SWBC Chairman’s April Newsletter 

Tim Jones, Chairman:

It is in my experience unprecedented that we have experienced so many unpredicted events that have thrown the established order into disarray in such a short space of time. From a business perspective, the collective response has been varied. Some have “battened down the hatches” and carried on regardless. Some have tried to adapt their business models to remain ahead of the game. Frightened boards generally make bad decisions, so a proportion have deferred any decision making until there is greater clarity. This has negatively impacted upon vital investment decisions, particularly around staff, research and development and general upgrades, thus leaving many businesses in a more fragile state than has previously been the case. That said, the nature of our small and micro business community is that it has great expertise at being nimble and capable of rapid repositioning. Unlike many of the big “supertanker” manufacturing organisations, we are genuinely able to implement new business strategies quickly. Undoubtedly this is what is likely to happen next. Currently, however, most are in a holding pattern.

The underlying characteristics of our business performance remain stubbornly below the national average in terms of growth and productivity.

The latest figures prepared by the Office for National Statistics of Productivity paint a stark picture of how much progress is necessary if we are to achieve any reasonable increments towards Levelling-Up. The Greater South East is 61% higher than the rest of England and Wales.  The gaps are smaller for larger Towns (13%) but in rural areas 19%. London’s productivity is 55% higher than the average for other UK City’s. This report in extremis suggests that there is a productivity “Waste Land” outside London and the South East. There are some bright spots, such as Edinburgh and Aberdeen but there are large swathes of the UK where there are no places with above average productivity, these include the North West, Wales and most disappointingly both Devon & Cornwall. We have known about this problem for 20 years. Successive Government programmes and local initiatives have been attempted but all have failed to date.

A radical new approach is therefore something we need to consider. I take considerable encouragement from work being done which links health, wellbeing and overall prosperity with the economic development agenda. There are strong indications that this can materially influence the whole equation. An example graphically illustrates this, ill health is estimated to be responsible for 30% of the shortfall in productivity in Northern England compared with the rest of the country.

There are a huge number of initiatives which the SWBC Board and the Executive Team are engaged with right across the region. We also remain in a very central role to ensure that we can influence both Government and regional policies to the benefit of creating better and more successful businesses.

This is however never easy as evidenced by the Spring Statement from the Chancellor of Exchequer.

Whilst recognising that we are currently in the centre of a perfect storm – Post Brexit, the Pandemic which still won’t go away (non-acute hospital admissions across the region have never been higher), Inflation which is off the scale, Energy (including fuel bills) costs out of control and the deeply disturbing images from Ukraine which have touched our souls – we might have expected a budget that captured the spirit of the moment and provided some immediate respite. This could have included say temporary relief on business rates and temporary relief on VAT, both of which would have had an immediate effect. All we actually got was a little bit of jam today on fuel duty and promises of jam tomorrow – sorry Chancellor but only 3/10 for hitting the spot.

This only serves to underline the importance of setting our own agenda and ensuring that we have our own strategy for improving our prosperity and wellbeing.

In respect of this, keen observers of government policy announcements will have spotted the publication of a 400-page White Paper, which introduces the much-promised Levelling-Up agenda. Since the general election, the message from the electorate reinforced the need for Whitehall to urgently address their failure to support a balanced series of policies for the whole of the UK. Whitehall, and the bubble which surrounds this, has for too long taken for granted regional growth policies. The powerhouse of London and the area within the M25 has fuelled UK growth for many years. The much-maligned financial services sector has been a truly global business and produces vast tax receipts for the Chancellor (£70-80 billion per annum). London has become effectively a City State and represents nearly 25% of the UKs economy. Whitehall’s failure is reflected by the embarrassing revelation that the UK has the most centralised bureaucracy within the G7 economies.

One of the beasts of Whitehall – Michael Gove – was set loose by the Prime Minister to come up with a cunning plan which would address this issue. Since his appointment in the newly named government department he runs – Department of Levelling Up, Housing and Communities – the focus of his work and a huge team surrounding him is the published document we are now beginning to unpick.

Before you are tempted to read it, the health warning is that the battle between Michael Gove and the Chancellor – Rishi Sunak – has been won by the Chancellor.  There is no new money. What is on the table is recycled awards from previous budget statements. Also, many of the programmes are not due for implementation and delivery until between 2025 – 2030.  That is the bad news. The better news is that we now have an agenda to work with. Also, importantly, the South West has been picked out for a new and special allocation – a County Deal for Devon and a similar designation for Cornwall. Typically, and despite 400 pages of script, the government have left Devon to work out much of the detail behind this new designation. There is a broad indication of what is included in it. In summary, the intention is that a “new body” will adopt a cross-council approach to some of the major challenges including education and training, skills, housing, transport and business support. The market threats we are currently facing mean that early engagement with the business community is essential. 2023 could be a very challenging year.

In response to this, a very clear agenda needs to emerge from both public and private sector key strategic partners across the region to establish the agenda and to set some challenging targets and challenging delivery timescales.

I would be failing if I did not make some reference to the Energy Crisis. Many of you will have read the recent coverage on this subject which explains how the Government is approaching its energy policy, how this will reduce our dependency on “unfriendly sellers of energy” and how natural resources should remain a central feature for policy makers. The importance of this to our region is of great significance.  We have an abundance of natural capital assets. We are already one of the market leaders in this sector. I have predicted, with confidence, that within 5 years we will be the most important regional/ national player in this market and that there will be direct benefit to many local businesses and employees and a genuine contribution to community wellbeing and prosperity.

The critical nature of the global energy crisis has become that bit worse.

If we were in Germany or Austria the real prospect of gas rationing would be a current debate. Both these countries have a high dependency on Russian gas.  Russia is seeking to exploit their position – most recently insisting that buyers of its natural gas pay in Roubles rather than in Euros or in Dollars. Both Governments as a result of this, are contemplating the hugely disruptive prospect of cutting off parts of their industries from the gas network in order to give preferential treatment for households. The impact of this together with huge increases in price will be devastating to very many people.

Fortunately, we are significantly less dependent on imported energy from Russia. We can still rely on the North Sea for a limited number of years for around 50% of our requirements. We have other marine resources which have not yet been tapped into, some of these are in the North Sea, such as, the Cambo Oil Field. There are other resources in and around the continental shelf which also provide longer term prospects.

The Government may appear to be dithering but I have huge sympathies for them. They are wrestling with decisions which will have implications for generations to come.

We now have sight of the new UK energy strategy. Central to this is offshore wind farm development, in parallel with an ambitious programme for solar panel arrays on any suitable buildings. To facilitate the wind farms planning adjustments were anticipated to overcome environmental objections.

This debate has inevitably caused divisions in the heart of Whitehall. There are different and contrasting views held by the Prime Minister, the Chancellor and the Business Secretary (Kwasi Kwarteng). The business plan they have been trying to agree, was supposed to included 50 gigawatts of solar capacity, 50 gigawatts of offshore wind and 30 gigawatts of onshore wind by 2030. What we have just learnt is that the Prime Minister will not rule out that Fossil Fuels will remain part of the energy mix for years to come (Net Zero by 2050) but that he prefers Sea-based wind turbines and nuclear power.

We should also now not exclude from our thinking a subject which only the very brave would have dared to talk about just 12 months ago – fracking. The concerns about the environmental impact of this and seismic interruptions are still valid. The economic facts however are compelling.  The UK uses 70-80 billion cubic metres per year of natural gas. Much of this has to be bought on the spot market and much has to be acquired as liquid natural gas, the providers of which play the world markets better than most. Conservative estimates for the UKs shale gas resources are huge.  The focus of reserves is Bowland Hodder in North West England, Midland Valley Scotland, the Wheald Basin in Southern England and the Wessex area also in Southern England. The estimated reserves are around 4 trillion cubic metres. If these numbers are verified and commercial exploitation was permitted, this could ensure that the UK is natural gas self sufficient for the next 50 years without being exposed to international geopolitical pressures. However unpalatable this might sound to some; how long could it be before pure economics drives this agenda towards a delivery programme.

We know all too well how controversial all of this could be for the region. The Atlantic Array (huge offshore wind farm near Lundy in the Bristol Channel) was a divisive debate. Technology has moved on meaning that a far smaller number of much larger turbines are preferred. This does however resurrect the very real prospect of new development proposals around our coasts, including the Bristol Channel/ Celtic Sea. We need to be ahead of this discussion and well prepared for it, rather than being hijacked and having to play catch up. The time for a Regional Energy Summit is ripe.

I have only scratched the surface of the many huge issues we need to wrestle with. We urgently need your feedback so that we can do better with these topics.  We are also happy to take on challenges you would like to set for us. Please keep in close touch.