Headlines
- Strong sectors in the North East include manufacturing and the public sector, and there has been growth in business services over the past decade.
- The region has prioritised a number of high technology sectors in which there is a strong basis for growth.
National and Regional Policy Context
The Coalition Government has identified business creation and growth as one of it's priorities in the document 'The Coalition: Our Programme for Government.'The Coaition's stated intention is: '...to create a fairier and more balanced economy, where we are not so dependent on a narrow range of economic sectors, and where new businesses and economic opportunities are more evenly shared between regions and industries.'
Over recent years the North East has made strides to diversify the region's economy, building on the previous government's ‘Industrial Activism’ approach that recognised the public sector’s role in enabling and driving innovation in the region. In particular, the Innovation Connectors integrate business support, innovation, enterprise, inward investment, skills and physical regeneration investment in key new industries with major future potential. The approach reflects priorities that have already been set out for the North East - emerging Energy, the low carbon economy and digital technologies are all highlighted as areas of growth that need specific support and enablement, reflecting the priorities already set out for the North East.
This paper sets out the recent economic progress of different sectors in the region.
The charts in this chapter use the following broad industrial sectors , listed here with the corresponding letters:
A,B = Agriculture; Forestry & Fishing;
C,E = Mining & quarrying; Electricity, gas & water supply;
D = Manufacturing;
F = Construction;
G = Wholesale, retail and repairs;
H = Hotels & Restaurants;
I = Transport; storage & communication;
J = Financial intermediation;
K = Real Estate, renting & business activties;
L,O = Public administration; Other community, social and personal services;
M,N = Education; health and social work
Distribution of Businesses by Sector in the UK and North East
According to data published by the Department for Business, Innovation and Skills the proportion of VAT registered businesses in each broad industry sector in the UK at the start of 2008 was as follows:
The distribution of businesses by sector in the North East was not dissimilar to the national picture. However there was some variation. The North East had slightly more mining and energy (0.2% vs. 0.1%) and manufacturing (8.3% vs. 7.5%) businesses. The region also had a relatively larger proportion of wholesale and retail and hospitality businesses (32.7% combined vs. 27% combined in the UK).
The North East has significantly fewer business in the real estate and business services industry (25.8% vs. 31.7%), and less than half the national average of 1.1% of financial services business. Together these two industry groups could be termed ‘knowledge intensive’ business services.
Despite the relative importance of the public sector to regional GVA and employment, there are actually fewer VAT registered business in public administration and social services and health and education than the national average (7.6% vs. 8.8%).
Looking at net changes in business stock by industry between 2005 and 2007 the trend in the North East has mapped fairly closely the national picture with just a few small differences. E.g. the region has not lost agricultural businesses at the same pace – there was even a small net gain in 2005. The North East maintained the same number of manufacturing businesses while the UK saw a net loss.
As with the rest of the country the North East saw a significant rise in the number of companies in the business services industry, with the sharpest rise in 2007. However it can be expected that the recent economic situation will have had a downward effect on this industry.
In most industry sectors there is a reasonably even distribution of business as a proportion of each sub region’s business stock. It is noticeable that Durham and especially Northumberland have a significantly high proportion of agricultural businesses, whilst Tyne and Wear and Tees Valley have a higher proportion of businesses in the business services sectors - closer to the national average and far higher than the other two sub regions. The economic history and geography of these sub regions are key factors when considering the reasons for the comparative growth in these sectors compared to the rest of the region.
Industry Sectors and Share of GVA 1990 - 2007
Looking at the performance of individual sectors in terms of GVA since 1990, the following points are notable:
- In line with the rest of the UK, the North East has seen the contribution to GVA of agricultural business decline steadily since 1990.
- While mining and energy has declined since the early 90s (as would be expected with the closure of the last mines in the country and region), the sector in the North East continues to make a contribution to GVA in excess of the national average.
- Manufacturing has declined sharply but continues to be higher than the national average.
- Construction declined at the end of the 90s, but had increased again by 2007. The proportion of GVA contributed by the sector in the region exceeds the national average.
- Retail and wholesale, hospitality and transport and communications trends in GVA contribution are broadly the same in the region and the UK as a whole.
- The share of GVA contributed by the finance sector has grown since the late 90s in both the region and UK, but the sector is a larger proportion of UK GVA.
- Business services in the UK and region have seen growth regionally and nationally, but growth in the North East has not been at the same pace as the rest of the country.
- The public sector, health and education contributes well over a quarter of regional GVA, representing a significant increase since the early 1990s and continues to be well above the national average.
Productivity : contribution to GVA
Agriculture, construction, retail, hospitality and business services sectors make a smaller contribution to GVA relative to the size of the sector in the region. This is probably due to the fact that these sectors will include a greater number of micro and small businesses and the fact that these industries are more labour intensive, and therefore “productivity” (as measured by GVA) will be lower.
Energy, manufacturing, health and education, public administration and financial services all make a far greater contribution to GVA relative to the size of their sectors. This can be attributed to the fact that there are fewer but bigger companies in these sectors whose activities are more capital or technology intensive.
The transport and communications sector makes up a slightly higher proportion of GVA relative to its size.