Preparing for Brexit at the local level

Professor Mark Hart is Deputy Director of the Enterprise Research Centre and Professor of Small Business and Entrepreneurship at Aston Business School.

Professor Mark Hart

In the aftermath of the EU referendum, there is an even greater focus on the performance of the private sector and its ability to provide jobs and wealth creating opportunities across all parts of the UK – especially at the local level – as the UK prepares for Brexit.

The nature of business growth dynamics in various local economies across the UK have been revealed by the Enterprise Research Centre’s annual UK Local Growth Dashboard.local-growth-dashboard

The Dashboard provides the most comprehensive picture of growth among small to medium sized enterprises (SMEs), which make up 99 per cent of all UK firms. Its purpose is to present a set of growth metrics for start-ups and existing firms across a range of sub-national geographies in the UK with a specific focus on each of the English Local Enterprise Partnership (LEP) areas.

With its focus on a number of ‘growth metrics’ what we see in the Local Growth Dashboard is that firm growth and job creation is spread right across the UK and is not limited to a few cities or regions. Nor is it restricted to looking at the contribution of the ‘fashionable’ Organisation for Economic Co-operation and Development (OECD) defined high-growth firms.

There’s a much more complex growth pipeline of firms in every corner of the country that have different support needs based on their individual ambitions. Whether it is start-ups showing the first signs of growth after the initial volatile years or more established businesses embarking upon a vigorous growth path, our research shows that these firms provide an important mechanism for driving local growth and productivity.

This is incredibly important to understand if there’s to be an effective industrial strategy  capitalising on the strengths we already have – without over-focusing on star firms, or regions labelled as ‘powerhouses’.

In the Midlands, despite some misfiring valves in the ‘Midlands Engine’ there is a strong story of job growth in many constituencies including Coventry and Warwickshire LEP; Leicester and Leicestershire LEP; and the Derbyshire and Nottinghamshire LEP.  The Dashboard shows that firms across the Midlands created 120,345 net new jobs in 2014/15 – 16 per cent of the UK total. 

When it comes to fast growth, Leicester and Leicestershire had the highest rate in the Midlands of firms growing their number of employees by 20 per cent or more in each of the three years 2012-15, with 12.7 per cent of companies achieving this.

midlands-start-upsFor start-ups scaling up, which is a very rare event, Coventry and Warwickshire led the Midlands with the highest proportion of firms with starting revenues of less than £500,000 that reached £1 million turnover over the three-year period 2012-15.Some 1.9 per cent reached this milestone. Greater Birmingham and Solihull was a close second with 1.8 per cent.

Overall, both in the Midlands and nationally, this is a shockingly low proportion of start-ups in the UK and questions why we celebrate so loudly these record-breaking numbers of these businesses each year. If they survive, and most don’t, the vast majority go on to contribute very little to the local economy except a wage and some semblance of financial independence for the founder.

According to the OECD, the UK has one of the worst records internationally in getting start-ups to survive and grow.  This has to be a focus for national and local policy agendas and the Growth Hubs need to reflect on that and take action.

In many ways, Coventry and Warwickshire’s economic performance is a microcosm of the UK as a whole and stands out in a Midlands context.  Its Gross Value Added (GVA) per head (a measure of productivity) of £24,249 mirrors the UK average of £24,616 and its employment rate, at 73.2 per cent, is also similar to the national figure. But its net job creation rate stands out. Firms in the area covered by Coventry and Warwickshire LEP created 23,432 net new jobs in 2014-15. This was the largest number as a proportion of total jobs of any LEP, at 7.5 per cent – beating London’s 4 per cent.

aston-martin-1835243_640It is well known that Coventry and Warwickshire has a strong heritage in automotive manufacturing represented today by firms like Jaguar Land Rover and Aston Martin, as well as a sizeable supply chain of smaller firms. Manufacturing employment, at 11.4 per cent, remains above the UK average of 8.5 per cent. Nevertheless, recent years have seen significant diversification of the industrial mix, with more business services firms – including financial, legal, digital and tech companies – springing up leading to such terms as ‘Silicon Spa’ (Leamington Spa).

So, while the Brexit vote has created uncertainty for SMEs, our research shows that the most innovative firms find ways to grow despite shocks to the economy – chiefly by focusing on their productivity and looking to export markets to provide new opportunities. That’s not to say everything will be plain sailing, though. In particular, we need to ensure a business-friendly approach to skilled migration because we know that many firms struggle to plug skills gaps in specialised sectors like engineering.  The ERC’s Local Growth Dashboard shows us that we have firms at various stages of rapid growth across the whole of the UK. The challenge now is for the government to make the terms of our disengagement and future relationship with the EU and the wider global marketplace clear so that growth-oriented firms have a stable framework for further UK and global expansion.

You can follow @markhart84 and @ERC_UK on Twitter

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