". The Government is no exception: Ministers have frequently highlighted the importance of the opportunities presented by the emergence of the knowledge-driven economy.

4. At the same time, the Government has recognised that the UK's economic performance lags that of our major competitors. The most recent set of UK competitiveness indicators prepared by the Department of Trade and Industry in December 1999[8] highlight some of the inherent weaknesses in the UK's economic performance:

(a) the UK's GDP per head is 18 per cent below the average for the G7;

(b) output per worker is 33 per cent less than in the US and output per hour is 26 per cent less than that of France; and

(c) although the UK appears to have a comparative advantage in knowledge based industries, the existing productivity gap indicates that the UK cannot afford to be complacent.

5. The DTI's competitiveness indicators also provide an insight into the key factors that have held back the UK's economic performance:

(a) UK manufacturers spend less on developing new products or processes than many of their international rivals;

(b) the pattern of business spin-outs from UK higher education institutes is, at best, mixed with some success stories, but other much less successful areas;

(c) the UK is less dynamic than the US in terms of the entry and exit rates of firms although it is on a par with other leading European countries;

(d) the US has more fast growing firms than the UK although the UK's performance is comparable to that of other North European countries; and

(e) the UK is seen as having a less favourable attitude to enterprise than the US.

6. As a result the Government has often highlighted the importance it attaches to "meeting the productivity challenge". It has set itself the long-term ambition of ensuring that "Britain will have a faster rise in productivity than its main competitors"[9]. The Government has identified several key themes to underpin its strategy including the promotion of enterprise and innovation.

7. We believe that Legacy's proposals have the potential to make a significant contribution to the realisation of the Government's long-term ambition by:

(a) encouraging the development of knowledge-based industries by providing them with a much needed home close to Central London and with all the attendant benefits of access to the other occupiers and shared services as well as the scope to expand on the same site;

(b) facilitating the commercialisation of technology developed by Legacy's academic partners;

(c) creating a thriving cluster of technology based businesses for example in biotechnology, telecommunications, wireless applications and other related areas;

(d) co-locating these different, but related, sectors in a way which leads to the development of new areas through the exchange of knowledge and the adoption of techniques from other disciplines; and

(e) providing a business environment that supports the creation and growth of SMEs.

8. Moreover, by responding to the strong demand from a distinctive segment of the market (ie knowledge based businesses), Legacy's proposals will offer sustainable benefits at both the local and national level by:

(a) stimulating the creation of more innovative SMEs, which grow more quickly and have a better survival record;

(b) providing social benefits by stimulating regeneration as well as being socially inclusive since entry will always be free, will play a part in the public understanding of science and technology, represent an achievable aspiration for local children; and

(c) enhancing the physical environment by providing additional local parkland and making a virtue of the Dome as an iconic structure in a way that fits well with the masterplan for the Greenwich Peninsula.

9. If Legacy's proposals are successful, there is every likelihood that the idea could be replicated in other parts of the country, and hence contribute to a sustained and significant impact at the national level.

FRAMEWORK AND APPROACH

10. Against this background, our report provides an ex ante assessment of the likely economic benefits of Legacy's proposals.

Project Scope

11. The assessment focuses on the potential impact of Legacy's proposals within the Dome itself. We consider the possible additional benefits of the development of the so-called "Green Land" separately.

Categories of Economic Benefit

12. We have used HM Treasury's guidance as the basis for assessing the potential economic benefits of Legacy's proposals[10]. Among other things, this guidance emphasises the importance of distinguishing the economic benefits under the following headings:

(a) direct effects;

(b) indirect effects;

(d) wider economic effects.

These are considered in turn below. In the remainder of this section, we highlight the key features of our approach, including the information sources we have used to generate our estimates of the economic benefits.

Geographical Scope

13. We have considered both the likely local and national effects of the development. The importance of both has been emphasised by many groups including the House of Commons Select Committee on Culture, Media and Sport:

"One of the central aims of the Millennium Commission and the Government has been to provide a lasting legacy from the Millennium Experience to both the local area and the country as a whole . . .

14. Quite how the local area should be defined is a matter of debate. For the purpose of this analysis, we have focused on the Greenwich Peninsula and the London Borough of Greenwich as a whole.

15. We recognise, however, that DETR's recent study of developments on the Peninsula used a broader definition of the local area:

Moreover, the relevance of the proposals to the whole Thames Gateway is also acknowledged.

Measurement of the Benefits—Jobs or Value-Added?

16. The benefits of Legacy's proposals can be assessed in terms of several economic parameters. We have focused on the impact on additional jobs and, to a lesser extent, value-added.

Additionality and Displacement

17. In estimating the overall benefits of Legacy's proposals, we have endeavoured to take account of additionality and displacement to estimate their likely net effect both locally, especially on the Greenwich Peninsula, and nationally.

18. Our consideration of additionality has focused upon understanding how Legacy's scheme will result in additional economic activity that would not otherwise happen either locally or nationally. Such additionality may take several different forms. We have concentrated on assessing how Legacy's proposals will enable business to undertake economic activity—locally or nationally—that would not otherwise happen at all and/or would happen on a larger scale and/or earlier in time.

19. Theoretically, Legacy's proposals could also result in the displacement of other economic activity in several markets, the most important of which are:

(a) the property market, if Legacy's attract tenants which would otherwise have located in alternative space provided either locally or elsewhere in the UK;

(b) the labour market, if Legacy's tenants employ people who would otherwise have been employed in other jobs elsewhere in the local area or more widely in the UK;

(c) the produce market, if the firms which occupy the space provided by Legacy displace other competing suppliers of the same or similar products located either locally or elsewhere in the UK; and

(d) the capital market, if Legacy's proposals lead to companies' securing access to (venture) capital at the expense of other businesses seeking such capital locally or elsewhere in the UK.

Baseline

20. We have compared the likely benefits of Legacy's proposals with the existing baseline, that is current and projected economic conditions in the Greenwich Peninsula and more broadly (including the Thames Gateway); we have not sought to compare the impact of Legacy's proposals with those of other bidders.

Sources

21. Our estimates of the effects of Legacy's proposals are based on its business plan and other readily available data. We have not undertaken any primary or in-depth secondary research. Consequently, our estimates rely on the assumptions which underpin the business plan which themselves are informed by the results of Legacy's discussions with prospective tenants, local community groups and other interested parties.

22. Like any other ex ante assessment, the indirect and induced effects of Legacy's development are difficult to determine with any precision without knowing exactly which firms will occupy the Dome. As noted elsewhere, the identity of Legacy's tenants will primarily be determined by market demand. For this reason, we have relied upon a range of multipliers to assess the likely order of magnitude of such effects. The multipliers we have considered reflect the results of previous research into the benefits of similar types of development. We note, however, that Legacy's proposals are different in several important respects from many earlier initiatives, notably in terms of their scale and target market. This means that caution is needed when interpreting the results.

23. Our analysis of the potential wider benefits of the proposals is based on an assessment of Legacy's proposed development in the light of the Government's relevant policy objectives. As such, we have looked at how the development will contribute to the achievement of the Government's commitments and targets in a broad range of areas including regeneration, competitiveness, environmental improvement, transport and social inclusion.

Uncertainty

24. Finally, our analysis is forward looking. As such, our estimates of the likely benefits of Legacy's proposals are subject to uncertainty because they depend on the behaviour of many individuals and businesses operating in a period of unusually rapid social and economic change. We have, therefore, drawn on our extensive experience of economic impact assessment, especially in relation to developments similar to that proposed by Legacy. We have also addressed some of the key uncertainties by considering the sensitivity of our conclusions to a range of plausible assumptions.

ECONOMIC BENEFITS

25. Figure 1 provides an overview of the four categories of potential economic benefits of Legacy's proposals that we have sought to estimate.

Direct Effects

26. For the purpose of this assessment, we have included both the physical redevelopment of the Dome site and the subsequent provision and occupation of office, retail and other space as direct effects of Legacy's proposal.

27. Legacy's plans for the Dome involve some construction and other development activity to make the site fit for its intended purpose as a business incubator. This activity can be expected to generate additional economic activity.

28. More importantly, Legacy's proposals will lead to the longer-term provision of business space that can be occupied by a range of knowledge and technology based businesses. At present, Legacy's intention is to focus its efforts on attracting businesses that fall into three broad groups:

(a) established, international knowledge and technology based businesses;

(b) new start-up and emerging knowledge and technology based businesses, including those engaged in e-business, those in financial incubators and those with their origins in Legacy's academic partners; and

29. In addition, the proposals will create demand for space from businesses that provide goods and services to the other site occupants. These will include retail and leisure businesses catering for the needs of the site's occupants and their owners and employees.

Employment housed

30. The direct economic benefits of Legacy's proposals are driven by the floorspace that will be created in the development, the pace at which it is developed and the speed with which it is occupied or used.

31. Overall, Legacy's business plan envisages that it will spend £140 million on the development of the site inside the Dome over a period of 32 months. We estimate that this work could result in about 200 jobs at the site during the period of construction with significant further employment in suppliers off the site.

32. Table 1 shows the planned floorspace.

Table 1

PLANNED FLOORSPACE


Area planned	Net square metres

Ground floor pod space	27,700
Upper floors pod space	34,700
Zone 1: 6 core buildings	15,000
Ancillary space	10,500
Hotel space	3,400
Temporary accommodation	5,000
TOTAL	96,300

Source: Legacy plc.

33. Table 2 shows the anticipated timing of the development and completion of the space. Some 26 per cent of the space will be available during 2001 with a further 10 per cent becoming available in the following year. The balance is planned to be completed in 2003.

Table 2

FLOORSPACE DEVELOPED BY LOCATION


	During year
Area developed—Location	2001 Net sq m	2002 Net sq m	2003 Net sq m

Ground floor pod space	—	10,000	17,700
Upper floors pod space	—	—	34,700
Zone 1: 6 core buildings	15,000	—	—
Ancillary space	5,000	—	5,500
Hotel space	—	—	3,400
Temporary accommodation	5,000	—	—
TOTAL	25,000	10,000	61,300

Source: Legacy plc.

34. Table 3 shows the floorspace that will be provided by Legacy broken down by its intended use. In total, 85 per cent of the space will be devoted to offices and incubator units for the core knowledge and technology-based tenants. In addition, the firms providing support and ancillary services to the core tenants will occupy the remaining 15 per cent of the total space.

Table 3

FLOORSPACE DEVELOPED BY PROSPECTIVE USE


	During year

Area developed—Use	2001 Net sq m	2002 Net sq m	2003 Net sq m
Workspace	20,000	10,000	52,400
Retail/leisure	4,500	—	5,000
Hotel	—	—	3,400
Other (ie storage)	500	—	500
TOTAL	25,000	10,000	61,300

Source: Legacy plc.

35. How much employment will be generated by Legacy's proposals in the future depends upon the total area that is occupied. Table 4 shows the cumulative provision of floorspace at the end of each year; this drives our estimates of potential employment. Table 5 shows the proportion of the developed floorspace that Legacy expects to be occupied and the total area of floorspace occupied at the end of each year over the period 2001 to 2006. The data are based on Legacy's business plan.

Table 4

CUMULATIVE FLOORSPACE DEVELOPED BY PROSPECTIVE USE


	At year end

Cumulative area developed—Use	2001 Net sq m	2002 Net sq m	2003 Net sq m	2004 Net sq m	2005 Net sq m	2006 Net sq m
Workspace	20,000	30,000	82,400	82,400	82,400	82,400
Retail/leisure	4,500	4,500	9,500	9,500	9,500	9,500
Hotel	—	—	3,400	3,400	3,400	3,400
Other (ie storage)	500	500	1,000	1,000	1,000	1,000
TOTAL	25,000	35,000	96,300	96,300	96,300	96,300

Source: Legacy plc.

Table 5

OCCUPATION OF FLOORSPACE


		At year end
Area occupied		2001	2002	2003	2004	2005	2006

Workspace	% of developed	100%	89%	97%	97%	97%	97%
	Net sq m	20,000	26,600	80,328	80,328	80,328	80,328
Retail/leisure	% of developed	76%	100%	100%	100%	100%	100%
	Net sq m	3,400	4,500	9,500	9,500	9,500	9,500
Hotel	% of developed	—	—	80%	97%	100%	100%
	Net sq m	0	0	2,720	3,287	3,400	3,400
Other (ie storage)	% of developed	0%	0%	50%	50%	50%	50%
	Net sq m	0	0	500	500	500	500
TOTAL	% of developed	94%	89%	97%	97%	97%	97%
	Net sq m	23,400	31,100	93,048	93,615	93,728	93,728

Source: Legacy plc.

36. The high anticipated occupancy rates reflect three key factors.

(a) the underlying strength of demand for incubator space in the present economic environment which has been reflected in the very positive reaction that Legacy has received to its approaches to potential anchor tenants;

(b) the value for money offered by Legacy's proposed space; and

37. Our assessment of the potential employment housed in the development is based upon a set of assumptions about the average amount of floorspace needed by each employee. This will clearly vary from activity to activity and from business to business. We have therefore, looked at a range of different assumptions based on advice we have received from Legacy. These assumptions are summarised in Table 6.

Table 6

ASSUMED EMPLOYMENT DENSITY


Employment density		Sq m per person

Workspace	High	12.5
	Low	15
Retail/leisure	High	5
	Low	10
Hotel	High	20
	Low	30
Other (ie storage)	High	20
	Low	30

Source: Legacy plc and PricewaterhouseCoopers.

38. Based on the assumptions in Table 6, we have estimated the total number of jobs that could be housed in Legacy's development given the projected occupancy rates. Our estimates are shown in Table 7. They show that employment could reach 8,500 depending on the employment density achieved.

Table 7

EMPLOYMENT HOUSED AT THE DOME


		At year end
Employment		2001	2002	2003	2004	2005	2006

Workspace	High	1,600	2,128	6,426	6,426	6,426	6,426
	Low	1,333	1,773	5,355	5,355	5,355	5,355
Retail/leisure	High	680	900	1,900	1,900	1,900	1,900
	Low	340	450	950	950	950	950
Hotel	High	—	—	136	164	170	170
	Low	—	—	91	110	113	113
Other (ie storage)	High	—	—	25	25	25	25
	Low	—	—	17	17	17	17
TOTAL	High	2,280	3,028	8,487	8,516	8,521	8,521
	Low	1,673	2,223	6,413	6,431	6,435	6,435

Source: Legacy plc and PricewaterhouseCoopers.

39. We have also analysed the potential employers at the Dome according to the characteristics of the businesses that are likely to occupy the Dome. In particular, we have sought to distinguish them based on their status (ie start-up, expansion, and inward investor). These estimates are important for assessing the likely extent of additionality and displacement.

40. Our estimates are inevitably subject to considerable uncertainty since Legacy's proposal anticipates that the occupation of the development will be market-led. As such, the identity of the occupants will be driven by the evolution of market demand, not by Legacy's plans. Table 8 summarises the results of our analysis.

Table 8

CHARACTERISTICS OF EMPLOYERS AT THE DOME


		Year
Number of firms		2001	2002	2003	2004	2005	2006

Workspace	Start-up	32	64	321	321	321	321
	Relocation	29	38	103	103	103	103
	Inward investor	14	17	45	45	45	45
Retail/leisure	Start-up	—	—	—	—	—	—
	Relocation	27	36	76	76	76	76
	Inward investor	—	—	—	—	—	—
Hotel	Start-up	—	—	9	11	11	11
	Relocation	—	—	—	—	—	—
	Inward investor	—	—	—	—	—	—
Other (ie storage)	Start-up	—	—	1	1	1	1
	Relocation	—	—	1	1	1	1
	Inward investor	—	—	—	—	—	—
TOTAL	Start-up	32	64	331	333	333	333
	Relocation	56	74	179	179	179	179
	Inward investor	14	17	45	45	45	45

Source: Legacy plc and PricewaterhouseCoopers.

Net employment offers

41. The estimates in Table 7 are the total number of jobs we expect will be housed in the Dome development. As such, they take no account of the potential indirect, induced and wider benefits. On the other hand, not all of the jobs will necessarily be additional at either the local or national level. In addition, they take no account of the potential displacement at either local or national level. Hence, they do not all represent a net increase in employment. We consider these issues below, first at the local and then at the national level.

Local benefits—additionality and displacement

42. The extent to which the jobs housed in the Dome are additional at the local level will depend upon how many firms:

(a) would not be created in the local area if the Legacy development does not proceed;

(b) would locate outside the local area if the Legacy development does not proceed; and

(c) would not grow as quickly if the Legacy development does not proceed, even if they would have located in the local area.

43. Given the characteristics of the prospective occupants (many of whom may not even exist at present), our conclusions depend on a set of informed judgements. On the basis of Legacy's target client base, we believe that the vast majority (probably over 90 per cent) of the firms expected to occupy the office/incubator space in the Dome will only locate on the Greenwich Peninsula if the Legacy scheme proceeds. The same is true of the providers of the shared services who will be drawn to the Peninsula by the proposed development.

44. To the extent that prospective occupants of the retail and leisure space meet demand generated by existing local residents, it might be argued that the associated employment is not additional at the local level. In practice, however, we expect that the majority of this demand will result from the additional firms occupying space in the Dome. For this reason, our view is that most of the employment housed at the Dome should be regarded as additional at the local level. This is even truer of the proposed hotel.

45. Table 9 shows our estimate of the additional direct employment at the local level.

Table 9

ADDITIONAL LOCAL EMPLOYMENT


Additional employees		Year
		2001	2002	2003	2004	2005	2006

Workspace	High	1,520	2,022	6,105	6,105	6,105	6,105
	Low	200	310	1,071	1,205	1,339	1,473
Retail/leisure	High	510	675	1,330	1,330	1,235	1,235
	Low	228	302	570	570	475	475
Hotel	High	—	—	95	115	111	111
	Low	—	—	54	66	57	57
Other (ie storage)	High	—	—	18	18	16	16
	Low	—	—	10	10	8	8
TOTAL	High	2,030	2,697	7,548	7,567	7,467	7,467
	Low	428	612	1,705	1,851	1,879	2,013

Source: PricewaterhouseCoopers calculations.

46. At the local level, the extent of potential displacement depends upon how far tenants in the Dome:

(a) will compete with established businesses in the local area, for example if they sell their goods and services at the expense of established local businesses; and

(b) will recruit their employees from outside the local area or from the unemployed, rather than from existing employees in the area.

47. In general, we do not expect the occupants of the incubator space and the providers of the shared services to be in direct competition with firms already established in the local area. This reflects the nature of the markets in which they operate—which are increasingly international—and the existing, weak economic structure of the local area. On the other hand, the retail and leisure activities in the Dome may displace other local employment to some extent. We believe, however, that our assumptions regarding the additionality of these latter activities already make due allowance for this possibility and that no further adjustment is needed.

48. The other potential for displacement is in the labour market if tenants at the Dome recruit staff at the expense of other local firms and in a way that makes it difficult for these firms to secure appropriate replacments. We believe, however, that local economic conditions are such that displacement is unlikely.

49. The final step in determining the net impact of Legacy's proposals on local employment is to consider how far entrepreneurs and employees are likely to be local residents. Initially, we expect that local residents will tend to be those employed in the retail and leisure activities at the site. On the other hand, we think it likely that relatively few local residents will set up or be employed by the businesses in the office/incubator spaces. Over time, however, we would expect this proportion to grow steadily as people move to the area. Table 10 shows the assumptions we have used to estimate the net direct impact on employment in the local area. Table 11 shows the results of applying these assumptions. Overall, we expect Legacy's proposals to generate up to 3,530 additional jobs for local people at the local level by 2006.

Table 10

ASSUMPTIONS ABOUT LOCAL RECRUITMENT OF EMPLOYEES


% of locally recruited employees		Year
		2001	2002	2003	2004	2005	2006

Workspace	High	25%	28%	31%	34%	37%	40%
	Low	15%	18%	20%	23%	25%	28%
Retail/leisure	High	75%	75%	75%	80%	80%	80%
	Low	67%	67%	67%	67%	67%	67%
Hotel	High	75%	75%	75%	80%	80%	80%
	Low	67%	67%	67%	67%	67%	67%
Other (ie storage)	High	75%	75%	75%	80%	80%	80%
	Low	67%	67%	67%	67%	67%	67%

Source: Legacy plc and PricewaterhouseCoopers.

Table 11

NET OVERALL LOCAL EMPLOYMENT


Locally recruited employees		Year
		2001	2002	2003	2004	2005	2006

Workspace	High	380	566	1,893	2,076	2,259	2,442
	Low	30	54	214	271	335	405
Retail/leisure	High	383	506	998	1,064	988	988
	Low	152	201	380	380	317	317
Hotel	High	—	—	71	92	88	88
	Low	—	—	36	44	38	38
Other (ie storage)	High	—	—	13	14	13	13
	Low	—	—	7	7	6	6
TOTAL	High	763	1,072	2,975	3,246	3,348	3,531
	Low	182	255	637	702	695	765

Source: Legacy plc and PricewaterhouseCoopers.

"Green Land" development

50. Legacy's proposals also include plans for various mixed-use developments on the so-called "Green Land". Although the precise form and timing of this development is uncertain at present, we have examined their potential economic implications using exactly the same approach as described above. To do this, we have had to make certain important assumptions. In particular, a crucial assumption from the employment perspective is the amount of residential development. If no residential development occurs and the pattern of land use on the "Green Land" is proportionate to that inside the Dome, we estimate that the development could house some 3,500 to 5,400 jobs if it is more or less fully occupied. These jobs will be additional to those housed inside the Dome. Of these jobs, we estimate that some 1,300 to 4,200 will be additional at the local level.

IMPACT ON GREENWICH AND THE THAMES GATEWAY

51. To gauge the potential economic impact of the development inside the Dome (ie excluding any development on the "Green Land"), we have analysed the proportion of total UK employment in Greenwich with the Dome compared with the employment forecasts provided in SOLOTEC's South London Economic Assessment for 1999. Our results, which are shown in Figure 2, highight the potential Legacy's development has to reverse the long-term decline in employment in the local economy of Greenwich.

52. We also believe that Legacy's proposals will have an important and valuable impact on the quality of jobs available locally, especially compared with the other existing employment opportunities in Greenwich. Many official statistics[13] highlight the relatively low quality of employment opportunities in Greenwich at present:

(a) average gross weekly earnings are well below the London and South East average;

(b) unemployment is at a higher level than most of the surrounding area (with the exception of Lewisham and Newham); and

53. Over time, we expect Legacy's development to generate an increasing number of employment opportunities for local residents in Greenwich such as:

(a) businesses located at the Dome employ more and more local people;

(b) businesses which originally started up or located at the Dome expand, move to the surrounding area and continue to employ local people; and

54. We have also considered the potential contribution of Legacy's proposals to the Thames Gateway London Partnership for the year 2006. The results of our assessment are summarised in Table 12 below. It is evident that Legacy's proposals have the potential to contribute to all of the key elements of the vision. In some cases, we believe that the potential is very considerable.

Table 12

CONTRIBUTION TO THAMES GATEWAY LONDON PARTNERSHIP'S VISION FOR 2006


Objective	Contribution of Legacy plc proposal

a thriving, prominent sub-region for London and the South East, able to reach directly into the global economy	YYY	provides focal point for development of Thames Gateway

will attract leading-edge, companies competing in global markets

a manufacturing centre of excellence and a key focus for technology futures backed by strong research and development	YYY	target occupants including leading technology and knowledge-based companies

an international tourism, cultural industries and heritage venue, and focal point for international travel to London and the UK	Y	will maintain Dome as iconic structure with free access to visitors

an internationally renowned centre of academic excellence	YY	will attract spin-offs from some of UK's leading academic institutions

a critical satellite area for business and financial services	YY	will provide centre for business support services

an area in which ethnicity and diversity is valued and its economic benefits realised to provide access to new markets and product development at home and abroad	YY	socially inclusive

an area known in Europe for its leading edge and innovative skills	YYY	Legacy's vision

an area offering access to economic opportunities to all its residents	YY	over time, Legacy's proposals will provide more valuable employment opportunities for local residents

an area of environmental excellence as the key to inward investment and sustainable regeneration	YY	will further enhance environmental regeneration of area

an effective sub-region with strong and committed public/private/community and voluntary sector partnership, including that with the black and ethnic minority community	YY	socially inclusive, with emphasis on achieving a real partnership with the local community

Source: PricewaterhouseCoopers.

National benefits—additionality and displacement

55. How far the jobs created at the Dome are additional at the national level is a more difficult question to address. It does, however, depend on the same sort of factors as those that affect the local impact. Thus, it depends on the extent to which the firms located at the Dome:

(a) would locate outside the UK if the Legacy development does not proceed;

(b) would not start-up if the Legacy development does not proceed; and

56. We believe that the Legacy scheme has the clear potential to contribute to the attraction of inward investors into the UK. This is especially likely if Legacy is able to achieve its vision for the Dome by creating a world class centre for knowledge-based industries. International evidence, however, suggests that it is likely to be only one of several factors that are influential in the location decision.

57. We also believe that there are good reasons why Legacy's incubator will contribute to the emergence and development of more successful small and medium sized knowledge based businesses:

(a) it will provide easy access to the business advice and support often needed by emerging businesses if they are to thrive;

(b) it will foster the commercialisation of technologies and ideas which have their roots in Legacy's technology partners; and

As such, this will also contribute to a national benefit.

58. Overall, we expect a much lower level of additionality at the national level than at the local level. This implies that, in the short term, the additional direct employment in the UK will be smaller. In the longer term, however, the successful development of a cluster of knowledge-based businesses at the Dome could prove to be a vital catalyst in the development of the UK's competitive base. We consider this argument further below as a potential wider benefit.

59. At the national level, potential displacement can arise in the four markets defined earlier (ie property, product, labour and capital). The extent of displacement depends on similar factors to those that are applicable at the local level. Thus, it is influenced by how far the prospective tenants of the Dome:

(a) would sell their goods and services into an international market or substitute for goods and services which are imported and, hence, are unlikely to displace other UK based firms providing competing goods and services; and

(b) would recruit their employees from within the UK.

60. On balance, we believe that displacement in the product market at the national level will be small because we expect many of the occupants to be competing in international markets. Consequently, displacement will not significantly reduce the impact of Legacy's development; the extent of additionality will be much the most relevant consideration.

61. Whether or not the impact on the labour market is similarly benign is less clear-cut. To the extent that Legacy's development stimulates the creation and growth of new knowledge-based businesses, these businesses could be expected to draw highly skilled staff from the limited pool available in the UK. Whether or not this is a cause for concern depends upon how quickly and effectively the labour market can respond to this pressure. Overall, we believe that such an impact ought not to be a major cause for concern provided that measures are in place to develop labour force skills. Such measures form a core part of the Government's competitiveness policy.

Indirect effects

62. The primary indirect effects that need to be taken into account are those that arise from the supply of goods and services to the occupants of Legacy's proposed development and the sale of goods and services to the customers of the occupants.

63. The magnitude of these benefits will depend on the extent and nature of additionality. If there is significant additional activity as a result of Legacy's proposed development, the indirect effects are also likely to be significant; on the other hand, if there is little or no additionality, the indirect effects will be small.

64. In practice, the magnitude of the indirect effects of the development at the Dome will depend on the activities undertaken by the businesses located there and the extent to which they have strong forward and backward linkages along the supply chain. This is uncertain but is likely to be greatest if a thriving cluster of knowledge-based businesses can be established, as Legacy expects will be the case.

65. At the local level, in the short term, we expect that the indirect effects will be relatively small because few suppliers and customers are likely to be located in Greenwich. The exception is local service providers but most of the economic impact on this group has already been taken into account in the direct effects (since they will also be occupants of the Dome).

66. At the national level, the effects should be rather greater although they are difficult to estimate on an ex ante basis.

Induced effects

67. Induced effects arise as a result of the additional expenditure by those employed at the Dome, and the subsequent multiplier and knock-on impacts. The extent of these effects, and their incidence, depends on the incomes earned by people employed in the Dome and their place of residence. The local benefits are likely to be greatest if those employed earn (relatively) high incomes—because they have good quality jobs—and they live locally.

68. At the local level, we expect the initial impact to be small because a large proportion of the expenditure will leak from the local economy since:

(a) relatively few of those employed at the Dome will be local residents—Table 11 shows our estimates; and

(b) many of the additional goods and services purchased by local residents will be supplied by non-local businesses.

In the longer term, we expect the induced effects to increase over time as the Dome's occupants become more integrated within the local economy. Overall, however, we doubt that the induced or multiplier effects will be much more than 10-20 per cent of the combined direct and indirect effects at the local level.

69. We would expect the induced effects to be greater at the national level because there will be less "leakage" from the economy. On the other hand, the (net) direct and indirect effects will be lower because of less additionality and greater displacement. Overall, we doubt that the multiplier effects will be much more than 30-50 per cent of the combined direct and indirect effects at the national level.

Wider Economic Effects

70. Legacy's proposal will also generate wider economic effects that are additional to the other three categories of impact. These potential effects take different forms.

71. First, Legacy's proposal is intended to create a cluster of knowledge based businesses. If this cluster is successful, it could generate agglomeration economies. This, in turn, may provide the basis from which further successful new businesses emerge, as new ideas are developed and exploited. As such, the scheme will make an important contribution to the development of a successful knowledge-based economy in the UK.

72. In December 1998, the Department of Trade and Industry (DTI) published its White Paper on improving UK competitiveness "Our Competitive Future: Building the Knowledge Economy". The White Paper identified three important themes:

(a) enhancing the business capabilities from science and technology to marketing and manufacturing which provide the foundation for (future) competitive advantage;

(b) promoting more effective business collaboration between suppliers, customers, joint-venture partners and universities so that businesses can access all the skills they need to make and market technologically complex products; and

73. As previously noted, the DTI and other Government Departments have subsequently launched a series of initiatives aimed at closing the performance gap between the UK and other developed nations. An important feature of these initiatives has been the encouragement of entrepreneurship, especially in the context of small knowledge-based businesses. The most recent initiatives were announced in the Chancellor's Budget in Spring 2000.

74. Many Government statements have highlighted the importance attached to the development of successful clusters. For example, both the DTI's White Paper and the Paymaster General's Report on the development of high technology businesses[14] deal with the issue as well as the recent Budget.

75. The reasons why clusters are seen as important reflects considerable empirical evidence from around the world:

76. Moreover, at present, international competition to develop a strong knowledge-based economy is intense. This means that those locations that are able to develop an early critical mass of the key resources(eg technologies and skills) stand to derive long-term benefit because they will gain from first-mover advantage.

77. The important conclusion that we draw from this is that Legacy's proposals have the potential to make a significant contribution to the realisation of the Government's overall competitiveness policy objectives. In particular, they will enhance the UK's capacity for entrepreneurship and innovation by creating an attractive and supportive local business environment which stimulates business development and which draws on the untapped potential of the UK's academic institutions.

78. Second, although the Dome will no longer be a primary tourism venue, we expect that it will continue to generate some modest tourism benefits both locally and nationally because visitors to the region, especially those from overseas, will still wish to see the Dome. The Dome will provide access for such visitors. Overall, however, the scale of these benefits is difficult to assess precisely; we expect that a proportion (perhaps 5-10 per cent) of the benefits envisaged in the current year will be sustained.

79. Third, Legacy's proposals will contribute to the strengthening of skills in the labour force, especially in the local area. Legacy's business plan includes provision for about £250,000 to be spent each year on training and skills development. In addition, we expect that other occupants of the Dome will continue to invest in human resource development. In both cases, this will benefit the local area as well as contributing to overall development of workforce skills.

80. Fourth, potentially, Legacy's proposals will also generate a benefit for the public finances since the Government will receive an initial payment and an ongoing interest in the development in return for granting Legacy the right to develop the Dome in the way proposed. The significance of this impact will depend on the assumed alternative value of the site to the Government and the considerations offered by other bidders. For reasons of confidentiality, this aspect of the benefit of Legacy's proposal is not considered further in this report on the economic benefits.

81. Fifth, besides providing a vital contribution to the continued economic regeneration of the Greenwich Peninsula, Legacy's proposals are designed to be socially inclusive:

(a) various training initiatives are anticipated which will make it easier for local residents to find rewarding jobs within businesses located at the Dome; and

(b) Legacy intends to provide free of charge various, high quality Internet related services to local schools, hospitals and other community groups—this will enable these organisations to make much better use of the power of the Internet.

82. Finally, Legacy's proposed development will have important transport and environmental benefits:

(a) it will contribute to the sustained use of the local public transport infrastructure, notably the Jubilee Line extension, throughout the year with less peak loading than might be envisaged under alternative proposals; and

(b) the Legacy proposal will create an Environmental Centre where the local environment is monitored and which encourages greater local awareness and responsibility for the environment of Greenwich.

CONCLUSIONS

83. We have assessed the potential economic benefits of Legacy's proposals based on the business plan. Inevitably, because the assessment is forward looking, our estimates of the benefits are subject to significant uncertainty.

84. Our analysis of Legacy's proposals indicates that it will have the following key economic benefits:

(a) the development inside the Dome will house up to 8,521 jobs of which up to 7,467 (88 per cent) will be additional at the local level;

(b) in addition, the outline proposals for development of the Green Land could generate up to a further 5,400 jobs, the majority of which will also be additional at the local level;

(c) on average, the jobs provided within the Dome will be of significantly higher quality than those in Greenwich as a whole and those in the Dome at present;

(d) the proposal will create sustained jobs for up to 3,630 local people as the development proceeds but, in the longer term, the number of local residents with jobs attributable to Legacy's proposals will rise steadily as the Dome becomes more integrated into the local economy and as some of the businesses that start-up in the Dome begin to grow;

(e) displacement of established local businesses will not be significant;

(f) at the national level, in the short term , Legacy's proposal could result in less additionality and more displacement;

(g) on the other hand, if Legacy's plans are successful, the Dome could become the focus for a thriving cluster of knowledge based businesses; and

(h) the development of such a cluster would make a significant contribution to the achievement of the Government's policy objectives, especially in terms of competitiveness.

June 2000

8 DTI Competitiveness Indicators, 1999. Back

9 HM Treasury, Budget 2000, "Prudent for a Purpose: Working for a Stronger and Fairer Britain". Back

10 A Framework for the Evaluation of Regeneration Projects and Programmes, HM Treasury. Back

11 House of Commons Select Committee on Culture, Media and Sport, First Report, November 1999. Back

12 DETR, Greenwich Peninsula Millennium Developments, Interim Evaluation, November 1999. Back

13 See, for example, Greenwich Peninsula Developments: Base-Line and Interim Evaluation, Report to DETR, January 2000. Back

14 "Financing of High Technology Businesses: A Report by the Paymaster General", HM Treasury, November 1998. Back

15 Pre-Budget Report, HM Treasury, November 1999. Back