In fact, what has been unusual about this recession is the widespread impact it has had across all regions, according to Oxford Economics’ director of regional services, Neil Gibson, who specialises in regional trends. “Previous recessions had an impact only in certain areas – in the South East in the 1990s, for example. This one has had an effect across the UK economy. Not one of the UK’s 434 local authorities hasn’t lost jobs, so it’s not like anywhere has been protected.”
Gibson believes there are signs of recovery, though they are unlikely to have made much of a difference to brokers yet. “So far, what we’ve got is an economic recovery that’s virtually jobless. Firms are feeling a little more confident, especially firms in the export business selling to an improving world, but most firms have let people go on to part-time work or flexi-time, so there’s a lot of capacity to take on more work without increasing the number of jobs. It’s recovery in the technical sense, but it’s not really being felt by people.”
Brokers have witnessed the miseries of the recession at close quarters, as many longstanding clients have gone out of business and those that survived have shrunk in turnover and headcount. Their own commissions have taken a battering, and while there may have been an increase in opportunities to quote for new customers desperate to cut costs, that often means more work for less return.
Gibson’s assessment is borne out by brokers, and by the insurers who travel the country talking to them. At long-established independent broker Russell Scanlan in the East Midlands, a member of the Unitas network, managing director Bryan Banbury is cautiously optimistic. “We sense there are some green shoots, but we haven’t got evidence to support that yet. One or two of our clients have achieved some growth, but nothing massive; no one’s going mad. One or two clients have managed to raise finance – perhaps that’s a good sign. I wouldn’t say it was a feel-good factor; you can just see it’s not as bad as it was.”
No clear split
When recovery does come, Gibson believes it will be felt differently across regions, but not necessarily in the way it has done after previous recessions. Whereas the downturn was perceived to have hit white-collar workers hardest as banks collapsed and financial institutions reeled from the impact of the devalued assets on their balance sheets, professional services firms have been doing better than most and, consequently, areas with a high proportion of employment in this sector will feel the upturn first. “It doesn’t matter where it starts, it’s always the lowest skilled and lowest paid that get hit harder,” Gibson says.
“Parts of the economy are actually doing rather well in terms of selling services around the world. That’s not just the South East, but in major cities like Leeds, Bristol and Manchester, where large firms of accountants and solicitors are based, and even some of the secondary cities like Sheffield and Liverpool.”
Cities outside the South East made great strides in regeneration during the boom, thanks to the previous government’s policies of investing in run-down infrastructure and relocating offices out of London. This means that industry sectors are no longer so strictly concentrated and blur traditional regional boundaries.
“I don’t think there is a clear picture,” QBE’s managing director of commercial business insurance, Graeme Rayner, says. “There are so many mixed messages.”
QBE’s last Business Sentiment survey indicated that confidence is coming back. A survey of 400 small and medium enterprises (SMEs) in November found that a third expected sales turnover to increase in the next six months, and Rayner expects that the results of the next survey this summer will show further improvement. There is no clear regional split though.
“The North and the Midlands seem most confident, but we can’t see that coming through in our underwriting. Clearly, the difference is in perspective. But that may be to do with how hard certain regions have been hit. The North and Midlands have been hit hard, so signs of recovery will be more obvious.”
This is the problem with sentiment, thinks Brit’s director of market management and regional operations, Simon Cooter. “In the conversations I’ve had with brokers in all parts
of the country, the messages are pretty similar,” he says. “They’re all having a really difficult time. But you could talk to brokers in the same town, who are experiencing the same markets and same trading conditions, and they just have a very different way of looking at things. I don’t see a regional pattern, but there are differences between one broker and another in how they think they’re doing.”
A broker working in Manchester, he adds, will have clients within the city’s professional services sector, but also in the industrial manufacturing firms further afield in Liverpool in Cheshire.
At Aviva, Gareth Hemming also struggles to pinpoint any clear regional trends. He has just been appointed regional brokers director, covering a diverse area across Scotland, Northern Ireland, North of England, Wales and the South West from his base in Manchester. “You can talk to brokers in the same city and they’ll be having very different experiences,” he says.
“When you dig into it, they might have a very different book of business. Construction and haulage-dominated brokers or those working with private property developers have been hit harder. But people working with manufacturers, for example, or a broader spread of business, seem to be faring better.”
Yorkshire is a good example of a region that is a microcosm of the UK, with a concentration of employment in traditional industrial sectors, successful regeneration in Leeds and pockets of great affluence towards the north of the county. Broker Network chairman Grant Ellis is based near Harrogate. “It’s almost like an island,” he says, speaking from a visit to the town. “Every other car is a Range Rover or a Jaguar; you wouldn’t know that there was a recession here. Property prices in Harrogate have gone up by 12% or 13% since last year.
“But in Sheffield, they haven’t recovered in any shape or form and the economy is still quite tight. I’ve got a few friends who work in parts of West and South Yorkshire, and while they are saying things are getting better, companies are still not prepared to invest in extra people or resources.”
Meanwhile, at the Leeds branch of global broking giant Marsh, head of office Nick Pay says that some of its clients have done very well during the recession, particularly those in the healthcare sector or those supplying materials for public sector building programmes. Now, however, with deep spending cuts on the horizon, those companies that were propped up by government spending are fearing for their future.
“There’s a lot of trepidation among all our clients trading in the public sector about the impact of the cuts that are about to happen,” Pay says. “For example, I was talking to a structural steel manufacturer. Their order book is fine for the next six months, but they’re worried about what happens after that. They’re making changes now to trade more with the private sector.”
Pay and his clients are right to be concerned, Gibson believes, about what will happen when the rug of government spending is yanked from beneath the towns and cities that have grown during the boom.
“If you look at the last 10 years of economic growth before the recession from 1997 to 2007, lots of northern towns grew almost entirely on the back of public sector expansion,” he explains. “It was almost like a form of regional policy. These places now look quite vulnerable. In Liverpool, for example, close to half of the population are employed in the public sector.”
But Gibson doesn’t think the North will return to the 1980s dark days of mass unemployment. “Laying off public sector workers is not like laying off factory workers or coal miners. These are graduates, they’re office-ready, they know how to work a computer and they should find a home in the labour market. When the mines were closed in the North and Wales, there was nothing else those workers could do.”
As for the future, the areas with the strongest prospects are those that can offer high-end skills that can be exported. “If you’ve got a strong university and a nice choice of housing, with green spaces and good entertainment choices, your prospects are pretty strong,” he says. “If you don’t have a good university or desirable housing stock, it’s going to be much more difficult.”
So Bristol, Leeds and Newcastle will continue to do okay, while Hull, Stoke and Sunderland will continue to suffer. But it’s still not that bad.
“Even if places do have a rough few years, no one should underestimate how much they’ve been transformed over the last 10 years,” Gibson says. “There’s lots of new infrastructure, lots of new housing; they’re still better places to live and invest in. It’s not like a move back to the 1980s. We’re falling, yes, but falling from a very high height.”
This feature has been supplied by Insurance Times