Sub-region and sector variations
13. We received submissions from several local authorities
highlighting the problems in their areas, and we took evidence
from Stoke-on-Trent City Council, the Local Government Association
and Staffordshire County Council. Evidence suggests that the downturn
is affecting different areas in different ways and at different
speeds, and that this necessitates a need to achieve a better
balance between regional and sub-regional initiatives. Warwickshire
County Council told us it "appeared that [Advantage West
Midlands] were initially overly focussed on the urban areas of
the region, starting from an almost pre-conceived notion that
they would naturally be the worst affected areas. As time has
passed, it is encouraging to note the growing recognition of the
greater relative impact on the shire counties such as Warwickshire."[8]
Similarly Redditch Borough Council said the "lack of a physical
presence [of Business Link] in the town further disengages the
business community".[9]
Redditch also felt Advantage West Midlands was not particularly
active in the town and this was a town where the unemployment
numbers had doubled.
14. Steve Burrows of Staffordshire County Council
described what had happened recently in Uttoxeter, following redundancies
from JCB and Dairy Farmers of Britain there were more than 1,000
redundancies just in Uttoxeter. At the same time, Fox's Biscuits
which has a factory and distribution centre in the town announced
it was restructuring which might lead to the loss of 950 jobs.
A town with a population of around 12,000 could lose near 2,000
jobs. Mr Burrows said that the County Council was "working
with Advantage West Midlands, particularly to make a case for
Fox's Biscuits and to put in place any assistance that we can
to help it retain production in Uttoxeter. We are not expecting
a decision on that for probably another six to eight months."[10]
15. Every area of the region and every sector of
business has been affected, but for some the effects have been
worse than for others. Some areas without the older, manufacturing
industries were being affected less. Small businesses in rural
areas are affected, but it was not clear from the evidence presented
to us how severely the agricultural sector was being affected.[11]
The FSB told us, "There is some evidence that those
located in the south-eastern parts of the region are continuing
to trade with slightly less difficulty than others in the north-west
of the region, notably Stoke, and certainly in the Black Country,
Birmingham and Coventry." [12]
16. The Committee took evidence from representatives
of different business sectors and from business associations.
When asked about what sectors were feeling the impact of the downturn
the common response was construction and manufacturing, particularly
the automotive and ceramics industries, and that the lack of cash
moving through the system meant that firms in the supply chains
in these sectors were struggling. Research by Oxford Economics
identified that the key sectors that have seen the largest falls
in output over the 2nd half of 2008 were manufacturing;
distribution; hotels & catering; mining, quarrying & oil;
transport, storage & communications; and business & financial
services.[13]
17. The Federation of Small Businesses told us that
"if you are in the manufacturing sector through the supply
chain, particularly if you are connected to the automotive industry,
then I think that you would probably say that it is very dire
indeed". [14]
A view echoed by the West Midlands Business Council who said that
in the automotive supply chain firms were working on average at
around 50% capacity and with some operating as low as only 20%
of capacity.[15] The
Business Council described the situation in the ceramics industry
in Stoke-on-Trent as "having a pretty dreadful time."[16]
Mike Shirley, from Jesse Shirley ceramics, said that in the past
six months he had seen a 30% to 40% drop-off in orders.[17]
18. The West Midlands Developers Alliance said, "the
construction industry has had a massive downturn because the public
and private sectors are not requiring residential, industrial
or commercial buildings. The majority of project management and
architect practices in the West Midlands have made at least one
or two rounds of redundancies and some are on their third round.
There are a number of practices on four-day weeks as well and
in a number of practices the staff have taken voluntary pay cuts."[18]
However; the Alliance did point out that some construction work
was available fitting out buildings as landlords tried to retain
tenants by reducing rents and refurbishing their buildings.
19. In the retail sector the impact on businesses
has been dependent both on their sector and their location. The
Federation of Small Businesses said that "retailers in towns
and city centres have been feeling the blasts of this economic
situation for a long time […] those businesses in the retail
sector that are out in the more peripheral parts of town and urban
centres and in village centres are reporting a slight improvement.
People are looking at the total cost of a shopping expedition,
and they are shopping more locally."[19]
Surviving the Downturn
20. Witnesses told us that they had not anticipated
the downturn and had been surprised by the speed of the decline.
Unite told us that some companies had been forecasting that they
would have record profits up to September 2008. Representatives
from the ceramics sector felt that they had survived the period
of outsourcing to locations with cheaper labour costs, and that
the lack of demand they were experiencing was due to the economic
downturn rather than structural change in the industry. Ideal
Standard said "we have seen growth year on year, but this
year we have seen significant volumes of new technology in which
we have invested … standing idle, which is primarily down
to cash flow problems and reduced sales".[20]
21. The UK has experienced a period of sustained
economic growth since 1992, a period of over 15 years. As a consequence,
many businesses lack the skills and experience needed to trade
in a recession. Unite stated "many HR managers in reasonably
senior positions have not experienced a recession of this nature
and have found it very difficult to deal with the consequences
of restructuring on such a huge scale … from a union point
of view, that was also true of our representatives in the workplace".[21]
Representatives from high street banks said that some businesses
had not analysed the impact of the downturn on their business
and were applying for credit without up-to-date information: "we
often find that we are not being given the information we ask
for, so we are not seeing up-to-date audited accounts and we are
not seeing up-to-date forecasts of trading, going forward".[22]
Barclays suggested that businesses could benefit from mentoring
by "experienced people in SMEs, or former executives of larger
businesses who have maybe recently retired, to work with SMEs
who are in difficulty".[23]
22. The West Midlands has previously had to respond
to a significant shock on the regional economy, when MG Rover
collapsed in 2005. This meant that there was experience in the
region of the MG Rover Task Force to draw on as an example of
partnership working. However, Advantage West Midlands pointed
out that the nature of the intervention required now was very
different: "that was a very well defined problem at a point
of time when the regional economy was pretty buoyant. We had quite
a lot of resources compared to what we have now".[24]
The Regional Minister, Ian Austin MP, added that the circumstances
of the closure of MG Rover had allowed for better planning than
the current downturn: "it was pretty obvious for some time
in advance that there was going to be a crisis at MG Rover, so
the task force was conceived and planned, and you could identify
not only the companies that would be affected, but the individual
workers".[25]
23. A key requirement for businesses to be able to
survive the downturn is their ability to access cash to meet their
outgoings until demand increases. HSBC said "the fundamental
of cash being king is a major issue. Profits or losses are less
of an issue than cash".[26]
There is considerable anecdotal evidence about problems with access
to credit; however it is hard to quantify the extent to which
viable businesses are at risk of administration as a result. A
representative from the Department for Business, Innovation and
Skills stated that they needed to "drill down more into case
studies" using regional finance forums and by "getting
intelligence back from those companies that Business Link helps
in order to understand and get their sense of it".[27]
Representatives from businesses welcomed the Government's initiatives
to improve cash flow such as the 10 day prompt payment pledge
but reported that some big private sector companies had moved
in the opposite direction, extending their payment periods to
as much as 105 days.
24. Advantage West Midlands and its public sector
partners have been able to draw on their experience of the mechanisms
established at the time of the closure of MG Rover as they have
sought to respond to the impact of the economic downturn on the
region. However, some of the problems caused by that closure had
still not been overcome when the recession hit, helping to explain
why its severity was greater in the West Midlands than in other
regions, with the manufacturing and automotive sectors particularly
hard hit. This has fed through in the current downturn into higher
levels of unemployment than elsewhere in the country, for example.
5 WM 09 Government Office West Midlands Back
6
West Midlands Monthly Economic Update Report, May 2009, West Midlands
Taskforce Back
7
Q 167 Back
8
WM 27 Warwickshire County Council Back
9
WM 16 Redditch Borough Council Back
10
Q 178 Back
11
Q 41 Back
12
Q 34 Back
13
WM 27 Warwickshire County Council Back
14
Q 34 Back
15
Q 41 Back
16
Q 41 Back
17
Q 89 Back
18
Q 39 Back
19
Q 34 Back
20
Q 89 Back
21
Q 155 Back
22
Q 6 Back
23
Q 33 Back
24
Q 195 Back
25
Q 302 Back
26
Q 2 Back
27
Q 250 Back
