1
About Welcome to this Barriers to Growth survey report summarising the findings of a business survey undertaken throughout the first quarter of 214, on behalf of the West of England Local Enterprise Partnership (LEP). The primary focus of the survey is to identify what the immediate barriers to growth are for local business. The principle aim of the survey is to identify immediate business priorities, so that the West of England LEP can consider what practical action can be taken to improve the business environment. This survey is distributed amongst members of the four leading business membership organisations engaged with the West of England LEP: Business West, the Institute of Directors (IoD), Federation of Small Business (FSB) and Confederation of British Industry (CBI). The Q1 214 barriers survey was undertaken 24 th February - 17 th March 214. The results of this survey form the basis of this short report. *Not all respondents answer all questions. Throughout the report, the figures are based on the number of businesses responding to each set of questions. Contents Respondent Profile Page 3 Results Summary Page 3 Orders and Sales Summary Page 4 Exports and Markets Page 5 Business Issues Page 6 Workforce Page 7 Costs and Finance Page 8 National Picture Focus on the European Union (EU) Page 9 Page 2
Respondent West of England Profile Advantages & Disadvantages Respondent Profile Number of Employees -49 25% 5+ 12% 5-9 16% Respondents reporting an increase: In which industry does your business mainly operate? Professional services 33% Other Services 15% Marketing and Media 8% Construction and Development 5% Manufacture of other goods 5% Tourism 5% Consumer Services 4% Food and Drink 4% Retail 4% Manufacture of Electronics 3% Public or Voluntary Sector Services 3% Transport & Distribution 3% Advanced Engineering Aerospace and Defence 2% Creative 2% Low Carbon Industries 1% Micro-Electronics 1% Rural Economy & Agriculture 1% Social Enterprise 1% The West of England LEP Barriers to Growth survey for Q1 214 received a total of 369 responses from businesses across the LEP area, the highest number of responses to date. Results Summary -4 47% Indicator Q1 214 Change on Quarter (Q4 213) Change on Year (Q1 213) UK sales 56% +8% +14% UK orders 53% +4% +17% Export sales 45% +12% +19% Export orders 37% +4% +6% Current workforce 34% % +4% Future workforce 36% +4% +7% Business confidence 77% +3% +13% Cashflow 52% +18% +18% 3
Orders and Sales Summary % UK Sales 6 5 4 3 2 Increased Remained constant Decreased % UK Orders 6 5 4 3 2 Increased Remained constant Decreased There is a positive picture when it comes to the domestic market. Businesses in the West of England are reporting increases in both UK sales (56%) and orders (53%) in the last three months, up by eight points and four points respectively. Results this quarter also show a decline in the percentage of firms reporting a decrease in both categories, with UK sales down by two points to 8%, and orders down by four points to 7%. The increase in UK sales and orders is an encouraging start to 214 after a year of national recovery in 213. The domestic market appears to have continued to strengthen in 214. Growth estimates for the national economy increased throughout 213 and with the Chancellor announcing higher growth estimates for the coming years in this month s budget, businesses in the region show that the West of England is following this trend. The number of firms reporting increases in UK sales and orders is up by 14 points and 17 points respectively compared to Q1 213, indicating that as the UK economic recovery continues, businesses in the region are benefitting from a vibrant domestic market. 4
Exports and Markets % 9% 8% 7% 6% 5% 4% 3% 2% % % Export Status Not Exporting 61% Currently Exporting 29% Export Sales Considering Exporting 9% Decreased Remained constant Increased This quarter s results show an increase in export activity in the region, with 29% of businesses currently exporting, up by five points on Q4 213. The number of respondents considering exporting has decreased slightly, down by one point to 9% of respondents. It is still the case that the majority of respondents (61% ) do not export, though this number is down by five points over the last three months. These changes paint a positive picture, with more businesses using or planning to use international markets to expand. The UK government is committed to increasing exports to bridge the trade deficit, and the measures announced by the Chancellor in last month s budget reaffirm this. Our survey results from this quarter show that an increasing number of businesses recognise the benefits of exporting. % 9% 8% 7% 6% 5% 4% 3% 2% % % Export Orders Decreased Remained constant Increased After export activity appeared to decrease at the end of 213, the figures are now more optimistic, with 45% of businesses reporting an increase in export sales this quarter, up by 12 points, and 37% of firms reporting that their orders have increased, up by four points. This increase shows that during the UK s recovery the international market continues to offer expansion opportunities. I want to stay in the EU broadly speaking as i want to continue working with fellow Europeans as I have done throughout my career and I don't want the future development of my marketing consultancy company to be jeopardized. Marketing and media sector respondent 5
Business Issues Biggest Barrier to Growth Availability of finance Business rates Tax / NI Utility costs Fuel costs Transport links - local Transport links - regional Transport links - national Planning process Cost / availability of premises Broadband connectivity Public procurement rules Employment legislation Labour market skills Low cost competition Exporting opportunities Exchange rates 5 15 % Q1 214 Our survey question concerning barriers to growth changed this quarter to include more options, which better reflect the business environment. As a result of this, businesses reported a wider range of issues due to the expanded format. Low cost competition (13%), fuel costs (9%) and tax/national insurance contributions (8%) were the main concerns to businesses. Based on the version of this question used last year, availability of finance was one of the biggest barriers identified. However in this new format, the percentage of respondents reporting this as a barrier has decreased, indicating that the focus is not solely on this barrier, but rather a range of other factors. Please make employment legislation simpler. We are recruiting. The constant changes are really difficult to keep up to date with. Please also look at broadband in some rural areas. Low broadband connectivity is a significant barrier to growth and business for any areas without it. Tourism sector respondent Local government via rates and parking restrictions make life difficult as a business. National government makes it difficult via National Insurance and pension contributions etc. For a small businesses we are already just surviving employing people and we are taxed at every point. Food and drink sector respondent 6
Workforce 7 6 5 4 3 2 % Workforce (Past 3 Months) 8 7 6 5 4 3 2 % Workforce (Next 3 Months) Increased Remained constant Decreased Increased Remained constant Decreased After an increase in employment was reported in Q4 213, the number of businesses that recruited remained constant this quarter with 34% of businesses reporting that they took on staff in the last three months. 4% of businesses reported that they have tried to recruit staff this quarter, down by two points. Of the roles recruited, 71% were for full time/permanent positions. Despite this stall in recruitment, the outlook remains positive with 36% of firms expecting their workforce to increase in the next three months, up by four points on the quarter and six points on the year. This shows that during the UK s recovery firms are looking to take on staff to expand. Category of role experienced difficulty recruiting for Semi / unskilled 17% Professional and managerial 44% Skilled manual / technical 25% Clerical 14% Of the respondents who had recruited staff, the number of those reporting difficulties in recruitment decreased by three points to 55%. As in previous quarters, the majority of these hard to fill roles were in the categories of either professional and managerial or skilled manual/technical positions. However, finding suitably skilled staff for professional and managerial roles has become more of an issue this quarter, up by 12 points to 44%. This quarter, the survey included an additional question in which 16% of businesses told us they have sought skills from other countries as a result of a lack of skills in the UK. 7
Cost and Finance % 9% 8% 7% 6% 5% 4% 3% 2% % % Availability of Finance Deteriorated Remained the same Improved Responses this quarter suggest that the availability of finance may be improving, with an increase in the number of respondents suggesting that it has improved (17%), up by three points, and a decrease in respondents suggesting it has deteriorated (8%), down by four points. 74% of respondents report that it has stayed the same. As seen throughout 213, business relationships with banks remain mostly positive with around half of respondents (51%) saying their relationship is good or very good. % 7 6 5 4 3 2 Business Confidence Very Confident Confident Neutral Negative Very Negative There has been a slight boost to business confidence this quarter, with an increase in the number of respondents feeling very confident (22%), up by two points, and a decline in the number of respondents feeling negative (3%), down by one point. This quarter, 8% of respondents feel confident or very confident, a rise of two points on last quarter. Forecasts are positive with 79% of firms expecting their turnover to increase in the coming year, up by seven points, and 69% of businesses expect profitability to improve over the same time period, up by five points in the last three months. 8
National Picture Living Wage Source: British Chambers of Commerce Annual GDP Growth The UK recovery is taking hold after a strong 213 in which GDP grew.7% in Q4 and 1.7% over the year, the fastest rate since 2. The recovery looks set to continue into 214 with positive figures announced in January. Service sector and industrial output increased in January, up by 3.2% and 2.9% respectively on the year. The outlook for employment looks positive as unemployment fell by 63, to reach 2.33 million in January and stands at 7.2%, down from 7.8% a year ago. Retail sales continued National to Overview increase in February and are up 3.7% on the year, showing that public confidence continues to remain in a consumer led recovery. In general, there is a positive picture for the year ahead with the British Chambers of Commerce anticipating 2.8% growth in 214 and the Office for Budget Responsibility (OBR) predicting growth of 2.7%. The BCC and OBR have also upgraded their growth forecasts for 215 and 216, showing the recovery is well under way and is set to continue in the coming years. Annual CPI inflation was 1.7% in February 214, down from 1.9% in January. The further fall in inflation is good news for businesses and consumers and means that inflation remains below the 2% target set by the government. The current economic environment of low inflation and low interest rates should make it easier for businesses to plan ahead and invest. BDO Optimism Index BDO's Optimism Index remained stable in February. Business confidence dropped slightly to 3.3 from 3.8 on the index but remains comfortably above the level which indicates the UK's long-term growth trend. BDO's Employment Index, which reflects businesses' hiring expectations over the next three months, also showed a healthy rise in February, up to 2.7 from 1.3 January. The index is now at its highest since August 28 and above the point mark for the first time since March 211, indicating increased job creation in the months ahead. 9
Focus on the European Union (EU) What impact do you feel the UK's membership of the EU currently has on your business? 9% 29% 7% 4% 23% 28% Very positive Positive No impact Negative Very negative Don't know This quarter included questions concerning the UK s membership with the European Union (EU). The majority of businesses (51%) believe the UK s membership of the EU has a positive impact on their business, whilst 29% felt there was no impact and 16% view our membership as having a negative impact. This backs up a CBI study in 213 which found that the EU is worth 4-5% of UK GDP every year, equivalent to 62-78 billion. With export sales (45%) and orders (37%) in the region up by 19 points and six points respectively on the year, the EU is seen to be a key international market. Ease of access to a larger customer base is viewed as the main benefit of the UK s membership of the EU, reported by 44% of respondents. This shows that the most significant benefit of the UK s membership with the EU to business is the ease of exporting internationally via the Single Market. However, despite the benefits the Single Market brings, 48% feel that specific EU regulations and redtape are the most negative aspects of our membership. This highlights that although the EU brings export opportunities, the legislation set by the EU acts as a burden to accessing these opportunities. 35 3 25 2 15 5 How do you think the UK s relationship with the European Union should change, if at all, to most benefit the UK economy? Closer integration Stay the same A looser relationship UK should leave Don t know Looking forward, just over three quarters (78%) of respondents felt that we should remain in the EU. This indicates that despite the negative aspects of EU membership, the benefits of accessing a wider market make EU membership a nessessity to expanding a business in the UK. The majority (35%) of respondants feel that the UK should negotiate a looser relationship with the EU, showing that although membership is positive for business, reform is needed. 21% feel the relationship should remain the same and 22% feel there should be closer integration. Less than a fifth of respondents (16%) feel we should leave the EU.
About Working on behalf of our members and the wider business community, the Business West policy team represents and lobbies on the issues that matter for local businesses. Driven by our six priority themes, our publications aim to keep business informed about issues of importance. Policy Themes Transport & Connectivity Planning & Development Economy & Business Growth Employment & Skills Energy & Environment Local & National Government Business West Leigh Court, Abbots Leigh, Bristol, BS8 3RA T. 1275 37 899 E. policy@businesswest.co.uk www.businesswest.co.uk