How is our city-region performing – and what impact is Brexit likely to have?
The Birmingham city-region is thriving, but faces a range of challenges. In particular, not all of our citizens are benefitting from our current economic success, because of long-term socio-economic and spatial inequalities. Add to this, the tortuous, unpredictable process of Brexit presents a threat to our growth momentum and is likely to exacerbate these imbalances as the least resilient bear the brunt of long-term uncertainty.
This year’s Birmingham Economic Review (BER 2019), compiled by City-REDI in partnership with the Greater Birmingham Chamber of Commerce and launched on the 24th October, presents two contrasting views of our city-region.
Reporting on our economic growth performance it shows that we are the biggest destination for inward investment and for inward migration, outside of London, and the biggest destination for foreign direct investment (FDI) beyond London and the South East. Firms are investing and talent is moving here. Add to that the fact that University of Birmingham students are staying here to work in growing numbers (around a quarter come from the region and now almost half work here after graduating). These factors are fuelling a virtuous cycle of growth, with increased jobs in services and technology sectors and a booming visitor economy. Productivity rates are improving in terms of GVA per hour worked and the innovation ecosystem, supported by world-class universities, is thriving. In economic growth terms the region is on a roll.
However, other evidence shows us that around a third of our citizens are not benefitting from this unprecedented growth and a significant number are worse off. Persistent gaps between the skilled, employed earners and the unskilled, unemployed and vulnerable remain, and in some areas these gaps are worsening. We have continually struggled with a high relative unemployment rate (unemployment amongst the 16-19-year-olds in the region is 9.4 percent) and a very low (second lowest in the UK) average level of household income. Over 107,000 households in our region are workless, with dependent children. Much of this relates to low skill levels and polarisation in the labour market.
Add to this combination, of both unprecedented growth and socio-economic inequalities, the contentious and extended Brexit process. Our research shows that the West Midlands is particularly exposed to Brexit (and particularly a no-deal outcome) because we have a larger manufacturing sector and a stronger dependency on physically-traded goods than most UK regions. In fact, over 30% of the GDP of our manufacturing sector and over 12% of the region’s economy is ‘at risk’ owing to its dependence on frictionless trade and just-in-time supply chains. Firm investment is being diverted from local innovation and growth priorities to coping strategies. Increased costs of inputs alongside changes in interest rates and the value of the UK£ are starting to push some large firms to invest outside of the UK. Small firms are particularly at risk, without the resources to cope with wholesale changes in taxes, tariffs and employment regulations. Many so-called ‘zombie’ companies (those only able to pay interest on long-standing debt, rather than pay off the debt) are likely to fail, as happened in the 2008 credit crisis, creating higher unemployment and triggering a social knock-on effect on vulnerable households.
As the Brexit process continues most assessments show that national economic growth will be disrupted and it is clear that the West Midlands region will be more heavily impacted. So, our major challenge as a city-region is to improve our resilience, regardless of the Brexit outcome, to maintain the growth momentum while rebalancing our regional economy. Without continuous improvement in our economic performance we will not create wealth. Unless this wealth is distributed more evenly, justifiable social and political unrest may well undermine our economic progress.
Professor Simon Collinson, Deputy Pro-Vice-Chancellor for Regional Engagement and Director of City-REDI and the City-REDI team.