The Chamberlain News

Midlands Engine – what is really under the bonnet?

The Midlands Engine Strategy, published last week, has been warmly welcomed by most business leaders and politicians. As MIPIM delegates order up another bottle of champagne on the yachts, with the Midlands UK tent pitched in the background, Kevin Johnson looks beyond the big number headlines to find out what is really under the bonnet.

Nobody will be churlish enough to turn their nose up at £392M from the Local Growth Fund. Neither will anyone want to tell the Chancellor and Communities Secretary that, after years of neglect – what LibDem mayoral candidate Beverley Nielsen calls being the “flyover state” – that we don’t want their attention on the Midlands after all.

The Strategy poses as many questions as it answers. Does it mount up to much more than a mega announcement of Local Growth Fund awards across multiple LEPs and an analysis of the challenges and opportunities faced by a big chunk of England? Does it begin to provide a common thread that binds together a patch of the country that can only really be defined by the fact it is the nation’s ‘middle bit’?

The answer to those questions is, broadly, no.

We said in our first post on the Midlands Engine Strategy, there’s a question about whether this a strategy for or from the Midlands. On a full read of the document, there is actually no doubt this is a Strategy conceived, written and published in Whitehall.

There is, rightly, much praise for the Chair of the Midlands Engine Partnership Sir John Peace in the document and credit to the various local authorities, LEPs, Combined Authorities and universities working together. But, there is little sense of how this ‘voluntary partnership’ will actually work.

In fact, we know already just how difficult it is for councils and others to work together in this part of the world – the Midlands Engine geography multiplies the problem several times over.

The ‘Strategy’

The Strategy document, whilst full of apparent funding announcements and quite a degree of repetition, does have some nuggets.

The scale and potential of the Midlands Engine is made clear:

The Midlands has huge economic potential. It is already home to more than ten million people. Its economy is worth £217.7 billion – 13% of the UK’s annual output. It has the UK’s second largest city – Birmingham – which is already growing rapidly…

But the productivity gap is laid bare:

In 1997, the productivity gap between the Midlands and the UK average was about 10%. By 2015, it had grown to about 15%. This productivity challenge applies across both rural and urban areas.

The document highlights three key weaknesses:

1.  Shortage of skilled workers
– proportion of highly skilled people is about 15% below the England average
– one in every eight people in the West Midlands has no qualifications
– too many skilled graduates are leaving the region after completing their studies.

2. Economy is fragmented into small, poorly connected areas                                                         – the Midlands isn’t making the most of its position at the centre of the country.

3. Lack of entrepreneurship and economic dynamism
– in 2015, the number of businesses created for every 100,000 people in London was more than double the rate in the Midlands.

The five key objectives for Midlands Engine have been re-iterated:
i. Improving connectivity in order to raise productivity.
ii. Strengthening skills in order to make the Midlands a more attractive location for businesses.
iii. Supporting enterprise and innovation in order to foster a more dynamic regional economy.
iv. Promoting the Midlands nationally and internationally in order to maximise trade and investment in the region.
v. Enhancing quality of life.

The Midlands Connect Strategy – Powering the Midlands Engine has also been published and will be the subject of a separate Files post. But it includes the commitment that by the end of 2018 all rail passengers in the Midlands will have the option to use a smart ticket on local services.

The Government will also provide £250,000 to support the development of proposals for a new West Midlands Integrated Command Hub.

Connectivity, is, perhaps, the super-region’s greatest asset (even before HS2) – particularly in terms of travel time for the rest of the country to reach these parts. Our connections to the international economy are slightly damned with faint praise, being as we are: “quite well connected” via Birmingham and East Midlands Airports. Digital connectivity is “comparatively” strong.

But one nugget, for me, is the dispersed nature of the population and its impact on productivity.

Even though Birmingham is the second largest city in the UK, the Midlands’ population is considerably more spread out than most other regions of England. This makes it more expensive for people, goods and ideas to move around, holding back innovation and making it harder for people to find jobs that match their skills. Ultimately, this lowers productivity, and wages.

So, the Strategy focuses on improving connectivity – not least in terms of the towns and cities of the Midlands to each other.

In digital connectivity, the government is inviting the Midlands Engine Partnership to develop proposals for establishing 5G testbeds.

On skills, the strengths are described as:

• being home to 20 universities, including Warwick, Birmingham, and Nottingham ranking in the world’s top 150
• the bedrock of highly skilled, specialist employees in high value manufacturing, responsible for delivering over 21% of the UK’s annual manufacturing output
• a strong tradition of apprenticeships, with an average apprenticeship start per 100,000 people some 14% higher than the England average.

But again the problem is made abundantly clear:

…the Midlands skills base is weak compared to other regions.

The West Midlands is the region with the highest proportion of people with no qualifications at 13%. The inactivity rate in the West Midlands is 23.1%, compared to the national average of 21.6%.

The Strategy puts this down to two reasons:

1. outcomes in schools in the Midlands are below the national average
– the West Midlands is the joint worst performing region…for primary school outcomes
2. the Midlands struggles to retain the graduates it educates, and also to attract graduates from other parts of the country.

So, long term interventions are required at each step of the education and skills system.

Capital funding for a network of Institutes of Technology, additional funding for further education and lifelong learning, the Midlands Skills Challenge and looking at how the Government could transfer funds within the apprenticeship service are cited as some of the responses.

But observers may well think a lot more is required to turn around long term problems and such a significant skills gap. For example, none of the measures address the issues in primary schooling or hand any powers to the Midlands Engine Partnership, WMCA or West Midlands Mayor.

The Midlands’s sector strengths are now well recognised, from advanced manufacturing (Black Country) and Automotive (Coventry and Warwickshire cluster) through to Life Sciences (Birmingham and Nottingham) and Digital Technology (gaming in Leamington Spa and Coventry).

But, the cloud of poor productivity hangs over the Midlands.

…the Midlands still lags behind the national average. GVA per employee in the Midlands is £44,447 compared to the UK average of £50,830. Even in areas of comparative strength – GVA per employee in manufacturing in the Midlands is 23.9% below the UK average.

The productivity puzzle is reflected in a “lack of dyamism” in the Midlands economy, according to the Strategy.

The answer, according to the Midlands Engine Strategy, is to build on the Industrial Strategy with:

• targeted investments… to build on its existing science and innovation strengths
• supporting industrial clusters
• supporting small and medium sized enterprises to grow and become more competitive.

A Midlands Engine Investment Fund, a Manufacturing Productivity Programme and Enterprise Zones are among the measures outlined.

Recent strong performances in inward investment and exports are celebrated. The Investment Hub based with Marketing Birmingham, a Midlands Trade and Investment Programme and the presence at this week’s MIPIM real estate fair are set out as the measures by which export and investment performance will be supported in the post Brexit era.

But to say the document is thin on detail when it comes to Trade and Investment would be an understatement. A page of calendar events papers over the gap where previous chapters had a reasonable dose of strategic analysis.

Finally, to quality of life where the Strategy brings together culture and housing. Cultural and natural heritage along with tourism are seen as strengths. Here, the document lays out the support for an extension to Symphony Hall, Warwick Arts Centre and that consideration will be given to house and showcase the Government’s art collection in Birmingham.

There is, though, no silver bullet for increasing housing supply to the necessary levels. The Strategy says there is a need for “strong local leadership and commitment from a wide range of stakeholders, including planning authorities, private developers and local communities themselves.”

In effect, it lays bare the problem that housing and other land supply issues cannot be solved through existing structures and that stronger leadership is needed, but there is no talk of spatial planning – statutory or strategic framework, East, West or pan-Midlands.

Conclusion

The Midlands Engine Strategy is not, in any real sense, a strategy.

Neither is there a vision, or certainly not one that brand consultants or business planning advisers might recognise.

It is a grand funding announcement and a reasonable SWOT analysis.

It does not define the basis for an identity or why the land mass in the centre of England should hang together or be promoted as a recognisable economic area or territory. Perhaps most notably, the ‘Strategy’ is not ‘Made in the Midlands’.

The question is whether Sir John Peace and his ‘voluntary partnership’ of council, LEPs, universities and others can now work together to fashion something which can be owned here and backed in London. Is there a discernible vision, identity and strategy lurking somewhere in the Midlands Engine?

Reaction

Andy Street, Conservative candidate for West Midlands Mayor said:

Eradicating youth unemployment in the West Midlands is one of my key pledges ahead of the election on May 4. Rolling out the Work Coaches programme to the whole West Midlands was one of the key ways of achieving this ambitious target.

So, I am delighted that the Chancellor has approved the £12M to do just this.

Labour leader of Birmingham city council John Clancy said he looked forward to a planned £10 million extension to Symphony Hall, and would “throw his weight” behind a suggestion that the Government art collection could be moved to Birmingham.

Councillor Clancy, who also holds the economy portfolio on the West Midlands Combined Authority cabinet, said:

There’s been a lot of talk about the Midlands Engine, and we are now finally being given some details which on the face of it seem to be a big vote of confidence in Birmingham.

This is a creative city and a creative region, so I particularly welcome the Midlands Engine Investment Fund and the commitment to make sure small and medium sized businesses are at the heart of our drive to create inclusive economic growth.

The Strategy was also welcomed by WMCA chair Cllr Bob Sleigh:

The [Strategic Economic Plan] SEP is our plan to deliver greater jobs and prosperity to this region and the announcement of the Midland Engine Strategy gives us the tools to do the job.

The WMCA will soon have a directly-elected mayor able to use powers over skills, transport and planning to drive local growth while HS2 will place the Midlands at the heart of England’s high speed rail network, making it an even more attractive place for people to live and work, and for companies to do business.

Sara Fowler, Midlands Senior Partner at EY commented:

The £23M announced in the Spring Budget, to fund new road infrastructure and tackle the issue of urban congestion in the Midlands, is only part of the solution. Local government needs a clear plan and approach to devolution that isn’t just a replica of the Northern Powerhouse if we are to empower the region and build the profile of the Midlands Engine as a global investment hot-spot.