02The performance of the Gatwick Diamond economy
In order to assess the relative strengths and weaknesses of the Gatwick Diamond, this section measures up the performance of the area against both the British average and the four comparators on a range of economic indicators.
The Gatwick Diamond has a productive, service-based economy
In 2015, the Gatwick Diamond had a total gross value added (GVA) of £24 billion. This accounted for almost 10 per cent of the GVA of the South East region. Productivity was also very high. As Figure 1 shows, at £63,500 per worker, the area was 16 per cent more productive than the British economy as a whole – above the SEMLEP (£56,200 per worker) and close to Enterprise M3 (£64,800 per worker). It was, however, less productive than the Thames Valley area, which at £71,600 of output for every worker was one of the most productive areas of the UK.
Productivity has grown at an above-average rate: between 2010 and 2015, it increased by 13.9 per cent in the Gatwick Diamond, higher than the Great Britain average (11.6 per cent). The level of growth was close to Enterprise M3 (14.3 per cent) and Thames Valley Berkshire (14.5 per cent). 18
This strong productivity performance is good news for the Gatwick Diamond. Productivity increases are what drive economic growth in the long term and increase standards of living. While the UK as a whole continues to grapple with poor productivity levels, the data above shows that this is not a problem that extends to the Gatwick Diamond area.
As in most of the economies in the Greater South East, the Gatwick Diamond is characterised by a strong service sector. In total, 73 per cent of the jobs were service jobs, while manufacturing accounted for less than 5 per cent and the public sector for 22 per cent. Figure 2 below shows the broad industrial make-up of the Gatwick Diamond against comparator areas.
Most comparator areas have a very similar industrial structure to the Gatwick Diamond’s, with a high share of services and a low share of manufacturing. But there are still some noticeable differences.
For instance, the economy of the SEMLEP is more manufacturing-oriented (almost 10 per cent of the jobs in the SEMLEP are in manufacturing, against 4.7 per cent in the Gatwick Diamond) and it has a smaller share of private knowledge service jobs (18.3 per cent of jobs against 21.7 per cent in the Gatwick Diamond). On the other hand, the Thames Valley Berkshire LEP is considerably more specialised in private knowledge services, with 24.8 per cent of the jobs in this sector. Greater Medway is more heavily reliant on public service jobs. Finally, Enterprise M3 has the most similar economy to the Gatwick Diamond, with about the same share of jobs in manufacturing, knowledge services and public sector jobs.
Looking in finer-grained detail shows that there are also some differences in the type of services in which each area specialises. As a result of Gatwick Airport the Gatwick Diamond has a large share of jobs in transport and storage (7 per cent), equal to the SEMLEP but considerably higher than the Thames Valley Berkshire (4 per cent). On the other hand, jobs related to information and communication services – such as activities related to publishing, broadcasting and computer programming – only account for 5 per cent of all jobs, considerably lower than both Enterprise M3 (7 per cent) and the Thames Valley Berkshire (14 per cent).
The Gatwick Diamond has a high share of knowledge intensive jobs, although growing at a slow pace
The UK economy has specialised in ever-more knowledge-based activities in recent years as it has exploited its competitive advantage in this type of activity. This is likely to become ever more the case in the future as it looks to compete with other developed nations. These places that have been best able to attract knowledge-based activities in the past have been best able to respond to globalisation, and this is likely to continue to be the case in the coming decades just as it has in the previous ones.
The Gatwick Diamond has a large share of knowledge intensive business services (KIBS) jobs in its economy. As Figure 3 shows, they account for 21.7 per cent of the total jobs, coming second only to the Thames Valley Berkshire LEP (24.8 per cent).
Breaking KIBS jobs down shows some interesting variations between the areas.19 The Gatwick Diamond has been particularly successful at attracting financial services and real estate activities, where it has the highest share of these jobs of all comparator areas and double the share of those in Thames Valley Berkshire (see Figure 4). Computer science and technical services are also strongly represented in the Gatwick Diamond, accounting for 28.3 of all KIBS jobs, although most of these jobs are related to technical testing, engineering and architecture activities. This is above the British average (22.6 per cent), the SEMLEP (22.3 per cent) and Greater Medway (23.1 per cent), but below Enterprise M3 (37.2 per cent) and the Thames Valley Berkshire (42 per cent). Where it tends to be underrepresented is in legal, accounting and recruitment and businesses and management activities – it has the smallest share of legal, accounting and recruitment of all comparators. The location preferences between these different activities varies, with some preferring city centre locations while others prefer out of town sites. The next section will look at this in more detail.
This specialisation in knowledge-intensive service sectors is not recent. As shown in Figure 5, in 1998 the Gatwick Diamond had the highest share of KIBS jobs of all areas, accounting for 16.6 per cent of total. In comparison KIBS accounted for 12.9 per cent of total jobs in the Thames Valley Berkshire LEP, and 11.3 per cent in the SEMLEP.
But KIBS jobs growth has been slower in the Gatwick Diamond than the UK average and every other comparator except Greater Medway. Over the past 18 years, the number of KIBS jobs grew by 60 per cent, compared to 77 per cent in Enterprise M3 and 127 per cent in the Thames Valley Berkshire LEP. This means that the Gatwick Diamond has been overtaken by the Thames Valley Berkshire in terms of share of KIBS jobs, and has been caught up by Enterprise M3 and the SEMLEP.
While overall the Gatwick Diamond still has a large part of its economy in knowledge services, the slower growth of these services compared to Thames Valley Berkshire in particular raises questions around barriers to growth to this type of activity, and the potential implications it has for future performance.
Jobs are highly skilled and offer high wages
Consistent with its industrial structure, the Gatwick Diamond has a high share of high-skilled jobs – these jobs account for 48 per cent of total jobs.20 As shown in Figure 6 this is considerably more than Greater Medway (39 per cent) and the SEMLEP (42 per cent), but slightly lower than Enterprise M3 (49 per cent) and the Thames Valley Berkshire (54 per cent). The share of high-skilled jobs is a good indicator of the type of activities that companies – regardless their industry – offer in a specific area. Indeed a high number of managers, scientific researchers or business professionals indicates the location of higher value, knowledge-based activities, such as R&D or headquarters locations.
In turn the share of low-skilled jobs is low – about 19 per cent of all jobs.21 This is lower than all comparator areas. In contrast in the SEMLEP and Greater Medway where around 26 per cent of jobs are low-skilled jobs.
This high number of high-skilled jobs is reflected in the average wages on offer across the areas. The average weekly wage for a Gatwick Diamond worker was £572 in 2016, higher than the UK average of £525. This was about the same as Enterprise M3 (£574), but considerably lower than the Thames Valley Berkshire LEP, where average weekly wages were £645 (Figure 7). This once again suggests that Thames Valley Berkshire has been more successful at attracting in higher-paid jobs in recent years.
Residents tend to be highly qualified
Having a highly skilled workforce is an important component in attracting high-skilled businesses to an area. The Gatwick Diamond performs well on this measure – high qualification levels in the Gatwick Diamond are above average when compared to the other comparator areas and the rest of the UK, and low qualification levels are below average.
As shown in Figure 8, in 2016, 46 per cent of the Gatwick Diamond working age population held NVQ4+ qualifications or equivalent (equivalent to a degree or higher), compared to 38 per cent at the national level. This was just below the Thames Valley Berkshire, where 48 per cent of the population was highly educated. In comparison, 36 per cent of residents in SEMLEP had a degree and 35 per cent in Greater Medway.
Conversely, the share of residents with no qualifications was the lowest of all areas, with only 2.9 per cent of the population falling into this category, compared to 5 per cent in the Thames Valley Berkshire and 7.5 per cent in the SEMLEP. In the UK overall, 8.3 per cent of the working population had no qualifications.
New business creation is high too
Both the total number and creation of new businesses is suggestive of the dynamism of an economy. Again, the Gatwick Diamond performs well on these measures.
In terms of total businesses, there were 479 businesses per 10,000 residents in 2015. This was relatively similar to that of the Thames Valley Berkshire (480 businesses per 10,000 residents), but lower than Enterprise M3 (501 businesses per 10,000 residents). However both Greater Medway and the SEMLEP had fewer businesses per capita, with respectively 344 and 407 businesses per 10,000 residents.
The number of business start-ups in 2015 was relatively high too, with 67 new businesses per 10,000 residents (Figure 9). This was about the same as the SEMLEP and Enterprise M3, and considerably higher than the UK average (59 new businesses per 10,000 inhabitants). Thames Valley Berkshire was once again the strongest performer on this measure.
And it has been successful at attracting foreign investment
The Gatwick Diamond’s economy is attractive to foreign investors. In 2016, 18.5 per cent of the area’s workers were employed by a foreign-owned company (Figure 10). This was slightly higher than the British average (17.8 per cent) and above all comparator areas except the Thames Valley Berkshire. This suggests that the area has had a strong track record in attracting in investment from abroad.
Overall, the Gatwick Diamond has a very strong economy, and consistently outperforms the national average on a range of indicators. This reflects its success at being able to attract more knowledge-based activities to the area. That said, while it is much stronger than the Greater Medway economy, and similar to the Enterprise M3 economy, the Thames Valley area in particular tends to be a stronger performer, indicating there is scope for improvement. The following section investigates the reasons for this by looking at the geography of jobs within Gatwick Diamond and its comparator areas.