Memorandum from the CBI South-West (SW
07)
INTRODUCTION
1. The CBI is pleased to offer the following
submission to the South West Regional Committee investigation.
2. The CBI represents some 240,000 businesses
across the UK, and in the South West this includes companies employing
around a third of the private sector workforce. Our members are
businesses of all sizes, sectors and from all parts of the region.
3. This submission has been collated from responses
by the CBI South West Council (elected by the membership in the
region) to the Committee's call for evidence.
THE IMPACT
OF THE
ECONOMIC SITUATION
ON THE
SOUTH WEST
4. Evidence from our members, and comparisons
with companies elsewhere in the UK, suggest that the full effect
of the UK recession was delayed in the South West. However, it
seems clear that the impact on manufacturing, and the delayed
redundancies in financial services, is now truly hitting the South
West economy. Some of the sectoral impacts are highlighted below:
— Housebuilding. This sector has
been one of the hardest hit, with all major companies shedding
significant numbers of staff and ceasing activity as they look
to clear stock. There are some indications that life is returning
to the housing market, with mortgage availability having improved,
and valuations stabilising. This is leading to the housebuilding
sector starting to increase activity though from a very low base.
— Aviation and aerospace. Passenger
demand has been hit across the region both for business and leisure
flights, with discretionary travel notably impacted. Aerospace
manufacture is a key industry for the South West and one where
there is a time lag in activity from economic downturn. So far
the manufacturing sector has yet to feel the consequences of the
drop in demand for new aircraft, but the sector fears that the
mothballing of existing aircraft will hit companies' demand once
the current order book is built out.
— Professional services. This sector,
which has traditionally weathered recessions to a large extent,
has been badly hit this time. The legal services sector clustered
around Bristol has seen redundancies and short time working at
all levels. Those firms with a strong public sector practice have
fared better.
— Manufacturing. Companies in the
region have been impacted by the drop in demand for goods across
all global markets. A strong wave of destocking has exacerbated
the situation. This is now coming to an end, enabling companies
to assess the underlying level of demand in different sectors.
Many companies are optimistic that once export demand recovers,
the weakening of sterling in the past year will leave them well-positioned
to recover.
— Agriculture. With the exception
of dairy, the agricultural sector seems well placed, with strong
land values, and good access to finance.
5. Availability of finance has been a problem
for companies in the region as elsewhere in the UK. Most difficulty
has been experienced by the very largest companies accessing wholesale
markets, and the smallest companies with a weak balance sheet
and poor security. Medium sized companies which can operate within
existing facilities have coped reasonably well.
6. There are signs that bank lending is
becoming more readily available. Banks' assessment of risk, and
pricing of risk, have both changed significantly from pre-credit
crunch times. There is an argument that a correction was overdue,
but irrespective of this, this situation is unlikely to change
significantly in the medium term.
7. Trade credit insurance has proven a real
problem for many companies with the three main providers reducing
limits and impacting on companies' ability and willingness to
trade with each other. The government response to this has been
slow and the solution offered will not address the full extent
of the problem.
8. Firms are actively endeavouring to retain
skilled staff, despite the often severe downturn in activity levels.
A range of options have been utilised, including shorter working
hours (sometimes with a substantial loss of pay), changes to holiday
structures, temporary lay-offs, etc. Pay freezes have become the
norm within the private sector. There have been many examples
of management teams and unions working together on innovative
ways to safeguard core employment.
9. However, unsurprisingly, some firms have
no choice but to reduce headcount and to make redundancies amongst
permanent staff.
THE GOVERNMENT'S
RESPONSE
10. The Government has responded in a number
of ways to the recession and its impact on business. Some of these
actions have been effective, others not.
11. On the positive side it was necessary for
the Government to act to restore liquidity for the financial markets
and confidence to the banking system. There are signs that this
is now starting to feed through to availability of finance to
companies in the region. As indicated, this has not restored credit
to its pre-credit crunch levels and it is arguable whether this
is desirable per se. However, finance availability is not yet
back to a necessary level and there is a way to go.
12. Small companies have reported a willingness
by HMRC to defer payments due on VAT and PAYE, and with relatively
little bureaucracy involved. This is very much to be welcomed.
13. The Treasury intervention to restore
liquidity to the PFI markets has enabled financial close of some
projects that had been delayed, and will assist in getting key
construction projects underway.
14. On the negative side, the Government's
response to trade credit insurance supply problems has been slow
and ineffective.
15. The refusal to reverse the abolition
of Empty Property Rate relief for all but the smallest of properties
will add to the financial burden of companies which are downsizing,
and will effectively stop speculative property development in
all but the most high-demand areas of the UK's property market.
This is likely to have a particularly negative impact on peripheral
markets such as the South West.
16. The decision to increase business rates
by nearly 5% at a time of negative inflation will only add to
the costs of businesses which are already struggling with the
economic environment.
17. Employers are still committed to training
but need more flexibility. Employers continue to see value in
investing in the skills of their staff. They have long been calling
for training support which does not necessarily lead to accredited
qualifications. Now more than ever, short, modular training provision
is essential so that employers can obtain those skills which will
deliver increased productivity and efficiency.
THE REGIONAL
RESPONSE
18. It is important to note that the scale
and scope of the recession has meant that government action has
needed to be high level and massive. The South West has been impacted
by the same forces that have hit all the regional economies of
the UK, and intervention at a UK (indeed international) level
has been necessary. There is very little that regional government
organisations could be expected to do that would make a real difference
for South West firms.
19. Most CBI members in the region have had little
direct interaction with regional governmental organisations, and
have little visibility of the effectiveness of their interventions.
This has been reflected in their comments to us.
20. As a representative organisation, the
CBI has greater engagement and interaction and is better placed
to take a view on this.
21. It is well known that the budget for
the South West RDA has been cut (including in order to fund some
of the Government reactions to the recession) and that it will
shortly announce how it is to reprioritise its ongoing budget.
It is essential that it focuses its activities on key projects
and workstreams that directly add to the knowledge base and competitiveness
of the South West region and its companies. This will necessarily
require South West RDA to cease some activities altogether and
it needs to be able to clearly set out its strategy, and priorities,
to those stakeholders who will be disappointed by its decisions.
22. South West RDA has stepped up its engagement
with the business representative organisations in response to
the downturn, and this is much to be welcomed. It now needs to
show that it will prioritise the economic prosperity of the region
and we are confident it will do so.
23. The South West Economic Task Group has
been a useful initiative allowing the CBI to reinforce the messages,
at a regional level, that we are already making to Government
nationally. As these messages are consistent, and are generally
aimed at ensuring national government action, it is not readily
possible to determine the effectiveness of SWETG in delivering
actions. However, we are clear that a vehicle for bringing economic
stakeholders together with regional governmental agencies is a
useful initiative. We believe it has been helpful in aligning
local delivery organisations with need in the region and in providing
a channel for the business organisations to highlight where delivery
needs to be sharpened.
CONCLUSION
24. In conclusion, the South West region
has proved far from immune to the current recession, but neither
can we track many unique regional features of the downturn. The
CBI's focus has been on gaining national government action in
the areas our members have highlighted as being of critical importance.
25. The regional dimension has been subsidiary,
but nevertheless it is appropriate and welcome that the Regional
Committee acts to understand how the recession has impacted in
the South West and we are happy to support this enquiry.
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