Written evidence submitted by Liverpool City Region Combined Authority (RDE0078)

Overview

The Liverpool City Region economy is worth £32 billion (GVA), with emerging strengths, assets and specialisms in a number of high-value sectors. We have added over £1 billion to our economy in the last decade, despite facing the deepest recession the UK has experienced since the Second World War. Our economy has grown faster than the national average in three of the last four years, and grew by more than 3% between 2016 and 2017. Since 2014 we have seen significant growth in our employment rate, closing the gap considerably with the rest of the UK. Our unemployment rate has also fallen significantly, and as of 2018 is lower than the UK as a whole. Liverpool City Region Combined Authority (LCRCA) is proud to celebrate these achievements in our region’s economy, but we also recognise that this does not tell the whole story.

Our GVA per head continues to lag behind the rest of the country, and every filled job in our region produces £6k less output than the national average. The health, wealth and wellbeing of our citizens all too often compares poorly with other areas of the UK, and within our region certain neighbourhoods are characterised by significant levels of multiple deprivation, poor quality housing, and environmental degradation. This not only stifles the economic potential of our region, but also indicates the gulf that exists between our headline economic success and the lived experience of a significant portion of our citizens.

As a Combined Authority, we understand the daily reality of regional economic imbalance, acknowledge the challenges we face, and seek to address them proactively through the bespoke, strategic interventions now made possible by devolution. If we are to build a truly inclusive economy in Liverpool City Region, our metrics for success must look beyond simply growing our economy, and instead challenge us to ensure that the benefits of growth can be meaningfully enjoyed by every citizen.

In this evidence submission, we aim to:

  1. Provide an overview of the significant imbalances that exist both between our region and others, and within our region;
  2. Explain why we believe economic imbalance, as well as success, must be measured in more than GDP and GVA; and
  3. Explain why the production of regional economic forecasts by Government should be undertaken in a collaborative manner with local areas, to ensure standardised outputs through joint modelling of assumptions and approaches.

Imbalances and the Liverpool City Region economy

(i)      Prosperity and productivity

In terms of the both prosperity (GVA per head) and productivity (GVA per filled job), we have performance gaps to close. GVA per head in the City Region is £20,400, roughly 75% of the UK’s per head GVA figure, placing it 29th out of the 38 LEP areas in England. Since 2010, the gap with the UK level has increased from £4,500 to £6,700 per person. Our productivity (GVA per filled job) tracks much closer to national levels; and is 89% of the UK level. Despite this, every filled job in the City Region produces £6,000 less output than the UK.

Over the last decade whilst GVA growth in Liverpool City Region has been below the national average, it has matched average growth across the North of England. GVA per head in the City Region is 89% of the average for the UK less London & South East, largely equivalent to the 2007 figure. Whilst understanding the reasons for disparities in economic performance with national averages are important, of equal importance for the City Region is understanding the reasons for weaker growth post-recession.

Figure 1: GVA per head

Source: Office for National Statistics, GVA Release

(ii)    Inactivity and Health

There are a number of reasons for our weaker output per head performance, but it is particularly impacted by the high number of people in the City Region who are classified as economically “inactive”.

Of the 26% of our working age population classed as inactive, 30% is the result of long-term sick and 23% looking after family/home, meaning that as much as 53% of inactivity is the result of sickness and caring responsibilities. We have the third highest inactivity rate of all the LEP areas, illustrating the severity of poor health outcomes that are both a significant underlying factor and outcome of inactivity.

Figure 2: Economic Inactivity Rate by LEP

Source: Office for National Statistics, Annual Population Survey

The City Region performs below the UK across a range of health outcomes as the prevalence of ill health increases:

Poor mental health is a particular issue in the City Region. Of 97,000 people claiming Employment Support Allowance, well over half have a mental health problem as the main health reason.

Figure 3: Prevalence of mental health disorders by Local Authority area

Source: Public Health England

(iii)   Business Base

A healthy business base and strong business growth are crucial to improving the economic performance and competitiveness of an area. The seizing of new business opportunities by both start-ups and existing businesses is a key driver of productivity growth in the economy. In 2017 there were 48,405 active businesses in Liverpool City Region. Despite relatively strong growth over recent years the City Region’s business density rate remains significantly below the England average. Out of 38 LEP areas in England, the City Region is ranked 36th in terms of business density. The overall figures for Liverpool City Region, however mask considerable differences occurring at the local authority level. Business density rates vary from a high of 41.8 per 1,000 16+ years adults in Liverpool to a low of 30.9 per 1,000 16+ years adults in Knowsley.

Figure 4: Comparative Business Density Rates

Source: Office for National Statistics, Business Demography

(iv)   Place

The Liverpool City Region faces a number of place-related challenges, including entrenched and widespread deprivation where the benefits of economic development have not been realised; high retail vacancy rates in some town centres and high streets, with implications for sense of place, image and reputation; and limited (often low quality) housing choice, with impacts for quality of life and attracting and retaining skilled labour in the City Region. Our current housing choice is characterised by a higher than average proportion of lower value houses (Council Tax Bands A and B) than that found nationally, 68% of our housing stock is in Council Tax Band A or B, compared to 44% of housing stock in England. 60% of the housing stock in the Liverpool City Region is at Energy Performance Certificate (EPC) Band D or below, suggesting that the housing stock in our region is low quality as well as low value, with potential negative implications for health, the environment, and fuel poverty.

The Liverpool City Region is amongst the worst in relation to the 11 Northern Powerhouse LEP areas for Indices of Multiple Deprivation, with each of the constituent local authorities facing localised inequality, ill-health and inactivity challenges, often in boroughs neighbouring those with more affluent prospects.

Figure 5: Deprivation in the Liverpool City Region

Source: Index of Multiple Deprivation

(v)    Environment and clean growth

The Liverpool City Region faces a significant air quality problem with impacts from transport across all local authority areas. Poor air quality has significant negative health impacts on the population, notably children and those in deprived areas. The overreliance on cars for many short journeys within the City Region plays a significant role in our poor air quality outcomes. There is a direct link between more affluent areas and higher rates of car usage, where car ownership rates are higher. Equally, less affluent areas will often experience the impact of the car borne trips through their communities.

Figure 6: Deaths from respiratory diseases in the Liverpool City Region

(vi)   Connectivity

Liverpool City Region is well served by an extensive rail, bus and road network. The Merseyrail network is the most intensively used commuter network outside London, yet connectivity is uneven across the City Region, with some areas less well served by our transport infrastructure, in national terms, we also experience relatively poor long distance and inter-city rail connectivity compared to other City Regions.

Figure 7: Internal connectivity of Liverpool City Region and its hinterland by rail 

Source: Merseytravel Long Term Rail Strategy 

(vii) Education and Skills

Poor educational performance limits progression routes into work for individuals and the availability of skills in the labour market. Educational performance is mixed across the City Region. At Key Stage 4, Wirral consistently out-performs the national average and Halton schools have improved since 2011 to be above average. The other areas are below average, particularly in Knowsley.

Over the last decade the level of qualifications and skills in the Liverpool City Region have improved, with 50% more people aged 16 – 64 qualified to NVQ4+ than a decade ago. Despite the significant progress there remain a number of important challenges for the City Region, comparatively we have a low proportion of highly skilled workers (NVQ4+), and a higher proportion of residents with no qualifications. A highly skilled population is a key component of a competitive, productive economy.

Figure 8: Skills Profile of the LCR, North West and UK

Source: Office for National Statistics, Annual Population Survey

Why we believe economic imbalance must be measured in more than GDP and GVA

Aggregate measures can hide a huge amount of diversity of character of place. As a measure of regional imbalances, GVA is a workplace-based dataset. Locations with high concentrations of jobs are GVA generators, however the workers undertaking those jobs may live elsewhere. City centres or other large employment locations have higher levels of output, while areas with higher proportions of residential areas tend to appear to underperform.

In Liverpool City Region, there are significant commuting flows impacting on local authority GVA per head figures. In 2017, the highest GVA per head was found in Halton at £32,141, followed by Liverpool £24,101 and Knowsley £23,795, figures were considerably lower in Sefton £15,937, Wirral £15,279 and St Helens £15,106.

To have a fuller understanding of the function of place in Liverpool City Region economy it is key to analyse indicators of welfare such as residence-based household income. Gross Disposable Household Income (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 reflects the “material welfare” of the household sector. GDHI in Liverpool City Region local authorities varies considerably from GVA. In 2017, GDHI per head was highest in Sefton £18,003, followed by Wirral £17,489, figures were considerably lower in Halton £15,484, Knowsley £15,417, St Helens £15,381 and Liverpool £14,557.

Liverpool City Region is more dependent on social contributions (benefits & state pensions) as a source of income compared to the national average and the average for the North of England. Within the City Region, wages contributed 55.4% to income in Liverpool compared to 50.1% in Sefton and 52.7% nationally. The contribution to income from social benefits was highest in Wirral 24.8% and lowest in Liverpool 22.8% compared to 17.9% nationally.

Looking beyond GVA

GVA is only a measure of economic performance, it provides a picture of the size and structure of an economy. However, raising economic output requires increasing inputs or productivity. Differences in productivity are not only driven by the size and structure of an economy but the levels and quality of its factors of production including investment, skills and infrastructure, as well as how effectively such factors are utilised, linked to levels of entrepreneurship, innovation and competition. Therefore, assessment of a wider range of indicators than simply GVA is required to provide a better picture of local economic conditions.

However, the availability, consistency and quality of indicators across the following themes varies considerably at a local level, making evidence-based policy development and performance monitoring difficult.

At a local level, economic data is less timely and less granular than data available nationally; the extent of these differences also depends on the particular dataset – data on competition and investment at a Combined Authority level is particularly weak. Even for GVA, regional level data is published 12 months after the end of the reference period, and when published, data are “provisional” and subject to revision.

In using GVA/GVA per head as a performance indicator, economic growth can result in negative impacts for local areas including on cohesion, pollution, services and built environment. Emphasis on GVA growth as a performance indicator takes no account of the quality of the job to an individual, or the contribution of the job to wider society. Nor does it sufficiently reflect the wider socio-economic inequalities that exist between and within regions of the UK, or how these are fundamental to economic performance.

As a City Region we are committed to raising living standards for all our people, ensuring policies and interventions have a real focus on how all people and places across the City Region can benefit from, and contribute to, economic development. Focusing solely on GVA/GVA per head levels and growth to measure performance would not fully measure the impact of Liverpool City Region Combined Authority interventions, including investments in the business ecosystem, skills and infrastructure to deliver an inclusive economy.

No single indicator provides a comprehensive picture of performance, where as a “basket” of indicators can be used to identify strengths and weaknesses across policy areas and lead to informed support and investment decisions. Policy areas and indicators could include:

Collaborative production of Regional Economic Forecasts

The value of regional economic forecasts by Government comes from the consistency of forecasts across the whole of the country i.e. modelling methodology and sector definitions. Currently local areas are reliant on commercial modellers for granularity, both geographical and sector, this raises the issue of different assumptions underpinning modelling and lack of clarity in comparing forecast outputs for different areas.

Economic policy-making depends on the integrity of the statistics that underpin it and the responsiveness of the statistics to change. There are considerable limitations with SIC code data in reflecting recent changes in the structure of the UK economy and potentially future demands, although they can be useful in providing focus.

Sectors simplify the functions of businesses down to one code representing all activity, as a result different sectors can be underestimated or overestimated. The nature and contribution of “new sectors” (for example Digital and Low Carbon/Clean Energy) are not reflected through SIC codes. This represents a challenge for policy development in local areas where these sectors are of growing importance to the economy or represent significant opportunities for growth.

As a result, local areas have tried to establish more innovative analysis of local businesses/clusters using web-scraping tools to quantify sectors such as “Med Tech”, “Fin Tech” and “Clean Energy”. Significant advantages could be realised by Government working collaboratively with local areas on this process, most notably consistent methodology resulting in standardised outputs.

Without the contribution of local area knowledge, Government produced economic forecasts would be baseline projects of historical trends, useful in providing some insights into structural changes to economies. However, it is the input of future growth interventions which results in local economic forecasts and in order to undertake this across the 38 LEP areas, would require significant additional capacity and co-ordination.

 

August 2019