Milton Keynes Economy Review – January 2009

Contact:
Research & Economics Team
Strategy & Communications Directorate
Phone number 01483 501 379

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Contents:

Introduction…………………….……..p 3

Trends in output growth………………….………………..p 3

Milton Keynes continues to expand over the past decade….

GVA per head growth…………..…..p 5

The industrial structure in Milton Keynes …………..……………………...p 7

Milton Keynes has one of the largest number of businesses of any local authority in the South East….

Labour market and skills profile…………………………………..p 10

Employment and economic activity rates in Milton Keynes are higher than in the South East as a whole….

Recent labour market conditions in Milton Keynes………………………………….p 11

GVA and employment forecasts...... p 12

GVA in Milton Keynes is projected to increase much faster than in the South East and in the UK after 2009…..

Executive Summary

·  In cash terms the MK economy was worth £6.3 billion in 2006. MK’s output or Gross Value Added (GVA) expanded from £3.1 billion in 1996 to £6.3 billion in 2006.

·  The MK economy accounts for 3.8% of the South East economy, making it the ninth largest sub-regional economy in the South East.

·  The inflation adjusted rate shows that GVA growth in MK was very high on average (over 5.5 per cent) between 1997 and 2003. However between 2003 and 2005 it dropped from 4.8 per cent to 1.3 per cent. The latest GVA figures show that in 2006 the adjusted annual growth rate recovered, moving from 1.3 percent in 2005 to 1.6 in 2006.

·  Milton Keynes was the fastest growing economy in the South East between 1997 and 2003 but reported one of the lowest average annual growth rates between 2002 and 2006. The average annual growth rate was well above both the regional and national averages until 2003, but was below the South East average between 2004 and 2006.

·  Milton Keynes has one of the largest number of businesses of any local authority in the South East. The industrial structure in Milton Keynes is dominated by small and micro businesses. However, large companies make up a greater proportion of total business stock in Milton Keynes than in most other parts of the region.

·  In line with what has been happening at regional and national level, economic development in Milton Keynes over the last decade has been characterised by a structural change whereby manufacturing has been shrinking and the service sector growing, both in terms of number of businesses and people employed.

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·  During the ten years to 2007 workplace based employment in Milton Keynes increased significantly in business services and in the transport and communications sector.

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·  Employment and economic activity rates in Milton Keynes are higher than in the South East as a whole. In 2007/08, the economic activity rate in Milton Keynes stood at 82.4% - slightly ahead of the South East figure of 82.0%. The employment rate in Milton Keynes is high, at 79.6% (‘full’ employment is often defined as an 80% employment rate). This compares to 78.5% in the South East as a whole.

·  The skills of the resident population, as measured by qualifications, tend to be slightly lower in Milton Keynes than in the South East. While 30.8% of the population of the South East hold a qualification at NVQ 4 or higher (equivalent to a degree), the figure for Milton Keynes is 28.2%. The proportion of the working age population with a NVQ 2 or higher is 63.1% in Milton Keynes, compared to 68.2% in the South East as a whole. The proportion of people with no qualifications is relatively high in Milton Keynes, at 13.4% compared to 9.6% in the South East.

·  In November 2008 there were 4,100 people claiming JSA in Milton Keynes, which represents 2.8% of the resident population – higher than the South East average of 1.9%. Between October and November 2008 there was a 0.3 percentage point increase in the proportion of people claiming JSA, which is in line with the regional figure.

·  Between November 2007 and November 2008 the number of people claiming JSA in Milton Keynes increased by almost 1,400, while the proportion of residents claiming grew by 1%, which was one of the fastest rates of increase of any local authority in the South East.

·  The latest GVA forecasts produced by Experian suggest that Milton Keynes will be less severely affected by the current economic downturn than the South East as a whole and the UK. While the GVA growth rate is forecasted to decrease in the South East from 0.6% in 2008 to -1.1% and in the UK from 0.2% to -1.2% in 2009, in Milton Keynes GVA is projected to decline to -0.3% in 2009 and to recover much faster than the South East and the UK.

·  Total employment in Milton Keynes is projected to increase by 16% between 2007 and 2026. This projected growth is above the UK average of 4.5% and above the South East average of 8%. Between 2007 and 2011, the average annual rate of growth in Milton Keynes is projected to be 0.3% - in contrast to the region as a whole, where employment is expected to fall by -0.3% per year.

·  The forecast increase in total employment is mainly driven by increases in the transport and communications, financial and business services, distribution, hotels and catering sectors and other (mainly public) services.

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Introduction

This Review presents a picture of how the economy and labour market in Milton Keynes (MK) has been performing in recent years and is projected to change in future. The report includes analysis of growth in Gross Value Added (GVA) and GVA per head; the changing sectoral composition of business stock and employment and the performance of the labour market.

Trends in output growth – Milton Keynes continues to expand over the past decade

In cash terms the MK economy was worth £6.3 billion in 2006. MK’s output or Gross Value Added (GVA) expanded from £3.1 billion in 1996 to £6.3 billion in 2006 (Figure 1)[1].

Figure 1 Milton Keynes continues to expand – Gross Value Added (GVA) 1996-2006

Source: ONS 2008

The MK economy accounts for 3.8% of the South East economy, making it the ninth largest sub-regional economy in the South East (Figure 2).[2]

Figure 2 Share of regional GVA - 2006

Source: ONS 2008

Between 2003 and 2005, the rate of GVA growth slowed down in MK, in line with the South East average. However, over the ten years to 2005 the annual rate of GVA growth in Milton Keynes was well above the regional average and the latest GVA data released in December 2008 show that the growth rate increased in 2006 compared to 2005 by 0.6 percentage points (Figure 3).

Figure 3 Annual percentage change 1996-2006 (not inflation adjusted)

Source: ONS 2008

So far we have looked at so-called ‘nominal’ rates of growth in GVA – that is, growth which is not adjusted for the effects of inflation. When comparing change over time it is preferable to use ‘real’ GVA figures – that is, figures which take account of the effects of inflation. The inflation adjusted rate shows that GVA growth in MK was very high on average (over 5.5 per cent) between 1997 and 2003, but between 2003 and 2005 it dropped from 4.8 per cent to 1.3 per cent. The latest GVA figures show that in 2006 the adjusted annual growth rate recovered, moving from 1.3 percent in 2005 to 1.6 percent in 2006. (Figure 4).

Figure 4 Annual percentage change 1996-2006 (adjusted for inflation)

Source: SEEDA calculation based on ONS 2008

Milton Keynes was the fastest growing economy in the South East between 1997 and 2003 (Figure 5 – horizontal axis) but reported one of the lowest average annual growth rates between 2002 and 2006 (vertical axis). The average annual growth rate was well above both the regional and national averages until 2003, but was below the South East average between 2004 and 2006.

Figure 5 Inflation adjusted GVA growth, 1997-2003 and 2004-2006

Source: SEEDA calculation based on ONS 2008

A faster rate of growth relative to other sub-regions within the South East means MK’s share of regional output increased between 1996 and 2003, from 3.3 per cent to 3.8 per cent (Figure 6). However, between 2003 and 2006 the share of regional GVA flattened and fell slightly in 2006.

Figure 6 Share of regional GVA – 1996-2006

Source: ONS 2008

GVA per head growth

In cash terms, GVA per head (adjusted for inflation) in Milton Keynes was some £6,220 higher in 2006 than in 1996, as adjusted GVA per head in MK expanded from around £18,800 in 1996 to £26,300 in 2006 (Figure 7). Milton Keynes GVA per head is not only much higher than the South East average but has also been growing faster than the South East average. As a consequence, in 2006 MK reported the second highest GVA per head amongst the South East sub-regions. Over the 1996-2006 period, the inflation adjusted rate of growth in GVA per head in Milton Keynes fluctuated in line with the South East trend, but remained higher than the South East growth rate apart from 2005 and 2006 (Figure 8). Between 2004 and 2005 GVA per head growth dropped much faster than in the South East as a whole and reached the lowest point for ten years (0.6 per cent). Moreover, while there was a recovery in the GVA per head growth rate in 2006 at regional level, the same has not happened in Milton Keynes.

Figure 7 GVA per head (adjusted) – 1996-2006

Source: SEEDA elaboration based on ONS 2008

Figure 8 GVA per head annual percentage change (adjusted) – 1996-2006

Source: SEEDA elaboration based on ONS 2008

Between 1997 and 2003, the rate of growth in GVA per head in MK was above the regional average and the second highest amongst the South East sub-regional economies (horizontal axis on Figure 9). Between 2004 and 2006, however, growth in GVA per head in MK was not only below the regional average but also the third lowest in the region, after West Sussex and Surrey (vertical axis on Figure 9). GVA per head in Milton Keynes was over 30 per cent higher than the South East and UK averages in 1996. The difference between GVA per head in Milton Keynes and that in the South East and the UK grew larger between 1996 and 2003. The latest data show that GVA per head in MK is now 40 per cent higher than the South East average and 50 per cent higher than the UK average (Figure 10).However, the gap has been narrowing since 2003.

Figure 9 Inflation adjusted GVA per head growth 1997-2003 and 2004-2006

Source: SEEDA elaboration based on ONS 2008

Figure 10 Milton Keynes GVA per head relative to the regional and national average

Source: ONS 2008

The industrial structure in Milton Keynes

The industrial structure in Milton Keynes is dominated by small and micro businesses. The large majority (82%) of business units in Milton Keynes have between 1 and 10 employees, 13% have between 11 and 49 employees, 4% between 50 and 199 and only 1% of local businesses have more than 200 employees.

However, as the maps on the following page show, large companies make up a greater proportion of total business stock in Milton Keynes than in most other parts of the region. It is also worth noting that Milton Keynes’ share of total regional business stock is one of the largest of any local authority in the South East (first map on the left).

Figure 11 Business stock in Local Authorities as percentage of regional business stock, and the percentage of small, medium and large businesses, South East 2007

In line with what has been happening at regional and national level, economic development in Milton Keynes over the last decade has been characterised by a structural change whereby manufacturing has been shrinking and the service sector growing, both in terms of number of businesses and people employed. The loss of employees in manufacturing in Milton Keynes between 1998 and 2007[3] (-32.4 per cent) was only slightly higher than in the South East (-28.2 per cent) and in England (-30.4 per cent) (Table 1). However, the loss in the number of manufacturing companies was slightly lower in Milton Keynes (-10.2 per cent) than in the South East (-11.2 per cent) and in England (-13.7 per cent) (Table2).

Over the same period workplace based employment in Milton Keynes increased significantly in business services and in the transport and communication sector. In the case of the transport and communication sector and in business services the growth in employment was much higher than the South East and England averages. The significant increase in the number of businesses in the financial sector, much higher than the overall trends in the South East and in England, is due to the location in the area of some important financial institutions such as Abbey, Morgan Stanley and RBS South England Corporate. This can also explain the smaller reduction in the number of employees, compared to the regional average.

In addition, the transport and communications sector in Milton Keynes experienced a considerable increase in the number of business units (+30%) from 1998 to 2007 (Table 2). This growth was much higher than the South East and English averages. In terms of number of business units, the growth in the business services sector was high but in line with the trends in the South East and in England. Although the growth in the number of employees in the wholesale and retail sector was approximately in line with the South East and England, the growth in the number of businesses was significant, whereas in the South East and in England the number of business units in this sector decreased over the period.