Memorandum from HM Government (WM 09)
"THE IMPACT OF THE CURRENT ECONOMIC
AND FINANCIAL SITUATION ON BUSINESSES IN THE WEST MIDLANDS"
INTRODUCTION
1. The recession is a global phenomenon
caused by a world-wide crisis of credit and demand. It is affecting
people and business all around the world.
2. This memorandum focuses on the recession's
impact on West Midlands' businesses and the actions Central Government
and regional agencies are taking to support business in weathering
this storm and emerging stronger. It does not go into detail on
actions taken by individual localities.[19]
This is being submitted pre-budget to meet the submission deadline
of 20 April and will be supplemented by a further memorandum,
if required, post-budget.
3. Manufacturing is bearing the brunt of
the downturn. It is deeply integrated in global supply chains
and supply markets. This means that when global growth stalls,
manufacturing feels it more than most.
4. This has made the West Midlands particularly
vulnerable to the downturn. Its industrial structure is still
heavily reliant on manufacturing (14% of employment) and it remains
a major UK centre for a range of manufacturing sectors including
automotive, engineering, metals and ceramics. The region has 19%
of the UK's employment in motor vehicle manufacturing, 24% of
employment in metal work sectors and 56% of ceramics.
5. The most recent Purchasing Managers'
Index (PMI) report published in March 2009, showed that output
in the West Midlands had fallen for the ninth month in succession
and that the rate of contraction during February was more rapid
here than in any other UK region. While the report indicated that
the region's manufacturing sector, particularly the automotive
industry, continued to undergo a very sharp decline in output,
the service sector had also seen a marked fall in output. There
have been some high profile failures, notably Waterford Wedgwood
and Adams Childrenswear, as well as a steady attrition of smaller
firms in the service and manufacturing sectors.
6. This slowdown has had a marked effect
on unemployment. At January 2009 there were some 210,000 unemployed
in the West Midlands; an unemployment rate of 7.9%, which was
second only to that of the North East. Manufacturing, particularly
the automotive industry, has sustained the heaviest job losses,
but other sectors have also been affected including construction,
the service sector and local government.
7. This pattern of job losses has made certain
parts of the region particularly vulnerable during this recession.
Those parts of the region's main conurbations that have relatively
large manufacturing sectors, are likely to be most at risk (eg
Birmingham, Black Country and Stoke).
ACTIONS TAKEN
BY CENTRAL
GOVERNMENT
Overview
8. On 19 January, the Government announced
measures designed to reinforce the stability of the financial
system, to increase confidence and capacity to lend, and in turn
to support the recovery of the economy. These build on measures
announced on 8 October last year.
9. Government has also acted directly to
help well-run companies that are struggling to secure finance
as a result of the tougher credit conditions. This year measures
have been introduced to help increase liquidity and ease credit
conditions for Small and Medium Size Enterprises (SMEs). Guarantees
and loans have been provided to help the hard hit automotive sector's
vital transition to low carbon vehicles.
10. The Government is also doing everything
it can to retain and bring forward public investment. It has extended
support to help companies keep training staff through the downturn,
including rescuing and expanding apprenticeships to offer 250,000 starts
nationally next year and continuing support through Train to Gain
with £925 million invested for 2009-10 and new support
just for SMEs. It has also provided more support for those made
redundant to help them find work quickly.
11. Government is likewise committed to
supporting the Third Sector through the economic downturn, recognising
the important role Social Enterprise plays in tackling worklessness
and in areas such as health and social care services. This includes
continuing to assist Community Development Finance Institutions
(CDFIs) to raise additional capital finance through the Community
Investment Tax Relief (CITR) and providing financial support to
the Community Development Finance Association (CDFA)—the
trade association for CDFIs. On 9 February 2009, The Office
of the Third Sector (OTS) launched the Real Help for Communities:
Volunteers, Charities and Social Enterprises Action Plan which
outlines £42.5 million support for the third sector
in the difficult economic climate. This includes a £16.5 million
Modernisation Fund, a £15.5 million Targeted Support
Fund, and a £0.5 million investment in the School for Social
Entrepreneurs[20].
Since 2006-07, Advantage West Midlands has provided annual funding
of approximately £1 million per year to five CDFIs through
the Advantage Small Loans Programme. A further £1 million
was provided by Advantage West Midlands in 2008 from Phoenix
transition funding as a one off addition to enable additional
CDFI lending.
Support available to business to address cash-flow,
credit and investment needs
12. A major issue facing business has been
maintaining cash-flow. The Government has initiatives for SMEs
to address this problem under the Real Help for Business package.[21]
These include:
— Enterprise Finance Guarantee Scheme (EFG):
£1 billion of guarantees to support up to £1.3 billion
of bank lending to smaller firms. At 1 April the scheme has
£211 million of eligible applications from 1900 firms.
Nationally, early evidence shows that this scheme is encouraging
banks to increase lending.
— Working Capital Scheme: Banks will be
provided with up to £10 billion of guarantees covering 50%
of the risk. This secures up to £20 billion of working capital
credit lines for companies, and frees up capital which banks must
use for new lending. Since its launch on 2 March, the Government
has provided to banks guarantees on their working capital loan
portfolios totalling over £2 billion, freeing up capital
and so enabling the banks to provide additional lending to businesses.
— Capital for Enterprise Scheme: A new
£75 million fund (£50 million of Government funding
with £25 million from banks) to provide equity investment
for viable companies; this can be used to pay off existing debt
to free up capital for cash-flow and investment for the future.
At 1 April the scheme's fund managers were in discussions
and conducting due diligence on companies seeking a total of £49
million of investment.
13. Evidence shows that this activity is
starting to have an effect. The latest data on bank lending to
SMEs shows that although new lending has fallen compared to 2007,
the level is stable when compared to January 2009. There has also
been a shift to overdrafts as businesses seek working capital,
but importantly, recent months have seen a sharp reduction in
the number of limits withdrawn or cancelled. Margins on new borrowing
have increased, but remain less than the reduction in Base Rate,
so in general businesses are paying less.
14. To further help with cash-flow the Government
has committed to paying bills within 10 days and is encouraging
businesses and other parts of the public sector to pay promptly.
HM Revenue and Customs is committed to working with businesses
which are facing difficulties in paying taxes. As at 29 March
it had reached agreements with 8,690 West Midlands businesses
to delay payment of £161 million of tax. The Government also
recently announced that business rate payers can defer 60% of
the increase in their 2009-10 business rate bills until 2010-11 and
2011-12.
Automotive sector support
15. The Government has taken action to secure
the long term future of the automotive sector. While the primary
responsibility for short-term financing or longer-term restructuring
of firms rests with the parent company and their financial stakeholders,
the Government is committed to helping viable companies that are
investing in the future green industrial revolution.
16. It introduced the Automotive Assistance
Programme (AAP) to provide loans and guarantees of up to £2.3 billion
to help manufacturers and larger suppliers. This includes guarantees
to unlock up to £1.3 billion of lending by the European Investment
Bank (EIB) under the EIB's €8 billion European Clean Transport
Facility, whose budget the Government helped secure last December.
The AAP is open to companies with a turnover of £25 million
or more and for projects worth a minimum £5 million investment.
The Government is in detailed discussions with a number of applicants
to the AAP, including companies seeking support to unlock EIB
lending for investment in projects to reduce carbon emissions
from vehicle production and/or use. Government has also provided
considerable support for the development of skills and training
in the sector and continues to do so eg under the "Train
to Gain" scheme and apprenticeship programmes. The "Train
to Gain" budget ceiling for the training scheme which includes
the automotive sector was increased from £65 million to £100
million in January.
17. The Government is considering the potential
benefit and value for money of other proposals for support for
the industry and Lord Davies is working with the motor finance
industry and other stakeholders on options to improve funding
to car finance companies.
18. The Government has set up the industry-led
New Automotive Innovation and Growth Team (NAIGT) to develop a
long term vision and an integrated national strategy for the UK
automotive sector. The NAIGT will report to Department of Business,
Enterprise and Regulatory Reform (BERR) Ministers shortly.
REGIONAL RESPONSE
West Midlands Taskforce
19. Support at regional level is being co-ordinated
through the West Midlands Taskforce set up by the Regional Minister,
to develop a comprehensive response to the economic crisis. The
Taskforce draws on the experience of previous economic shocks,
primarily the closure of MG Rover. It has a pan-regional remit
and is working to mitigate the impact of the economic downturn
on business, individuals and communities.
20. The Taskforce, chaired by the Minister
and led by AWM, has been active since December 2008. It brings
together key regional leaders from Government agencies, business,
local government and trade unions to ensure that the response
to the economic crisis is effective and co-ordinated.
21. The initial phase of its work, aimed
at putting working structures in place and addressing immediate
priorities, has been completed. Six distinct work streams were
developed[22].
A "Quick Wins" action plan to move forward immediate
priorities in these work streams was developed with 44 actions;
all have been delivered. In relation to business support key achievements
include:
— The establishment of www.supportwm.co.uk,
a "one stop shop" website dedicated to signposting businesses
and individuals to the support they need. This has received over
16,000 visitors to date.
— Establishment of the Advantage Transition
Bridge Fund; the first to be opened nationally (see below para
32).
— Development of sector specific support
proposals for the automotive, construction and retail sectors.
— Influencing Business Link (BL) and the
Manufacturing Advisory Service (MAS) to review their service offer
and introduce a "Business Doctor" scheme to offer improved
financial advice to businesses.
— Commissioning research to influence and
inform partners' responses.
22. On infrastructure, an assessment of
infrastructure plans across the public sector is being undertaken
eg health, defence, Prison Service, Further Education/HEI, schools
etc. to identify and if possible unblock any at risk due to a
loss of private sector funding or constraints on public expenditure.
Early successes include:
— The University Quarter project in Stoke
which was under threat following the Learning and Skills Council's
(LSC) moratorium on approval of projects. Following the Regional
Minster's intervention, AWM was able to provide interim funding
to keep the project on track.[23]
— A major redevelopment project in North
Solihull where the withdrawal of private sector funding led to
major cash-flow problems. Following discussions with partners,
the Housing and Communities Agency identified interim funding
which will enable construction work to continue.
23. The Taskforce was the first to identify
the need for special support to the automotive sector.
24. Key priorities for the Taskforce from
March 2009 include:
— Close working with strategically important
and high risk businesses in the automotive, construction, financial
services, aerospace and computer science sectors with the aim
of retaining key skills and capacity in the region.
— Identifying towns and communities that
are particularly vulnerable to the downturn and groups at highest
risk eg apprentices and graduates, which should enable better
targeting of support.
— Identifying further support for activities
that create economic opportunities, namely international trade,
green technologies, innovation and diversification and public
sector procurement.
25. The Taskforce is supported by the Top
8 Group[24]—a
"Regional Cabinet"—comprising the leaders of the
region's key public sector bodies and by the West Midlands Council
of Economic Advisers, which brings together senior business representatives
from major business organisations in the region with BERR and
HM Treasury Ministers.
26. Key priorities identified through the
Taskforce have been fed up to Whitehall through the Council of
Regional Ministers, Regional Economic Council and via individual
Departments.
27. Central Government has recognised and
acted on a number of key policy requirements including changes
to the 16 hour rule.[25]
Actions of regional agencies
28. The following provides a snapshot of
the specific response of the various agencies in the West Midlands.
Advantage West Midlands
29. AWM is the key, but not the only, public
regional agency responsible for economic development. It plays
an important role in supporting business development and growth
both through its strategic leadership and the schemes and programmes
it delivers, including the current 2007-13 European Regional
Development Fund Programme (ERDF). As such AWM is taking the leading
role in the region's response to the recession.
30. It has responsibility for the region's
Business Link (BL) service, a national but regionally managed
and locally delivered service, whose aim is to help SMEs and new
businesses start, survive and grow. As part of the Government's
"Solutions for Business" initiative,[26]
BL is now the main route to all Government support for business
simplifying access for employers. This includes the Train to Gain
skills brokerage service which is now delivered through BL to
provide a comprehensive joined-up service.
31. Along with the BERR, AWM supports the
regional centre of the Manufacturing Advisory Service (MAS-WM),
which provides specialist support to manufacturers to help them
streamline processes, reduce waste, become more energy efficient
and generally improve their business.
32. AWM has taken direct action to help
West Midlands businesses secure finance. Key initiatives include:
— £9 million Advantage Transition
Bridge Fund (ATBF) offering loans for SMEs of up to £250,000 to
companies unable to secure mainstream funding. To date (April
09) 159 applications have been received with 48 approved,
totaling £8,049,000, which are projected to protect or create
3,106 jobs.
— £2.2 million additional resource
for the region's Community Development Finance Institutions, offering
loans of up to £50k for SMEs unable to access mainstream
funding. Loans awarded in Q3 2008-09 increased by 156%
in number and 206% in value compared to Q3 2007-08. This
has recently been supplemented by £2 million to support lending
up to June 2009 and a bidding round has been launched for
£14.5 million from the current ERDF Programme to support
longer term lending.
— An extension to the Accelerate Programme
for automotive companies and an additional £4.5 million of
support through MAS.
33. AWM has co-ordinated two formal meetings
with the region's bankers to identify the issues they see affecting
business and how the Government's interventions—particularly
the Enterprise Finance Guarantee Scheme—are operating in
practice.
34. AWM is working closely with the region's
strategic companies to see what support can be offered—for
example it has provided £30m towards Jaguar Land Rover's
Low Carbon Vehicle Development and Proving Centre. It has also
worked with regional companies in severe distress eg Waterford
Wedgwood and LDV to offer practical support.
35. AWM's recent contract with the region's
Chamber of Commerce, to create a network of seven Strategic
Business Relationship Managers across the region, will see close
working relationships developed with 500 or so strategically
important companies.
36. It has also taken action to help ensure
important infrastructure projects do not get delayed. The £64
million AWM support package announced summer 2008 includes
£61 million for infrastructure funding: comprising £48
million Gap Funding to encourage developers back into the market
and £13 million Regional Infrastructure Funding to kick-start
projects.
Business Link
37. BL has refocused its activities to provide
special assistance to business, including free personalised "Health
Checks" to identify a firm's main problems and prepare an
action plan, including guidance on accessing Government help.
Since October, 5,938 West Midlands' businesses have benefited
from "Health Checks" with 91% of BL customers being
very satisfied or satisfied with the service received.
38. Further BL responses between October
2008 and April 2009 include:
— A Credit Crunch Hotline complementing
its telephone advice service has dealt with 50-80 calls a
month.
— The in-depth "Business Doctor"
service with grant funded specialist consultancy launched in February
has helped over 140 businesses with £337k in grant awards.
— 116 themed credit crunch workshops
held since November.
— Support to 1,000 entrepreneurs and
200 businesses in improving their understanding of financial
products available. A further 170 businesses received support
in raising over £10 million.
Manufacturing Advisory Service (MAS)
39. Between October 2008 and April
2009 MAS-WM has offered special help to struggling manufacturers
in the region, including:
— Specific "Liquidity" help to
115 SME manufacturers at a fully subsidised rate, at a cost
of £511,000, which will generate a benefit for the participating
businesses of over £1,700,000.[27]
— Running a "Manufacturing Matters"
campaign, which increased the visit rate to the MAS website by
62.5% and generated 71 additional company visits.
UK Trade and Investment (UKTI)
40. UKTI is working with AWM to highlight
business opportunities for firms in key industrial clusters. Businesses
tend to focus on markets where they already have existing contacts.
The recession has, however, prompted some UK firms to look towards
emerging markets despite concerns about perceived barriers such
as the cost of market entry and regulatory barriers. The Gateway
to Global Growth Programme was launched to help established exporters
to overcome these problems and expand into new markets.
Jobcentre Plus (JCP)
41. JCP is often the first agency alerted
to an impending business crisis and has developed a range of initiatives
to help both employers and individuals.
42. The Rapid Response Service is the cornerstone
of JCP response to job losses. From November 2008 its scope
was broadened to include all rather than just major redundancies.
Delivery in the region is through a partnership with the LSC,
developed from successful joint working as part of the MG Rover
Taskforce. Between November 2008 and April 2009 JCP
has offered help to 640+ employers, including Woolworths, Waterford
Wedgwood and JCB. Help for employees has been delivered on-site
whenever possible.
43. Other enhanced activities include:
— Local Employment Partnerships (LEPs):
9,000+ regional businesses have joined LEPs, helping 13,000+ disadvantaged
individuals start new jobs after bespoke pre-employment training.
— The Integrated Employment and Skills
Service (IES): 3,000+ newly unemployed people have benefited from
career guidance since this IES commenced September 2008.
— The pilot National Voluntary Training
Pathfinder enables unemployed individuals to receive JSA whilst
undertaking up to eight weeks full-time training.
Learning and Skills Council (LSC)
44. The LSC has also developed enhanced
activities to ensure that West Midlands' employers can survive
the downturn and are well placed to take advantage of opportunities
when the global economy recovers, including:
— Train to Gain: Funding enables employers
to upskill employees, predominantly on employer premises, minimising
disruption to business. From January the scheme was expanded and
made more flexible with SMEs a top priority for funds.
— SME productivity: £50 million regionally
to provide SMEs with more high-impact training support, including
bite sized training to NVQ Level 2-3 and Leadership &
Management support.
— Short-time working support: Utilising
Train to Gain and mainstream funding to provide training and support
for individuals and employers.
45. The LSC's enhanced support for individuals,
includes:
— National Apprenticeship Vacancy Matching
Service is an online service to maximise redeployment of redundant
apprentices. 4,474 West Midlands' candidates have registered.
— Pre-redundancy support, for employers
and individuals. The project has engaged with 150+ manufacturing
sites and 10,000+ announced redundancies in the region; 3,000 individuals
are currently benefiting. West Midlands LSC recently expanded
this support with an additional £20 million funding, opening
eligibility to all organisations and sectors.
46. ACAS is working closely with employers,
Trade Unions and the media to deliver advice through their Helpline,
recession events, and radio.
47. The Regional Minister commissioned the
Homes and Communities Agency (HCA) to produce the first Regional
Housing Action Plan in response to the impact of the credit crunch
on the housing sector. This will be taken forward as the HCA's
2009-11 Investment Strategy. By working with partners, the
HCA's £700m plan will create jobs; retain construction skills;
support the delivery of 9,000 homes (7,500 which will
be affordable) and reclaim 150 ha of brownfield land for
development in the region.
Impact of regional action
48. It is too early to provide accurate
impact data—however, a Monitoring and Evaluation Framework
has been developed in the context of the Taskforce which is due
to provide its first report to the Taskforce on the 27 April.
Anecdotal evidence suggests that all of the early key actions
taken by the Taskforce to support business are valued.
GOWM ROLE
49. GOWM represents Central Government in
the region, joining up the work of 12 Departments[28]
and feeding back the region's views and unique needs to Whitehall.
It works with partners at a strategic level to ensure they are
up to speed and working effectively together.
50. GOWM has a pivotal role in supporting
the Regional Minister in his extensive programme of meetings with
businesses and business organisations. This has ensured he is
fully aware of how the recession is affecting business and has
a basis for a considered, co-ordinated regional response. GOWM
also provides support to the Council of Regional Ministers and
ensures that the Regional Minister is briefed appropriately for
this and the Regional Economic Council. The following diagram
shows how the various fora interact.
51. As part of its remit to ensure that
Central Government is fully aware of the region's concerns and
ideas, GOWM has organised a series of well received events bringing
senior ministers (including the Prime Minister (twice) and Lord
Mandelson) to meet 150-200 business people from across the
region.
52. GOWM is in close contact with BERR and
AWM about major companies in the region facing difficulties. This
has included responding to Ministerial requests to work closely
with key companies at particularly difficult moments (eg Waterford
Wedgwood).
53. GOWM is working closely with partners
on initiatives for the longer-term. In particular, it facilitated
the Regional Funding Advice (RFA) process, ensuring the region
focussed on improving its record on delivery of priority investment
projects. The resultant RFA sets out clear integrated regional
priorities, has a spatial focus and has a strong emphasis on delivery.
The approach taken by regional partners is to use public funding
to stimulate private sector investment in and beyond the recession
and to lay the groundwork for a more buoyant economy.
54. GOWM is working closely with Local Authorities
in context of the downturn including through Local Strategic Partnerships
(LSPs). It has negotiated and will monitor the 3-year Local Area
Agreements (LAAs), on behalf of Central Government, with the region's
14 LSPs. The current LAAs, ending 2010-11, include challenging
economic targets encompassing business growth and reductions in
unemployment. GOWM is also supporting the Birmingham City Region
Multi Area Agreement (MAA) on employment and skills and the recently
submitted City Region bid to become a City Region forerunner pilot.
This is designed to test out how powers and funding given to sub-regional
partnerships might be used to deliver real improvements in economic
growth.
55. GOWM also has responsibility for the
region's 2000-2006 ERDF Programme. The Government decided
against accepting the offer to extend the Programme for a further
six months (to June 2009) to help cope with the recession. Little
additional flexibility was offered and it was unlikely that any
new projects could be commissioned and delivered in the time-frame
available. Ministers want efforts to be made to maximise the use
of the funds in the 2007-2013 round of Programmes.
CONCLUSION
56. No one could have predicted the speed
and depth of the recession which has had a devastating impact
around the globe. The West Midlands is particularly feeling its
effects and the downturn here has been savage and quick.
57. Much has been done by Central Government
through "Real Help Now", to respond to the immediate
needs of businesses especially around access to critical credit.
In the region through the Regional Minister's Taskforce a wide
array of partners came together quickly to develop a response
to the downturn. Targeted activity has been undertaken in close
consultation with businesses to help them survive and protect
valuable jobs where possible. Additional support is being provided
to individuals who find themselves out of work and to communities
who have been hard hit.
58. National and regional partners are closely
monitoring the effectiveness of all these initiatives, which require
time to work through, and stand ready to take further action where
necessary.
19 It is understood that the West Midlands Local Government
Association will be submitting a submission focussing on localities. Back
20
More information can be found on the OTS website at
http://www.cabinetoffice.gov.uk/third_sector/real_help_for_communities.aspx. Back
21
A package of measures launched in January 2009 designed to
address help business. Nationally there have already been over
283,000 visits to the Real Help for Business campaign webpage
with over 70,000 successful uses of the interactive tool.
Further action to ensure the Real Help for Business message reaches
those SMEs who have not yet taken advantage of it, is planned
through the rollout of ministerial regional road shows in April. Back
22
The six work streams are: Business support and access to finance;
Intelligence and data collection; Workforce retention and enhanced
redundancy support; Acceleration of priority public sector infrastructure
projects to create jobs; Communications to ensure that individuals
and businesses affected by the recession are aware of the support
available to them; Community support. Back
23
John Denham, Secretary of State for Skills, Innovation and Universities,
announced details of Capital Investment in Further Education Colleges
in Parliament on 4 March 2009. Despite the LSC funding moratorium,
he announced that two West Midlands' colleges were given full
funding approval-Stoke 6th Form College and Solihull FE College.
The Regional Minister is continuing to press the case for a further
three colleges with (in principle) approval-Sandwell, Bournville
and Stoke FE colleges where co-investment is critical to large
scale regeneration schemes. Back
24
The Top 8 consist of GOWM, AWM, Learning and Skills Council,
Job Centre Plus, Homes and Communities Agency, Highways Agency,
Strategic Health Authority and Regional Assembly. Back
25
Individuals on JSA are only allowed to train for up to 16 hours
a week whilst in receipt of benefit. Under the National Voluntary
Training Pathfinder being piloted in the West Midlands, long term
unemployed individuals can receive full time approved training
for up to eight weeks whilst still entitled to receive JSA. Back
26
Solutions for Business is the Government's streamlined portfolio
of business support products accessible via Business Link. Further
detail can be accessed at: http://www.berr.gov.uk/whatwedo/enterprise/simplifyingbusinesssupport/page44805.html Back
27
It is projected that each of the 115 interventions will generate
an annualised cash impact of at least £15,000 for the
company receiving assistance equating to around £1,700,000 overall. Back
28
Cabinet Office; Department for Business, Enterprise & Regulatory
Reform; Department for Children, Schools and Families; Department
for Culture, Media and Sport; Department of Energy and Climate
Change; Department for Environment, Food and Rural Affairs; Department
for Work and Pensions; Department for Transport; Department of
Health; Home Office; Ministry of Justice. Back
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