How can the North East capitalise on devolution?

WITH TWO REGIONAL MAYORS RECENTLY ELECTED, AS WELL AS A NEW PRIME MINISTER, HOW DO YOU THINK WE STAND AS A REGION?

“I see two very different things going on,” said Paul McEldon, chief executive of the North East Business and Innovation Centre.

He said: “Tees Valley is very much big business – big, shiny new buildings, big inward investment, big infrastructure-type projects and more of a trickle-down effect.

“I get the feeling North East mayor Kim McGuinness is talking about a bottom-up approach, a lot more about poverty, a lot more about social effect – not a lot about business, not a lot about where the interventions might be coming.

“Sectors that have growth potential get a lot of energy, but we forget about a lot of normal businesses that get on and create lots and lots of wealth and lots and lots of jobs, but are expected to just do it.”

Paul’s point was echoed by Lee Hartley, chief executive of event host Fairstone.

He said: “You see all the PR around gigafactories, but there are brilliant businesses in the North East already, and we’re not shouting about then.

“Through these roundtables, I’ve learned that there’s more great businesses than I was aware of.

“And if we want to create prosperity, it’ll be driven by proper businesses doing proper things, giving people careers, not just jobs.”

Josh Tate, operations director with Tyne & Wear-based metalwork subcontractor Washington Metalworks, said: “I think the region as a whole is doing OK, but in terms of business, we’ve got the worst unemployment in the country, we’ve got one of the lowest productivity stats and we operate on a fiscal deficit, so we’re taking out more from Westminster than we’ve put in.

“It’s no wonder investment hasn’t come our way.

“So, I feel like this is a fantastic opportunity.

“The business community has to speak up and be able to get mayor McGuinness into a room with her team and highlight our concerns, because if not now, it’s going to be never.”

The North East’s £4.2 billion devolution deal is expected to create 24,000 jobs over the next 30 years and leverage £5 billion of private sector investment – but some around the table questioned the scale of that ambition, with Lee saying the region should be looking to leverage £40 billion.

Robin Cordy, managing director of tech business Metalitix, said: “24,000 jobs over 30 years breaks down as 800 a year.

“It’s not very many, is it?

“And I completely echo that there are some fantastic businesses in the North East doing some really exciting stuff.

“Most of what I see is in the tech space.

“I work with a data consultancy, which is doing some incredible stuff to help large organisations.

“Everyone talks about AI, but the thing that drives AI is data.

“Any enterprise organisation has a lot of data, and it’s the ones who are on top of it, and have it well organised, that are going to succeed.

“We’ve got organisations doing stuff in those spaces, and with the right funding options, the right kind of support and the right platform to get out there, we’ll have some fantastic stories to tell.”

 

 

DOES THE NORTH EAST HAVE THE RIGHT FUNDING OPTIONS AND THE RIGHT KIND OF BUSINESS SUPPORT?

Craig Huntingdon, a scale-up partner at RTC North, which helps businesses innovate, compete and grow, said it is a mixed picture.

He said business support can be inefficient and difficult to navigate, with significant overlap, blackspots and duplication across the region.

He said: “I get to work with hundreds of fantastic businesses.

“RTC is good at keeping me away from the wiring, but when it does expose itself, I can see it can be complicated and inefficient for businesses.

“Business support is often heavily biased towards outputs and not necessarily outcomes; if it was more outcome oriented – ‘Have they made investment? Have they grown and invested in people?’ – then I think that would hold our feet to the fire in terms of the support offered.”

The picture is not much brighter when it comes to venture capital.

David Alprovich, chief operating officer of family office investment company Middleton Enterprises, said there has been a gap in the funding available in the region.

He said: “The North East had a brilliant venture capital ecosystem.

“Go back to 2010 to 2015, you had five or six venture capital firms who all had capital available, and that leveraged a lot of private investment.

“With losing some of the support from Europe, and then the Northern Powerhouse Fund, you end up with big pools of money that are carved out into small niches.

“So, you have a pot of money that’s available for small companies and a pot that’s available for scale-ups, a pot for Sunderland and a pot for Newcastle.

“It’s very disjointed.”

“In other parts of the country, an ambitious company could pitch to 20 different investors.

“Here, they will pitch to one funder.”

David added: “I think you need to have multiple different investors with funds available.

“They need to have a bit of freedom and flexibility to back the best businesses, regardless of what sector or city they’re in, and you need to have that healthy ecosystem so you’ve got some competitive tension.

“That will drive the best investment results and will, in the end, create the most jobs and prosperity.”

Metalitix is a growing business that has been looking at investment options.

Robin said: “It is very disjointed; there are certain pots available that come and go, and everyone knows who’s got them.

“But getting investment isn’t just about getting the money, it’s about getting an investor that’s going to be a partner too.

“If your funding options are limited, and you’ve only got one or two choices, it doesn’t necessarily help you.

“So, we haven’t gone down the investment route yet, although it’s something we’re continuing to explore.”

Craig said: “I think it’s worrying that I’m speaking to clients who are now positively discounting certain regional funders.

“My understanding is there’s not always transparency around investment thesis.

“What it means for a lot of businesses looking to raise lower levels of equity is that it’s never going to fly with some of the regional funders.

“They know that, I know that, and the client probably knows that – but that doesn’t prevent them from going through a six or 12-month period, wasting time with numerous conversations, with it only ever going to fail at the end.”

Business support can come in many different forms and Fiona Whitehurst, associate dean engagement and place at Newcastle University Business School, highlighted the days when regional development agency One North East put money into universities to work with smaller businesses, something that continued with European Regional Development Fund support.

She said: “There are huge challenges in university finances.

“But we have five strong universities in the region who still have excellent programmes for bringing talent to the businesses that need it and are creating a lot of spin-outs.

“I think we can make businesses more aware of the support they can get from us.

“But I think the bigger businesses already do good things, and we have run a programme that involves us getting mentoring from the larger businesses in the region to work with small businesses.”

John Devitt, chief executive at occupational health provider Recovery4Life, said: “We’ve had more support and help from bodies such as the Entrepreneurs’ Forum and the North East Chamber of Commerce, and through networking with other businesses.

“It makes the point – business has to lead this.”

Lee said skills, and closing the skills gap, is something high on his priority list.

He said: “The jobs target we have is woeful.

“At the last roundtable, we had an engineering firm say that if we could get them 1500 skilled young people, they would hire them tomorrow.

“We’ve heard similar from Port of Tyne and others.

“We need purposeful learning.

“We need universities and colleges to run courses that businesses actually need, because I did a ready reckoner from the last roundtable and there’s about 5000 jobs that people could create now, not over the next 30 years.”

Josh said the training of young people could begin before they even get to further or higher education.

He said: “I’d love for schools to have the autonomy to actually pick and choose what is on their curriculum.

“If kids aren’t doing very well in general academia, I’d love them to have the chance to pick up a welding torch at 12.

“Why not – they’re already work with Bunsen burners?

“And it is the same for CNC machinists.

“The North East has an engineering heritage.

“I don’t see any reason why we can’t leverage that earlier, rather than waiting for someone to not do so well in their GCSEs.

“I think it would allow businesses to offer the idea of careers, not just jobs.

“We want people to stay here, to enjoy living here, and that will help bring investment.”

 

 

CAN THE COMBINED AUTHORITIES HELP THE CHARITY SECTOR?

The Community Foundation has just published the latest version of its Vital Signs report, which explores ten themes: the economy, education, health, the environment, culture, homes, community, justice, living standards and access.

John Hollingsworth, chief philanthropy officer at the foundation, said it was hard to find optimism in the most recent data – but added the foundation has a pretty optimistic outlook because it is seeing more engagement happening with businesses and individual donors.

He said the combined authority must promote civic participation and help rebuild trust between communities and local government.

He said: “The other hope I’ve got for the combined authority is trying to, wherever we can, find co-ordination of different types of funding.

“Ideally, finding some agreed set of priorities and interventions, so that local government funding can get behind business funding and philanthropic money to have a compounding effect.”

He recognised this could be tough to achieve, but highlighted the foundation’s successful long-running relationship with Newcastle Building Society.

Paul pointed out there’s a social value element to every contract put out by the public sector – the issue being bidders have to say what they are going to do, not what they have done in the past.

He said: “If companies were told, that in order to get some of that £4 billion, they’ve got to prove they’ve done something for the local community, like sponsor the under-12s football team, then that will drive behaviour.

“It’ll drive people towards the Community Foundation, it will drive people towards different activities that will benefit everybody, not just a few.

“Put that social value part of the contract up to 20 per cent and say it’s going to be monitored, then the big players will start taking it a bit more seriously.”

 

WHAT ARE THE BARRIERS TO GROWTH IN THE NORTH EAST ECONOMY?

Roundtable members identified several issues including red tape, funding confusion and decisions being made at the wrong level.

The importance of branding the region and creating an identity that attracts investment and talent came out strongly, as did better and cheaper transport links.

But money, or lack of it, didn’t appear to be an issue.

Lee said: “Between banks, private equity, family offices and institutional funds, there’s billions of pounds out there waiting to be invested in firms looking to grow.

“But nobody is saying, ‘we’re going to co-ordinate all of this, bring it to the region, shout about the region and say these are the businesses that we have”.

Robin said: “I certainly think some kind of central regional co-ordination, led by people that understand the world of finance, and are not from the public sector, could work in the scale-up phase, to intensively support businesses through that first fundraise and to navigate the options.”

Co-ordination was also a word on John Devitt’s mind – co-ordination of funding.

He said: “We’ve been caught in that trap.

“You have a conversation, and explain what you’re trying to do, and you’re told, ‘that sounds great but, no, we’re not the right people’.

“It just weighs you down.”

Washington Metalworks wanted to build a factory extension to help its process flow and increase jobs and productivity.

A successful application to the Shared Prosperity Fund, though, turned out to be the easy bit.

Josh said: “We were stuck in the planning permission cycle with Gateshead Council for 18 months.

“That completely knocked back our growth plans, and you wonder what our competitors across Europe were doing in that time.

“It feels like we’re operating with shackles on, and other countries certainly aren’t.

“They want to be the biggest and best. We’ve lost that.

“We’ve lost the ambition, and we’re quite happy for people to go through round after round of red tape and approvals.

“We were predominantly held up on a drainage report, which wanted us to spend tens of thousands of pounds mitigating for a one-in-a-100-year storm event.

“That is not going to help us grow our business.

“If the Tyne banks burst, I think we’ll all have bigger problems to deal with.”

This experience with planning prompted John Devitt to point out important decisions are often not being made at the right level.

He said: “I remember having a conversation with someone from Gateshead Council at one of those hand-pressing things, and I was asked, ‘what do we, as a council, do for you?’

“I could genuinely say, ‘the only thing we get from you is parking tickets’.

“There was nothing about ‘what do you need as a business?’.

“And that’s the issue, it’s more focused internally around compliances because the important decision-making is being done at the wrong level.”

David highlighted a big gap in scale-up funding.

He said: “It’s very difficult to start a business and get it from two people to 20.

“It’s equally difficult to scale a business from 20 people to 200.

“That scale-up phase creates a lot of jobs, and it creates a lot of value, but there’s actually very little that’s available in terms of funding in that area.

“A scale-up fund with equity and debt solutions would potentially be very successful – you could generate a positive return on that fund, in addition to the social impact.”

There is a successful company in the Middleton Enterprises portfolio that David has spent a year trying to refinance.

He said: “The business has two-and-a-half-million of profit, it’s growing at 40 per cent, and it’s got tangible assets on the balance sheet.

“But no bank will touch it.

“It doesn’t fit into a box. Banks will only lend to large, successful businesses nowadays.”

Having spoken to 12 different lenders, David said he has found one which will lend to the business on appropriate terms.

He added: “It’s taken 12 months, so that’s held back the growth of a business that’s trying to do positive things across the North East.”

Paul pointed out companies receiving business support could see an improvement in their productivity and finances – but a reduction in staff numbers.

Craig added: “We’re encouraging people to employ fewer staff via automation, a component part of successfully scaling a business.

“That doesn’t necessarily fit in terms of job creation targets as a performance metric.

“If you’re really focused about how grants and business support is delivered, that’s going to make us focus on being more effective in delivering positive outcomes, rather than volume-based objectives.”

 

 

WHAT DOES REGIONAL SUCCESS LOOK LIKE FOR YOU AND YOUR PEOPLE?

Wider recognition of the importance of investing in health in the workforce was the big thing for John Devitt.

He said: “We’ve done a big project with Gestamp, at Newton Aycliffe.

“There’s a ten-year life expectancy differential between Newton Aycliffe and Morpeth.

“Gestamp were looking at their apprenticeship programmes, which were dropping off significantly, and they’d seen a drop in aspiration coming through the schools.

“We said to Gestamp, ‘let’s work on the health of the workforce now, then expand that to the community and other businesses in the area, and then you’ll see the impact from the parents to the children to the schools, while you look at the other activities coming through’.

“So, success for me would be that you’ve got people wanting to start businesses and wanting to stay in the area.

“I’m quite positive about the whole thing.”

For Fiona, it’s about giving students a glimpse of business life.

She said: “I would love to make sure all students in the university get to see how fantastic the business base is in the region, because I don’t think we shout out about it enough.

“Part of my role is to do more of that connecting.

“It’s about making sure people know how good the business space is.

“They might still want to go to London – although they increasingly don’t because of the cost of living – or they might want to go to Manchester, but we want them to know they’re always welcome back and they will have opportunities.”

John Hollingsworth said he would like to see the introduction of a scheme for incentivising generosity and philanthropy.

He said: “There have been schemes in the past where relatively small amounts of government money have been put out to regions across the UK, to say we’ll match fund endowment pots and things like that, with community foundations.

“If something like that was possible again, let’s try and get it weighted to the areas of highest need, because we would benefit most.

“That would help us a lot, and there is a track record of those kind of programmes incentivising businesses or individuals to set up funds as well.”

Seeing more regional businesses succeed got David’s vote.

He said: “You’ve got the likes of Atom bank that has kept its headquarters here.

“You’ve got brilliant businesses like Fairstone and True Potential.

“They bring jobs, they bring training, they underwrite property development and they support regeneration.

“I’d like to see some businesses that grow to be enormous and keep significant operations here.

“I think there’s only one North East business in the FTSE 100 and that’s Sage.

“Statistically speaking, the North East makes up about five per cent of the population.

“Why aren’t there five or six FTSE 100 companies here?”

Lee added: “When we started the discussion, lots of people had things to say that didn’t sound overly positive.

“But I don’t think it’s negativity.

“I think it’s frustration, because we know we could do so much more.

“I’d love to be known as a high-growth region for businesses of all types and all sizes, and I completely agree we need to have multiple market leaders.

“But the one thing I really want is to have a business cabinet for the North East Combined Authority, where business creates the agenda and the strategy and makes it happen.”

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