One of the key concerns of politicians and policymakers in the UK is that of productivity, especially in terms of regional differences across the UK. That is why, after years of procrastination by successive governments, a new industrial strategy has been launched to deal directly with this matter.
Whilst there is increasing agreement across political parties that there are issues over the distribution of industry which has led to an alleged North-South divide, there has been very little actual data to support this. That is until the publication, earlier this month, of a research paper from the London School of Economics which examines this topic in detail.
“Industry in Britain – An Atlas” presents maps and charts setting out the latest data on firm location, together with geographic measures of employment, productivity, and innovation. More importantly, it challenges some of the accepted wisdom about the geography of industry across the UK.
For example, finance – long thought to be the engine of the UK’s capital city – is far less London-centric than originally thought with over fifteen identifiable financial hubs to be found across the UK (including Cardiff). In contrast, sectors such as ICT and creative industries are heavily concentrated in a few areas, mainly around London, the South East of England and East England around Cambridge (with none in Wales).
In terms of productivity, it is the M4 corridor stretching towards Bristol, rather than the South East of England alone, which is the UK’s productivity engine, although that has yet to stretch to Wales with no part of our economy having a productivity rate of greater than the UK average.
It also shows that one of the great differences in prosperity and productivity is actually between inland and coastal areas, with data on survival rates indicating that firms located near the coast are more likely to go out of business than those further inland. Coastal areas also tend to specialise in accommodation and food services, which tend to be low productivity industries with a high churn of businesses. This is quite worrying given the higher dependency of many parts of Wales on the tourism sector.
However, the research does reinforce the fact that when we compare the productivity of the UK with Germany, our best performing regions (with the exception of Central London) are far behind the German average.
It is also worth noting that whilst there have been challenges for areas in East Germany, they are actually slowly catching up in terms of performance whereas in the UK, our poorer less productive regions – including Wales – are falling further behind.
Indeed, the data shows that the UK region that is at the bottom of the productivity scale is West Wales and the Valleys i.e. those fifteen counties in Wales that have received over £4 billion of EU funding since 2000.
Given that productivity in this region remains 21 percentage points lower than the UK average, it demonstrates that despite creating some jobs, much of the money from Europe has done little to address one of key economic indicators in Wales, especially within the small firm sector where productivity needs to be improved considerably.
And it could be worse, given that the study also shows the impact of a single firm within a region can have major effect on local productivity.
In Wales, the two major examples in Wales are Tata Steel in Port Talbot and Airbus in Broughton and given the uncertainties that have surrounded both plants in recent months - the former because of Brexit issues and the latter due to merger with a German company – it is clear that the UK Government must keep its eye on the ball regarding their future given their major importance to the economies of North and South Wales.
Another key issue is that of exporting, given the importance that the UK Government has placed on this in developing trade links following our departure from the European Union. Again, the data suggests that there is considerable work that needs to be undertaken within more peripheral areas of the UK i.e. whilst London and the South East are home to the highest number of exporting firms and they represent around 12 per cent of total firms in both regions, the lowest share of exporting firms – 6 per cent - are to be found in Wales and the North East of England.
Therefore, this research shows that much more needs to be done in terms of improving productivity across the UK, especially in closing the gap between the poorer and richer regions, and this must become the key priority for both the UK and Welsh Governments over the next few years if we are to build a resilient economy going forward.
Certainly, the Cabinet Secretary for the Economy must ensure that his new economic strategy, to be announced in the next couple of months, must have a greater emphasis on productivity and a real commitment to skills, enterprise, internationalisation and innovation than there has been in the past.