Economic news this week has been dominated by the Budget and Spending Review in the UK. Preparations are ongoing for COP 26 in Glasgow, and the increased profile of the climate emergency is causing businesses to consider their carbon footprint, and take steps to mitigate its growth. Businesses remain concerned about rising cost pressures and labour shortages, with the latter exacerbated by a rise in illness with increased Covid-19 infections and workers with cold and flu symptoms. Recruitment is a major problem for many businesses and skill shortages are an increasing challenge internationally as more workers reassess what they want and value in a job. Markets remain disrupted, as a result of a cocktail of temporary and structural challenges in labour markets and supply chains, with delayed deliveries and increased prices.
- In England, the percentage of people testing positive for coronavirus continued to increase in the week ending 16 October 2021. An estimate that 977,900 people had Covid-19, equating to around 1 in 55 people.
- As the United Nations COP26 climate change conference draws closer, nations across the world have been pledging commitments to significantly reduce carbon emissions by 2030. Scientists agree that cutting emissions by 45% by 2030 and achieving net-zero by 2050 is a significant step in halting the worst effects of climate change. The USA has pledged to halve its emissions by 2030 compared to 2005 levels, the UK has announced that all its electricity will come from renewable sources by 2035, while Australia has been criticised for its lack of ambition in setting targets for reducing emissions by 2050 rather than 2030.
- Geopolitical tensions regarding energy have mounted as the contract supplying gas from Russia to Moldova expired at the end of September 2021. No agreement has been made on a new contract partly due to the near 40% increase in global natural gas prices since September 2021.
Budget and Spending Review
- The Budget and Spending Review 2021 took place on Wednesday 27th Amongst the positive news, UK GDP is set to reach its pre-pandemic peak by 2022, slightly earlier than expected. Inflation hit 3.1% in September 2021 and is set to top 4% over the coming 12 months. Unemployment is set to rise to 5.2%; this is lower than predicted in previous forecasts (which suggested a peak of close to 12%). The minimum wage for people aged 23 and over will increase from £8.91 to £9.50 per hour in April 2022. This is a rise of 6.6%.
- There was an announcement to end the public sector pay freeze. Pay for most frontline workers will be set by independent pay review bodies.
- Employees and the self-employed will have to pay an extra 1.25p in the pound in National Insurance Contributions from April 2022 – to fund investments in the NHS and social care.
- The Universal Credit taper rate will reduce from 63% to 55%. This means people will get to keep an additional 8p per £1 they earn. This will increase the incentives for families to have someone in work. It will not help households on Universal Credit where no one is in work.
- There has been a rise in the number of low-income households in debt arrears. A survey from the Joseph Rowntree Foundation estimates that 3.8 million households are in arrears on rent, council tax, electricity and gas.
- Corporation tax has been re-confirmed in the Budget, with an increase in corporation taxes from 19% to 25% from April 2023 for businesses with over £250,000.
- The Chancellor has stated businesses rates will not be abolished but instead, he has announced plans to cut them by £7bn. The budget also introduced reforms to business rates, including more frequent revaluations every three years from 2023.
- Given the rise in fuel prices and inflation that is expected in the coming months, the increase in fuel duty has been cancelled.
- In order to help the creative and culture sector which has been so heavily impacted by the pandemic, the government is extending the tax relief for museums and galleries for the next two years.
- Overall, the tax increases in the Budget are set to increase the tax burden to its highest since the early 1950s, according to the OBR.
- NHS England is set to receive £5.9bn to tackle the backlog of people waiting for tests and scans.
- The Levelling Up Fund will mean £1.7bn will be invested in local areas across the UK.
- There is also funding for family hubs.
- £2.6bn will be spent on creating 30,000 new school places for children with special educational needs and disabilities, including improving school buildings’ accessibility.
- The budget includes £1.6bn over three years to roll out new T-levels for 16 to 19-year-olds, plus £550m for adult skills in England. Additionally, £170m has been announced for apprenticeships and training. The West Midlands will be a recipient of a new £560m fund called ‘Multiply’, to increase numeracy and basic maths for adults.
- Grants worth £1.4bn will be given to “internationally mobile” companies to invest in UK infrastructure. This will include £345m aimed at increasing resilience against future pandemics and £800m for the production of electric vehicles in the north-east of England and the Midlands.
- The investment push from the budget also included more than £1.6bn for the British Business Bank’s regional funds, which provides debt and equity finance to small and medium enterprises. There was also additional spending of £150m for the Regional Angels Programme, which aim to reduce imbalances in access to early-stage equity finance in the UK.
- The government has also announced that green investment relief will be introduced to encourage businesses to adopt green policies, such as solar panels.
- £1bn of funding was announced for West Midlands transport including the metro and buses. The funding will pay for projects including completing the 11km Wednesbury to Brierley Hill Metro extension; providing bus lanes for new “Sprint” services between Walsall, Birmingham city centre and Solihull, and creating ten electric vehicle “transit stations”, where cars can be charged up quickly.
- £817m over the spending review period has been announced for the electrification of UK vehicles and their supply chains, alongside an additional £620m of new investment over the next three years to support the transition to electric vehicles and to encourage more active travel.
- Flights between airports in the UK nations will be subject to a new lower rate of air passenger duty from April 2023.
- The Treasury has earmarked £24bn for housing, this will include £11.5bn to build up to 180,000 affordable homes, with brownfield sites targeted for development.
- The Government has announced an extra £9m to go towards allowing councils to turn neglected urban spaces into “pocket parks”.
Survey of Annual Hours and Earnings
- The ONS published statistics from the Survey of Annual Hours and Earnings (ASHE) this week, with the latest data referring to April 2021. Statistics for 2020 and 2021 are impacted by the Covid-19 pandemic, in terms of wages and hours worked in the economy, and also disruption to the collection of data from businesses
- Average full-time annual earnings for WMCA (3 LEP) residents have risen by £393 (+1.3%) since April 2020 to reach £30,651 in April 2021; those in the UK decreased by 0.6%. The WMCA (3 LEP) resident earnings are at 98% of the UK average, with the average resident earning £634 less than the UK average of £31,285.
- Average full-time workplace annual earnings for the WMCA (3 LEP) rose by £546 (+1.9%) since April 2020 to reach £29,737 in April 2021, the UK decreased by 0.6%. The WMCA (3 LEP) workplace earnings are at 95.1% of the UK average, with the average workplace earning £1,548 less than the UK average of £31,285.
- Average full-time resident annual earnings for the WM 7 Met. area were £29,245 in April 2021, an increase of 1.2% (+£352) from April 2020. The WM 7 Met. area full-time resident earnings stand at 93.5% of the UK average, with the average resident earning £1,406 less than the UK.
- Average full-time workplace annual earnings for the WM 7 Met. area were £30,972 in April 2021, an increase of 0.9% (+£290) from April 2020. The WM 7 Met. area full-time resident earnings stand at 99% of the UK average, with the average resident earning £313 less than the UK.
- In April 2021, for the West Midlands region, there were approximately 99,000 employee jobs with employees aged 16 years and over who were paid below the National Minimum Wage (NMW) or National Living Wage (NLW). This accounts for 4.3% of employee jobs in the West Midlands compared to the UK with 3.8% of employee jobs.
Gross Disposable Household Income
- The ONS has published regional Gross Disposable Household Income (GDHI) statistics for 2019 – i.e. showing the situation before the onset of the Covid-19 pandemic. GDHI is the amount of money that all of the individuals in the household sector have available for spending or saving after they have paid direct and indirect taxes and received any direct benefits. GDHI is a concept that is seen to reflect the “material welfare” of the household sector.
- The WMCA (3 LEP) total GDHI increased from £72.9bn in 2018 to £75bn in 2019. This equates to a 2.8% (+£2.1bn) annual increase, below UK-wide growth of 3.1%.
- The WM 7 Met. area total GDHI increased from £45.9bn in 2018 to £47.1bn in 2019. This represents a growth rate of 2.6%.
- Total GDHI increased across all 3 WMCA LEPs, with the Black Country increasing by 2.7% (+£489m) to £18.7bn, Coventry and Warwickshire by 3.0% (+£563m) to £19.5bn and Greater Birmingham and Solihull increasing by 2.9% (+£1bn) to £36.8bn.
- Within the WMCA (3 LEP) all local authorities experienced an increase in total GDHI between 2018 and 2019. Warwick had the highest percentage GDHI increase, reporting 8.0% growth (+£299m) to £4bn. Above UK-wide GDHI growth between 2018 and 2019 was also been experienced in Tamworth, Lichfield, East Staffordshire and Redditch.
Regional and local trends
- Between the 8th and 15th October 2021, West Midlands region online job adverts increased by 3.9 percentage points (the second-highest regional increase) to 169.1% of the average level in February 2020. On the 15th October 2021, total online job adverts for the West Midlands were at 163.8% of their average level in February 2020.
- According to Springboard, overall retail footfall in the UK fell slightly by 1% in the week to 16th October 2021, and was 86% of the level seen in the equivalent week of 2019.
- The Business Insights and Conditions Survey showed that for the reference period 20th September to 3rd October 2021, 98.8% of responding West Midlands businesses were trading. Excluding ‘not sure’ responses, 25.8% of trading businesses in the West Midlands reported their turnover had decreased by at least 20%. However, 46.8% of trading businesses in the West Midlands reported that their turnover was unaffected and approximately 16.2% reported their turnover had increased by at least 20%.
- Excluding ‘not sure’ responses, 23.4% of exporting businesses in the West Midlands reported their businesses were still exporting but less than normal. Of those businesses who continued to trade and import, 18.7% in the West Midlands were importing less than normal.
- In the West Midlands, 73.7% of responding businesses had high confidence in surviving over the next three months. 18.9% had moderate confidence of survival, less than 1% had low confidence or no confidence and 5.9% were not sure.
- 8% of responding West Midlands businesses reported the workforce had already returned to their normal place of work, with a further 7.5% expecting the workforce to return within the next month.
The Great Resignation
- Skill shortages and high vacancy rates are a continuing issue for businesses – regionally, nationally and internationally. A phenomenon that economists are calling the ‘Great Resignation’ has taken hold globally. The Covid-19 pandemic has caused many workers to stop and consider what they want from their job. According to a recent UK survey, 48% of men and 45% of women intend to quit in the next year; pre-pandemic this was 27.5%. Reasons for resigning were a desire for flexibility and higher salaries for both men and women. Other reasons included better work culture, not wanting to work for their manager and seeking a better job title.
- Globally there is also a ‘Great Reset’ of working practices due to flexible and hybrid working; families are working at home, creating a new vision of what work-life balance means. Workers are voting with their feet.
- Alongside this is the ‘Great Reshuffle’: companies are changing their business models, and where they are based as the geography of activity is rapidly reshaping. E-commerce is having considerable effects on where goods, services and skills are bought.
- The ‘Great Retention’ is now the new fight for bosses and a strategic imperative is supporting staff and making them feel valued is the biggest factor in keeping good staff in an employee-led market.
- Some of these themes about attractiveness to talent and working with employees’ values have been picked up in work in Birmingham on The Future Business District by City-REDI and Colmore BID, while issues of addressing skill shortages were prominent at the launch of the Birmingham Economic Review on 21st October 2021.
The bi-weekly monitor brings together data and intelligence from the WMREDI partnership into one single source which can be shared and utilised in planning and responding to the challenge of the virus. This is a rapid review of the issues. It is not intended to be a comprehensive assessment but rather a practical report which places emphasis on emerging issues and the best data and intelligence we have to date.
The monitor is feeding into the regional recovery planning that can help the regional economy bounce back and quickly move forward once lockdown restrictions start to be lifted.
The work is being endorsed by political and business leaders a task force of experts are being set up through WMREDI partners to better understand the impact of the lockdown and what measures will be needed to get the economy moving again.
City-REDI / WMREDI has developed a resource page examing the impact of Coronavirus (COVID-19) on the West Midlands and the UK. It includes previous editions of the West Midlands Weekly Economic Monitor, blogs and research on the economic and social impact of COVID-19. You can view that here.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI or the University of Birmingham.