Memorandum from North East Chamber of
Commerce (NE 10)
SUMMARY
— NECC members are supportive of One North
East as a strategic economic development body for the region,
though there are fears over "mission creep". Government
Office North East has not demonstrated a sufficient commitment
to act on the region's, rather than Whitehall's, behalf.
— The death of manufacturing in the North
East has been greatly exaggerated. However, challenges remain,
particularly in moving to higher value manufacturing in the face
of global competition, which industrial policy has not yet adequately
addressed.
— The case for re-structuring of skills
development bodies has not been adequately made and is being pursued
with bad timing. It is critical that internal focus is minimised
and a guaranteed quality service to businesses maintained.
— The North East has a huge opportunity
in both renewable and clean energy technology. Planning constraints
must be addressed if this is to be realised in full.
1. About the North East Chamber of Commerce
1.1 The North East Chamber of Commerce (NECC)
is the North East's leading business membership organisation and
the only regional chamber of commerce in the country. We represent
more than 4,500 businesses located in an area co-terminus with
Government Office for the North East. Our members are drawn from
all sizes of business across all sectors and employ about 30%
of the region's workforce.
1.2 Through our network of local and sub-regional
committees covering every local authority area in the North East,
together with NECC Council, we are regularly in contact with all
types of businesses. We also carry out the quarterly North East
Business Barometer survey, the largest of its kind in the region.
1.3 Of particular relevance to this inquiry
is our current NECC Innovation campaign. A report detailing our
recommendations for supporting innovation across all sectors of
North East business will be published in June and made available
to Committee members.
2. The role of One North East and the Government
Office in supporting industry and innovation in the current economic
climate
2.1 Businesses have struggled to identify
how Government Office North East proactively supports the region,
as opposed to supporting central government departments within
the region. Clarification of its role and the expectations businesses
can legitimately have from the organisation would therefore be
welcome. While Government Office staff across all teams are regularly
willing to engage with businesses, it is difficult to discern
how this has a genuine influence on central Government policy.
The presence of a Regional Minister with a political constituency
in the North East has had a more visible impact than Government
Office.
2.2 The North East's Regional Spatial Strategy
presents a clear example of Government Office failing to support
the region. Amendments to drafts made by the Office consistently
failed to adequately express the region's ambitions, as emphasised
in the Regional Economic Strategy (RES) drawn up by One North
East. A particularly crass example was the comment—later
withdrawn after pressure from NECC—that the "low cost
of labour" could be a significant factor in attracting investment
to the North East.
2.3 An excellent model for close proactive
engagement with the region's business community in order to feed
intelligence and regional viewpoints into central decision-makers
is operated through the Bank of England's regional agents. Government
departments should consider similar approaches.
2.4 Public bodies should principally focus
on providing high quality infrastructure within the North East
which will attract the private sector to invest. While NECC welcomes
the investment that has been made in the region's broadband infrastructure,
this clearly requires periodic updating such is the pace of technological
development. Where transport infrastructure is concerned, NECC
believes the region has seen significant underinvestment in strategic
links in the past decade, other than that made by private companies.
Development of ports and airports to ensure excellent connections
to international markets must be proactively supported, including
through improvement of transport links to these facilities. Vital
road links to UK markets from the North East are already not fit
for purpose; rail links which at present serve the region well
could become so if investment to counter growing capacity pressures
is not made swiftly. Neither Government Office nor One North East
have been forthright enough in articulating the region's needs.
2.5 Where Government Office could have played
a valuable role during the downturn would have been in providing
detailed information about the implementation of new initiatives—particularly
around the turn of the year when a series of announcements were
being made in quick succession. The opportunity to use Government
Office in this way was seemingly missed by central Government
departments.
2.6 NECC has largely welcomed the role played
by One North East since its inception in 1999. In the context
of the North East, it is critical that strategic economic development
takes place at regional level. With a population of a little more
than 2.5 million, this is comparable to the city regions of Manchester,
Leeds or Birmingham. In order to constitute sufficient critical
mass to compete, it is important therefore that the North East
is not sub-divided when it comes to strategy development.
2.7 One North East successfully developed
a Regional Economic Strategy (RES) which inspired clear support
from the business community and contained ambitious targets One
North East is willing to be judged against. Clearly a 10-year
strategy of this kind must be re-examined in light of changed
economic circumstances, but a shift to short-term interventions
must be avoided.
2.8 The focus on the "three pillars"
for science-led economic growth has been welcomed. In energy,
health sciences and process innovation, One North East has identified
three sectors where the region's businesses already are or have
significant potential to be global leaders. Capitalising on this
private sector success is critical. The development of clusters
to support this is welcomed, but the strategy for making these
self-sustaining must be carefully managed. A retreat from activities
which genuinely add value to existing provision, into commercial
activities which are already being adequately provided, would
represent a lost opportunity for the region. One North East must
also be careful not to dilute its focus on these sectors by attempting
to spread its efforts too thinly across all areas of business.
2.9 Development of high quality facilities
to support these sectors is welcomed, such as the blade test facility
at NaREC. This provides a facility which will attract businesses
to the region and which could not be provided by the private sector
alone. However, a "me too" attitude which creates facilities
without the same value in all parts of the region must be guarded
against.
2.10 The creation ahead of the national
trend of a single Business Link service incorporating UKTI and
LSC advisers is also to be welcomed. While the process of setting
this up has not been without its difficulties, the strategy being
pursued is welcomed by NECC. It is important to continue to move
North East businesses away from a grant culture to a sustainable
commercial footing. The recent incorporation of the North East
Regional International Trade Office into Business Link is welcome
due to the importance of exports to the North East economy, and
of North East exports to the UK, with the region consistently
recording a positive balance of trade. The involvement of LSC
brokers with good understanding of the region's economy and business
community should not be jeopardised by current reforms (see below).
2.11 We have concerns that One North East
has undergone "mission creep" since its creation. Government
must resist allocating responsibility to One North East for projects
which are not directly related to economic development. Examples
could include environmental policy, equality and diversity and
social inclusion. Similarly, One North East should refrain from
assuming responsibility for work which need not be part of its
core remit. This includes taking on management responsibility
for programmes which are separately funded. Examples could include
urban design, sports or languages. None of these projects or programmes
are opposed by NECC, but should be moved to organisations with
a more appropriate remit, or to local authorities or city regions
with broader remits. In the same way that organisations with core
responsibility for health, skills or law and order would not be
handed responsibility for issues outside their core remit, the
same discipline should be applied to a body responsible for economic
development. A relentless focus on the needs of businesses is
required at present and this must not be diluted.
2.12 The role of the public sector with
regard to economic development should principally be focused on
providing high quality infrastructure, including transport and
communications infrastructure. The strategy should recognise that
this will usually create an environment which will attract the
private sector to provide other requirements, including buildings.
However, a focus on measuring performance through outputs and
outcomes encourages micro-management in order to demonstrate how
interventions have produced tangible numbers.
2.13 The public sector also has a role to
address market failure. This must be closely adhered to without
replicating services which are adequately provided by the private
sector.
3. The place of manufacturing industry within
the region
3.1 NECC's North East Business Barometer
surveys show the change in circumstances and perceptions for manufacturers
in the North East. While in Quarter 3 2008 manufacturers recorded
better export performance than service businesses and higher expectations
for changes in turnover and profitability, by Quarter 1 2009 manufacturers
were significantly more pessimistic than service businesses.
3.2 The RES identifies chemical and pharmaceuticals;
automotive; defence and marine; food and drink; and energy as
key sectors for the region. All of these represent high value
manufacturing.
3.3 Commodity manufacturing has enjoyed
something of a short-term reprieve due to changes in foreign exchange
rates over the past 12-18 months. However, this is not likely
to reverse a trend of low-skilled manufacturing being transferred
to countries where the cost base is lower. It is crucial therefore
to ensure North East businesses can move up the value chain.
3.4 Efforts to develop supply chain networks
for major manufacturers in the region are welcome. This must not,
however, be at the expense of encouraging firms to develop their
own diversified customer base in order to insulate themselves
against shocks affecting major customers.
3.5 It is clear that manufacturing industries
in the region must innovate to maintain global competitiveness
in the future. Examples of support for this innovation include
the development of NaREC to encourage a new energy industry, and
One North East's recent Memorandum of Understanding with Nissan
over the development of infrastructure to support electric vehicles.
3.6 R&D investment by Government in
the region has been minimal in recent years. This compares unfavourably
with other regions, particularly the East of England, South West
and Scotland. Improving this would have a significant impact on
opportunities for collaboration building capacity within North
East businesses and on the supply of high level skills and knowledge
within the region. The focus on the transfer of Government jobs
outside of London should be on quality rather than quantity, with
a particular focus on research institutes which will bring with
them significant R&D investment in the region.
3.7 Public procurement both within the region
and nationally must support the manufacturing industry. It is
crucial procurement backs innovation in UK and North East manufacturing
rather than commoditises it through a competitive tendering process.
UK public agencies must also recognise the holistic economic impact
of buying decisions rather than simply immediate efficiency savings.
Nevertheless, in all cases we would expect an objective assessment
of overall value and support for capacity building within manufacturing
businesses; not a simplistic protectionist attitude, either regionally
or nationally.
4. Training and skills across industry in
the region
4.1 A particularly worrying trend revealed
by the North East Business Barometer survey over the past 12 months
has been the declining expectations businesses have reported for
their own future investment plans. This has been reported for
both plant and training investment. The Quarter 1 2009 survey
showed a balance of respondents reporting increasing training
investment plans as opposed to decreasing investment plans of
minus 23.8. For manufacturing businesses alone, the balance is
minus 42.9 This is occurring at a time when Government has been
encouraging moves towards a demand-led skills system. While this
has its attraction to business, NECC has been anxious to make
clear the limited time horizons within which most businesses are
able to identify and invest in this demand, and the vacuum that
is created in a less favourable economic climate in which demand
for skills has slumped.
4.2 Part of the present gap should be filled
by the public sector. Agencies in the region must commit to increasing
their level of investment in apprenticeships and other forms of
training to ensure development of the skills base of the region
continues at a time when the private sector finds it more difficult
to do so.
4.3 NECC does not believe the case for reform
to the structure of Government agencies has been adequately made.
It is also being carried out at a time when the focus should be
on ensuring simplifying the process for business investment in
training and proactively engaging with firms, rather than on re-structuring.
It is clear that changes have progressed to a degree where it
would cause more disruption to attempt to reverse them. Nevertheless,
the internal focus must be restricted to an absolute minimum and
businesses must be given confidence in a guaranteed quality service
with a "no wrong door" approach during any period of
re-structuring.
4.4 In the medium term as these changes
are implemented, it is critical that skills planning continues
to match economic strategy. However, under current proposals,
economic strategy will be drawn up at regional level with skills
planning taking place at local level through councils up to age
19 or at national level for adults through the Skills Funding
Agency. This gap must be bridged. In particular, internal political
issues must not hinder highly effective clustering of local authorities
at regional level to ensure coherent planning.
4.5 Skills useful for creating businesses
should be taught as a basic skill in schools and colleges if the
region is committed to hitting the ambitious targets for enterprise
contained within the RES and giving new businesses the maximum
chance of success.
4.6 Enterprise skills must also be instilled
in students graduating from the region's universities. Those developing
high level skills in fields important to the regional economy
should be encouraged to gain extra credit by complementing this
with business modules. This would help maximise the wealth generating
potential of their skills and knowledge.
5. The role of renewables in the North East
economy
5.1 It is clear that renewable energy will
be one of the growth industries of the next few years. The announcements
in the 2009 Budget of significant Government support for offshore
wind present a major opportunity for the North East, particularly
after recent progress on creating a hub for the industry on the
north bank of the Tyne. Coordinated proactive support within the
region for such developments, including through the planning system,
must be maintained. Efforts must also be made to encourage firms
with transferrable skills applicable to this industry to diversify.
5.2 However, a mix of energy is needed to
provide energy security for North East businesses. NECC therefore
supports Government commitment to carbon capture and storage and
nuclear. Concerning the former, proposals being developed in Tees
Valley and Northumberland must be seized upon by the region and
given full backing to present an excellent case to both the Government
and Brussels for this region to be included in a first wave of
UK projects. On the latter, the region should back Hartlepool
for inclusion in a new generation of power stations.
5.3 The potential for renewable and clean
energy industries in the region will not be fully realised until
planning delays within the region are overcome. The discrepancy
between national policies encouraging renewable energy development
and local reluctance to support individual projects must be dealt
with. This could be achieved through clear national or regional
policy statements making clear the expectations on local planning
authorities to support the industry within realistic limits. This
should also recognise wider engineering and biomass opportunities
in the energy sector.
5.4 While the above proposals are exciting
and should be pursued with vigour, it must not be forgotten that
there is significant potential for green energy generation and
economic benefit now through onshore wind, which at present is
the only proven form of renewable capable of achieving targets
now. To date, an estimated £3.4 billion has been invested
in UK onshore wind. It is vital the North East does not miss out
on a significant proportion of this investment. For example, the
West Durham Wind Farm has involved a £33 millio investment
by The Banks Group.
5.5 A fuller understanding of public attitude
to onshore wind needs to be gained before a reluctance to approve
projects is created by a vocal minority. Costly appeals and public
inquiries limit both the capacity of businesses to invest in further
schemes and maximise community benefit.
5.6 Meaningful engagement with the Ministry
of Defence over aviation-related objections is essential to avoid
delays in development. Efforts which are underway to agree a workable
framework for development with the region's airports in order
to allow renewable projects to proceed without damaging aviation
must also be continued.
5.7 Public bodies including local authorities
should make more use of the opportunity to tap into the benefits
of direct supply of renewable energy, such as from on shore wind,
and should collaborate with developers to achieve this.
5.8 The slowness of the National Grid to
create the capacity for new green energy facilities to connect
to the network must also be overcome. Exciting developments including
biomass power generation in Tees Valley are being held up as a
direct result of this, which is unacceptable for both economic
development in the region and achievement of the UK's carbon reduction
targets.
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