1. Regional economic performance – Scotland, East of England and the South West

3. Scotland, East of England and the South West: Some headline facts Population 2004 GVA £ million 2004 GVA growth 1984-2004 (%) GVA per head GVA per head growth 1984- 2004 (%) Employ ment Scotland 5,078,40082,0504516,157612,339,100 East (residence based) 5,491,300100,3076718,26766 East (workforce based) 89,405 16,281 2,603,000 South West 5,038,20078,6507015,611662,303,400 UK 5417,25860

4. GVA has grown in each of the regions

5. As has GVA per head

6. Growth of the Scottish economy has lagged the SW (by 25 percentage points) and the East (by 22 pps) East shows residence based GVA

7. GVA per head performance has been better, but Scotland still lagging East shows residence based GVA

8. Drivers of growth Population Productivity Industrial Mix  Business services  Manufacturing DTI’s key drivers:  skills;  investment;  innovation;  enterprise; and  competition.

9. Population dynamics could in part explain differing GVA and GVA/head performance

10. Productivity levels are highest in the East, but Scotland beats the SW

11. Industry mix may also explain differing GVA performance

12. Considering the four main industries and economic performance:  Regions with a larger business services sector tend to have higher GVA/head and GVA growth  Regions with a larger manufacturing and public sector tend to have lower GVA/head and GVA growth  There is little relationship between the size of wholesale/retail and GVA/head and GVA growth

13. There appears to be a link between the size of business services and total growth across UK regions

14. And between the size of business services and prosperity

15. Business services is the biggest sector (in terms of GVA) in East and SW and one of the fastest growing – but smaller and slower growing in Scotland

16. Manufacturing has declined in Scotland and the East, but performed better in the SW

17. Growth in Scotland’s business services is 51 percentage points lower than the East’s, and 23% lower the South West’s

18. Scotland has a slightly higher % of output from ‘other business services’ (includes professional services, recruitment agencies, etc)

19. Looking at business services in more detail, Scotland has a lower % of activity in IT and real estate

20. Productivity is highest in the East for all types of business services

21. Scotland’s employment rate is lower than the East and SW – but above the GB average.

22. Skills: Labour quality does not appear to be the problem – Scots workers are more qualified than the other regions

23. Scotland, and the SW lose graduates, with the East a net importer

24. Investment: Capital expenditure per employee is high in Scotland

25. Investment in Scotland also appears to be higher than the other regions

26. Innovation: Scotland’s business R&D lags East and the SW – but better on higher education R&D

27. R&D in the East and SW In the East there are significant clusters of R&D activity, particularly in Cambridge and Hertfordshire  top 10 EU region, high patent activity  Pharmaceuticals, automotive, ICT  Ford, Nissan, GlaxoSmithKline, Unilever, BT  Research Council funded institutes, industrial research & technology organisations (Welcome Trust, Microsoft)  Proximity to London and SE important In the South West, R&D activity concentrated round Bristol  Aerospace, electronics, creative industries, marine sector  Rolls Royce, British Aerospace, Airbus

28. Scotland has a high number of top rated HEI departments

29. Innovation: Scottish businesses appear to product innovate less – but do better on process innovation

30. Enterprise: New business formation rates in Scotland are low

31. Entrepreneurial activity, a wider measure than business starts, is also lower

32. There is little data on competition, but a proxy could be the number of enterprises per 1,000 population

33. The London effect? Proximity to London (and the South East) an important factor for East’s prosperity and growth  Commuting (wealth)  Business spill-over  Access to international transport hubs  Industrial clusters (e.g. R&D in greater SE region)  However, areas further away from London perform less well  No major cities in the East London less of an influence for South West  Some commuting to London, but far less than in the East  Economic growth driven by Bristol/Bath/Swindon areas (M4 corridor)  Devon & Cornwall perform less well

34. Summary Growth in GVA has been significantly higher in East and South West regions than in Scotland Growth in GVA per head has also been higher, but far narrower gap Reasons for Scotland’s slower growth include:  Population dynamics  Industry structure and dynamics – esp business services  Lower productivity  Lower employment rates  Weaker R&D and innovation  Less entrepreneurship  No ‘London effect’  Less competition?? Quality of supply side does not appear to be a major problem – nor does levels of investment