The Chamberlain News

Professional services, digital and creative industries growth below average in Birmingham, new research confirms

Claims that Birmingham is blazing a trail for the creation of new businesses in professional services, digital and the creative industries have been challenged by new research which suggests the city is dragging its feet.

While the city council often talks about the rapid growth of creative and digital industries in Digbeth, the proportion of small and medium sized enterprises (SMEs) in ‘new work industries’ in Birmingham is below the national average, .

At first glance, Birmingham appears to be ahead of the game with 2.4 per cent of all new work SMEs in the UK, the second highest share of any city outside of London. But closer inspection reveals that it does well only because it has so many SMEs and the proportion of SMEs in ‘new work’ sectors in Birmingham is only 30 per cent, compared to an average of 34 per cent nationally.

Leeds was one of the strongest performers among the big cities in terms of the average number of jobs created by expanding ‘new work’ SMEs between 2011 and 2014, with an average of nine jobs created.

In London, expanding ‘new work’ SMEs increased their workforce by an average of seven employees. Given the scale of the capital, this means that one in three jobs created by existing ‘new work’ SMEs in the UK between 2011 and 2014 were in London.

By contrast, Birmingham was one of the weakest performers with expanding ‘new work’ SMEs creating an average of five jobs between 2011 and 2014.

London had by far the largest number of high-growth SMEs, with a share of 39.5 per cent of high-growth firms located there. Birmingham, the second highest share, had almost seven times fewer high-growth firms than London.

The study says SMEs in professional services, digital and the creative industries are becoming increasingly important – both in terms of employment and output.

Employment across the UK in ‘new work’ industries increased at over four times the average between 2009 and 2013. Output from the digital sector increased more than seven-fold (657 per cent) between 1990 and 2013 and by 286 per cent in the professional services and 196 per cent in the creative sector.

The analysis points to research in the US which suggests that for every job created in high tech industries, five jobs are created in other industries. Cities with high concentrations of these firms tend to be more productive and highly entrepreneurial with strong private job growth overall.

“New work’ SMEs are not randomly or evenly distributed. They are much more highly concentrated in some cities than others, as they benefit from access to wide pools of talent and specialised expertise and from being in close proximity to other highly innovative businesses.

In Aberdeen, Reading and Cambridge more than one in two SMEs operate in the professional, digital or creative industries. This compares to just one in five in cities such as Burnley, Doncaster and Grimsby.

Cities with high concentrations of ‘new work’ SMEs tend to be highly skilled, as well as digitally and globally connected. SMEs in these sectors also benefit from being in dense urban locations. The creative industries in particular concentrate in densely populated city centres.

Over the past few decades, there has been a notable shift in the UK economy towards the most innovative, knowledge-intensive industries. Knowledge-intensive services now make up 34 per cent of UK output and 29 per cent of total employment.

Within these sectors, growth has been particularly significant among the professional services, creative and digital sectors. Between 2009 and 2013, employment in these ‘new work’ industries increased at over four times the economy as a whole.

Over the past four years employment in creative firms grew by 4.9 per cent, in digital firms by 3.2 per cent and in professional services firms by 12 per cent compared with overall growth of 2 per cent.

The report warns:

‘New work’ SMEs are, however, under-represented in some of the UK’s largest cities outside the capital. Just four of the 10 Core Cities – Bristol, Cardiff, Leeds and Manchester – have a higher concentration of SMEs in these sectors than the national average.

Cities with a high proportion of ‘new work’ SMEs tend to be more productive and highly innovative, as measured by GVA per worker and patents respectively. They also tend to have high earnings, low unemployment and a high business density.

Cities which have a concentration of ‘new work’ SMEs tend to have stronger skills profiles, with more graduates and fewer residents with no qualifications.