Memorandum from the Liverpool City Region
(NW 13)
SUMMARY
— This paper provides an overview of the
economic impacts that the current recession has had on the Liverpool
City Region (LCR) economy. This information is presented at an
aggregate level, as well as at a sectoral and geographical level.
— Also provided are a number of key examples
of how local authorities have responded to mitigate its impact.
— This paper also offers a short review
of how effective local partners believe government and national
and regional delivery agencies have responded to the recession.
— Finally, it also gives a number of recommendations
for measures that will further reduce the effects of the recession
and help improve the speed and robustness of recovery in the local
economy.
1. SUMMARY ANALYSIS
OF KEY
INDICATORS
1.1 JSA Claimant Count
1.1.1 The proportion of people claiming
JSA is 30% higher in the LCR (covering the 6 LAs in Merseyside)
than the UK overall.
1.1.2 As of April 2009, the claimant count
in the LCR stood at some 55,300. This is around 21,000 above
our baseline month of October 2007.
1.1.3 The rate of increase in the claimant
count slowed to 2% from March to February, from 6% per month during
the previous six months. By comparison the average growth in the
claimant count in the 12 months up to October 2008 was 1.2%
following a long period of decline.
1.2 Notified Redundancies
1.2.1 The number of notified redundancies
received by JC Plus (HR1 redundancies) since July 2008 within
Merseyside (not including Halton) is 8,070.
1.2.2 The average number of redundancies
within this period was 807 per month (one of the highest
in the region). Fortunately, the number of notified redundancies
has decreased in recent months; in April 2009 notified redundancies
were 358 and in March, 369.
1.3 Vacancies
1.3.1 Since May 2008, there has been a steady
increase in the ratio of claimants to live unfilled vacancies.
Although this ratio actually decreased between March and April
2009, it still stands at around 27:2 (compared to 7:2 in
October 2007).
1.4 Business Survey
1.4.1 The Merseyside Chamber of Commerce
Quarterly Business survey from Q1 2009 suggests that
conditions have generally worsened for both service-sector and
manufacturing-sector businesses over the previous three quarters
in line with deteriorating national conditions, with the manufacturing
sector generally fairing the worse of the two. 66% of the manufacturing
businesses surveyed felt that UK sales had worsened over the previous
three months, compared to 48% of service-sector businesses.
1.4.2 Reflecting the worsening labour market
conditions that the economy is experiencing, there has been an
increase in the number of firms that have had to reduce staff
numbers. In the past quarter, 43% of manufacturing companies surveyed
reduced staffing levels; only 7% said they had increased their
workforce (this compares to 24% and 14% for the service sector).
1.4.3 Given the figures above, it is not
surprising that 84% of manufacturing sector companies and 71%
of service sector reported that they were operating below capacity.
2. SECTOR-SPECIFIC
SITUATION
2.1 Automotive
2.1.1 There are a number of concerns related
to the automotive sector within the LCR. Given the decline in
consumer spending over the past year, and the decline in automotive
demand in particular, companies have sought to reduce employee
work-time to reduce overheads. So far, no major redundancies have
been made. Companies are looking to retain as many staff as possible
in order to be able to react quickly to the recovery. This lack
of strength within the vehicle market, is however feeding through
to the automotive supply chain in the City Region and a number
of companies, in particular SMEs located within the supply chain
are suffering.
2.1.2 Aside from the difficulties faced
by companies as a result of decline in vehicle demand, there are
also a number of specific risks faced by companies in LCR:
— Jaguar Land Rover: Tata needs to pay
back bridging loan for the company by July 2009. Although there
will be little risk that this money cannot be raised by the issuing
of corporate bonds, this may limit resources for any future bail-out
of operations.
— Vauxhall: Fiat's buy-up of GM's European
operations (Vauxhall and Opel) may have implications in the medium
term for workers in the Ellesmere Port plant.
2.1.3 Given the restrictive eligibility
criteria for the governments car scrappage scheme, there is little
belief that it would greatly support car manufacturers in the
LCR.
2.2 Chemicals
2.2.1 Prior to the Budget 2009, there were
calls from this sector (and others) for an improvement in the
provision of trade credit insurance and export credit insurance.
These calls were heeded. Although a number of companies have found
that there is a lack of insurance suppliers to meet demand. In
addition, a number of companies are restricting exports in order
to avoid re-negotiation of their insurance conditions. That said,
due to the low price of sterling, exports from this sector are
relatively high.
2.3 Construction
2.3.1 The construction sector within Liverpool
had grown considerably on the back of exceptional levels of non-residential
development, particularly in the City centre. With an estimated
£3 billion of mostly private sector investment in the
years leading up to 2008 and Capital of Culture,[21]
the construction sector has expanded greatly.
2.3.2 However, with the credit crunch in
2008 and the greatly reduced appetite for undertaking speculative
developments—as a result of more costly credit and a decline
in end-user demand—a number of developments are at risk
from being delayed or postponed indefinitely until the financial
markets return to more normal conditions. This has some serious
implications for the construction sector.
2.3.3 Surprisingly, the numbers of redundancies
made in the North West in the construction sector are not as great
as could be so far. The number of notified redundancies attributed
to the construction sector over the past seven months is less
than 10% of the total. In addition despite the difficulties being
faced by developers, a number of important developments remain
on course, in particular, inter-related projects at the Pier Head
and Mann Island, developments within Baltic Triangle as well as
a number of others.[22]
2.4 Public Sector
2.4.1 In the short-term, the public sector
will retain staff (and even increase staff in some areas in response
to the demands of the recession), but is likely to come under
strong pressure to cut costs in the medium term as public spending
is reduced.
2.5 Tourism, Retail and Leisure
2.5.1 Coming out of the Capital of Culture
year, tourism businesses have been relatively strong—the
success of the events in attracting visitors that year contributed
to strong growth in that sector. Although it is difficult to assess
the impact that reduced consumer spending has had on businesses
within this sector, surveys conducted by TMP suggest that confidence
has declined precipitously over the past couple of months. There
has been a steady decline in profit forecasts for the coming year
for the businesses surveyed. That said, due to the small sample
size of these surveys there is considerable uncertainty as to
the actual performance of this sector. In addition, seasonal effects
are likely to play a considerable role in determining confidence.
2.5.2 Similarly, the retail and leisure
sector will likely be adversely affected by a decline in consumer
spending and an increase in household saving. One of the main
strengths of this sector within the LCR is Liverpool One. This
development should help attract shoppers from a wide area, and
evidence suggests that footfall remains strong. That said, retail
centres outside of the Liverpool city centre have been badly affected
and as will be shown below, local authorities have introduced
a number of measures to try to help local businesses maintain
sales.
2.6 Liverpool SuperPort (Maritime, distribution
and associated sectors)
2.6.1 The dramatic fall in global trade
volumes over the past year will have affected the profitability
of many companies operating within the LCR's port area. However,
there is some suggestion that this impact has been mitigated somewhat
by an avoidance of an over-reliance on containerised goods traffic.
2.6.2 Aside from the decline in global trade
there are also a number of other issues affecting maritime industries
in the LCR.
2.6.3 Although a number of large-scale infrastructure
projects—which will significantly enhance Port operations
capacity—are still scheduled to go ahead, the current financial
conditions may make it more difficult to raise money to fund them.
Although the majority of these projects will be undertaken in
the medium-long term, the anticipated re-adjustment of commercial
balance-sheets over the next couple of years may dampen appetites
for expensive infrastructure projects.
2.6.4 One of the most important issues for
small businesses operating within the Port hinterland is the change
made to port rates at the end of 2008. Already under pressure
from reduced revenue streams, businesses (especially SMEs) have
found it difficult to bear the cost of these changes and the backdated
debt that they are now liable for.
3. SPECIFIC LOCAL
AUTHORITY RESPONSES
3.1 Business Support
3.1.1 Clearly, providing appropriate business
support is of utmost importance during periods of economic stress.
Micro-businesses and SMEs make up a significant proportion of
the business base in Merseyside and performance among them has
been mixed.
3.1.2 Evidence from Liverpool Vision URC
suggests that many very small firms are still "managing by
their bank account". Liverpool Vision is therefore piloting
a programme which provides one on one business health checks using
a panel of local business advisers. The service is operating in
conjunction with Business Link NW (BLNW) to make sure services
are not duplicated and complies with BSSP. A parallel pilot is
also in operation for larger firms with more complex problems
faced as a result of the recession
3.1.3 A number of micro-businesses have
reported continued difficulty in speedy access to funds through
current and proposed arrangements. In order to address this within
Wirral, a programme (BIG Support Grant/Consultancy Support)
has been designed to specifically support micro businesses (SMEs
with fewer than 250 employees). The fund will be available
for a wide range of support, including access to consultancy and
grants.
3.1.4 In terms of the business support programmes
within Sefton, the main issue is that business support geared
up to growth, investment and jobs is not translating too well
to the support needed in the current climate, when firms are struggling
to survive and to retain employment. As such, Sefton are re-orienting
their Step-clever and WNF-funded business growth support towards
business survival and job protection.
3.1.5 The start-up market is also becoming
tighter, with more relatively inexperienced entrepreneurs entering
more competitive markets. Jobcentre Plus has re-introduced the
Test Trading programme which is helpful.
3.2 Local and Public Procurement Initiatives
3.2.1 One way in which support is being
provided to local businesses is through ensuring that local businesses
can take advantage of the business opportunities available from
other local businesses and the public sector.
3.2.2 Regeneration initiative Stepclever
has launched the Stepclever ALERT Service to help businesses in
north Liverpool and south Sefton meet the challenge of the downturn
by raising their profile and helping them to find new business
opportunities. The free service emails business users details
of new tender opportunities, as well as providing companies with
a source of market information.Stepclever is also holding workshops
to improve the chances of businesses to win contracts in both
the public and private sectors.
3.2.3 A number of local authorities have
enacted or are exploring a 10 days clearance time for urgent
payments to first-tier suppliers.
3.2.4 A free online portal called "The
Chest" will be carrying all local authority contracts in
the North West (including those below £30,000 not subject
to EU rules). Sefton's procurement team is helping the Merseyside
Local Authorities fast-track their access to the portal, and providing
training for local contractors.
3.3 Infrastructure
3.3.1 Given the nature of this recession
and its origins in credit availability, many key developments
across the City region have been affected:
— Project Jennifer—viability gap
and developer unable to fund CPO.
— Festival Gardens—residential scheme
on hold.
— Stanley Park nearing completion but the
football stadium (LFC)—on hold.
— Edge Hill—difficulty in securing
an anchor tenant.
— Shore Lines/Oakdale Road (Wirral)—on
hold.
3.3.2 To a greater or lesser extent all
of the above would have generated receipts and fees for Local
Authorities which will now be delayed or might not happen at all.
3.3.3 In response, Liverpool City Council,
a number of actions have been taken to try and minimise the effect
of the recession on infrastructure development:
— Preparing Planning Briefs/seeking planning
permission to market sites when property market improves.
— Demolishing redundant and derelict buildings
to reduce costs and create development sites.
— Community Asset Transfer of redundant
buildings.
— Lease re-structures and release of covenants
to encourage smaller refurbishment/redevelopment schemes.
— Reducing fees to encourage sales and
letting.
3.4 Housing
3.4.1 There are a number of impacts identified
by our Local Authorities, these include:
— Developers reporting an interest from
purchasers in buying homes but lack of available mortgages blocking
sales.
— Slowing of new build developments.
— Lack of developer confidence.
— Trying to keep new build going (eg via
gap funding/tenure change).
— Possible weakness in CPO cases if we
are trying to assemble sites but new build may be years ahead.
— Sub contractors going bust.
— Need for shared equity/rent to buy schemes.
— Environmental maintenance costs will
increase if sites are mothballed.
— Collapse in the market for apartments
for sale.
— Some sites will not be viable for development
without a revision to the business case.
— Decline in employment and training opportunities
and an increase in unemployment.
3.4.2 NewHeartlands HMR Pathfinder carried
out research in March 2009 into mortgage availability across
a number of the most recognised lenders. This showed that on new
build apartments, deposits of up to 35% were required with one
lender not offering mortgages on apartments less than two years
old. As regards new build houses, deposits of up to 25% were required.
Across most of the lenders the offer of mortgages was based on
affordability checks.
3.4.3 In addition, individual Local Authorities
are working with their developer and Registered Social Landlord
(RSL) partners to ensure that new build developments continue
during this difficult economic period. Actions taken include:
— RSL new build homebuy changed to social
rent.
— Flexibility with tenure splits.
— Switch of shared ownership units to rent
to homebuy.
— Revised design of proposed new build
developments.
— Liverpool City Council home ownership
survey (for residents interested in the deposit scheme being considered
by LCC to assist people into home ownership).
3.4.4 Liverpool City Council is currently
considering a pilot scheme to help first time buyers by offering
to assist with a deposit (in the form of an equity loan). If the
potential applicant can raise a 70% mortgage and raise a 5% deposit,
the City will (for eligible people who meet the criteria) assist
with a 25% loan taken as a charge on the property. This initiative
is still being considered and if launched would hopefully be available
in the summer of 2009.
3.4.5 It is likely that the housing market
will continue to be under pressure for the remainder of 2009 and
into 2010. Until economic confidence improves, the housing market
is likely to struggle. This will place continued pressure on products
designed to stave off repossession.
3.5 Employment support
3.5.1 The impact of the recession and the
actions needed on employment and skills within the city-region
is co-ordinated through our City Employment Strategy team based
in Knowsley.
3.5.2 The City Employment Strategy partners
are working together on a number of areas to enhance the city
region's recovery from the recession:
— Labour market response to the downturn
is a standing agenda item at Lead Officers Group meetings.
— Latest market intelligence shared between
partners.
— Regular briefings from Jobcentre Plus
(JCP) and Learning and Skills Council (LSC) on the latest available
provision.
— All members fully supporting the Regional
Skills and Employment Board action plan developed by the Regional
Employability Group (REG).
— CES city region specific action plan
aligned to REG plan.
— Provision mapping across the CES area
has been updated to include identification of support options
for those threatened with redundancy and recently unemployed.
— LSC and JCP are leading work to identify
potential duplicate provision and areas where gaps remain.
— Consortium strategy adapted to include:
(a)supporting business (particularly SMEs) considering
redundancies; and
(b)contracted provision broadened to include recently
unemployed and those at risk from redundancy.
— Delivery partners looking at the performance
and scope of current contracts for flexibilities to meet emerging
needs including NWDA and Working Neighbourhoods Fund provision.
3.5.3 A key challenge is how we can support
JCP and other Personal Advisors to make sense of all this new
provision and ensure an effective referral process for jobseekers.
To help address this CES partners are producing a customer journey
schematic that combines JCP, LSC and local provision.
3.5.4 Liverpool City Region will make a
co-ordinated bid to the Future Jobs Fund to ensure employment
support for 18-24s coming out of 12 months unemployment
4. COMMENTS FROM
LOCAL AUTHORITIES
ON GOVERNMENT
RESPONSES
4.1 BERR's financial assistance is seen
as very slow in appearing. NWDA has been faster off the block.
4.2 At a local level Sefton are overwhelmed
by demands for business finance which can't be met from the usual
jobs-related investment funds (and businesses can't match fund
grant awards). The Council is planning a mail-out to thousands
of Sefton businesses with both the Real Help Now literature and
our own local points of contact—national campaigns don't
seem to be getting through.
4.3 JCP is overflowing with new claimants,
and again we can't cope with demand (and the client group is more
female, middle-class and debt-laden than we're used to helping).
5. HOW DOES
THE LIVERPOOL
CITY REGION
WANT TO
RESPOND?
5.1 Much work has been done to ensure our
Multi Area Agreement is responsive to the impact of the recession
as well as pursuing our key transformational actions around SuperPort,
Knowledge Economy, Low Carbon Economy and Culture and Tourism.
In addition to this Liverpool City Region proposes the following:
5.2 Regional Projects
5.2.1 Within our city-region we need additional
support compared to the rest of the region (given our status as
a Phasing-In region within the North West Competitiveness Programme).
We need extra support built into every regional project to develop
the capacity of the city-region to make the most of the opportunities
available. NWDA's response has been that there's not the market
demand for additional resources within Merseyside—the point
is we need resources to build this demand. Without recognition
and support of the special needs of Merseyside as a Phasing-In
region within the North West, Merseyside will continue to lag
behind the rest of the North West.
5.3 Infrastructure
5.3.1 The power constraints facing the City
Region as a whole will fundamentally restrict the scale of renewal
planned for over the next twenty years—most of the Strategic
Sites identified for the long term regeneration of the City Region
have limited or no power supply. The NWDA undertook a study across
the North West identifying the challenges that are faced as a
region in respect of power over the next twenty years.
5.3.2 This report, suggests there are no
capacity issues in the Merseyside area. This is completely at
odds with the views of our Local Authorities. We are clear that
the constraints on the effective delivery of utilities in the
sub-region have hampered economic growth and inward investment
projects have been lost. The constant request for all the risk
to be carried by the utility user and all the rewards going to
the utility provider needs to be addressed.
5.4 Enterprise
5.4.1 The Liverpool City Region would like
to move toward the following:
5.4.2 BSSP products developed by the Agency
have intervention rates attached to grants and interest rates
attached to repayable loan facilities that were set in a different
financial climate. We would like NWDA to work with the City Region
to review, where appropriate, these intervention rates on a short
term basis using Merseyside ring-fenced ERDF allocations to plug
deficits where appropriate. This needs to be overseen by National
Government to support changes to the European Programmes currently
agreed by DCLG.
21 Liverpool Economic Health-check, May 2009. Back
22
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