3.1.1 Derby outperforming the rest of the Midlands
As the Part 1 economic overview has established, Derby is a productive city. In the broad picture there is no productivity gap in Derby. Economic output levels are ahead of the rest of the East Midlands – and productivity is improving at a faster rate than across the region or the rest of country as a whole. Between 2011 and 2015 the average annual GVA growth of the Derby economy was 4.0% compared to 3.2% across the East Midlands and 3.3% across the UK. Output (GVA) per worker in the City is 16% above the regional average[i].
According to analysis by Centre for Cities, Derby has the joint fastest rising tax base of all cities outside London (as reported in the 2015 Derby Local Economic Assessment) – indicating strong growth in higher-paid jobs and profitable businesses. The city economy now has a greater share of private sector jobs – 80% according to the latest data, compared to 76% in 2010 – making it more balanced and resilient to ongoing public spending reductions[ii].
Nonetheless, Derby sits at the heart of a wider region where the productivity gap with the UK average is widening – by around 5% between 1997 and 2015[iii] – and therefore productivity remains the primary concern of wider economic strategy such as the Midlands Engine Strategy (2017). Given Derby’s relative high-performance, it therefore appears that the City has been carrying the burden of the decline in the relative productivity performance elsewhere in the Midlands.
3.1.2 Advanced manufacturing and engineering: Derby’s most productive sectors
Derby’s level of economic output and efficiency are driven by the strength of its advanced manufacturing and engineering businesses. The aerospace and rail sectors alone produce approximately a third of the city’s GVA and account for 14,700 jobs – 12% of total employment[iv]. The average worker in manufacturing in Derby generates more than twice the value-added for the national economy compared to the average manufacturing worker in the East Midlands (GVA per job in manufacturing. Derby: £94,500; East Midlands, £61,000. ONS 2015)[v].
Rolls-Royce is the strongest contributor to Derby’s productive economy. Across its nationwide sites the estimated annual contribution of the company to the UK economy is £7.26bn – roughly equivalent to the overall output of Derby as a City. Derby has 14,000 Rolls-Royce workers, well over half of its national workforce, and the majority of the company’s operational and staff spending economic impacts are realised in the East Midlands.[vi]
With advanced manufacturing and engineering as Derby’s most productive sectors, and a considerable amount of Derby’s available employment land constrained by flooding and infrastructure requirements[vii], the ongoing delivery of the innovation and technology park at Infinity Park Derby is particularly critical to future productivity and growth.
3.1.3 Derby’s productivity challenge
Mike Copestake from Freeths/Enterprise for Education (E4E)
The productivity challenge in Derby is different from the national productivity challenge. There is no gap between the City’s average performance and the rest of the economy. However, the City’s relative strength is largely based on the activities of Rolls-Royce and Bombardier, and the rest of its producer businesses. As shown in table 3.a, without the employment and output of manufacturing, the average GVA per worker across Derby falls by over £8,500 – from £54,700 to £46,100 – taking the per worker productivity average below the national average (GB £53,500)[viii].
Beyond manufacturing, most sectors in Derby are less productive per worker than the national average, although several still outperform regional averages. As the economic overview (Part 1) established, Derby lags behind other places in the growth of its most productive service sector employment – jobs in the knowledge-intensive business services (KIBS). As shown in table 3.a, there is room for significant improvement in the value and productivity of ICT and financial and business services in Derby, whilst the retail, leisure and distribution sector is also less productive than average.
|Table 3.a – GVA per worker in key selected private sectors – Derby, East Midlands and Great Britain|
|.||Derby||East Midlands||Great Britain|
|Sector||GVA Per Worker||GVA Per Worker||GVA Per Worker||vs. EM||vs. GB|
|Manufacturing||£ 94,500||£ 60,983||£ 68,037||+55%||+39%|
|Financial and insurance activities||£ 80,100||£ 77,706||£ 116,904||+3%||-32%|
|Information and communication||£ 71,300||£ 76,131||£ 89,972||-6%||-21%|
|Business service activities||£ 36,100||£ 28,764||£ 39,914||+25%||-10%|
|Retail, transport, accommodation and food||£ 32,700||£ 35,587||£ 37,563||-8%||-13%|
|All industries||£ 54,700||£ 47,324||£ 54,702||+16%||–|
|All industries without manufacturing||£ 46,109||£ 45,270||£ 53,535||+2%||-14%|
3.1.4 Smart productivity
Paul Harris from Rolls-Royce
Improving productivity does not mean making people work harder. It means helping them to work smarter – producing more value for each hour of their time and thereby increasing their earning power. This is how economies grow and how living standards improve (‘Building our Industrial Strategy: green paper’. HM Government, 2017)
Over a third of jobs in Derby require a degree or other higher-level qualification[ix]. A 2017 business survey found that two-thirds of employers in the city are finding it difficult to recruit appropriately skilled graduates[x]. Employers are also reporting a lack of job-readiness skills, with growing evidence that many graduates are in non-graduate-level jobs, thereby displacing residents with appropriate skills from these jobs[xi].As the economic overview in Part 1 identifies, there is a general labour skills deficit amongst Derby’s residents – both at the higher and entry-levels – when compared to the national skills profile. This appears to defy the trends of high-productivity economic activity in the City; and therefore suggests that Derby is a net importer of highly-skilled workers. This analysis is reinforced by research into the requirements of local businesses in the City.
It is likely therefore that without improvement, the misalignment and deficit of skills in Derby’s workforce will continue to affect its most productive businesses. Between 2012 and 2016, 3,500 (74%) of the 4,700 job vacancies in the aerospace, rail and automotive sectors in Derby required higher level skills. Rail sector skills gaps are being exacerbated by an ageing workforce – 3,000 new Level 3 engineers and 7,000 new Level 4 technicians required to maintain skills levels[xii].
A 2017 CBI report found that workforce skills and educational attainment are the key variable in the levels of productivity between place economies in the UK[xiii].
Given the strength of advanced manufacturing and engineering in the city, a key issue for maintaining the levels of productivity in Derby in the next five years will be trends in industrial digitalisation and the ongoing development of Industry 4.0 – the shift towards cyber-physical systems and the rapidly increasing importance of data control and transfer in production techniques. This is also a nationally important issue – recognised in the Industrial Strategy and in the commission of the Industrial Digitalisation Review which is to lead to a ‘sector deal’ with national government for investment and support.
The interim report of the review (July 2017) highlights the particular skills deficit in this vital part of the future UK economy: ‘Businesses face a skills shortage, particularly digital engineering capability, hindered by a fragmented skills system and lack of systematic engagement with industry.’[xiv] Given the structure of its economy, these issues are particularly relevant to Derby and have been corroborated in consultation with key Derby businesses.
3.1.5 Productive economy indicators
|Core indicator: GVA per worker (2015)||Productivity of labour force||£54,700||£47,300||£54,700||✔||✔|
|GVA per worker outside manufacturing (2015)||Productivity of labour force outside Derby’s key industries||£46,109||£45,270||£53,535||✔||✘|
|Annual growth in KIBS jobs (2014-15)||Growth in the most productive service sectors||-1%||-3%||+3%||–||✘|
|Annual growth in private sector jobs||Balance and resilience of economy||+2%||+3%||+3%||✘||✘|
[i] GVA growth in Derby outperforming national and regional averages: GENECON analysis of ONS Regional Gross Value Added, 2015
[ii] Greater share of private sector jobs in Derby: GENECON analysis of BRES Public Private Employment, 2011 and 2015
[iii] HM Government (2017) Midlands Engine Strategy
[iv] AECOM analysis of ONS Regional GVA as reported in Planes, Trains and Automobiles Part 2 (AECOM, 2017) p26.
[v] GENECON analysis of ONS Regional Gross Value Added, 2015
[vi] Oxford Economics (2016), The Contribution of Rolls-Royce to the UK Economy in 2015
[vii] Derby City Council (2017). Derby Core Strategy, p7.
[viii] GVA per person in employment by sector (2015): GENECON analysis of Regional Gross Value Added, 2015; BRES Employment, 2015
[ix] Labour Insights data, as reported in DCC and NCC, Exploring skills needs and supply in the Metro area (presentation, 2017)
[x] Centre for Cities, 2017. The Great British Brain Drain: an analysis of migration to and from Derby
[xi] Excalibur UK Ltd (2017) Research Report on Enterprise and Skills
[xii] AECOM, 2017. Planes, Trains and Automobiles Part 2
[xiii] CBI (2017). Unlocking regional growth understanding the drivers of productivity across the UK’s regions and nations
[xiv] Industrial Digitalisation Review Interim Report (2017)