Table Of ContentImproving
UK regional
productivity
performance
16 November 2017
© 2017 KPMG LLP, a UK limited liability partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International (“KPMG
International”), a Swiss entity. All rights reserved.
Table of
contents
2 Executive summary 4
3 Introduction 9
4 Unpicking UK regional productivity 10
4.1 Company characteristics 12
4.2 Infrastructure 14
4.3 Skills and education 16
5 The picture, region by region 19
5.1 The North East 20
5.2 The North West 22
5.3 Yorkshire and The Humber 24
5.4 The East Midlands 26
5.5 The West Midlands 28
5.6 The East of England 30
5.7 London 32
5.8 The South East 34
5.9 The South West 36
5.10 Wales 38
5.11 Scotland 40
5.12 Northern Ireland 42
© 2017 KPMG LLP, a UK limited liability partnership and a member frm of the KPMG network of independent member frms affliated with KPMG
International (“KPMG International”), a Swiss entity. All rights reserved.
Improving UK regional productivity performance1
1 Foreword
At KPMG, we are passionate supporters of economic
prosperity across the UK’s diverse regional landscape.
We are proud that our off ce network, with some 13,000
professionals nationwide, enjoys relationships with some
of the country’s most dynamic and interesting businesses.
The performance of all the regions is Furthermore, Brexit raises the stakes Innovative funding models can
crucial to the future success of the in terms of requiring many regions to allow the public and private
UK. For far too long, the productivity internationalise and pursue growth sectors to work in partnership, as
of most of these areas has lagged opportunities in developing markets we have seen with Crossrail and
behind that of London and the around the world. And innovation the Mersey Gateway Bridge. We
South East, creating an imbalance has never been more critical to the believe this kind of collaboration will
that is increasingly unsustainable. development of industries with a be key to unlocking many of the
But, conversely, this productivity genuinely sustainable competitive transformational projects in the UK’s
gap also offers one of the greatest advantage. regions.
opportunities for growth. We believe
We believe that there are exciting This report seeks to shed light
the UK government shares that view,
opportunities for the UK to on key areas that can help unlock
as seen with the introduction of its
engage with these challenges. regional productivity performance,
Industrial Strategy which highlights
Technology is changing the skills and in doing so, make a valuable
regional growth – and a devolution
our workforce needs and the way contribution to the debate around
agenda that empowers local
they are educated. Through our this critical economic issue.
leaders to inf uence the economic
work as learning providers to the
environment on their doorstep.
Civil Service and NHS, for example,
Iain Moffatt,
In addressing that opportunity, we we see demand for digital learning
KPMG’s UK
also recognise the challenges many growing as a means of delivering the
Head of National
regions face. Low productivity is technical and management skills the
Markets
the result of other factors which UK needs over the years ahead.
require signif cant and sustained
Digital technology adds a different
investment. In other words, it
dimension to the traditional debate
should be considered as a symptom
around connectivity. Strength in this
not a cause. To that end, it is by
increasingly critical infrastructure has
addressing issues such as regional
seen Leeds City-Region and Thames
transport infrastructure and
Valley position themselves as the
educational standards that will we
lynchpins of the UK’s IT network.
see an improvement in productivity.
© 2017 KPMG LLP, a UK limited liability partnership and a member f rm of the KPMG network of independent member f rms aff liated with KPMG International (“KPMG
International”), a Swiss entity. All rights reserved.
© 2017 KPMG LLP, a UK limited liability partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International (“KPMG
International”), a Swiss entity. All rights reserved.
Improving UK regional prodtcu ivity performanec 3
2 Executive summary
Productivity is a key element in determining our future
standard of living. Unfortunately, the UK has been
1
underperforming many Western countries in this respect .
Likewise, the performance across regions within the
country has also been uneven.
This report assesses some of the potential causes of poor productivity
performance and examines how different UK regions fare in each of these
areas. We then focus on each region in turn in greater detail – ranking each
in terms of how its level of productivity compares with the rest of the UK
and then providing a suggested policy response to address these urgent
challenges.
We assess three of the principle drivers of labour productivity2:
Characteristics of businesses: Infrastructure: Skills and education:
Exposure to international Effective transport and digital A skilled, educated workforce
supply chains, a higher than infrastructure make it easier improves the agility and
average level of innovation, and to source inputs and market effciency of companies’
a larger size of operation tend company’s products. operations and therefore
to improve a company’s access enhances labour productivity.
to best practice management
techniques and technology, as
well as to new markets and
products.
© 2017 KPMG LLP, a UK limited liability partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International (“KPMG
International”), a Swiss entity. All rights reserved.
1 See ONS, 2017 for the latest international comparison of productivity performance by the ONS.
2 Among other important drivers of productivity performance are also the health of the labour force, availability of housing to enable greater agglomeration effects, and
the size of companies to facilitate greater effciency through economies of scale.
A mixed picture nationwide – While London has the best on average not satisfed with the
Our report shows that, while London transport links, as measured by basic skills and motivation of
and the South East have performed the ease of access to major road their young recruits. Meanwhile,
most strongly overall, other regions junctions, rail stations and airports, survey data point at employers in
clearly have their strengths. In all the region struggles with road Yorkshire and the Humber positive
regions across the country, however, congestion and has the lowest on average about the skills of
there are well-defned areas for 4G speed in the UK. Meanwhile, the16-18-year old workers they
improvement. relatively poor transport have recently hired, but the region
connectivity in the Northern fares poorly in terms of educational
We found that:
Powerhouse regions is an attainment test scores. Improving
– London, South West and South
important impediment to reaping both educational attainment and
East-based businesses are, on
the benefts of agglomeration, basic skills of school leavers is
average, more export-oriented
and the North West, North East, seen as a priority in the Midlands.
than the rest of the UK,
Yorkshire and the Humber would
– The South East and the East greatly beneft from improved
of England are UK leaders in inter-regional links. East and West
innovation, as measured by R&D Midlands should focus their efforts
spending and registered patent on interregional transport links (e.g.
counts. By contrast, Welsh R&D through materialising the Midlands
expenditure is only half of the UK Connect strategy);
average, while the North East and
– While East of England performs
Yorkshire signifcantly fall behind
well when it comes to primary and
better performing regions in
secondary education attainment
England in terms of spending on
results, the region’s employers are
innovation;
Strategies to yield results practice, with the full support of international links and access to
If the UK is to improve its business; and promoting a far higher talent come under strain. But, at the
productivity performance to match level of skills and education in the same time, enhanced productivity is
that of its Western peers, every local workforce, starting at the the only answer to helping the UK
region nationwide needs to play earliest possible age. avoid a weakened economic future.
its part in addressing weaknesses The Budget should therefore focus
As the Chancellor of the Exchequer
where they exist and boosting on investment in the economy’s long
fnalises his Budget, it is crucial
the area’s existing strengths. Our term future, by prioritising measures
that signifcant emphasis is placed
research shows that the answer that encourage improvements in
on measures that will help support
lies in a combination of factors: productivity across all parts of the
improved productivity performance
developing a ft-for-purpose local UK.
within the UK. It is possible that
infrastructure, driven by enlightened
Brexit deals a signifcant blow
regional policymaking; encouraging
to productivity, as the country’s
innovation and best management
© 2017 KPMG LLP, a UK limited liability partnership and a member frm of the KPMG network of independent member frms affliated with
KPMG International (“KPMG International”), a Swiss entity. All rights reserved.
Improving UK regional productivity performance5
KPMG’s recommended next steps
Among the actions that could help improve regional productivity,
our people on the ground highlighted:
The North East: links to enterprise zones and region currently faces. Education is
– The focus should be on improving metropolitan areas such as a major area of concern: secondary
connectivity, particularly with the Manchester and Liverpool. and primary educational attainment
Northern Powerhouse region, Making public transport a both need to be improved,
to which the North East is critical, viable alternative to commuters requiring an increase in the
but often poorly connected. This who use the M60 around number and scale of initiatives
should be done through the timely Manchester would go a long way such as the UK-wide £75 million
delivery of rail electrifcation towards helping to alleviate road Teaching and Leadership Fund
plans and, more broadly, through congestion. announced in February 2017.
support and investment in the
Yorkshire and the Humber: West Midlands:
Northern Powerhouse Rail
– Infrastructure is the main priority – Skills and education are the priority
initiative, including incentivising
in Yorkshire, with support and issues here. Local government
private investment. Intra-regional
public transport improvements are funding required for projects such needs to work in tandem with
also needed: that includes greater as high-speed rail connecting higher and further education
institutions to improve educational
numbers of buses and additional Leeds and Manchester. More
attainment in line with local
routes outside of city centres, broadly, improving rail links to
business needs. The devolution of
linking small towns to regional Leeds is imperative as it would
education funding control, allowing
business hubs. help tackle congestion on roads
for the retention of part of the
such as M1 and M62. Within
The North West: unspent levy locally, may support
the region, improving public
– Infrastructure is a major priority this goal. Signifcant investments
transport road and rail links to
here, focusing on continued such as the Engineering Skills
employment centres such as
upgrades of the Trans-Pennine and Training Centre in Hinckley,
Sheffeld City Region Enterprise
rail network. Within the region, or the advanced manufacturing
Zone needs to be urgently
Local Enterprise Partnerships, and design centre at Stafford
addressed.
Combined Authorities and Local College are very welcome – but
Transport Authorities should East Midlands: need to be accompanied by an
lead on devising and investing – Upskilling the existing workforce is effective career guidance to
in reliable public transport the most signifcant challenge this incentivise prospective students.
© 2017 KPMG LLP, a UK limited liability partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International (“KPMG
International”), a Swiss entity. All rights reserved.
The East of England: South West: should undertake actions to
– Improving intra-regional rail – The focus should be on further enhance digital and
links to unblock road congestion, infrastructure: further investment, technology skills across the
particularly around the Cambridge for example, needs to be made workforce, enhance managerial
area, as well as rail links to the in extending the electrifcation and leadership training in both
South East and London. programme to include private and public sector and
suburban rail service in Bristol, improve numeracy and literacy
London:
Gloucestershire and Somerset, skills in schools, where Scotland
– Tackling the problems caused
as well as improve links to has in recent years fallen down
by road congestion is a major
Bristol airport. the international PISA rankings.
priority for the capital - for
Secondly, the region should invest
example, through broadening the Wales:
in improving digital infrastructure
introduction of congestion charges. – Improving educational
and enhancing 4G availability
So too is upgrading the digital attainment and basic skills
and network speeds.
infrastructure, including the is imperative – in the light of
speed and reliability of the internet employers’ relative dissatisfaction Northern Ireland:
and 4G mobile networks. with even basic literacy and – Given the high percentage of
numeracy skills – if the region is to workers without qualifcations in
South East:
boost its productivity. Devising and the region, policy makers should
– The region should prioritise further
funding an alternative to the now focus on adult learning and
investment in housing supply to
scrapped Schools Challenge upskilling initiatives. In terms of
prevent shrinkage of the available
Cymru programme should infrastructure, completing the A6
labour pool. Timely delivery of
therefore be a priority. between Derry and Belfast is a
infrastructure projects such as
major project for the region.
rail electrifcation and Crossrail Scotland:
is essential to maintain good links – The region should focus on
to London. Likewise, continued education and skills initiatives
support for the East-West rail which would accelerate previous
is crucial for improving inter- progress made on improving
regional links outside London. productivity. Specifcally, Scotland
© 2017 KPMG LLP, a UK limited liability partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International (“KPMG
International”), a Swiss entity. All rights reserved.
Improving UK regional productivity performance7
© 2017 KPMG LLP, a UK limited liability partnership and a member frm of the KPMG network of independent member frms affliated with KPMG International (“KPMG
International”), a Swiss entity. All rights reserved.
