/REFP%20Long-term%20Report%20Jan%202011 by Northwest Regional Development Agency

Regional Forecasting Panel Reg gional g ona EEconomic Fo orecasting P anel

Sta State St at o ate at off th the h he Northwest No orthw or westt Economy Ec Eco onom my Forecasts Long-term For orecasts April 2009

Produced Regional Economic Forecasting Panel Pr oduced by the Regiona al Economi mi For mic ecasting Pa anel on behalf of the

Intelligence Regional Intelligenc e Unit www.nwriu.co.uk www .nwriu.co.uk

This report has been published by the Northwest Regional Development Agency Research Team as part of its continuing commitment to inform the economic development of the Northwest of England. It has been produced by SQW Ltd and Cambridge Econometrics Ltd, economic development consultancies, on behalf of the Northwest Economic Forecasting Panel. Whilst every eﬀort has been made to ensure the accuracy of the material in this report neither panel, SQW Ltd, CE Ltd nor the Research Team can accept any responsibility for the decision based on the material that follows. Cover: ‘© Crown Copyright and database right 2009. Ordnance Survey Licence GD021102’

Further Information If you require further information on the work of the panel, please contact Nicola Christie. Nicola Christie Economist Research Team, NWDA nicola.christie@nwda.co.uk 01925 400293

Contents Executive Summary

Main Report Introduction

Section 1: Setting the Scene - the key headlines

Section 2: “Special Feature” Analysis - The Comprehensive Spending Review 2010, and the implications for the North West’s economic growth

Section 3: The Panel’s Long-Term Forecast (2010-2030) and the associated risks

Annex A: Setting the Scene – A detailed analysis

Annex B: Forecasting Evidence

Annex C: Technical Note and Forecasting Assumptions

Executive Summary • The Coalition Government appears to be setting the economy on a path to long-term ‘rebalancing’, characterised in the near term by pursuit of both public sector retrenchment and private sector (non property) expansion. The aim is to remove potential barriers to private sector confidence stemming from the fiscal deficit, such as higher long-term interest rates and further tax rises, and prevent too much of the policy adjustment coming through higher bank base rates, which may hit investment intentions and wider confidence. • Against this backdrop, the North West must understand better the nature of its vulnerabilities as public sector spending falls as a share of GVA and the nature of its opportunities as private sector firms contemplate investment and expansion, particularly in the region’s key trading sectors. In the Panel’s view this ‘rebalancing’ from the public to private sector could be a difficult adjustment for the North West economy. The Panel’s overriding concern is that there may be insufficient absorptive capacity in the region’s private sector to deal with public sector job loss, especially as the expanding manufacturing sectors tend to have a higher capital/labour ratio than the public sector. The Panel expect more labour intensive private sector providers such as construction and high value services will take longer to recover. • There is also the potential for a mis-alignment between the supply of occupations and skills from the public sector and that demanded by the private sector in the region. In addition, the distributional consequences of this ‘rebalancing’ process within the North West in terms of sectors, places and people will be uneasy and could compound pre-existing inequality gaps within the region. The estimated net impacts of the Comprehensive Spending Review (CSR) in terms of GVA, jobs and spatial impacts will represent a painful adjustment for the North West that needs to be managed through. The Panel argues that this shift could be manageable, but will require thoughtful policy coordination. • The Panel’s overall position is that the North West economy will see a GVA growth gap with the UK of 0.22percentage points (pp) per annum (pa) in the medium-term (over 2009-15), with this widening in the longer-term to close to 0.5pp pa. Growth in GVA per capita will also be weaker than in the UK as a whole, although the scale of this growth gap will be smaller than that for the overall gap due to the expected weak growth in population in the region. The forecasted annual average growth rate through to 2030 is higher than the 20 year average to 2010, which included two deep recessions, but the Panel sees little prospect of a narrowing of the gap in the latter years of its forecast. Whilst evidence contained within this report suggests that many of the long-term drivers of GVA are unchanged since the Panel’s previous forecast, there are several worrisome trends in the working age population, employment creation (both in terms of the number of jobs in general, and those generated by the private sector) and manufacturing (where the number of jobs in the sector continues to fall and the North West is losing its productivity advantage). The latter is particularly important in the first phase of the forecast, given that the ‘rebalancing’ of the UK economy is creating more propitious trading opportunities for manufacturing. • This report sets out the Panel’s consensus forecast for the medium and longer-term periods, and the main reasons therein.

â&#x20AC;˘ The production of this report has been supported by SQW Consulting and Cambridge Econometrics. In order to produce a single base forecast, the Panel has drawn on forecasts from two additional forecasting houses: Oxford Economic Forecasting and Experian. The co-operation and assistance of these organisations is much appreciated, although the responsibility for the forecasts presented here is that of the Panel. While the Panel enjoys the support of the NWDA, it is fully independent in the views and material it publishes. Our papers can be found at www.nwriu.co.uk. We would welcome any comments on our work through nicola.christie@nwda.co.uk

Andrew McLaughlin Panel Chair

Introduction This report presents the North West Economic Forecasting Panel’s Long-Term Forecast for the North West for the period 2010-2030. Introducing the North West Regional Economic Forecasting Panel • The North West Regional Economic Forecasting Panel was set up in 2003 as an independent body, with the remit to develop annually Short-term and Long-term economic forecasts for the North West, and to provide ‘thought leadership’ on critical issues influencing the region’s economic performance. The Panel is led by a private sector chair and meets each quarter. The Panel currently has twelve members, the majority of whom are Directors or Partners of some of the North West’s most significant firms operating in engineering, pharmaceuticals, environmental technologies, property, finance and professional services, transport. Higher Education and Government Office are also represented. Representatives from the Bank of England and NWDA also attend Panel meetings as observers. The position of Panel Chair is salaried, but all other Panel members provide their time to the Panel free of charge. Current Panel Membership • Andrew McLaughlin, Panel Chair, Chief Economist at RBS • Len Collinson, Chairman, Len Collinson Associates • Chris Allam, Managing Director, BAE Systems • Lynne D’Arcy, Managing Director, Trust Inns Ltd • Paul Worland, Business Development Director, Emcor UK • Mark Blakemore, Managing Partner, Baker Tilly • Brian Watt, Vice President, Innospec Inc

• • • • • •

Professor Peter Batey, Town & Regional Planning, Liverpool University Brian Kenny, Rathbone Investment Management Neil Thompson, Corporate Finance Director, The Manchester Airport Group Plc Clive Elphick, NWDA Board Member Christine Hanson, Managing Director, CB Richard Ellis Ltd David Higham, Director, GONW

• The Panel’s Short-term Forecast Report is designed with a private sector audience in mind, although it has become an increasingly important source of evidence during the recession to inform the decisions of public policy-makers in the North West. The forecast’s focus is primarily on sectoral growth, based on recent trends and events, forecasting evidence and the experience of Panel Members working in the respective sectors. By contrast, the main purpose of the Long-Term Forecast Report, which is presented here, is to influence and shape the direction of policy going forwards over the longer-term. Informed by the evidence base presented in this report and the work experiences of Panel Members, the Long-Term Report aims to draw out issues which are pertinent to Government policy and intervention (such as the supply of appropriate skills, enterprise levels and business competitiveness and innovation). Both the Short- and Long-Term forecasts are ‘baseline’ or ‘business as usual’ forecasts for the North West. In 2009, the Panel also played a ‘check and challenge’ role to sub-regional partners as they collectively developed their own baseline and aspirational forecasts. • In May 2010, the Panel was identified as a model of good practice in its role to quality-check regional intelligence by the National Audit Office.

Introduction This Long-term Forecast Report • As usual, this Long-term Forecast report focuses on GVA per head, in line with the Coalition Government’s focus on this measure1. Throughout this report, we look at how the North West has grown relative to the UK, the factors which have influenced this, and how the region might grow relative to the UK over the next 20 years. As in previous Long-Term forecasts, this comparative approach enables a view to be taken on how trends in population, employment and productivity might widen or close relative to the UK because of various influences, leading to an overall judgement on the growth gap in GVA. This helps us to abstract from influences commonly affecting all regions and the wider UK economy as a whole. This report is divided into three sections: • Section 1: Setting the Scene. This provides an overview of recent trends in GVA and GVA performance in the North West relative to the UK. Trends in the key factors influencing growth are summarised as follows: Population - changes in total and working age populations, including net internal and international migration into the region Employment - changes in employment, and in the proportion of the working population which is economically active and available for work Productivity and its drivers - changes in the GVA generated per job in the workplace, and trends in enterprise, skills, innovation and investment • Section 2: The Comprehensive Spending Review (CSR) and implications for the North West’s economic growth. This section is split into four parts: first, we summarise the CSR (published on 20 October 2010), and subsequent HM Government White Paper on local growth (published on 28 October 2010); second, we present Experian’s analysis on the potential impact of CSR on jobs and GVA through to 2015; third, we reflect on the potential longer-term implications of CSR in terms of key economic drivers (such as labour, enterprise, skills, innovation, investment); and finally, we present the Panel’s overall assessment on the implications of CSR for the long-term economic growth prospects of the North West. • Section 3: Developing the Long-Term Forecast. Drawing on the evidence above and the independent forecasts of three national forecasting houses, this concluding Section presents the Panel’s Long-Term Forecast, together with the associated risks. In the round, the forecast looks 20 years ahead to 2030, but as in previous reports we have split the forecast into two periods: 2009 to 2015 (up until when recession impacts are likely to remain substantively in play) and 2015 to 2030 (where longer-term growth rates are expected to resume).

SECTION 1: SETTING THE SCENE

Growth trends in the North West

2008

2006

2004

2002

2000

1998

1996

1994

North West

1992

5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6%

1990

Percentage growth in GVA

Figure 1 Annual growth in GVA in the North West & UK (2003 prices) (Source: Regional Accounts & Cambridge Econometrics)

20% North West

18% 16%

West Midlands

14% 12% 10%

Yorkshire & Humber 2008

2006

2004

2002

2000

1998

1996

1994

1992

8% 1990

GVA per head % diﬀerence between the regions & UK

Figure 2 GVA per head - % diﬀerence between the regions and UK (current prices) (Source: Regional Accounts & Cambridge Econometrics)

• Overall, since 1990, GVA in the North West has increased by 33.5%, equivalent to 1.5% per annum (pa). This is slower the the rate of growth seen in the UK as a whole (2.1% pa), but similar to comparator geographies (1.5% pa in the West Midlands, and 1.7% pa in Yorkshire and Humber). • As shown in Figure 1, both the North West and UK as a whole have seen a significant fall in GVA growth between 2008 and 2009, -4.2% and -4.6% respectively. • The North West’s GVA growth gap with the UK has fluctuated over the last twenty years, tending to narrow during economic downturns (where the North West has been hit less than the Wider South East) and then widening during periods of recovery. Over the longer-term, the region has grown consistently more slowly than the UK (by 0.6 pp since 1990). • As a consequence, the GVA per head gap between the North West and UK has progressively widened over the last two decades to 17% in 2007. Revised figures for 2008 now suggest the gap has remained at this level through to 2008 (rather than narrowing, as previously thought).

Key factors influencing growth • The region’s GVA growth is determined by three key factors: population (and working age population (WAP)), employment, and productivity. In this section, we summarise how the North West has performed against each factor, relative to the UK, over the last two decades (as far as data allow). As in our last Long-Term Report, we find it useful to present this analysis of past trends in a ‘score card’ table, highlighting where the North West continues to underperform compared to the UK (in red), where progress is mixed (in amber), and where the region has made progress in closing the gap or over-performs compared to the UK (in green). Annex A provides a more detailed analysis of these trends. • In many respects, there have not been significant changes since the Panel’s last Long-Term Report in terms of the North West’s relative position compared to the UK. The North West continues to see a net outflow of internal migrants and a slowing in the net inflow of international migrants. It under-performs compared to the UK in employment rates, productivity levels, enterprise rates, skills levels, but on the positive side has seen relative strengths in innovation/R&D expenditure and investment as a proportion of GVA. However, since we last reported, there have been a number of key shifts in performance highlighted in the most recent evidence available: the size of the North West’s working age population (WAP) has shrunk since 2007, rather than stabilising (as previous data suggested), compared to growth across the UK as a whole. The ONS has also revised down its short-term estimates for net in-migration to the North West through to 2015 there has been a significant drop in jobs, indicating that the North West has been hit harder than the UK average in terms of job shedding during the recession. That said, there is some evidence to suggest that the productivity growth rate gap has narrowed slightly in the last two years manufacturing productivity has fallen to below that of the UK level (due to data revisions, manufacturing productivity dropped below the UK earlier than we previously thought) • Overall, these trends accord with the Panel’s experience of doing business in the North West. The key concern to the Panel is the loss of the North West’s productivity advantage in manufacturing compared to the UK, and the continued shift towards lower value added service jobs. The Panel recognises that some places have performed well in creating private sector jobs in recent years (especially around south Manchester and Cheshire), but notes that this growth in some places (e.g. Barrow) has depended significantly on public sector procurement. The Panel also raise concern about the ability of other places to generate private sector jobs, based on a poor track record of doing so to date – an issue we discuss in more detail in Section 2. • The Panel also notes the Government’s recently announced focus on well-being and happiness as a measure of prosperity (alongside the conventional use of GVA per head), and whilst well-being is notoriously difficult to define and then to measure, the Panel argue that this might present an area of competitive advantage for the North West.

Key factors inﬂuencing growth Headline factors

Performance compared to the UK

Progress relative to UK2

Population

• Growth in the working age population (WAP) between 1990 and 2009 was 0.1% pa, compared to a UK average Growth gap remains, and of 0.4% pa (resulting in a gap of -0.3pp). ONS expects these rates of growth, and the diﬀerential between is likely to the North West and UK, to continue through to 2030. continue in the future • Whilst in previous Panel reports we have seen the North West’s WAP plateau in recent years, new data shows that since 2007, the North West’s WAP has actually contracted by 0.1% (compared to a national increase of 0.7% over the same period).

Migration

• Following a net gain of internal and international migrants in the early 2000s, the North West has seen a net outflow of internal migrants each year since 2006, and the net inﬂow of international migrants is slowing markedly. • ONS has revised down its short-term estimates for net in-migration to the North West since the Panel’s last report (annual inﬂows to the region are now expected to fall by 3.7%, 2010-2015). • The rate of decline in young adults (aged 20 to 34) in the North West continues to exceed the UK average (-16% between 1992 and 2009, compared to -11% nationally).

Inﬂows of international migrants is slowing, whilst the region continues to see a net loss of internal migrants (especially young adults) to the wider South East

Jobs

• Following a rapid period of growth in jobs between 2000 and 2004 (1.4% pa, 0.6pp above the UK), and then a slow down in job growth (0.4% pa from 2004 to 2008, 0.6pp below the UK), the North West has recently seen a loss of jobs of -0.9% between 2007 and 2009 (0.1pp below the UK). As a result, the overall growth rate of jobs in the North West between 1990 and 2009 has fallen since the last Panel report to an average of +0.2% pa (just 0.1pp below the UK). • Since 2000, the number of private sector jobs in the North West has increased by 0.1% pa (compared to an increase in public sector jobs of 1.8% pa). However, places such as Pendle, Wirral, Sefton, Oldham and Bolton have seen a fall in private sector jobs since 2003. • Forecasts expect jobs to grow in the North West by +0.4% pa from 2010 to 2030, compared to a UK average of +0.6% pa.

Due to signiﬁcant ﬂuctuations in job growth over the last decade, the average growth in jobs shows a small growth gap since 2000, which is expected to widen slightly by 2030

Red represents under-performance compared to the UK, amber represents a mixed performance relative to the UK, and green represents a good/improved performance relative to the UK

Key factors inﬂuencing growth Headline factors

Performance compared to the UK

Progress relative to UK2

Employment Rates

• The employment rate in the North West, at 67.8% in 2009/10, was below the national average (70.3%). • The gap in the employment rate between the North West and UK has widened from 1.5pp in 2003/04 to 2.9pp in 2008/09. Most recent data shows the gap narrowed very slightly in 2009/10 to 2.5pp.

Under-performance and widening of the gap until 2009/10

Overall productivity

• North West productivity (GVA per workplace job) is 11.5% lower than the UK average. Since 2000, productivity in the region has increased by 0.6% pa, 0.5pp slower than the UK, and the productivity growth gap is widening (between 1990 and 2009, the productivity gap stood at -0.4pp pa). There has been some narrowing of the productivity gap in the last two years, but it remains to be seen as to whether this is a permanent shift to trend. • The shift from manufacturing to services has pulled down the North West productivity performance, and the gap in productivity in the services sector between the North West and UK has widened continuously over the last 10 years. Compounding this, latest evidence suggests that the North West no longer has a productivity advantage conferred by the manufacturing sector compared to the UK - a characteristic which previously boosted the region’s average productivity relative to the UK.

The productivity gap is widening over the longer-term, some evidence of narrowing in the last two years. Evidence that manufacturing ‘dividend’ on productivity is being lost.

The drivers of productivity....... Enterprise

• The North West underperforms compared to the UK in terms of enterprise rates. The gap in business start-ups Progress had been made in closing the enterprise (per 10k WAP) had been closing between 2004 and 2007 (to 2.7 per 10k WAP), but the gap expanded signiﬁcantly in 2008 (when the North West set up 5.5 less businesses per 10k WAP than the national average). gap, but this has reopened

Skills

• The proportion of WAP qualified to Level 4+ is lower in the North West (27.0%) compared to the UK (29.5%). Since 2004, the rate of increase in those qualified to Level 4+ has matched the UK (so the gap remained), but over the last two years improvements in the North West have outpaced the UK. • 14% of the North West’s WAP had no qualification in 2009, which was 1.6pp above the UK average, but the gap has narrowed from 2.9pp in 2004.

Some progress in closing the gap in Level 4+, particularly in the recent years. The gap in those with no qualiﬁcations is narrowing

Key factors inﬂuencing growth Headline factors

Performance compared to the UK

Progress relative to UK2

Investment

• Investment by manufacturing and service ﬁrms in the North West (as a proportion of GVA) is 0.4pp above the Mixed performance UK average in 2007, but average net capex per business was 1.2% below the national average (this gap has investment exceeds UK in some indicators, but closed since the previous release of data). performance is largely dependent upon public sector-funded investment activity.

Innovation

• North West expenditure on R&D (as a proportion of GVA) continues to outpace the national average, but the region generated only half the national rate of patent applications (per 1m population) in 2007.

Mixed performance high expenditure, but low conversion rates.

SECTION 2: THE COMPREHENSIVE SPENDING REVIEW 2010 AND IMPLICATIONS FOR THE NORTH WEST’S GROWTH

An introduction to CSR 2010 • On 20 October 2010, the Coalition Government published the Comprehensive Spending Review 2010 (CSR), which sets out plans for deficit reduction and departmental spending for the four years to 2014-15. In terms of future economic growth, CSR states that ‘over the last decade, the UK’s economy became unbalanced, and relied on unsustainable public spending and rising levels of public debt. For economic growth to be sustainable in the medium-term, it must be based on a broad-based economy supporting private sector jobs, exports, investment and enterprise’. • In order to achieve this, the Spending Review sets out plans to (amongst other things): protect high value transport investment. In the North West, this includes the construction of the Mersey Gateway Bridge, rail capacity improvements in Manchester and the High Speed Rail network from London to Manchester ensure the UK remains a world leader in science and research increase adult apprenticeships and introduce a new Work Programme establish a £1.5bn Business Growth Fund to encourage business start-up and growth invest in the low carbon economy, for example via a UK-wide Green Investment Bank. • However, at the same time, CSR sets out plans to cut public sector spending by £81bn by 2014-15 (which includes £11bn of welfare reform savings, £3.3bn from a two-year freeze in public sector pay from 2011-12, and £6bn in wider ‘efficiency savings’) which, according to the Office for Budget Responsibility (OBR), will result in a reduction in general government employment of 330,000* by 2014-15. • Following CSR, Government set out its ‘new approach to local growth’ in a White Paper entitled ‘Local growth: realising every place’s potential’, published on 28 October 2010. Again, this set out Government’s ambitions for a ‘balanced economy’ - one that is distributed across sectors/industries and the geography of the UK, and driven by the private sector. Success is defined as ‘strong, sustainable and balanced growth of income and employment over the long-term’. More specifically, the White Paper commits the Government to: promote growth that is broad-based industrially and geographically create a business environment that competes with the best internationally ensure that everyone has access, including future generations, to the opportunities that growth brings.

* OBR forecast November 2010

An introduction to CSR 2010 • According to the White Paper, Government’s role will be to create the conditions for private sector growth, promote efficient and dynamic markets, and tackle barriers to growth - for example, by creating macroeconomic stability so businesses can plan ahead and invest, ensuring that people have appropriate skills and incentives to participate in the labour market, and by encouraging and enabling innovation. • The White Paper sets out proposals to ‘shift power to the right levels’ to ensure that public expenditure is more responsive to the needs of local businesses and people, and so that decision-making operates at the most appropriate geographical levels. Government believes that Local Enterprise Partnerships (LEPs) will provide a ‘clear vision and strategic leadership to drive sustainable private sector-led growth and job creation’, particularly in relation to transport, housing and planning. • In addition, a £1.4bn Regional Growth Fund (RGF) has been established to facilitate ‘rebalancing’ over the next three years, which aims to: stimulate enterprise by providing support for programmes/projects with significant potential for economic growth and create additional sustainable private sector employment support areas which are currently dependent on the public sector to make the transition to sustainable private sector-led growth and prosperity. • Private sector and public-private partnerships have recently applied to the RGF Round 1 for funding for projects (of £1m and above) and packages (groups of projects). In Year 2, Government will also invite bids for strategic investment programmes. • This section seeks to reflect on the CSR and White Paper, and the implications for economic growth prospects in the North West, and is split into three parts: Part A: the impact of CSR on employment and GVA through to 2015 – here, we summarise Experian’s analysis on the potential impact of CSR on jobs and GVA in the North West, compared to the UK average, between 2010 and 2015. Part B: potential longer-term implications on prospects for economic growth – this section reflects on some of the key proposals set out in CSR and the White Paper, and the implications for longer-term growth and the drivers of growth (such as enterprise, skills, innovation and investment) for the North West, compared to the UK as a whole. Part C: Panel assessment – this section summarises the Panel’s views on the impact of CSR on the North West’s growth prospects.

Part A: Impact of CSR through to 2015 • In the following paragraphs, we summarise the projected impact of CSR on the North West’s economy through to 2015. The material is based on a research report produced by Experian in late December 2010 for the NWDA, which explored the dependency of the North West on the public sector (in terms of employment and public sector spending), and modelled the potential short/medium-term impacts of CSR on the economy (both in terms of the sectoral and spatial distribution of impacts). This report focused on the ‘direct effects’ of CSR, that is the impact on jobs and output created directly by the public sector and industries that supply the public sector, and ‘feedback effects’ linked to changes elsewhere in the economy as a result of CSR that are beneficial to some businesses (e.g. looser monetary policy or lower bond yields). The aim of the work was to assess the ‘net impact’ of the CSR on the region, taking into account both direct and feedback effects. Key messages from ‘The Public Sector in the North West – Final Report’ by Experian (December 2010) Overall impact • The impact of the CSR depends upon the size of and dependence on the public sector, the mix of public activities located in each region, exposure to cuts in the welfare budget, and public sector supply chains. Taking these factors into account, Experian expects the North West economy to be disproportionately impacted (in direct terms) by spending cuts, relative to other English regions. • The report estimates that the CSR will remove £5bn from the North West economy by 2015, equivalent to 4.6% of regional GVA. To put this into context, £5bn is equal to the total growth in the regional economy between 2006 and 2008. • The North West is expected to fare better than the North East and Yorkshire & Humber (which each have greater public sector dependence) and broadly in line with that of the West Midlands. In contrast, the East Midlands and the Greater South East are expected to be less severely impacted (largely because of their stronger private sectors and reduced dependence on the public sector).

Part A: Impact of CSR through to 2015 Figure 3 CSR impact on GVA (Source: Experian) Eﬀects by 2015 (as % of GVA in 2010) 4.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

-8.0%

Net Eﬀect

ut hE as t

Ea st

Feedback Eﬀect

Figure 4 CSR impact on FTE jobs (Source: Experian) FTE jobs lost by 2015 (as % of jobs in 2010) 2.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

-8.0%

Ea st Lo nd on So ut hE as t

4.0%

UK ut hW W es t M est idl an ds En gla Ea nd st M idl an ds

4.0%

No rth Ea st No rth Yo W rk es s& t Hu m be r

• Experian estimates that the direct impact of the cuts could amount to up to 140,000 FTE job losses in the region (in both the public and private sector), equivalent to 5.0% of the regional workforce. To put this into perspective, 140,000 jobs are equal to the number of jobs added to the regional economy between 2003 and 2007.

UK No rth W W es es t tM idl an ds So ut hW es t En gla nd Lo nd Ea on st M idl an ds

No rth Yo Ea rk st s& Hu m be r

Direct Eﬀect

• Experian’s research suggests that the North West is less well placed to take advantage of ‘feedback effects’ on GVA arising from the changing macroeconomic climate. But if these offsetting effects are taken into account, Experian estimates that the net effects of CSR would be a loss of £1bn from the North West’s economy by 2015 (equivalent to 1% of regional GVA). The overall impact in terms of GVA is shown in Figure 3.

Direct Eﬀect

• Compared to other English regions, the scale of job losses in the North West is second only to London, and relative to the size of the regional labour market, this puts the North West second worst of all the English regions (behind the North East). The disproportionate impact of the cuts on the region’s labour market is explained both by the region’s relative dependence on the public sector and relatively lower productivity (GVA per job) compared to the average across all regions.

Feedback Eﬀect Net Eﬀect

• Feedback eﬀects will mitigate the net impact of job losses. In the North West, feedback eﬀects mean that the net job loss is likely to amount to around 50,000 jobs by 2015, which represents 1.8% of the workforce.

Part A: Impact of CSR through to 2015 Sectoral Impacts Different parts of the economy will be impacted in different ways by CSR and to varying degrees. The key messages from Experian’s analysis of direct impacts on sectors is summarised in the box below. In net terms, taking into account the direct impact and the scope to benefit from feedback effects, Experian expects the sectors most vulnerable to the spending cuts will be Public Administration and Defence, Education, Health, and Construction. In contrast, Transport/Communications and Financial/Business Services are expected to prove more resilient. • The biggest direct impact is expected to be felt in the Public Administration and Defence sector, given many of the cuts to administrative and departmental programmes will fall here (c.35,000 FTE jobs could be lost from the sector by 2015, equivalent to 25% of all job losses and 23% of the sector workforce). • Job losses in the Health sector are also expected (up to 12,000), largely as a result of the £20bn efficiency savings sought within the NHS, and the Education sector (up to 13,600 job losses) due to cuts to non-schools, FE and HE budgets. • The largest impact on the private sector will be felt by the Construction industry (22,400 FTE jobs expected to be lost, equivalent to 10% of the workforce), which will suffer as a consequence of cuts to social housing, regeneration budgets and the Building Schools for the Future programme. • Manufacturing will also be hit, largely as a consequence of the knock-on impact of welfare cuts on consumer spending which will impact lower end manufacturing, and cuts to defence projects announced in the Strategic Defence Review. There were however some positives for high-value manufacturing with funding to help with the commercialisation of new technologies, the UK-wide Green Investment Bank and the protection of the Science budget. • Other parts of the private sector will be less impacted by public sector spending cuts and the Transport and communications sector is expected to be least affected. This is largely because of the positive announcements in the CSR regarding infrastructure development, including the Mersey Gateway Bridge and the rail electrification in the North West, and support for the UK’s broadband network. • Financial and business services will be impacted through supply chain linkages to the public sector but overall the impact on this sector is expected to be minimal, largely due to the Government’s commitment to creating a benign regulatory environment, and potential benefits from changes in the delivery of public services (including outsourcing). • Distribution, hotels and catering will be impacted, particularly as a consequence of reduced consumer spending attached to welfare cuts and job losses elsewhere in the economy, cuts in spending on travel by the public sector, and more limited funding for activities to promote tourism. However, Experian believes there is scope for the sector to benefit from an increase in ‘staycations’ and international tourism form overseas.

Part A: Impact of CSR through to 2015 Spatial Impacts • The extent to which local areas within the North West are vulnerable to spending cuts depends on their dependence on sectors hardest hit by CSR and presence of sectors that are relatively more resilient to cuts (along with other factors that inﬂuence the underlying ‘economic resilience’ of an area). • Experian assessed the vulnerability to CSR of each of the four approved Local Enterprise Partnership (LEP) areas in the North West, along with the Lancashire County area (the LEP area was awaiting approval at the time of writing) to assess the spatial impacts of CSR. This found that the Liverpool LEP area and Lancashire County, followed by Greater Manchester, each contain a number of locales that are very vulnerable to the spending cuts, while Cheshire & Warrington and Cumbria LEP areas could be aﬀected to a much lesser degree.

Figure 5 Hotspots: areas with a high concentration of ‘vulnerable sectors’ Hotspots Areas at risk of job losses

Carlisle

Allerdale Eden

Copeland

South Lakeland

Barrow-in-Furness Lancaster

• At the Local Authority District level, Experian identified a number of spatial hotspots which will be impacted significantly by the spending cuts. These included Sefton, Blackpool, Liverpool, Wyre, Rossendale, and South Ribble (see Figure 5). In contrast there are also other areas that may be less severely impacted – notably Chorley in Lancashire, Halton in Liverpool City Region LEP, Warrington in Cheshire and Warrington LEP and Manchester and Trafford in Greater Manchester LEPs.

Ribble Valley

Wyre

Pendle

Blackpool Fylde

Preston Hyndburn

Burnley

South Ribble Rossendale Chorley West Lancashire Wigan

Sefton

Rochdale Bolton Bury Manchester Oldham Salford

Knowsley St. Helens Liverpool

Warrington

Trafford

Wirral

Tameside Stockport

Halton

Cheshire West and Chester

High concentration of jobs in 1 vulnerable sector High concentration of jobs in at least 2 vulnerable sectors

Cheshire East

Part B: Potential implications of CSR and the White Paper on local growth In addition to the data analysis by Experian above, the Panel also considered the implications of CSR and the White Paper against each of the key factors that inﬂuence long-term economic growth, absolutely and relative to the UK, and over time.

Factors inﬂuencing long-term economic growth

Key messages from CSR and White Paper

Potential implications for the North West Is the impact on economic Is the diﬀerential impact on Over what timescale growth likely North West greater or lower will the impacts play to be positive or negative? than the UK? out?

Population and WAP • Proposals to raise State Pension Age to 66 for men Positive increase on and women by April 2020 productive potential

Broadly same as UK

Long-term (2020 onwards)

Labour market participation

• New Work Programme to support those with greatest barriers to employment, including long-term unemployed and disabled people • Welfare reform - including withdrawal of Child Beneﬁt from families with one higher rate taxpayer, and single tapered payment of unemployment beneﬁts

Positive, although dependent to some extent upon the scale and type of demand for labour largely from private sector

Possible small positive of New Work Programme, given % of unemployed/long-term unemployed is higher in North West

Medium to long-term before participation beneﬁts likely to occur

Job and earnings

• Regional Growth Fund (RGF) to increase private sector jobs • Two year pay freeze for public sector workers earning over £21,000 from 2011-12 • Reduction of public sector employment of 330,000 by 2014-15 • 50p higher rate of income tax

RGF intended to have a positive impact on growth of private sector jobs, but pay freezes may impact negatively on GVA (which is driven by earnings and proﬁts)

Positive (target areas with high public sector jobs) but small scale investment

Largely short to medium-term while readjustment takes place

Negative impact of public sector job losses considered by Experian above.

Worse than UK average (dependency on public sector jobs)

Part B: Potential implications of CSR and the White Paper on local growth Factors inﬂuencing long-term economic growth Sectors

Key messages from CSR and White Paper

• £200m pa by 2014-15 for support to manufacturing and business development, with a focus on supporting potential high growth companies and the commercialisation of technologies • Enabling businesses to thrive in international markets • Establishment of ‘growth hubs’ to provide specialist support to ﬁrms with high growth potential. Investment in low carbon economy, including Green Investment Bank (£1bn) and £200m for the development of low carbon technologies including oﬀshore wind technology and manufacturing at port sites • Capital funding for Nuclear Decommissioning Agency will increase • Strategic Defence Review: commitment to new Chinook helicopters, armoured vehicles, and enhanced communications equipment. However, there will be cuts to Harrier jets, Nimrod maritime aircraft, 25% reduction in civilian and military non-frontline organisations and rationalisation of the defence estate • 33% decrease in Health Administration budget

Potential advantage for the Largely medium to longer-term region in low carbon, Potentially positive impacts nuclear and renewables for manufacturing, low sectors (especially offshore carbon and high growth wind and ports) sectors (although additional benefit, above and beyond Manufacturing likely to what might have happened receive preferential support, anyway, uncertain) but perhaps a question around the presence of high Negative impacts for growth firms (compared to defence supply chains and elsewhere in the UK) Health Administration sector Disadvantage for places/supply chains in the North West dependent upon defence (e.g. closure of Nimrod aircraft factory near Stockport, and Warton Lancashire more generally) and Health Mixed

Part B: Potential implications of CSR and the White Paper on local growth Factors inﬂuencing long-term economic growth Infrastructure

Enterprise

Key messages from CSR and White Paper

Mixed • Transport investment, including construction of the Mersey Gateway Bridge, rail capacity Positive impacts of improvements in Manchester, and the High Speed infrastructure developments Rail network from London via Birmingham to to enable business growth, Manchester but potentially negative • Incentives to roll out superfast broadband in areas impact of cuts to that the private sector would not otherwise reach regeneration budgets includes pilot project in Cumbria • Cut to the capital grant for new affordable Risk that high speed rail is as house-building by 50% effective in getting people • Housing Market Renewal Pathfinders, Working out of the North West as it is Neighbourhood Fund, and Housing Growth Area getting people into the funding have been abolished or not renewed region. Will the South East now become a viable labour market for North West workers? • Business Growth Fund to provide capital to Potentially positive impact established and small businesses of proposed finance • Extension of the Enterprise Finance Guarantee schemes and ‘NICs holiday’ Scheme • New businesses that start up outside the Greater South East will receive substantial reductions in their employer National Insurance Contributions, which aims to increase business formation and reduce the cost of taking on staff

Advantages in transport and broadband projects going ahead, some of which favour the North West. Disadvantages in loss of regeneration funding

Immediate impacts of budget cuts, but the impacts of infrastructure developments likely to take place over medium to long-term (depending on ‘readiness’ of schemes)

Short to mediumAdvantages to the North West in terms of the NICs term holiday targeting places outside of the Greater South East Impact of ﬁnance schemes dependent upon willingness of ﬁrms to take-up and invest

Part B: Potential implications of CSR and the White Paper on local growth Factors inﬂuencing long-term economic growth

Key messages from CSR and White Paper

Skills

• £250m pa to increase adult apprenticeships by 2014-15 • Support to increase participation in 16-19 learning • Additional early years provision for disadvantaged children • Universities will be able to increase graduate contributions to fees • Abolishment of Train to Gain • Removal of entitlement to free training for a ﬁrst full level 2 qualiﬁcation for those over 25

Potential reduction in students will impact upon Potential reduced supply of places in the North West students due to increased with a signiﬁcant HE fees, which could result in presence longer-term reduction in Level 4+ skills, but potential Level 4+ skills impact could increase in on-the-job be same as UK, or will the training (and associated North West be further productivity beneﬁts) disadvantaged?

Short-term impact on HE participation, and longer-term possible impact on skills supply

Innovation

• Funding for an elite network of R&D intensive technology and innovation centres (although the exact inter-relationship with Growth Hubs is not yet clear) • Reform Higher Education Innovation Fund to increase commercial interaction between the research base and business • Maintenance of science budget for higher value scientiﬁc research • Increase spending on health research in real terms

Positive impact if R&D is translated into new/improved products, and particularly if these are exportable

Short to medium impact on R&D investment, with medium to longerterm impacts on products/services and associated value added

Mixed

Potential advantages for research institutions (particularly those specialising in high value science research) in the North West Potential to improve the region’s competitive strengths in science innovation

Part B: Potential implications of CSR and the White Paper on local growth Factors inﬂuencing long-term economic growth Investment

Key messages from CSR and White Paper

• Creating macroeconomic stability, so that interest rates stay low and businesses have the certainty needed to invest • Reforming the planning system to encourage investment • 60% reduction in capital expenditure for schools due to abolition of Building Schools for the Future Programme (BSFP)

Macro stability and planning reform impacts likely to be Potential positive impacts of similar across the UK, but planning reform, but North West potentially negative impact of reduced disadvantaged by CAPEX cancellation of BSFP (especially the construction sector) Mixed

Short to mediumterm impact of BSFP and planning system reform

Part B: Potential implications of CSR and the White Paper on local growth In the process of developing its forecast, the Panel also considered whether there are any lessons for the North West for the period covered by the CSR from previous recessions and recoveries to see what might take place this time, and look at key diﬀerences in 2010 that might alter the trajectory of recovery from recession and the impact of CSR. These lessons are summarised in the table below. Economic Environment

Impact on Private Sector

Inﬂuence on Public sector

Jobs/skills mismatch?

Government crowding out private sector? Strong mismatch No in a weak market.

1980s A recession driven by heavy declines in manufacturing (2nd oil price rise, sharp tightening of monetary policy, a 20% increase in sterling’s value against the DM and little correction during the recovery). Global crisis. → Tough globally and domestically

Heavy losses of manufacturing Job losses, jobs, and further losses during the consistent with recovery. Private services lost jobs population in the recession, but led the decline. recovery.

1990s A recession driven by the collapse of an unsustainable domestic boom driven by low interest rates and tax cuts. Monetary policy was initially tightened sharply but, following the failure of the attempt to maintain membership of the ERM in 1992, interest rates were cut sharply and sterling depreciated by 15%. Brief global growth dip → Tough domestically, good globally

Job losses in manufacturing smaller than in the 1980s, and halted during recovery. Private services lost jobs in the recession, and only saw modest growth in the recovery.

Job increases, Mismatch in an Possibly (more both in the improving market. plausible in recession and the post-2000 period). recovery.

2010s A recession driven by the global ﬁnancial crisis and the end of a sustained period of excessive domestic spending growth. Monetary policy was loosened sharply and sterling depreciated by 20%. Fiscal policy not tightened during the recession, but tightened very sharply afterwards. → Tough domestically, improving globally?

Smaller job losses in manufacturing than in the 1990s. Private services shed more jobs (in absolute terms) than manufacturing.

Job increases in the recession. Job losses in the recovery.

Skills of those losing public sector jobs may better match private service demand.

Reversed during the recovery.

Part C: Panel Assessment Taking the evidence of CSR impacts, past recession experience, and recent data together, the Panel’s overall views are as follows: • The Panel agrees that the impact in terms of public sector job losses will be particularly severe in the North West compared to the UK average. Not only is the region more dependent upon the sector for employment (compared to the UK average), but the productivity of jobs is lower in the North West, so the region is likely to lose more jobs proportionally (net loss of 50k jobs by 2015) compared to the loss in GVA. Furthermore, the Panel agrees that the North West is likely to be less well equipped to capitalise on the indirect effects of CSR (for example, through exports). • In terms of the sectoral impact of CSR across the North West, the Panel agrees that the construction sector will be worse hit than others, and more severely hit than the sector elsewhere in the UK. This is primarily due to Private Finance Initiatives (PFI) delays and Building Schools for the Future cuts, which construction firms in the North West have been particularly dependent upon. Tradeable sectors, such as manufacturing, appear to have done better during the recession because of competitive exchange rates. However, the Panel noted that Experian’s analysis of the impact of CSR on manufacturing is based on past trends (where productivity has traditionally been high). In future, as productivity in the North West’s manufacturing sector falls, the economic impact of cuts on the manufacturing sector could be under-estimated, so that job losses could be more severe than expected in the analysis above. Furthermore, the risk of the Euro collapsing would have serious implications for the region, given the substantial trade flows from the North West to the EU. The Panel also comments that, whilst the North West faired relatively well from the Defence Review, the region remains exposed strategically in terms of its dependence on chemicals and automotives in future. • The absorptive capacity of the private sector to take on those public sector workers who are made redundant is a major concern for the Panel, particularly in terms of the alignment between supply and demand of occupation/skills. The Panel does not believe that the private sector will be able to ‘step up’ and create sufficient jobs in order to absorb the jobs lost in the public sector (or in the private sector that are lost due to dependency on the public sector). For example, Panel members have experience of professional service firms that are still looking to ‘sweat assets’, rather than take on new staff, and do not anticipate the creation of significant numbers of new jobs in the near future. Again, in the manufacturing sector, if orders increase manufacturing firms are more likely to increase the productivity of existing assets as far as possible. If expansion does occur, the Panel believes that firms in the manufacturing sector are more likely to invest in equipment and technology than greater numbers of staff. • The Panel has observed a rise in the number of outsourcing contracts as public sector organisations try to de-layer management, reduce jobs and transfer activities, and questioned whether this might provide some uplift in private sector job creation. However, on the whole, outsourcing is taking place in order for organisations to achieve a 15-25% reduction in their costs, so rather than outsourcing merely resulting in a transfer of jobs from the public to the private sector, they are being cut.

Part C: Panel Assessment • In addition, the Panel feels that the transition of skills and occupations from the public to the private sector is unlikely to be a smooth one in the North West (compared to elsewhere in the UK, such as the Wider South East). Even if the occupational levels and skills of those losing jobs in the public sector are perceived to be similar to those demanded by the private sector in theory, the Panel argue that there will be a lag time before recruited staff are effective fully. • In terms of the spatial distribution of impacts, the Panel’s view is that the fortunes of different parts of the North West will be very different. Areas identified by Experian as most likely to suffer the negative impacts of CSR have also been flagged as ‘most vulnerable’ and ‘least resilient’ in work elsewhere (both by the Panel itself and others, such as the NWDA and Centre for Cities). The Panel argues that the balance between the likely impact of CSR and the scope for private sector growth (based on past performance) is critical. Places which are likely to experience more severe impacts of CSR and have low scope for private sector growth present a serious challenge for policy. Even if the private sector does create additional jobs, this may not be in the places where they are most needed, and could compound pre-existing weaknesses and polarities in some places. The Panel believes there is a real risk that spatial unbalance in terms of economic performance could increase as a result. • The Panel also notes that the outlook for the North West is dependent upon what London and the Wider South East (WSE) do to a large degree, and if places in the WSE take opportunities to grow (which they have tended to discourage in the past) this could have serious negative implications for the North West. High Speed Rail 2 (HS2), for example, could result in workers moving/travelling from the North to the South, rather than in the regeneration of the North. • On the upside, the Panel believes that agglomeration will become an increasingly important driver of economic growth, and given the North West’s urban economies (as, for example, in Manchester and Liverpool) it might prove to be an advantage for the region. However, there will need to be greater labour market mobility going forwards, and flexible co-operation between places. For the North West this means co-operation between Manchester and Liverpool in particular, but also greater economic co-operation with outside the region such as Birmingham, Leeds and London. The Panel questions whether the North is fully prepared to work together on issues which operate at bigger footprints than single local authorities, LEPs or city regions (for example, strategic transport and low carbon/renewables to promote economic growth) and make the difficult decisions going forward. The new funding environment (and associated funding constraints) might force Local Authorities to collaborate, and the Panel is encouraged by early signs that the core cities in the North may continue to collaborate. • University strengths will also be central to competitiveness, and the Panel argues that institutions with strong research bases and abilities to sell themselves overseas (in terms of attracting students or setting up campuses abroad) are likely to fair better. As a result, the Panel believes that better HEIs are likely to get stronger, and weaker HEIs will fall further behind. The Panel also noted that, as HEIs are increasingly driven by student demand, inclusion imperatives might be relinquished, and the type of courses demanded by prospective students will not necessarily align with the skills needed by the private sector in order to grow and create jobs.

SECTION 3:THE PANEL’S LONG-TERM FORECAST 2010-2030

Summary of the Panel’s Long-Term Forecast (Jan 2010) • The table below summarises the latest estimates for past growth in the region relative to the UK over almost two decades (1990-2009) and more recent period (2000-2009), and compares this against the Panel’s last Long-Term Forecast set in January 2010. In all three periods, GVA growth in the North West has been slower than the UK, but since 2000 the GVA growth gap with the UK has reduced. At the same time, the region and UK saw strong employment growth which resulted in a sharp fall in the rate of productivity growth. • In January 2010, the Panel revised down its forecast for the gap in GVA growth rates between 2009-15 from -0.3pp (set in January 2009) to -0.2pp (and therefore the scale of underperformance was thought likely to be less marked than in the past), but maintained its view that GVA growth in the North West would continue to lag behind the UK through to 2030 by 0.3pp (the view held by the Panel since 2008). The Panel also expected the North West to see a relatively modest growth in population, the result being a smaller growth gap in GVA per capita over the long-term (of 0.1pp slower than the UK). Table 1 Average per annum growth and Future Economic Growth - the position in January 2010 North West (%) UK (%) Population growth pa 1990-2009 2000-2009 January 2010 Long-Term Forecast

NW diﬀerential (pp)

0.0 0.2 0.2 (2009-15) and 0.3 (2015-30)

0.4 0.5 0.5 (2009-15) and 0.6 (2015-30)

-0.4 -0.3 -0.3 (2009-15) and -0.3 (2015-30)

0.2 0.5 0.1 (2009-15) and 0.4 (2015-30)

0.3 0.5 0.2 (2009-15) and 0.5 (2015-30)

-0.1 0.0 -0.1 (2009-15) and -0.2 (2015-30)

1.3 0.6 1.6 (2009-15) and 1.8 (2015-30)

1.8 1.1 1.8 (2009-15) and 2.0 (2015-30)

-0.4 -0.5 -0.1 (2009-15) and -0.2 (2015-30)

1.5 1.1 1.7 (2009-15) and 2.2 (2015-30)

2.1 1.7 2.0 (2009-15) and 2.5 (2015-30)

-0.6 -0.5 -0.2 (2009-15) and -0.3 (2015-30)

Employment growth pa 1990-2009 2000-2009 January 2010 Long-Term Forecast

Productivity growth (GVA per job) pa 1990-2009 2000-2009 January 2010 Long-Term Forecast

GVA growth pa 1990-2009 2000-2009 January 2010 Long-Term Forecast

Summary of the Panel’s Long-Term Forecast (Jan 2010) • At its meeting on 26 November 2010, the Panel expressed considerable concern over the impact that the planned cuts in public expenditure and associated tax increases would have on the UK and North West economies. In developing its revised view, the Panel has taken into account the updated analysis of historic trends in population, employment and productivity drivers, Experian’s analysis on the impact of CSR between 2010 and 2015 and the views of other forecasters, including the assessment of prospects for the UK under the government’s spending plans published by the Office of Budget Responsibility (OBR) at the end of November 2010. The Panel has also used its own ‘bottom-up’ assessment of prospects for different sectors, an approach which contrasts with that used by the OBR in particular. • The Panel takes a more pessimistic view about the prospects for UK growth to 2015 than the consensus and that of the OBR. A particular difference of opinion is in the prospects for the private sector to create sufficient new jobs to compensate for the loss of jobs in the public sector. OBR’s November 2010 forecast for the UK economy (published at the end of the month) predicted growth of 2½% pa for 2009-15 and employment growth of 0.6% pa, In contrast, the Panel’s view is that UK GVA growth will only average 2¼% pa (a rate that is in line with the National Institute’s October forecast) and employment growth 0.3%. • Given the outlook for the UK, the Panel’s overall position is that the North West economy will see a GVA growth gap with the UK of 0.22pp pa in the medium-term (over 2009-15), with this widening in the longer-term to close to 0.5pp pa. Growth in GVA per capita will also be weaker than in the UK as a whole, although the scale of this growth gap will be smaller than that for the overall gap due to the expected weak growth in population in the region. • Reflecting this, the Panel’s forecast is presented below, together with a set of potential risks. The balance of risk, particularly for employment in the medium-term is on the down-side, which is supported by Experian’s analysis above. Following the approach adopted over the last two years, the forecasts presented in this Section have been split into two time periods, to reflect recovery from the recession (2009-2015) and a return to longer-term growth trends (2015-2030).

Panel Forecast - Jobs & Productivity

• The Panel remains cautious about the prospect of the private sector creating sufficient jobs over 2009-15 to compensate for the expected loss in public sector employment. Even if private sector demand is there, the difference between the skills required in the new jobs compared with the old means that the ‘rebalancing’ adjustment will be far from smooth. The Panel notes the analysis undertaken for the NWDA shows that the direct impact of the spending cuts will be relatively hard in the North West. The construction sector in the region is expected to be particularly badly affected. The Panel thinks it likely that the number of jobs in the UK as a whole in 2015 will have recovered beyond its 2009 level, though will still be below its 2008 pre-recession peak. The Panel expects employment in the North West at this point still to be below its 2009 level. The strength of long-term employment growth will depend on population growth and the extent to which those of working age will be available for work and have suitable skills. The Panel’s forecast assumes that, by 2030,

employment rates of the working-age population will return to pre-recession levels, both nationally and in the North West. This would lead to employment growth in the North West of ½% pa, a rate that is some 0.2 pp lower than for the UK as a whole (where population growth is expected to be stronger). • The Panel bases its forecast for population growth on the projections of ONS. The North West population is forecast to rise by around 0.3% pa to 2015 and that of working age by slightly less. Over 2015-30, the rate of growth in the population as a whole is likely to be similar to that projected to 2015, but the growth in the working-age population is set to be slower, as the population ages (both in the North West and the UK). Figure 6 Jobs growth in the North West and UK (Source: Panel Forecast, December 2010) 125 120 Index, 1990=100

• There continues to be little evidence that the gap between productivity in the North West relative to the UK average is closing significantly. Indeed, the impact of the reductions in public spending over 2010-15 may further hinder the region’s ability to close the gap in the long-term. Nevertheless, over 2009-15 the Panel do expect productivity growth in the North West to exceed the rate recorded in the period from 2000 to date. Sectoral effects such as the drive for efficiency gains in public services and the stronger prospects for manufacturing will, because of the industry mix in the region, favour the North West, even if the productivity gains are achieved more through job losses than through output growth. It is the Panel’s view that there is little basis on which to think that the long-standing long-term differential in annual productivity growth compared with the UK of 0.2 pp will close, and there is a risk that it will widen.

115 North West

110 105

100 95 90 85 80 1990

1995

2000

2005

2010

2015

2020

2025

2030

Panel Forecast - GVA per head Figure 7 GVA per head in the North West and UK (Source: Panel Forecast, December 2010)

The diﬀerence between the rates of growth in working-age population and total population due to the eﬀects of ageing and migration is greater in the North West than in the UK. This, coupled with the gap in productivity growth between the North West and the UK, results in growth in GVA per head in the North West some 0.1pp pa below that for the UK.

(£000s, 2005 prices)

30 25 20

North West

10 5 0 1990

1995

2000

2005

2010

2015

2020

2025

2030

• Figure 7 shows past and projected changes in real (inflation-adjusted) GVA per head. On this measure the current ‘prosperity gap’ with the UK is around 14% of the UK average. • Over 2009-15, the size of the gap is expected to close slightly: both GVA growth and population growth in the North West are expected to be slower than the UK average, with the gap slightly greater for population. • In the longer-term, when the direct effects of the reductions in public spending have worked through, and sustained economic growth returns, the differing demographic trends in the North West and UK will have an important impact on the underlying trends in GVA per head.

• Thus, the gap in GVA per capita is expected to narrow marginally to just under 13% of UK levels in 2015, but then to widen again to around 14-15% of UK levels by 2030.

Panel Forecast • Taking the above arguments and evidence in the round, Table 2 summarises the Panel’s Long-Term Forecast for the period 2010-2030. • The underlying context remains that of our January 2010 Long-Term Forecast, with the period to 2015 characterised by a sustained period of weak growth. The UK economy will be directly affected by the cuts in UK public spending and it will be directly and indirectly affected by weak global demand in countries with large budget deficits and/or debt as a result of similar policies being followed there. Over 2009-15, the UK economy is expected to grow by 2¼% pa. In the longer-term, on the assumption that employment rates recover to pre-recession levels, we expect UK growth to average 2.8% pa, with growth being stronger in the first part of the period. • Over the same periods, the Panel expects the North West economy to grow by 2% and 2.4% pa and so the long-term historical underlying underperformance of the North West economy relative to the UK is expected to persist. Table 2: Summary of Panel Long-Term Forecast (Source: Cambridge Econometrics) 2010-15

2015-30

North West (% pa)

UK (% pa)

NW diﬀerential with UK (pp pa)

North West (% pa)

UK (% pa)

NW diﬀerential with UK (pp pa)

Population

0.3

0.7

-0.4

0.3

0.6

-0.3

Working age population

0.2

0.6

-0.4

0.1

0.4

-0.3

Employment

-0.1

0.3

-0.3

0.5

0.7

-0.2

Productivity (GVA per worker)

2.1

2.0

0.1

1.9

2.1

-0.2

GVA

2.0

2.3

-0.2

2.4

2.8

-0.5

GVA per capita

1.7

1.6

0.2

2.1

2.2

-0.1

Risks to the Long-Term Forecast Many of the key risks that the Panel drew attention to in their January 2010 Long-Term Forecast remain, and the CSR has brought some additional risks. • The North West has a number of high-profile companies within global production networks. The Panel remains concerned that such networks have not yet restructured themselves fully following the global recession and subsequent policy announcements. Were a major manufacturer in the region to close, then the risk is that the impact on regional ‘critical mass’ in that sector could not be recovered. • It remains the Panel’s view that there is notable uncertainty regarding the prospects for two key sectors, retailing and energy. There is a large retail sector in the region, and there is a downside risk to its growth over the medium-term if interest rates increase and consumer confidence is more adversely affected by the anticipated job losses in the economy. The increase in VAT will, for the short-term, have a dampening down effect. In the longer-term the region and its geography are well-placed to take advantage of the opportunities in energy and green power that are anticipated. • The broad details of how the Government plans to rein in public spending to close the public sector deficit were announced in the Comprehensive Spending Review in October 2010. More details as to what these changes mean in practice continue to be made known, but it is clear that significant savings are to be made in areas including infrastructure spending, welfare spending and supporting people back into work. There is a risk that cuts in these areas could be detrimental to the long-term competitive position of the UK economy, and that these impacts may be somewhat greater on the North West. The Panel is also concerned that the choices that will need to be made, for example which infrastructure projects will be funded, could be less favourable to the North West than for other parts of the country, thereby weakening further the region’s underlying prospects for productivity growth. Some infrastructure projects have already been axed through CSR, such as the PFI waste projects in Cheshire East and Cheshire West, Building Schools for the Future activity, and Housing Market Renewal Pathfinder programmes. • The sharp cuts in public spending announced in the CSR 2010 may not be implemented in full, either because the plans are harder to achieve than anticipated or because general economic conditions prove more favourable than currently anticipated and so giving a little more room for fiscal manoeuvre. In either case the North West would probably benefit by more than the UK as a whole for the same reasons that it currently appears more exposed to the cuts. • Jobs-free growth as a possible model for future economic development is a growing worry, as the relentless push by business to reduce its people costs, not least through technological alternatives, precede.

ANNEX A: SETTING THE SCENE - DETAILED ANALYSIS

Population trends 38,500 38,000 37,500 37,000 36,500

• The UK’s working age population (WAP) increased from 1990 to 2009, by 8.6%, equivalent to an annual growth rate of 0.4%. For the North West WAP growth was far more sluggish, at 2.1% (or 0.1% pa).

36,000 35,500 35,000 34,500 34,000 33,500

Figure 9 Working age population in the North West 1990-2009 (Source: Cambridge Econometrics based on ONS) 4,300 4,250 4,200

• Latest evidence shows that, since 2007, the North West’s WAP fell back (rather than plateaued, as previous data suggested). There were 4,600 fewer people of working age in 2009, compared to 2007. This fall of -0.1% is set against a national increase of 0.7% over the same period. • From 1992 to 2005, ONS data suggests that the number of young adults (aged 20 to 34) resident in the North West declined by 15.9%, a larger drop than experienced nationally (11.2%). Since 2007, the North West has seen a widening gap in the rate of outflows of the following groups compared to the UK: Younger people (aged 15 to 19) - outflow of 2.8% from the North West and 1.3% nationally.

4,150 4,100

Older adults (aged 35 to 49) - outflow of 1.4% in the North West and 0.2% across the UK.

4,050 4,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Working age population (000s)

• In 2009, the North West had a total population of 6.9m, 4.2m of whom were of working age. • Since 1990, growth in the North West’s population has remained relatively constant, on average at 0.0% pa. In contrast, growth in the total population across the UK has been 0.4% pa over the same time period, resulting in a gap of 0.4pp pa.

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Working age population (000s)

Figure 8 Working age population in the UK 1990-2009 (Source: Cambridge Econometrics based on ONS)

The role of migration and immigration Figure 10 Internal and international net migration into the North West (Source: ONS) 1990 1992 1994 Internal Migration

1996 1998 2000

International Migration

2002 2004 2006 2008 -15.0

-10.0

-5.0

5.0 0.0 People (000s)

10.0

15.0

20.0

• Total net immigration (internal and international) into the North West between 2000 and 2008 was 52,500 people. Data for 2009 is not yet available for international movements. As reported in the Panel’s Long-term Forecast Report produced in January 2010, despite a net inﬂow of immigrants into the region between 2001 and 2006, over the past two years this trend has reversed. In 2008, for example, the net outflow was 2,900 people. • In 2009, it is estimated that there was a total net outflow of some 7,000 internal migrants from the North West. This net outflow continues a trend which resumed in 2005 following a short period of net inﬂow of internal migrants to the North West (2002-2005). In 2009, as more generally, both the South East and West of England were popular destinations for the North West’s internal migrants.

• 2008 figures for international migration report a net inflow into the region of 4,000 international migrants. This was a lower volume of migrants than that seen over the preceding years, and significantly lower than peak inflows experienced between 2000 and 2004. • Population projections provided by ONS (2008-based) estimate that there will be a net in-movement of 3,600 people to the North West in 2016. ONS has revised down its population projections for the period 2010-16 since the Panel’s last Long-Term Forecast (which used 2006-based estimates), and the estimates for 2016 are now 4% lower than previously expected. Looking forward from 2016, ONS expect that net in-migration will rise by 5.7% pa, to 8,300 by 2031. This growth is considerably stronger than that anticipated on ONS’ 2006-based projections (1.6% pa). • The flow of foreign national workers into the North West has continued to decline since the highpoint reached in 2007/08, when the number of National Insurance Numbers (NiNos) allocated in the region topped 51,100. This compares to 34,100 allocations in 2009/10. • The share of UK NiNos allocations made in the North West has also fallen over time. In 2005/06, 7.4% of UK allocations were made in the region, falling to 6.0% in 2009/10. Further, the proportion of NiNo applicants arriving to the North West from the EU accession states has gradually declined (from 51% in 2007/08 to 34% in 2009/10) and shifted towards those originating from Asia and the Middle East (24% of NiNos in 2009/10).

Jobs Figure 11 Number of jobs3 in the North West and the UK (Source: Cambridge Econometrics)

From 2004 to 2007, the regional growth rate slowed to 0.4% pa, lagging behind the national rate by 0.6pp pa.

Number of jobs, 1990=100

110.0

105.0 UK North West

100.0

• The most up-to-date data available shows that the unemployment rate reached 8.9% in the North West between April 2009 and March 2010. Although this was 0.9pp above the national average, rates were higher in the West Midlands (9.5%) and Yorkshire and Humber (9.1%).

95.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

90.0

• Between 1994 and 2009 the number of jobs in the North West increased by 0.7% pa, compared to 0.8% pa for the UK. That said, growth in job creation in the region outpaced that in both the West Midlands (0.4% pa) and Yorkshire and Humber (0.6% pa). • Job growth in the 2000-2010 period can be split into three phases: From 2000 to 2004, creation was more rapid in the North West (1.4% pa) than across the UK (0.8% pa).

From 2007 to 2009, the number of jobs in the North West fell by -0.9% pa, a slightly larger decline than experienced across the UK (-0.8% pa). The loss of 59,600 jobs in the region over these two years meant that, in 2009, there were 3.35m jobs in the North West. This compares to a peak of 3.41m jobs in 2007. Losses from 2007 to 2009 across comparator regions were more pronounced at -1.2% pa and -2.0% pa in the West Midlands and Yorkshire and Humber, respectively.

Count of the total number of jobs (full time and part time jobs)

• The unemployment growth gap between the region and nation has widened over time - from 2004 to 2009, the unemployment rate grew by 4.0pp in the North West compared to 3.2pp nationally. Nevertheless, the North West faired better than the West Midlands (where the unemployment rate grew by 4.3pp) and Yorkshire and Humber (where there was an increase of 4.7pp).

Projections for population and jobs Figure 12 Working age population in the North West and UK (Source: Cambridge Econometrics based on ONS projections) 125.0 120.0

• Similarly, over the coming 20 years, ONS anticipates that the North West’s population of working age is expected to expand by 0.1% pa, 0.3pp pa slower than for the UK as a whole. In comparator regions, WAP growth is also expected to outpace the North West (0.2% pa for the West Midlands and 0.7% pa in Yorkshire and Humber).

1990=100

115.0 110.0 105.0 100.0

2030

2025

2020

2015

2010

2005

2000

1990

90.0

1995

95.0

Figure 13 Working age population in the North West and UK (Source: Cambridge Econometrics based on ONS projections) 140.0 120.0 1990=100

• Over the next two decades, ONS expects that the North West’s population will expand by 0.2% pa. Growth will be higher in the UK (0.6% pa), the West Midlands (0.3% pa) and in Yorkshire and Humber (0.7% pa).

100.0 80.0 60.0 40.0 20.0 1990 1995 2000 2005 2010 2015 2020 2025 2030

Manufacturing - UK Manufacturing - North West Dist. Hotel & catering - UK Dist. Hotel & catering - North West Other services - UK Other services - North West

• Forecasts for employment growth, provided by Cambridge Econometrics, expect an expansion of 0.4% pa in the North West from 2010 to 2030. This will be 0.2pp slower than the national rate of 0.6% pa. Regional growth will lag behind that of both the West Midlands and Yorkshire and Humber (both at 0.5% pa). • Future job growth in the North West will be strongest in the ‘air transport’ (3.1% pa) and ‘computing services’ (2.2% pa) sectors, followed by ‘hotels and catering’ and ‘manufacturing not elsewhere speciﬁed’ (1.9% pa each). This picture contrasts to the Panel’s January 2010 Long-term Forecast Report where the key growth sectors were expected to comprise business services, other services and banking and ﬁnance. Cambridge Econometrics expects a similar pattern of employment growth to the North West across sectors in the West Midlands and Yorkshire and Humber.

Labour Market Developments Figure 14 Employment rates - the proportion of those of working age in employment* (Source: Annual Population Survey) Employment rate of WAP (%)

75.0 74.0 73.0 Great Britain

72.0 71.0

North West

70.0 69.0 68.0 2009-10

2008-09

2007-08

2006-07

2005-06

2004-05

67.0

• The employment rate* in the North West stood at 67.8% in 2009/10, 2.5pp below the equivalent rate across Great Britain (70.3%). This gap has grown since 2004/05, when the diﬀerential stood at 2.1pp. • In employment terms, the North West has suﬀered comparatively more from the recession than Great Britain on average. Indeed, the employment rate across the region fell by 2.5pp between 2007 and 2009, compared to a drop of 2.3pp for Great Britain. However, although the North West faired well when compared to Yorkshire and Humber (which experienced a fall of 3.1pp), the West Midlands experienced a less pronounced decline (2.1pp). *

Working age population is now deﬁned as males and females aged 16 to 64 in published datasets, rather than males aged 16 to 64 and females aged 16 to 59 (which has been used in previous Long-Term Forecast Reports).

• Almost one third (30.9%) of jobs in the North West were part-time in 2008, matching national levels. The share of part-time jobs has remained fairly constant over time - for example 30.1% of the North West’s jobs were part-time in 1998. • Latest data for 2009 puts the North West’s male employment rate at 72.4%, 2.8pp lower than the average for Great Britain. Although this gap is still significant, it has narrowed since a year earlier when it stood at 4.0pp. The female employment rate has followed a slightly different trend - in 2009, 63.2% of female WAP were in employment, which is 2.3pp below the national average, and the gap between the North West and Great Britain has expanded since 2008 (when it was 1.8pp). • In 2009/10, 25.6% of the North West’s WAP were economically inactive*, 2.1pp higher than the national average. Since 2004/05, the reduction in economic inactivity in the North West (of 0.2pp) exceeded that seen across Great Britain (at 0.1pp), indicating that the gap may be gradually closing. • In 2010, the number of benefit claimants* in the North West was 17.9% of the Working Age Population. Although this was higher than the national rate (14.7%), the proportion of claimants fell by 0.7pp from 2000, compared to a rise of 0.1pp nationally. However, due to the recession, there has been a substantial increase in benefit claimants since 2007 - the rise has been 1.3pp in both the North West and Great Britain.

Public and private sector jobs (1) Figure 15 Number of jobs in the North West in the private and public sectors (Source: Cambridge Econometrics) 4,000

Number of jobs

3,500 Total

3,000

• Since 2000, there has been a continual expansion in public sector jobs in the region. On average, between 2000 and 2009, an additional 15,200 jobs were created each year (a growth rate of 1.8% pa). In contrast, the scale of private sector job creation in the North West was considerably more muted, with an annual increase of only 1,300 positions (a growth rate of 0.1% pa). The impact of the recession in the North West over the last couple of years has had a signiﬁcant impact on the region’s overall performance in terms of private sector jobs growth.

2,500 2,000

Private

1,500 1,000

2009

2003

2000

1997

1994

1991

1988

1985

1982

1979

2006

Public

500 0

• The recession of the early 1990s led to very few public sector jobs losses in the North West. Indeed, just 0.4% of jobs were lost between 1991 and 1992. In contrast, the private sector experienced year-on-year job losses from 1990 through to 1994 of 2.8% pa. Even by 2007, pre 1990 recession private sector job levels had not been restored - there were 2.9% fewer jobs in the private sector in 2007 compared to 1990, whereas jobs in the public sector expanded by 29.7% over this same period.

• Looking back, following the recession of the 1980s public sector jobs in the North West fell year-on-year from 1980 to 1984 resulting in an overall decline in jobs of 1.2% pa. However, by 1987 pre-recession job levels had been re-established. In the private sector, year-on-year job losses spanned a slightly shorter period of time (1980 to 1983), but losses that occurred were more severe (a decline of 4.6% pa). Further, pre-recession levels of employment were not regained before the recession of the early 1990s.

• Also since 2000, growth in public sector jobs across the UK on average occurred at a faster rate than in the region (1.9% pa from 2000 to 2009). However, private sector job growth across the UK was negligible (after a peak in 2006, it dropped back down) and therefore lower than that experienced in the North West (0.0% pa from 2000 to 2009). • Looking at the change in jobs in the latest year of data (2008-2009), it is evident that the number of jobs in the North West’s private sector shrunk by -3.2% (c.f.-4.0% for the UK) whereas the number of jobs in the public sector increased by 2.3% (c.f. 2.4% for the UK).

Public and private sector jobs (2)

% change in jobs in the North West

Figure 16 Change in public and private sector jobs between 2000 and 2009 in the North West and UK (Source: Cambridge Econometrics) 40% Financial & business services Transport & 20% comms Public admin & defence -40%

• Overleaf, the scale of change in public and private sector jobs at Local Authority District (LAD) level between 2003 and 2008 is presented. These depictions use slightly diﬀerent data to that used here (ABI is the only source of data at LAD level), and refers to the number of employee jobs rather than workforce jobs, but the trends are broadly comparable with the regional data used here.

Construction Health Education

-20%

20%

40%

Retailing, dist, hotels & catering -20% Manufacturing -40% % change in jobs in the UK

• Figure 16 sets out the percentage change in jobs by sector between 2000 and 2009 for both the North West and UK. Sectors located above the diagonal line experienced a greater increase in jobs over this period in the region compared to the UK. By contrast, sectors below the line saw the number of jobs in the North West expand more slowly than the UK. As is evident, the expansion in jobs was most signiﬁcant in both the UK and North West in two sub-sectors of the public sector, namely health and education, as well as in the private ﬁnancial and business services and construction sectors.

• As illustrated in the following analysis, some parts of the North West such as Bolton, Knowsley, Pendle, Ribble Valley and Oldham have seen a fall in private sector jobs (of up to -6.5%) since 2003, which has been oﬀset by an increase in public sector jobs of up to 14%. Other parts of the region have seen much stronger private sector growth - for example, Halton, Stockport and Cheshire East have all seen an increase in private sector jobs (of up to 11%), despite static or decreasing public sector job levels.

Public and private sector jobs (3) Figure 17 Percentage change in private sector jobs growth (2003-08) (Source: ONS analysis of ABI data)

Figure 18 Percentage change in public sector jobs (2003-08) (Source: ONS analysis of ABI data)

% change in number of jobs (2003-2008)

Below -5% -4.9% - 0% 0.1% - 5%

5.1% - 10% Over 10%

2 18

24 39

23 14

16 30 3

11 36

37 27

28 17 38

20 34

33 32

35 15

Data source: OBS/ABI. Map produced by SQW, November 2010. Contains Ordnance Survey data ÂŠ Crown copyright and database right 2010

Source: ONS analysis of ABI data

Code 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39

Local Authority District Allerdale Barrow-in-Furness Blackburn with Darwen Blackpool Bolton Burnley Bury Carlisle Cheshire East Cheshire West Chorley Copeland Eden Fylde Halton Hyndburn Knowsley Lancaster Liverpool Manchester Oldham Pendle Preston Ribble Valley Rochdale Rossendale Salford Sefton South Lakeland South Ribble St Helens Stockport Tameside Trafford Warrington West Lancashire Wigan Wirral Wyre

2 18

24 39

23 14

16 30 3

11 36

37 27

28 17 38

20 34

35 15

Data source: OBS/ABI. Map produced by SQW, November 2010. Contains Ordnance Survey data ÂŠ Crown copyright and database right 2010

Public and private sector jobs (4) The NWDA has assessed the ‘resilience’ of Local Authority Districts (LADs) across England, and the North West, to recession and their ability to recover more rapidly. This analysis is based on a composite score across the following indicators: Private sector jobs growth (1998-2008) Job Density Claimant Count Population growth 1999-2009 Gross Weekly Pay - 2009 Average House Prices - 2009 Active Enterprises - 2008 ‘Resilient’ LADs represent those with scores in the upper quartile, whereas ‘vulnerable’ LADs represent those in the lower quartile of the distribution. As illustrated in the maps below, the North West contains none of the Local Authority Districts considered to be ‘most resilient’ - most of these can be found in the Greater South East where private sector jobs growth, population growth, house prices and pay levels have been highest over the last decade. Economic, and therefore job, density is also generally higher in the Greater South East. By comparison 22 out of the 39 LADs in the North West are deemed to be most ‘vulnerable’, including North Manchester, Merseyside, Pennine Lancashire and the northern districts of Cumbria. These areas are characterised by low levels of private sector job growth, population growth, and earnings levels, relative to the UK average. For some of these locales, peripherality and therefore job density will be an issue.

Public and private sector jobs (5) Figure 19 Resilience Index across English Districts, 2010 (Source: NWDA)

Analysis of Resilience Across English Districts 2010

Resilience Index Resilient Districts Stable Districts Vulnerable Districts

Data Source: Annual Business Inquiry Map Produced by the NWDA Research Team

0 = Copeland District 1 = Carlisle District 2 = South Lakeland District 3 = Allerdale District 4 = Eden District 5 = Barrow-in-Furness District 6 = West Lancashire District 7 = Lancaster District 8 = Chorley District 9 = South Ribble District 10 = Rossendale District 11 = Fylde District 12 = Preston District 13 = Wyre District 14 = Pendle District 15 = Ribble Valley District 16 = Hyndburn District 17 = Burnley District 18 = Bolton District 19 = Bury District 20 = Knowsley District 21 = Liverpool District 22 = Manchester District 23 = Oldham District 24 = Rochdale District 25 = Salford District 26 = Sefton District 27 = Stockport District 28 = St. Helens District 29 = Tameside District 30 = Trafford District 31 = Wigan District 32 = Wirral District 33 = Blackburn with Darwen 34 = Blackpool 35 = Cheshire East 36 = Cheshire West and Chester 37 = Halton 38 = Warrington

3 4

0 2

5 7

13 34

14 12 16 9

8 6

20 28 21

33 18

10 24

19 25

23 22

29 27

Crown Copyright and Database Right 2010 Ordnance Survey Licence OS Number GD 021102

Productivity & trends by broad sector Figure 20 GVA per job in the North West and UK (Source: Cambridge Econometrics, 2005 prices)

• Productivity - measured by GVA per job - stood at £31,800 in the North West in 2009, 11.5% lower than the UK average of £35,900.

39.0

£000s (2005 prices)

37.0 35.0 33.0

31.0

North West

29.0 27.0 25.0 21.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

23.0

35%

Manufacturing - UK

30%

Manufacturing - NW

25%

Dist. hotel & catering - UK Dist. hotel & catering - NW Public services - UK Public services - NW Other services - UK Other services - NW

20% 15% 10% 5% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Employment as a % of total

Figure 21 Employment as a % of total by main industry grouping for the North West & UK, 1990-2009 (Source: Cambridge Econometrics)

• Between 1998 and 2007, the productivity gap between the North West and UK steadily grew - whilst regional productivity grew by 1.2% pa, the equivalent rate across the UK was 1.9% pa. However, over the past two years this gap has narrowed slightly as productivity in the region fell by 1.1% pa from 2007 to 2009, compared to a fall of 1.3% across the UK. • Over the past two decades there has been a clear shift away from employment in manufacturing towards the public and other service sectors, as shown in Figure 21. The loss of jobs in the manufacturing sector, which have traditionally been more highly productive, is a key factor underpinning the region’s declining productivity performance. • Despite this, the manufacturing sector still accounts for a slightly larger share of employment in the North West (11.1% in 2009) than nationally (9.3%). Employment in the public and other service sectors accounted for 58.0% of total employment in 2009 (cf 59.6% for the UK).

Productivity & trends by broad sector Figure 22 Productivity by sector in the North West as a % of UK productivity (Source: Cambridge Econometrics)

• As shown in Figure 22, GVA per job in the manufacturing sector stood at £45,700 in the region in 2009, 1.0% below the UK average. Over the ﬁrst half of the 1990s productivity in manufacturing outstripped the UK average, but new evidence suggests that this advantage has since eroded.

Productivity as a % of UK

110.0% Manufac.

105.0% 100.0%

Dist. hotels & catering

95.0%

Public services

90.0% 85.0%

Other services 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

80.0%

• For the ﬁrst time in the Panel’s work, employees in the North West’s manufacturing sector are now slightly less productive on average than their national counterparts4. This matters, because the higher than national average productivity of North West manufacturing has helped oﬀset poor productivity in services, as below.

Revisions to the Regional Accounts have lowered estimates of manufacturing output in the North West more so than revisions made to UK ﬁgures. This set alongside little or no revisions to employment, has led to a worsening of the North West’s manufacturing productivity performance compared to the UK.

• Above and beyond the aggregates of manufacturing, the North West is home to a relatively productive motor vehicles sub-sector (in which GVA per job stood at £59,200 in 2009 compared to £44,500 across the UK) and chemicals and manmade ﬁbres sub-sector (GVA per job stood at £93,400 in the North West in 2009 compared to £93,000 nationally). • Turning to the service industry, in productivity terms, the North West underperforms with regards to both the public and other service sectors when compared to the UK. Indeed, GVA per job in public services stood at £23,500 in 2009 (11.7% below the UK average) and £32,000 in other services (17.1% below the UK average). It is also notable that these productivity gaps have widened over the last decade.

Productivity drivers - Enterprise Figure 23 Business starts per 10,000 of working age population (Source: ONS) 80.0 Births per 10,000 WAP

70.0 60.0

2004

50.0

2006

40.0

2008

30.0 20.0 10.0 0.0

North West

West Midlands

Yorkshire & Humber

Figure 24 Business starts per 10,000 of working age population (Source: ONS)

% of enterprise births

97.0

North West

95.0 94.0

West Midlands

93.0

Yorkshire & Humber

92.0

96.0

2003

2004

2005

2006

2007

In 2009 there was a change to the measurement of business starts to include PAYE as well as VAT registered businesses (current registration threshold is £70,000 pa).

• Data for 2008 show that enterprise rates5 across the North West remained low, at 62.2 per 10,000 WAP, when compared to the national average (67.6 per 10,000 WAP). Despite this, the region outperformed both the West Midlands and Yorkshire and Humber regions in the same year, a trend which has prevailed since 2006. Since 2004, enterprise rates in the region have declined by 5.8%, the region performed comparatively well given that enterprise rates fell by 6.7% nationally, 12.1% across Yorkshire and Humber and 11.6% in the West Midlands. • In 2007, the one-year survival rate for ﬁrms located in the North West was 95.6%. This was higher than the national average (95.5%), the West Midlands (95.2%), and Yorkshire and Humber (94.5%). Further, improvements to the one year survival rate in the region (3.2pp from 2003 to 2007) outpaced those achieved elsewhere - 2.8pp nationally, 2.7pp in the West Midlands and 1.4pp in Yorkshire and Humber. The picture was similar when considering three-year survival rates: after three years, 64.8% of ﬁrms established in 2005 and situated in the North West were still operating. This compares to 64.7% nationally, 64.6% in the West Midlands, and 62.5% across Yorkshire and Humber. • A total of 4.9% of the North West’s adult population were engaged in entrepreneurial activity6 in 2009. This rate compares unfavourably to elsewhere - 6.0% of adults across England were engaging in entrepreneurial activity, as were 5.2% of adults in the West Midlands and 6.1% of adults in Yorkshire and Humber. In addition, since 2002, levels of entrepreneurial activity increased by just 0.6pp in the North West, lagging behind improvements made nationally (1.1pp) and in Yorkshire and Humber (2.2pp). That said, the North West did outperform the West Midlands on this measure over the period (0.3pp). 6 Entrepreneurial activity includes those who are: a) setting up a business by themselves or with other people as a stand-alone activity or as part of their work or b) own or run a business that has been paying salaries for less than 42 months.

Productivity drivers - Skills (1) Highest qualiﬁcation of WAP (%)

Figure 25 Highest qualiﬁcation attained (Source: Annual Population Survey) 30.0

No Quals

25.0 NVQ1

20.0

NVQ2

15.0 10.0

NVQ3

5.0 NVQ4+

0.0 Jan 2004 Dec 2004

Jan 2009 Dec 2009

England & Wales

Jan 2004 Dec 2004

Jan 2009 Dec 2009

North West

Proportion of employees receiving job related training

Figure 26 Proportion of employees receiving job related training in the last 4 weeks (Source: Annual Population Survey) 18.0 16.0 14.0 12.0 2004

10.0

2009

8.0 6.0 4.0 2.0 0.0

Great Britain North West Yorkshire & Humber

West Midlands

• Between 2004 and 2009, the regional rate of improvement in qualifications at NVQ4+ matched that achieved across England and Wales (at 3.8pp), although a performance gap still persists. By 2009, 27.0% of the North West’s WAP held a qualification at NVQ4+, lower than the national average of 29.5%. However, the North West outperformed both the West Midlands (24.8%) and Yorkshire and Humber (26.6%) on this measure in the same year. Finally, from 2008 to 2009, the growth rate in the North West’s WAP holding NVQ4+ (1.8pp) outpaced the national average (1.4pp) which, if sustained, could begin to close the performance deficit. • The proportion of the region’s WAP without qualifications has continued to shrink at a faster rate than elsewhere. From 2004 to 2009, the proportion of the WAP in this cohort fell by 4.2pp in the North West. This was a greater improvement than that seen across England and Wales (-2.9pp), the West Midlands (-2.3pp) and Yorkshire and Humber(-2.9pp). However, the level of WAP with no qualifications remains high absolutely in the North West, at 13.8% compared to a national average of 12.2% in 2009. • In 2009/10, 14.3% of the North West’s employees undertook job-related training. This compares favourably to the national average (13.5%) and rates achieved in the West Midlands, and Yorkshire and Humber (12.7% and 13.3% respectively). Since 2004, participation declined marginally in the region, although less so than nationally and in comparator areas.

Productivity drivers - Skills (2) Figure 27 Occupations by occupational category 2009/10 (% of total jobs) (Source: Annual Population Survey) England

High Level

North West West Midlands Yorkshire & Humber Wider South East

Medium Level

Low Level 0%

10%

30% 20% Proportion of total jobs

40%

50%

Figure 28 Relative earnings by occupational category in 2009 England=100 (Source: Annual Survey of Hours & Earnings) England

High Level

North West Medium Level

West Midlands Yorkshire & Humber

Low Level

Wider South East 0%

20%

40%

60%

80%

100%

120%

• As ﬁgure 27 shows, the North West’s occupational structure is skewed towards lower level jobs (40.6% of total jobs in 2009/10), and away from those of a medium (24.2%) or higher level (27.2%). The region has a lower proportion of jobs in higher level occupations than England as a whole. This disparity becomes even more pronounced when the region is compared against the Wider South East. Despite this, the regional occupational structure is broadly similar to that observed in both the West Midlands, and Yorkshire and Humber. • Earnings data has not been updated since the Panel’s last Long-term Forecast Report. As noted previously, those employed in higher level occupations in the North West earn comparatively less than their counterparts across England on average (89.4% of the England average). Although these employees also earn less than those in similar occupations in the West Midlands, earnings were slightly above those achieved in Yorkshire and Humber.

Productivity drivers - Investment Figure 29 Manufacturing & services investment (by UK-owned ﬁrms) as a percentage of GVA (Source: Annual Business Inquiry & ONS) Investment by UK businesses as a % of regional GVA

7.0 6.0 5.0 UK

4.0 3.0

North West

2.0 1.0 0.0

1998

2003 2007 Manufacturing

1998

2003 Services

2007

Figure 30 Average net capital investment7 per business (Source: Annual Business Inquiry & ONS) Net capital expenditure per business

£50,000 Great Britain £45,000

North West

£40,000

West Midlands

£35,000

Yorkshire & Humber

£30,000

2004

2005

2006

2007

2008

• Investment by the North West’s manufacturing and service firms (as a proportion of regional GVA) continued to outpace the national average in 2007, as has historically been the case. Indeed, in this year investment by North West manufacturing firms accounted for 1.0% of regional GVA, compared to the national average of 0.6%. This trend was mirrored in the service sector, where investment represented 4.7% of regional GVA compared to 4.3% across the UK. However, it should be noted that whilst these are the latest data available, conditions are likely to have changed substantially since the onset of the recession. • Although investment by regionally-based manufacturing firms has traditionally outpaced national levels, this advantage has eroded over time (from +1.2pp above the UK in 1998 to +0.4pp in 2007). The Panel’s previous Long-term Forecast Report noted the positive and expanding gap in investment by North West service firms compared to their UK counter parts (+0.4pp in 1998 rising to +0.9pp in 2006). However, latest data indicates that this advantage has dissipated somewhat (+0.4pp above the UK in 2007). • In 2008, the average North West business expended £44,200 on capital goods - 1.2% below average capital expenditure per business across Great Britain (£44,800). That said, the region’s businesses invested comparatively more in 2008, than their counterparts situated in the West Midlands (£44,100) and Yorkshire and Humber (£41,700).

7 2004-07 uses the 2003 SIC where as 2008 data uses the 2007 SIC. Despite this, time series data is comparable.

Productivity drivers - Innovation Gross domestic expenditure on R&D as a % of total GVA

Figure 31 Gross domestic expenditure on R&D, as a proportion of total GVA (Source: ONS) 3.0 2.5 2.0

2001 2004 2007

1.5 1.0 0.5 0.0 UK

North West

Yorkshire & Humber

West Midlands

120.0 100.0 80.0

North West

60.0

West Midlands Yorkshire & Humber

40.0

Please note statistics for 2007 are provisional.

• The UK’s 2009 R&D Scoreboard provides an analysis of the top 1,000 UK companies that invested most in R&D in 2008. Of these ﬁrms, 61 were located in the North West and invested an average of £5.3m each in R&D. In contrast, the 54 top 1,000 companies situated in the West Midlands invested an average of £16.2m each, whilst those in Yorkshire and Humber (45) expended an average of £4.9m. • The number of patent applications also provides an indication of an area’s inventive ability and capacity to harness knowledge. In 2007, 21.1 patents were registered in the North West per million inhabitants. This rate was markedly lower than the national average of 41.6 patents, and lower than the rates achieved in the West Midlands (27.9) and Yorkshire and Humber (22.5). • Between 1997 and 2007, the rate of patent applications fell by 47% across the UK, a rate of decline which was matched in the region. Reductions in the West Midlands and Yorkshire and Humber were not as pronounced (14% and 30%, respectively). However, according to BIS9, the fall in applications in recent years has been inﬂuenced by changes to the length of patent procedures.

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

20.0 0.0

1997

Patents per million inhabitants

Figure 32 Patent applications to the European Patent Oﬃce8 (Source: Eurostat)

• As set out in the Panel’s last Long-term Forecast Report, regional R&D expenditure as a proportion of GVA (2.4%) has continued to outpace levels achieved nationally (2.0%) and in comparator regions (1.4% and 1.1% in the West Midlands and Yorkshire and Humber respectively) into 2007.

Department for Business, Innovation and Skills

Overall GVA performance • Overall, since 1990, GVA in the North West has increased by 33.5%, equivalent to 1.5% pa. This is slower than the rate of growth seen in the UK as a whole (2.1% pa) but similar to comparator regions (1.5% pa in the West Midlands, and 1.7% pa in Yorkshire and Humber).

Figure 34 Percentage change in GVA growth pa (1997-2007) (Source: Regional Accounts & Cambridge Econometrics)

Cumbria LEP (Allerdale, Barrow in Furness, Carlisle, Copeland, Eden & South Lakeland)

North West

Key Percentage change in GVA growth per annum 1997 to 2007 1.2% pa

2008

2006

2004

2002

2000

1998

1996

1994

1.8% pa

1992

5% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6%

1990

Percentage growth in GVA

Figure 33 Annual growth in GVA in the North West % UK (2003 prices) (Source: Regional Accounts & Cambridge Econometrics)

2.1% pa

Lancashire LEP (indicative) (Blackburn with Darwen, Blackpool, Burnley, Chorley, Fylde, Hyndburn,Lancaster, Pendle, Preston, Ribble Valley, Rossendale, South Ribble, West Lancashire & Wyre)

2.2% pa 2.4% pa

• Figure 32 shows the growth in GVA pa for NUTS 3 geographies (the smallest spatial scale at which GVA data is available), and overlays this with the boundaries of the emerging Local Enterprise Partnerships (LEPs). As illustrated by the map, the Greater Manchester LEP geography has seen the most rapid growth in GVA over the last decade, which has largely been driven by the strong performance of the Southern part of the conurbation. By 2007, the Greater Manchester LEP accounted for 40% of the North West’s total GVA.

Liverpool City Region LEP (Halton, Knowsley, Liverpool, Sefton, St Helens & Wirral) Cheshire & Warrington LEP (Cheshire East, Cheshire West & Chester & Warrington)

Notes: GVA have been adjusted for inﬂation

Greater Manchester LEP (Bolton, Bury, Manchester, Oldham, Rochdale, Salford, Stockport, Tameside, Trafford & Wigan)

Produced by SQW Consulting. © Ordnance Survey. Crown Copyright. License Number 100019086. Digital Map Data © Collins Bartholomew Ltd. ONS.

Overall GVA per head performance

20% North West

18% 16% 14%

West Midlands

12% 10%

Yorkshire & Humber 2008

2006

2004

2002

2000

1998

1996

1994

1992

8% 1990

GVA per head % diﬀerence between the regions & UK

Figure 35 GVA per resident head - % diﬀerence between the regions & UK (current prices) (Source: Regional Accounts & Cambridge Econometrics)

• The GVA per head gap between the North West and UK has progressively widened over the last two decades to 17% in 2007. Revised ﬁgures for 2008 now suggest the gap has remained at this level through 2008 (rather than narrowing, as previously thought). The gap with the UK in the North West is now less than the gap between the West Midlands and the UK (at 21%).

ANNEX B: FORECASTING EVIDENCE

Forecasting Evidence - An Overview • This annex compares forecasts from Cambridge Econometrics (CE), Experian and Oxford Economics (Oxford) for the North West and UK in terms of population (and WAP), jobs, productivity and GVA, split for the two periods 2009-2015 and 2015-2030.

Table 3 Forecasting evidence overview (Source: Range in forecasts from CE, Experian & Oxford) NW diﬀerential with UK

• The range of diﬀerentials in growth rates between the North West and UK is summarised in Table 3 for each indicator. • Note that the vintage of forecasts presented by the forecasting houses varies from July 2010 (CE), August 2010 (Experian), and October 2010 (Oxford). In addition, whilst productivity and GVA forecasts from CE and Experian are in 2005 prices, those provided by Oxford are in 2006 prices.

2009-2015

2015-2030

Population

-0.2pp to -0.4pp

-0.1pp to -0.3pp

Working age population

-0.2pp to -0.4pp

-0.1pp to -0.3pp

Employment

-0.2pp to 0.1pp

-0.2pp to 0.0pp

Productivity (GVA per worker

-0.5pp to 0.0pp

-0.2pp to -0.1.pp

GVA

-0.3pp to -0.2pp

Forecasting Evidence - Population Figure 38 Working age population projections 2009-2015

0.7

0.6 0.5

0.4

North West

0.3

% pa

Figure 36 Population projections 2009-2015

0.3

0.2

0.1

0.0

Experian

Oxford

0.7 0.5 0.4

North West

0.3

0.2 0.1 0.0 Experian

Oxford

% pa

0.6

Experian

Oxford

Figure 39 Working age population projections 2015-2030

Figure 37 Population projections 2015-2030

% pa

0.4

North West

0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2

North West UK

Experian

Oxford

• All three forecasting houses are expecting the North West’s total population to grow more slowly than the UK. Between 2009 and 2015, population growth in the region is expected to lag behind the UK by between -0.15pp (Oxford) and -0.36pp (Experian), compared to a Panel forecast of -0.3pp in January 2010; whereas between 2015 and 2030, the population growth gap is forecast at between -0.12pp (Oxford) and -0.33pp (CE) and Experian -0.26pp, compared to the Panel’s previous forecast of -0.3pp for this period. • A similar pattern is evident in the projections for working age population, where the growth gap is expected to be between -0.15pp and -0.36pp (2009-2015), and then narrow to between -0.09pp and -0.33pp (2015-2030). However, the key diﬀerence now is that Experian expect to see a reduction in North West WAP over the longer-term (2015-2030) of -0.1% pa, compared to an increase of +0.17pp for the UK.

Forecasting Evidence - Jobs & Productivity Figure 42 Productivity projections 2009-2015

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 -0.1 -0.2 -0.3

2.5

1.5

North West

1.0

0.5 0.0

Experian

Oxford

Experian

Oxford

Figure 43 Productivity projections 2015-2030

Figure 41 Jobs projections 2015-2030

% pa

2.0

North West

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0

2.5 2.0

North West UK

% pa

Figure 40 Jobs projections 2009-2015

North West

1.5

1.0 0.5 0.0

Experian

Oxford

Experian

Oxford

• For the 2009-2015 period, Oxford expect jobs growth in the North West to lag behind the UK (by -0.23pp), and CE expects a decline in jobs for both the North West and UK, the North West is expected to see the greater reduction; whereas Experian expect jobs growth in the region to exceed the UK (by +0.12pp). Over the longer-term (2015-2030), the jobs growth gap ranges from -0.03pp (Experian) to -0.23pp (CE), Oxford expect a -0.09pp gap. These ﬁgures compare to the Panel’s previous forecast of a gap of -0.1pp for 2009-2010 and -0.2pp for 2015-2030. • In terms of productivity, CE and Oxford each expect growth in the North West to largely match the UK between 2009 and 2015 (whereas Experian expect productivity growth in the region to lag behind the UK by -0.45pp), compared to a Panel forecast of -0.1pp in January 2010. Between 2015 and 2030, the productivity diﬀerential ranges from -0.05pp (CE), -0.1pp (Oxford) to -0.16pp (Experian); the Panel’s previous forecast for this period was -0.2pp.

Forecasting Evidence - GVA Figure 44 GVA projections 2009-2015 3.0 2.5 North West

% pa

2.0 1.5

1.0 0.5 0.0 CE

Experian

Oxford

Figure 45 GVA projections 2015-2030 3.0 2.5

North West

% pa

2.0 1.5

1.0 0.5 0.0 CE

Experian

Oxford

• As a result of the large diﬀerential in productivity growth for the 2009-2015 period, Experian are expecting to see a greater gap in GVA growth (-0.33pp) in the short-term (despite their forecast that job growth in the North West would exceed the UK). This compares to CE’s forecast of -0.18pp and Oxford’s forecasts of -0.24pp for 2009-2015, which matches the Panel’s expectations in January 2010. • In the longer-term, the GVA growth gap for 2015-2030 is forecast at between -0.21pp (Experian), -0.2pp (Oxford) and -0.29pp (CE). In January 2010, the Panel forecast a GVA growth gap of -0.3pp, erring on the side of caution for the long-term.

ANNEX C: TECHNICAL NOTES & ASSUMPTIONS

Technical Notes & Forecasting Assumptions (1) The Panel’s forecast is developed through a combination of statistical analysis and judgement. Part of the evidence base informing the judgement of the Panel is provided by other forecasts for the UK and North West economies published by independent forecast houses. Key assumptions made by the Panel are set out below: • In its Long-term Forecast the Panel’s judgement was that the latest ONS population projections for the UK would overstate the impact of international migration, as the assumptions were developed before the full impact of the global recession was known. However, data have since showed that international migration has been sustained. The Panel thinks it prudent to take the ONS projection as the context for its forecast. However, the Panel’s view for the North West remains that the ONS projections are likely to overstate the ‘pull’ of the region, given the relative strength of the region’s economy. The Panel’s projections for both population and working-age population growth in the North West are slightly weaker than the 2008-based ONS sub-national projections. The Panel’s view of relative population change is the same as that from the independent forecasts that were consulted, namely that the growth in the population will be weaker in the North West than in the UK as a whole. The definition of ‘working age’ that we use takes account of the equalisation of male and female retirement ages by 2020. • Key issues influencing the forecast over 2009-2015 are the impact of the cuts in public spending and the degree to which the private sector can create new jobs. The Panel’s forecast of output and employment growth over 2009-2015 takes into account the Panel’s Short-term Forecast for the North West made in April 2010, more recent independent forecasts, and detailed analysis of the impact of the cuts in public spending (announced in CSR 2010) commissioned by NWDA. It also draws on analysis of how the North West recovered from previous recessions, and the contribution made on those occasions by the private sector. The Panel estimates that employment in the North West will show a fall of 1% in 2010 and on the basis of the evidence reviewed expects employment in the North West to fall further by 2015. In this assessment, the Panel is more pessimistic than some of the other independent forecasts reviewed in this report, and hopes that the outturn is better than the Panel’s central view. The Panel accepts the analysis (summarised in this report) that shows 140,000 jobs will be lost in the North West compared with a ‘no cuts’ scenario as a result of the plans announced in the CSR (with more than 1.1m jobs lost in the UK as a whole) and that there will be a net loss of employment in all sectors despite the opportunities provided by contracting out of public services. The Panel’s April 2010 Short-term Forecast was pessimistic about the ability of the private sector to create substantial numbers of new jobs, even if growth turned out to be more robust than anticipated. Indeed, in the years from 2000 to the recession the number of net new jobs created by the private sector averaged just 14,000 annually. • While it may be argued that the strong growth in public sector employment over this period hindered the ability of the private sector to fill job vacancies, this figure highlights the scale of the employment challenge over the period to 2015. In addition, the flexibility in working practices shown by employers and employees that limited the scale of job losses during the recession is likely to limit the scale of employment growth in the upturn. Looking back over past recessions we see private sector jobs only recovering to something close to their pre-recession levels within six years of the pre-recession peak. During the recessions of the late 1970s/early 1980s and late 1980s/early 1990s, the public sector was creating some new jobs in the recovery rather than cutting back, and arguably, the global economic outlook at least in the 1990s was more favourable to support recovery in the UK.

• The task of forming a view on the growth prospects for 2015-2030 is complicated by the fact that the early part of the period will, if the Panel is correct about 2009-2015, be one in which the economy can be expected to show some recovery from the period of weak growth and government austerity. Consequently, the Panel would expect growth to be above trend for some years. The scale and duration of this above-trend growth will be influenced by the performance over the preceding five years. In addition, there is the question as to the extent to which the cuts in government spending over 2010-2015 will have a detrimental impact on the prospects for underlying productivity growth. The Panel thinks it a reasonable assumption that by the end of the forecast period employment rates will be back at around their pre-recession levels, and it is probable that this will be achieved within the first half of the period (e.g. by early 2020s). The Panel also thinks that the differential in the employment rate in the North West and the UK, which closed in the period before the recession, can close further in the longer-term, partly as a result of cohort effects (as some who are currently long-term unemployed reach retirement age). However, there is a risk to this assumption if unemployment rises sharply among younger age cohorts in the medium-term and programmes to support such people back to work are scaled back due to the spending cuts. • The Panel have not taken the view that the cuts in public spending over the period to 2015 will have a measurable impact on long-term productivity growth nationally or in the North West, although there is clearly a possibility of an impact in the shorter-term. The Panel’s view on productivity growth in the long-term remains the same as in our March 2010 Forecast: underlying growth in the North West is expected to lag that in the UK by around ¼pp, a difference that represents a continuation of underlying historical relative performance.