Memorandum from Birmingham City Council
(WM 32)
1. Executive Summary
1.1 The economic downturn is having a major
impact on the current, and potentially medium term, economic prosperity
of Birmingham due to its severe effect on the manufacturing/automotive
sector and on our important and growing service sector.
1.2 The West Midlands Task Force has brought
together all the relevant partners, providing an effective response
and leadership, and setting up a dedicated website to communicate
the help and support that is available. The role of the Task Force
would have been enhanced with the provision of additional financial
resources from Central Government to support local priorities.
1.3 Individual partners such as Business
Link and Advantage West Midlands have been able, within their
existing funding constraints, to provide additional and dedicated
programmes of support to businesses to help them cope with the
impact of this downturn. It is questionable as to how much influence
any Regional Development Agency could have had on improving the
level of access by businesses to funding through the banking system.
1.4 At the moment there is still a confused
picture as to the impact various initiatives to stimulate bank
lending and access to credit are actually having on businesses.
On the one hand, various announcements by Government and the Banks
suggest that credit is available. On the other hand, discussions
with businesses and the rapid take up of loans from the Advantage
Transition Bridge Fund suggest that businesses are still struggling
to access credit. It is clear that in the new "financial
world" the terms and conditions of bank lending and the availability
of credit have changed significantly.
1.5 In Birmingham we are fortunate that
we have senior level representation from the various Governments
Agencies and the Private Sector on the Board of the Birmingham
Economic Development Partnership and on its Business Support,
Investment and Innovation sub group. Business Link and Birmingham
Chamber of Commerce in particular, given their role, have worked
closely with Birmingham City Council at both a strategic and operational
level in considering how we provide support to businesses in Birmingham
during this economic downturn.
2. Q1 The effect of the financial and
economic situation on businesses in the region including the effect
on different sectors such as manufacturing, service industries
etc
2.1 The economic downturn, as can be seen
from a number of different data sources, has had a major impact
on the business community in Birmingham.
2.2 Surveys of Members of Birmingham and British
Chambers of Commerce
The results in Table 1 of the British Chambers
of Commerce Quarterly Economic Survey (including Birmingham Chamber
members) show the extent of the economic downturn. The figures
show the net percentage point balances between businesses reporting
improving conditions minus those reporting deteriorating conditions.[53]
Table 1
CHAMBER OF COMMERCE SURVEY (MARCH 2009)
|
| Manufacturing | Birmingham Chamber
Members only
| Overall British
Chamber Survey
|
|
| Cash flow | -28 | -29
|
| Business Confidence—next 12 months
| 0 | -30 |
| Sales in the UK market | -50
| -52 |
| Export Sales | -22 | -16
|
| Export Orders | +3 | -21
|
| Increase in Workforce | -24
| -33 |
| Investment in Training | -2
| -20 |
| Investment in Plant & Equipment | -11
| -39 |
| Service | |
|
| Cash flow | -18 | -24
|
| Business Confidence—next 12 months
| +16 | -12 |
| Sales in the UK market | -12
| -22 |
| Export Sales | -25 | -16
|
| Export Orders | -26 | -19
|
| Increase in Workforce | -1 |
-16 |
| Investment in Training | +9
| -8 |
| Investment in Plant & Equipment | -1
| -22 |
|
| Source: Birmingham and British Chambers of Commerce
| |
| |
|
2.3 Results suggest that Birmingham businesses may have
been slightly lagging the UK into recession. However, all the
Birmingham balances are now catching up with the British Chamber's
results in the March 2009 survey (presented above). One result
that stands out is that business confidence appears to be noticeably
higher amongst Birmingham respondents, when compared to the national
results. It should be noted that there has been a tendency for
many years for the Birmingham service sector results to be more
positive than the UK's.
2.4 BETA Business Records
This is an Experian tracked database of 2.6 million
business records in the UK, Table 2 shows that over three
month intervals the level of business closures in Birmingham began
to increase abruptly.
Table 2
| | |
| |
| January 2008 | April 2008
| July 2008 | October 2008
| January 2009 |
| | |
| |
| 1,064 | 1,049 | 1,266
| 1,149 | 1,556 |
| | |
| |
| Source: BETA Model |
| | |
| |
| | |
2.5 Between January 2008 and January 2009 the
number of business closures in Birmingham increased by 46.2% against
a corresponding lower increase in the UK of 37.7%.
2.6 Table 3 shows over three month intervals the
level of Birmingham businesses that declined into a smaller employment
size band, with a noticeable increase in the number since the
summer of 2008.
Table 3
| | |
| |
| January 2008 | April 2008
| July 2008 | October 2008
| January 2009 |
| | |
| |
| 255 | 253 | 232
| 319 | 344 |
| | |
| |
| Source: BETA Model |
| | |
| |
| | |
2.7 Jobcentre Vacancies
Over the past 12 months to February 2009 the number
of newly notified Jobcentre vacancies in Birmingham has fallen
by 22% which is in line with the average fall in the rest of the
Region and UK.
2.8 In Birmingham the Jobcentre vacancies in manufacturing
and construction have both fallen by 39%. Vacancies in the wholesaling
and hotels & catering sectors have fallen by 31% and 33% respectively.
In computer services, vacancies have plunged by 56%, which suggests
that businesses are investing less in new computer systems. Similarly,
the 62% fall in vacancies in the renting of machinery and equipment
sector is probably linked to the downturn in new construction
starts.
2.9 Retailing vacancies have only fallen by 1% over the
period. However, over the long term fewer retailers seem to be
advertising through the Jobcentres in Birmingham. Ironically,
given the financial crisis, vacancies in financial services have
only fallen by 16% in Birmingham. The only substantial increase
has been in public administration, where vacancies more than doubled
over the year to February 2009.
2.10 It should be noted that most of the vacancies placed
with Jobcentres can't be discerned by sector. This is because
around half of vacancies are notified to Jobcentres by private
employment agencies. Sector trends in Jobcentre vacancies can
also be distorted by the changing popularity of this form of advertising
with employers, which can vary with the economic cycle.
2.11 Property Market Information
The property market can provide a few hints as to what is
happening to different sectors within the Birmingham economy.
2.12 Office lettings in central Birmingham, typically
to service sector based businesses, totalled 110,976 sq ft
in the first quarter of 2009, against 171,746 sq ft for the
same period in 2008 (a record year for Birmingham) and 127,948 sq
ft for the same period in 2007 according to figures from
King Sturge. These figures show a surprising resilience given
current market sentiment.
2.13 Prime retail rents in Birmingham were £300 per
square foot in December 2008, a fall from £325 per square
foot in June 2008 according to Cushman & Wakefield. These
figures suggest a weakening city centre retail sector.
2.14 Automotive Sector
The automotive sector is still important to Birmingham and
any damage to its large automotive businesses and associated supply
chain could severely damage Birmingham's medium-term economic
prospects. The reduced levels of consumer spending and the shortage
of credit for car buying has created a crisis in the UK and Birmingham
based automotive industry that has led to redundancies and lengthening
factory shutdowns, with UK car production falling by 59% in February
2009 against the same month in 2008.
2.15 Jaguar Land Rover has been helped with a £340 million
loan from the European Investment Bank and additional funding/guarantees
to be provided by the Government. However, there is grave concern
for the 850 employees in van maker LDV, given the current
absence of any Government assistance, and that the Company has
not produced any vans since December 2008. Just under half of
these employees live in East Birmingham, an area already experiencing
high levels of unemployment and deprivation.
3.0 Q2 How effective Advantage West Midlands and initiatives
such as Business Link are being in assisting businesses in the
current climate, including helping them to gain access to funding,
both from Government funding streams and through the banking system
3.1 Business Link (BL) has heavily published through
local media the introduction of its response to the "credit
crunch", with a dedicated "credit crunch" hotline
and series of free seminars, providing advice and support for
local businesses. Feedback from BL is that they are somewhat disappointed
with the use of the hotline and attendance at its seminars. However,
they have continued to promote and provide this support as well
as their core business support service, which from feedback that
we have received, has continued to improve in terms of its responsiveness
and effectiveness.
3.2 At this stage of the downturn it is difficult to
judge whether BL's interventions are making an impact and meeting
the needs of specific communities/geographies. Key difficulties
in judging their impact are the regional nature of Business Link's
contracted output targets, and the difficulty of determining an
appropriate (and contractual) division of the regional total to
allow local specification. This issue underlines the difficulty
that Birmingham, as well as other local authorities, face in securing
adequate support to meet the needs of local businesses as a result
of the regional business support model. This is an issue that
requires further consideration at a regional/national level. The
linked question is in the face of the economic downturn, does
BL have adequate resources to deal with responding to the issues
businesses face?
3.3 There is also the separate issue of the need for
improvement in BL's management information to be able to accurately
and comprehensively measure their performance and impact. BL recognise
this and we are working closely with Birmingham City Council to
resolve this matter.
3.4 Advantage West Midlands (AWM) has launched the Advantage
Transition Bridge Fund (ATBF) making available £9 million
in loans of £50K to £250K (with £4.5 million provided
by Central Government) to help businesses facing difficulties
obtain bank loans. Most of this ATBF is now committed, including
assistance provided to several businesses in the Birmingham area.
The ATBF has been a success with a rapid take up of loans, but
a funding pot of only £9M for the whole region is insufficient
and further financial resources need to be provided to the ATBF.
3.5 Furthermore, AWM has approval for £48 million
"gap-funding" to support the delivery of suitable projects
within Tier 2 Assisted Areas and SMEs across the region.
Eligible projects include a wide range of speculative or bespoke
development projects. Project costs can include site value, construction
costs, associated fees, and finance and developers profit.
3.6 It is difficult to gauge how AWM could influence
and help businesses to access funding through the banking system,
with bank lending dictated by the Banks' own credit difficulties
and by decisions made in distant board rooms as to the terms and
conditions of credit. Only through pressure being applied by Government
has the availability of Bank lending improved.
4.0 Q3 The response of banks and other financial institutions
to government and other initiatives to stimulate bank lending
and the access of businesses in the region to credit.
4.1 Birmingham City Council announced in early December
2008 its intention to consider setting up a Municipal Bank
of Birmingham to offer a range of potential banking services,
including loans to businesses, as a response to the withdrawal
of credit facilities to businesses by the banks.
4.2 Much of the work in considering this proposal has
been undertaken by Birmingham City Council Co-ordination Committee
Municipal Bank Review Group and a senior officers internal working
group. This work includes a review of current bank lending to
businesses and the availability and access of credit to businesses.
4.3 It is clear from meetings with bankers, other providers
of business finance and business representatives, that not only
is the picture of what is happening on the ground unclear, but
that it is also changing as the Banks and other providers react
in different ways to government initiatives to stimulate lending.
4.4 The Banks' own internal credit difficulties have
led many to believe that the Banks overreacted in reviewing their
lending book and the terms and conditions of new business lending.
Nevertheless, they also agree that the Banks, in the past, made
too many bad lending decisions and sought business volume on low
margins. It seems likely that the Banks will, in the future, have
a very different lending culture and criteria that will offer
less and more expensive credit to businesses. It would appear
that businesses are already suffering from the Banks' approach
to the new "financial world", withdrawing credit and
significantly changing terms and condition on new lending propositions,
which has been detrimental to local businesses.
4.5 The impression is, that while the various announcements
of initiatives to stimulate Bank lending giving the appearance
of more credit being available, it is taking time for the processes
to filter down to front line mangers and staff. There are still
concerns that the Banks will not, in practice, be willing to make
loans at lower lending levels even with the benefit of the Enterprise
Finance Guarantee Scheme due to the claims cap (which was not
the case with the Small Firms Loan Guarantee Scheme). The impact
of this cap is not yet known but it is likely to make the scheme
inappropriate for some alternative lenders such as Community Development
Finance Institutions.
4.6 There are also concerns over the size of the Capital
for Enterprise Fund (at £75 million) and also the willingness
of businesses to give up equity although it is too soon to tell
if this fund is being accessed.
4.7 Over recent years there has been a significant increase
shift in the use by businesses of invoice discounting and factoring
to finance their operations. It is not clear how these initiatives
will help those businesses reliant on this form of finance.
4.8 A further major issue for businesses is the impact
of the withdrawal or reduction of credit insurance which protects
suppliers if a customer goes into administration. This can have
a dramatic and immediate impact on the availability of cash to
a business. However, the initiatives announced to date do not
offer any help for businesses suffering from a withdrawal or reduction
in credit insurance.
5.0 Q4 The role of the West Midlands Task Force established
by the Regional Minister in helping businesses cope with the economic
downturn
5.1 The Chief Executive of Birmingham sits on the West
Midlands Taskforce and we are therefore in a privileged position
to both see and participate in the discussion of this Task Force.
It has successfully brought together the most senior representatives
of Central Government, various West Midlands based public agencies,
trade unions and representatives from the private sector. It has
been able to provide leadership and a strategic, rapid, appropriate
and coordinated response to the economic downturn in order to
mitigate its impact. This has cascaded down through the various
agencies involved to ensure that a similar approach as been adopted
at lower levels to ensure a joined up a coordinated approach at
operational levels.
5.2 It has also set up an extensive web site www.supportwm.co.uk
which provides an extensive range of information for businesses
and for individuals as to the support available for both businesses
and residents to help them cope with the economic downturn.
5.3 The role of the West Midlands Taskforce would have
been enhanced if additional Central Government finance was to
have been provided for the specific use of the Taskforce to deal
with the impact of the downturn as it seemed appropriate in light
of local priorities.
6.0 Q5 The role of other Government agencies such
as the Government Office for the West Midlands (GOWM), and of
partnerships between Government agencies, local government and
the private sector, in providing support for businesses.
6.1 The Birmingham Economic Development Partnership (BEDP),
chaired by the Chief Executive of Birmingham City Council, brings
together a range of partners including Advantage West Midlands,
the Birmingham Chamber of Commerce & Industry, Jobcentre Plus,
Learning & Skills Council, Business Link; Be Birmingham, Marketing
Birmingham, Government Office for the West Midlands and the City's
three universities.
6.2 These Partners are represented at BEDP Board meetings
and at meetings of its sub groups, in particular at one covering
Employment and the second one covering Business Support, Investment
and Innovation. These sub groups meet to better understand business
needs, to co-ordinate the level of support being provided to businesses
and importantly to help with the identification and potential
completion of gaps in the provision of existing business support
programmes.
6.3 Business Link and Birmingham Chamber of Commerce
in particular, given their role, have worked closely with Birmingham
City Council at both a strategic and operational level in considering
how we provide support to businesses in Birmingham. Examples include
the following. In December 2008 a partnership of Birmingham
City Council, the Birmingham Chamber and LSC agreed to allocate
£1.5 million of money, held by the Chamber from a previous
partnership arrangement, to several new business support programmes.
The Chief Executive of Birmingham has recently joined the Board
of Business Link. Birmingham City Council in early April signed
a MoU (Memorandum of Understanding) with BL to improve working
relations further.
6.4 Under the leadership of the BEDP's Business Support,
Investment and Innovation sub group, partners have been working
over recent months to review current provision of business support.
Consideration has been given to where additional resources are
required to expand existing support programmes or where there
is a need to design new programmes of activity. This process has
itself brought the partners much closer together and has dramatically
improved the working relationships as well as led to the design
of new business support packages. These new agreed funding packages,
that complement existing provision, are currently going through
an approval/appraisal process for funding through the Working
Neighbourhood Fund. This will hopefully lead to local commissioning
of additional business support provision in the next few months.
53
For example: In March 2009 12% of Birmingham manufacturers
said cash flow had improved since December 2008, 48% said cash
flow had remained the same, and 40% said cash flow had deteriorated.
The net percentage point balance between those reporting improving
cash flow against those reporting a deterioration is therefore
minus-28%, ie 12-40 =-28. Back
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