Memorandum from Warwickshire County Council
(WM 27)
SUMMARY:
— Warwickshire appears to be entering the
recession faster and feeling the impacts more than most within
the West Midlands Region.
— The Coventry & Warwickshire Economic
Recovery Partnership was formed early in the downturn, but practical
actions to provide additional local support have been hampered
by the perceived need to take a regional approach.
— Business Link West Midlands have appeared
slow to respond to the situation, and we struggle to fully understand
the impact of the support they are offering due to the paucity
of timely and useful data. Anecdotal evidence from local businesses
has not been particularly positive to date.
— We have seen a significant upturn in
demand for loans through the local Community Development Finance
Institutions (CDFIs), suggesting access to credit from the banking
system remains a problem. Support to business to be provided through
our own Area Based Grant will help improve our intelligence on
this matter.
1. The impact of the economic & financial
situation on businesses
1.1 Warwickshire appears to be feeling the
impacts of the recession quicker and more severely than most at
the moment. Unemployment is rising at a faster rate than UK and
regional averages, there is a steady stream of notified redundancies,
and the sectoral profile of the county suggests that Warwickshire
has a greater concentration of employment in the most vulnerable
parts of the economy.
1.2 Unemployment in the county (as measured
by the JSA Claimant Count) stood at 11,210 in February 2009.
This represents an increase of 96.7% from the same time last year
(compared to 72% for the UK as a whole and 67.1% for the West
Midlands), and a massive 171% from its recent lowest point (November
2004, 4,138 claimants).
1.3 All five Districts & Boroughs of
Warwickshire have seen an above UK and regional average increase
in unemployment over the past year, but North Warwickshire has
seen the most significant growth—up 152% since February
2008. This is the fourth highest increase of all local authority
areas of the region over the last year. Stratford-on-Avon District,
which has historically had very low levels of unemployment, has
also seen a significant recent increase. Over the past three months
(Nov-Feb), Stratford District has experienced the fastest growth
of any West Midlands local authority area (76.4%).
1.4 Work undertaken by Oxford Economics
highlights the key sectors that have seen the largest falls in
output over the 2nd half of 2008. These are: Manufacturing; Distribution;
Hotels & Catering; Mining, quarrying & oil; transport,
storage & communications; and Business & financial services.
An analysis of employment location quotients in Warwickshire (ie
the proportion of employment in particular sectors compared to
another area) suggest that Warwickshire has a higher concentration
of employment in the sectors that have been most affected than
the UK and regional averages, as shown in Table 1 below.
Table 1
EMPLOYMENT LOCATION QUOTIENTS, WARWICKSHIRE
APR 2008
|
| Compared
to UK
| Compared
to WM |
|
| Manufacturing | 1.34 | 1.07
|
| Distribution | 1.40 | 1.11
|
| Hotels & Restaurants | 1.06
| 1.25 |
| Transport & Comms | 0.98
| 1.25 |
| Construction | 1.02 | 0.97
|
| Business Services | 0.89 |
1.00 |
|
| Source: BETA Model |
| |
| |
|
1.5 The most recent survey of businesses in Coventry
& Warwickshire (C&W Chamber of Commerce Quarter 4 Economic
Survey) also suggest that this area is feeling the impact of the
recession faster and more severely than the average, particularly
with respect to the manufacturing sector. The balance of sales
(increased less decreased) for manufacturing businesses surveyed
was—41.5% compared to—38% nationally in Quarter 4,
and the decline in orders for the next three months was even more
stark:—60.6% compared to—48% nationally. The service
sector appears (relatively) less affected, with balance of sales
at—30% compared to 31% nationally, and balance of future
orders—34% compared to—36% nationally.
1.6 The latest Coventry & Warwickshire Quarterly
Economic Survey also highlighted lower than average business confidence
levels for turnover (-45.1% for manufacturing and—30.7%
for services); compared to—32% and—23% respectively
at the national level. Worryingly, the survey also suggested that
a lower proportion of businesses in both the manufacturing and
service sectors were operating at full capacity (22.8% and 26.9%
respectively, compared to 29% and 36% nationally) suggesting that
further redundancies are likely.
1.7 Anecdotally, there is evidence to suggest that businesses
in Warwickshire are struggling with cashflow—particularly
with respect to late/non-payment of invoices and bills, and difficulty
in securing reasonable overdraft facilities from banks. The latest
Quarterly Economic Survey seems to support this view, with a worse
negative balance on cashflow for both manufacturing (-30.4%) and
services (-40.1%) than the national picture (-28% and—32%
respectively).
2. Effectiveness of AWM and Business Link
2.1 Advantage West Midlands (AWM) has been pro-active
in response to the economic downturn, with re-allocation of budgets
to boost and support existing commitments (ie increasing loan
funds available to CDFIs in the region); supporting and promoting
the establishment of "Support West Midlands" website;
working with Business Link West Midlands, providing regular economic
briefings; and supporting the West Midlands Task Force.
2.2 There is a need to achieve a better balance between
regional and sub-regional initiatives. This is because it is increasingly
clear that the recession is affecting different areas in different
ways and at different speeds. As such, some interventions are
likely to be more successful if there was scope for more local/sub-regional
flexibility, underneath a framework of regionally co-ordinated
action.
2.3 Two examples of how attempts to develop locally specific
and relevant responses to the downturn have been affected by this
approach are:
— A bid by the Coventry & Warwickshire Economic
Recovery Partnership (CWERP) in November to secure funds to provide
a short term rapid response "triage" to businesses in
distress in the sub region was turned down on the basis that Business
Link were already offering/developing this service. Our feedback
from companies is that they lack confidence in Business Link,
and so many firms have not engaged with them. It may be too early
to effectively judge the results of this regional approach, but
we are also hampered by the lack of appropriate data from Business
Link (see below). As a result, we believe there is still a local
need to provide a rapid response, locally tailored service and
Warwickshire County Council (in conjunction with the Public Service
Board) has allocated a small amount of Area Based Grant to the
Chamber of Commerce to provide this service. This has just got
underway from the 1st April, some five months after the need was
originally identified.
— A bid by Job Centre Plus to secure funding to develop
a programme to retain Leadership skills of senior managers made
redundant in the sub region has also met with a negative response.
This is recognised to be a key issue for the local area, and it
is critical to ensure these highly skilled individuals continue
to be engaged and economically active within the sub-region to
enable us to come out of the recession in a relatively strong
position. It is estimated that senior executives now account for
9% of new claimants at JCP (approx 100 per week for the sub
region).
2.4 From our position, it also appeared that AWM 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, partly due to the
engagement with the Regional Economic Development Officers Group
(REDOG) and the requests for regular local updates and information
from local authorities.
2.5 Business Link West Midlands have appeared a little
slow in reacting to the economic downturn, although this may be
due to contractual arrangements and limitations that they face.
Demands from the local area on the need for some form of rapid
response service (which led to the aforementioned application
for emergency business support) did in time lead to the development
of the Credit Crunch Hotline.
2.6 We continue to struggle with getting useful data
with which to monitor the scale and effectiveness of support offered
by Business Link. Data that we have been given on calls to the
Credit Crunch Hotline appear to be very low compared to the level
of need that we know exists within the area. The latest data we
have been given by Business Link indicates that just 320 businesses
across the whole region contacted the hotline, with 18% (58 businesses)
from the Coventry & Warwickshire area. We are told that these
numbers may be understated due to calls to the main Business Link
number (but it appears that these calls cannot be disaggregated
to identify whether this is indeed the case!).
3. Response of banks and other financial institutions
3.1 Currently we have partial engagement with the banking
sector, but anecdotally we are aware of businesses facing pressures
in terms of reduced availability and/or increased cost of credit
(ie loans and overdraft facilities), which are having debilitating
effects. Our rapid response team, delivered through the Chamber
of Commerce, will hopefully increase our knowledge and understanding
of these issues and improve dialogue with the banking system.
3.2 We are, however, actively involved in the Coventry
& Warwickshire Reinvestment Trust (a CDFI). Enquiry levels
for CDFI loans (loans of last resort) have increased significantly
(94 in the first Quarter compared to 173 for the whole
of 2008. There has been an increase in the number of "distress"
cases, where withdrawal of overdraft facilities, PAYE, VAT and
major creditors are the reasons given for needing loan support.
Extra staff have had to be taken on by Coventry & Warwickshire
Reinvestment Trust (CWRT) to cope with the extra level of demand.
3.3 Whilst business advisors from Business Link and the
Chamber of Commerce are providing initial advice to businesses,
there are no quick fixes and downsizing the business and foregoing
the opportunity to take on any new business requiring short term
revenue funding, normally provided by the banks, are the only
options. The automotive sector has been particularly affected
as banks have been unable to agree loan support regardless of
the strength of business plans presented to them.
4. Comments on West Midlands Task Force and other Government
agencies
4.1 It's too early to make detailed comments about the
effectiveness of the Task Force. It may be worth reviewing whether
the right delivery agents are in place to support its work. Do
the links between the Task Force and those who deliver at sub-regional
level need to be strengthened?
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