Agenda item

Briefing note of the Director of Business Investment and Culture

Councillor G Duggins, Cabinet Member for Policy and Leadership and Councillor J O’Boyle, Cabinet Member for Jobs, Regeneration and Climate Change have been invited to the meeting for the consideration of this item

The Board considered a briefing note of the Director of Business Investment and Culture concerning the impact that the UK’s withdrawal (“Brexit”) from the European Union (EU) has had on the local economy in Coventry.  This included the impact on local businesses and important sectors of the local economy and the labour market, and also the Council’s response in working with local business support partners to help businesses adapt to new trading regulations and conditions.

The report indicated that the UK EU Trade and Co-operation Agreement was agreed on 24 December 2020 and formally signed on 30 December. The main implications of this Agreement for businesses were that since 1 January 2021, the UK had not been a member of the Single Market and Customs Union, although there were zero tariffs or quotas on goods traded between the UK and EU that meet the “rules of origin” (material from the UK or EU or processing within the UK or EU).  However, all goods exported or imported between the UK and EU now required customs declarations and an EORI (Economic Operator Registration Identification) number. Full border checks on customs declarations and controls for goods imported into the UK were to be introduced on 1 January 2022 and product checks on food and animal products imported into the UK were due to be introduced on 1 July 2022. The position for services remained more complex.

The briefing note highlighted the key challenge in attributing the impacts of the UK’s exit from the EU was the Covid-19 pandemic which brought significant restrictions and closures to many parts of the UK economy from March 2020, soon after the UK’s withdrawal from the EU. Many of the market trends, performance trends and challenges that had affected businesses and the economy since this date had been due to both the impacts of Covid-19 pandemic and the UK’s withdrawal from the EU.

The Office for Budget Responsibility (OBR) had forecast that the UK economy would return to Quarter 4 2019 levels by Quarter 1 2022, although no regional breakdowns of the recovery trajectory were provided. The OBR report for the 2021 Autumn Budget forecast that UK GDP would be 4% lower in the longer-term as a result of the UK’s withdrawal from the EU, driven significantly by 15% falls in both export and import activity. The report also forecast that the Covid 19 pandemic would lead to a 2% longer-term drop in GDP. It was noted that these forecasts did not specify time periods nor variations by regions or sectors.

The briefing note referred to recent data from WM REDI (West Midlands - Region Economic and Development Institute) that had emphasised the impact of the drop in trading activity in the West Midlands. Recent surveys had shown that 1 in 4 West Midlands businesses were still exporting less than normal and 1 in 5 importing less than normal.

Local business support and economic development partners were reporting a range of common challenges that Coventry and Warwickshire businesses were facing. The additional administration requirements associated with customs documentation was placing additional costs and human resource requirements on businesses trading internationally, particularly on small businesses.  Businesses across multiple sectors were also being impacted by increasing costs of materials and shipping and storage, and supply chains were experiencing further challenges presented by delays to the shipping of products and components.

Labour shortages were also impacting on multiple businesses in key sectors of the local economy, including tourism and hospitality, haulage and logistics, security, construction, manufacturing and health and social care.  Many of these sectors had historically employed a high number of EU nationals, although there had been longstanding concerns over the supply of labour, with terms and conditions for workers in these sectors a contributing factor. Details about unfilled vacancies across the UK were highlighted. The City Council’s Employment and Skills Service had recently identified over 3,000 vacancies in Coventry itself, and 32,000 vacancies within a 25 mile radius of the city, with the most common types of vacancies in logistics (288 in Coventry), food & beverage (219) and construction (144). These labour shortages were despite a significant rise in unemployment in Coventry since early 2020, up to 14,250 (5.6%) in September 2021.

The Committee were informed that there was currently limited data on the impacts of the UK’s withdrawal from the EU on individual sectors of the economy, with evidence and trends expected to materialise only in the longer-term. However, some analysis from WM REDI forecasted losses in the longer-term competitiveness of the region’s automotive (4.1%) and other transport equipment (4.6%) sectors, as well as computers and electronics (2.4%). Details of the impacts on the local universities were also highlighted.

The UK’s exit from the EU would also impact on how many of the Council’s business, skills and employment support activities would be funded in the future.  In recent years, the European Regional Development Fund (ERDF) and European Social Fund (ESF) had funded large amounts of Coventry and Warwickshire’s business, employment and skills support ecosystem. The briefing note detailed programmes that had been supported by these funding streams in recent years. 

The Committee were informed about the Council’s Economic and Social Development response which included adopting a pro-active approach to understand the main threats and opportunities facing local businesses and the economy, and to put in place responsible business, employment and skills support services. In January 2019, the Economic Development Service became a member of Coventry and Warwickshire Chamber of Commerce’s Brexit Club. The Service also became a member of CWLEP’s Smart Region, which was fronted by CWLEP Growth Hub and involved the co-ordinated gathering of local business and economic intelligence to inform lobbying of Government on responsive actions.

Through strong partnership working, business support schemes led by the Economic Development Service had been active in referring Coventry and Warwickshire businesses to specialist international trade support providers. The Brexit preparation workshops and 1:1 clinics that have been hosted by WM Chambers Export Academy and CWLEP Growth Hub had been promoted through the Business Newsletter (over 1,000 circulation) and due to high levels of take up, these had been extended beyond the originally intended end date of March 2021.

The EU-funded SME support programmes had also continued to support Coventry and Warwickshire firms to increase their international competitiveness in a range of aspects. In total, between 2019 and 2023, it was anticipated that these programmes would have supported over 1,500 SMEs to grow, create over 1,200 new jobs, and deliver £10.3m of business grants that would lead to a further £29m in business investment. 

Employment support programmes had also been active in tackling labour shortages and skills gaps. Since March 2020, the Coventry Job Shop alone had registered over 3,900 new customers and supported 1,980 people into work and had held events including “Coventry Moves Into Work” in September 2021 which linked jobseekers with employers from sectors facing labour shortages.

The Service had continued to deliver major projects to create the conditions to grow the local economy and ensure businesses could thrive in evolving global markets. These included securing over £130m of public funding and overseeing the successful development of UK Battery Industrialisation Centre, and developing a strong regional partnership to pursue the development of a potential new £2bn Gigafactory in Coventry to safeguard and enhance the future international competitiveness of the West Midlands automotive and smart mobility sector and associated supply chains.

The Committee noted that the Service would continue to work with local business support and economic development partners, to continue collating information regarding the key challenges and opportunities facing Coventry and Warwickshire businesses. They would also continue to monitor how the UK’s withdrawal from the EU, and evolving international trading conditions and new regulations were affecting them. Work would also continue to design and implement appropriate business support measures in response as changes emerged.

Members questioned the officers on a number of issues and responses were provided, matters raised included:

·  Concerns about the loss of funding for the two universities who were key to the local economy

·  An acknowledgement that it was very difficult to determine if the impacts on the economy were due to Brexit or a result of the Covid-19 pandemic

·  Would the recent reduction in universal credit combined with the current inflation rate impact local businesses, in light of claimants tending to shop locally

·  Was the financial support provided by the Council to stop people becoming homeless affected by the loss of European funding

·  Was anything being done to collect and log feedback from the different business sectors in the city regarding the impact of Brexit

·  The availability of Government information about the impact of Brexit

·  A request for a twelve month update report on the impact of Brexit on the Council and the local economy, to include feedback from the different business sectors

·  What could be done to help businesses get better at exporting and what support was being offered

·   What was being done to support local manufacturing when problems were being experienced due to labour shortages, including financial support

·  Concerns about the potential loss of City Council staff in areas were there were staff shortages and larger salaries were available in the private sector.

RESOLVED that:

1) The content of the briefing note be noted.

2) The difficulties in determining if impacts are due to Brexit or a result of the Covid-19 pandemic be noted.

3) An update report on the impact of Brexit on the local economy, including information on sector by sector feedback, be submitted to a future meeting of the Board in twelve months and the Board’s work programme be updated accordingly.