Economic assessment

Southampton Economic Assessment background

The COVID-19 pandemic has exacted a heavy toll on lives and livelihoods around the globe. Since January 2020, more than 19 million first episodes of the virus have been recorded and at least 180,000 people have died from coronavirus in England (Coronavirus in the UK). Governments around the world introduced public health restrictions in order to control the virus. As a result of these restrictions, national GVA fell by -4.5% between 2019 and 2020.

Post-pandemic there has been a focus on economic recovery and subsequent growth. In early 2022, the UK government launched the Levelling Up agenda. A moral, social and economic programme aiming to reduce inequalities across the UK; many of which had been highlighted and exacerbated by the pandemic. However, since late 2021 the UK has been experiencing unprecedented inflation; often referred to as the ‘cost of living crisis’. The consumer price index (CPI) inflation rate rose from 2.0% in July 2021 to a peak of 11.1% in October 2022; the highest annual CPI inflation rate in the National Statistic series, which began in January 1997. Despite falling more recently (8.7% as of April 2023) inflation remains high and above the government target of 2.0%. Additionally, the war in Ukraine is estimated to have slowed economic growth in 2022 and beyond globally. The major related impacts are expected to be higher commodity prices and disrupted supply, financial contagion and lower trade and investment flows. Moreover, whilst a national recession should be avoided, slow economic growth has been forecast for the UK in 2023/24. This is evident as national gross domestic product (GDP) appears to have stagnated; estimated to have increased by just +0.1% in the last two quarters (ONS – GDP first quarterly estimate 2023). Overall, it is likely that these events will have an impact on economic development in Southampton going forwards.

There are a number of reports on the local economy, but most focus on the Hampshire Economic Area or the Southampton Travel to Work Area (TTWA). For example, the PwC Good Growth for Cities 2023 report ranks Southampton within the top 10% cities for good growth. This recent report also gives Southampton (TTWA) an above average rating overall and for jobs, income, health, new businesses, skills, environment, safety and high streets & shops. As well as average scores for work-life balance, transport and income distribution. Housing is the only indicator with a below average rating, although high streets & shops have a negative score despite being above the national average.

Productivity and growth

Productivity and growth can be measured using Gross Value Added (GVA), which is a key economic indicator. It measures the performance of each individual producer or industry and their input to the economy. Data on GVA is published by the Office for National Statistics (ONS) at the end of each calendar year. The assessment uses the balanced measure (B), which is produced by combining income and production approach measures using weighted quality metrics. GVA(B) data is available at various geographical levels and by various industry groups. Each time data is published, ONS also publishes revisions to past data; this means that values for a particular year may differ in different publications.

The ONS publish GVA estimates annually, with data for the latest year being provisional. Therefore, previous years are subject to revisions and rebalancing in each release. In the latest release (2021), there were revisions to the value of the UK economy in 2020, following the COVID-19 pandemic. There were significant revisions seen in particular industries, some of which happened to be more prominent industries in Southampton. For Southampton in 2020, land, water & air transport was revised by -£537 million, human health received a -£119 million revision and public administration & defence was revised by -£114 million. Overall, the ONS had previously valued the Southampton economy at £7.2 billion in 2020. However, the latest revised estimate suggests that the Southampton economy was worth £6.4 billion in 2020. Furthermore, these revisions were greater in Southampton compared to many ONS comparators and the national economy, due to the local industry profile. For example, transportation & storage held 22% of the local GVA share in 2019 compared to 13% in 2021. This would suggest that the economic impact of the COVID-19 pandemic was greater in Southampton and greater than previously estimated. Revisions have also affected estimates of GVA per head (from £28,510 to £25,481) and by industries for 2020 data. The importance of these industries in Southampton may create challenges for economic recovery from the pandemic and subsequent growth going forwards, which is made more complex as overall economic growth in the UK is expected to slow in the coming years.

Prior to the pandemic and current economic situation, economic growth was relatively healthy in Southampton. However, the most recent data (2021) estimates the Southampton economy to be worth £6.8 billion. The Southampton economy declined by -13.5% between 2019 and 2020, followed by an increase of +5.0% in 2021. This equates to a net decline of -9.1% (-£681 million) since 2019 (pre-pandemic baseline). The national GVA(B) however increased during this period (+2.3%). These local and national changes suggest that the economic impact of the COVID-19 pandemic was greater in Southampton. Consequently, GVA(B) per head of population has also declined in Southampton, experiencing a -7.2% decline from £29,497 in 2019 to £27,371 in 2021. GVA(B) per head is a useful way of comparing regions of different sizes and is an important indicator for benchmarking economic growth. It is important to note that GVA(B) data for the latest year (2021) is provisional.

Many industries in Southampton were affected by the COVID-19 pandemic. Revised estimates show that transportation & storage experienced a significant decline between 2019 and 2020 (-£732 million) and continued to decline further in 2021 (-£52 million). Furthermore, declines in transportation & storage have been the main driver of the decline in total GVA seen locally. Professional, scientific & technical activities experienced the most growth in Southampton between 2019 and 2020 (+81 million) but saw the greatest decline in the following year (-£184 million). Therefore, resulting in a net loss of -£103 million over the last two years. On the other hand, financial & insurance activities saw the second highest decline in GVA(B) locally from 2019 to 2020 (-£211 million) but increased in 2021 with the second highest growth (+£161 million). Yet, this still equates to a net loss of -£50 million. Overall, just 6 out of the 16 industries analysed in the economic assessment experienced a net increase in GVA since 2019. The largest growth in GVA(B) in this period was in human health & social work activities (+£160 million) and the production sector (+£139 million). Although, these changes may not be wholly attributable to the pandemic. In particular, financial & insurance activities had experienced a sustained decline in Southampton since 2014, before growing between 2020 and 2021.

Further data on productivity and growth in Southampton can be found in the interactive Power BI dashboard linked below. The dashboard allows the user to interact with a range of economic data to help better understand different aspects of the city’s economy. Further information, including a range of relevant reports and datasets can also be found in the resources section at the bottom of the page.

Business and enterprise in Southampton

Information on the number of businesses in Southampton is available from the UK Business: Activity, Size and Location annual data release from the Office for National Statistics (ONS) and from the annual ONS Business Demography dataset. Both datasets are produced from an extract taken from the Inter Departmental Business Register (IDBR) which represents the businesses registered with HM Revenue and Customs (HMRC) for VAT and/or Pay As You Earn (PAYE). The former examines the business population at the end of the financial year (snapshot), whilst the latter considers all businesses that were ‘active’ at any point during the year.

The ONS UK Business data tends to be used to examine trends in the number of businesses in the city, whilst the ONS Business Demography data is used to examine new business start-ups and business survival rates in line with ONS business guidance. It is important to note that both datasets for Southampton were impacted by multiple business registrations to a single postcode in 2019 and 2020, which explains the large decline seen in the most recent year in the number of businesses and births compared to previous years. More detailed information on this issue has been published by the Office for National Statistics.

As of March 2022, there were 7,890 businesses in Southampton. This is a decline of -10.2% (-895) compared to the previous year. However, as noted above this decrease is likely a result of multiple registrations at a single postcode in 2019 and 2020. Almost all the declines in the number of businesses over the last year in Southampton is driven by fewer micro enterprises (less than 10 employees) (-915 enterprises) within the retail sector (-910 enterprises). Despite declines, retail enterprises continue to be the most common in Southampton, albeit at a lower proportion of 15% in 2022 (compared to 8% nationally). However, recent local changes are likely impacted by multiple business registrations to a single postcode during 2020.

Furthermore, business density (per head of population) remains much lower in Southampton compared to the England average (468 per 10,000 working age population, compared to 676). This may be reflective of the local industry profile (large public sector employers) and the large student population in Southampton. However, it may also be reflective of the lack of suitable premises for new businesses in the city, as total business floorspace has declined by -16.7% since 2000/01.

There were 1,360 business births in Southampton during 2021, translating to a rate of 80.8 per 10,000 working age population. This represents a decline of -25.3% (-460) compared to the previous year. However, with multiple registrations removed, the adjusted birth rate in 2020 was 66.9 per 10,000 working age population, meaning that the rate in 2021 (80.8) is significantly higher. Although, the birth rate in 2021 remains significantly lower than the national average (91.1 per 10,000 working age population).

In 2021, there were 1,325 business deaths in Southampton, which is an increase of +18.3% (+205) compared to the previous year. Again, this has likely been impacted by multiple business registrations in 2019 and 2020, given that there was a consistent decline in business deaths between 2016 and 2019. 72.4% of businesses formed in 2020 survived at least 1 year, which is the lowest among ONS comparators. Although, it should be noted that the impact of multiple business registrations to a single postcode was greater in Southampton than other comparators. Longer-term business survival appears to have improved in Southampton; 40.8% of businesses formed in 2016 survived 5 years, which is higher than the national average (38.0%). However, challenges brought about by Brexit, the coronavirus pandemic and recent economic uncertainty could continue to create obstacles for business survival going forwards.

Further data on business and enterprise in Southampton can be found in the interactive Power BI dashboard linked below. The dashboard allows the user to interact with a range of economic data to help better understand different aspects of the city’s economy. Further information, including a range of relevant reports and datasets can also be found in the resources section at the bottom of the page.

Employee jobs

The number of employee jobs is one of the main indicators of the state of the economy. The changes in employee numbers may indicate whether the economy is growing or in decline, what the local strengths are and how significant the local changes are in comparison to other areas or against the regional or national average.

The ONS Business Register and Employment Survey (BRES) is the official source of employee and employment estimates in the UK. The survey collects employment information from a sample of some 85,000 businesses across Great Britain. Allowing for the analysis of workplace-based employee and employment estimates by detailed geography and industry, full-time or part-time workers and by public or private sector businesses. However, it should be noted that BRES does not cover the very small businesses neither registered for VAT nor Pay-As-You-Earn (PAYE), which make up a small part of the economy.

Southampton continues to be a key employment centre in Hampshire, with a job density of 22.7 jobs per hectare, although this is below Portsmouth (25.6 jobs per hectare). In terms of the number of jobs per head of population, Southampton continues to be below the national average (0.75) and the second lowest amongst comparator areas at 0.67 jobs per working age population.

In 2021, there were 113,424 workers employed in Southampton. Between 2011 and 2014 there was a net increase of approximately +8,038 jobs in Southampton which, in part, is reflective of the increased number of businesses in the city. Many of these jobs were part-time and potentially less stable temporary employment.

Despite some growth in 2018 and 2019, the number of employee jobs in Southampton fell in 2020; likely attributable to the COVID-19 pandemic. However, the number of employee jobs has recovered to a similar total in 2021 (-0.2%, -280 fewer compared to 2019). From 2019 to 2021, Southampton had the lowest decline in employee jobs among ONS comparators that also saw a decline, although many comparators saw growth as did England on average (+1.1%). Over this period, the number of employee jobs in the private sector declined (-3,305, -3.7%), with the largest percentage loss among part-time employees (-3,245, -10.3%). Whereas the number of public sector employees increased locally between 2019 and 2021 (+3,025, +12.3%). This was driven by increases in the number of part time employees (+2,689, +37.0%), whilst there was a smaller increase in full time employees (+336, +1.9%). These changes and overall decrease in employee jobs over the last two years can likely be attributed to the COVID-19 pandemic and subsequent recovery. Overall, from 2015 to 2021 there was a net loss of -1,835 jobs, a reduction of -1.6%. In contrast, the number of employee jobs across England (+6.2%) and the South East (+2.2%) has grown since 2015.

Dominance of public sector and part-time jobs in the city impacts on risk profile; previously dominance of the public sector may have been a higher risk in terms of job losses because of austerity. Yet over the last two years, dominance of the public sector in the city may have protected Southampton jobs from some of the impacts of the coronavirus pandemic as the public sector was one of the least affected sectors. Additionally, growth in the public sector, particularly with part-time employees, has negated losses in the private sector over the last two years. Therefore, highlighting that public sector and part-time jobs have become even more dominant in Southampton post-pandemic. Going forwards the situation may change again with growing economic uncertainty.

Data from Lightcast shows that the number of unique job postings in Southampton initially reduced after the first national lockdown. Median advertised wages also remained higher than the long-term average of £30k per year during the height of the COVID-19 pandemic; +14.9% higher (£34.5k) at peak in June 2020. Since a decline from the first national lockdown, the number of unique job postings has generally been on an upward trend month-on-month in Southampton. Additionally, median advertised wages have also been increasing over the last 18 months; recently rising to £33k per annum in April 2023. Aggregating this data to financial years, suggests that 306 unique job postings per 1,000 working age population were made in Southampton during 2022/23, significantly higher than the national rate (160 per 1,000). This ranks Southampton second highest among ONS comparators, consistent with previous financial years. However, in 2022/23 the most frequently advertised roles locally were positions which typically do not require higher skilled employees (support workers, care assistants, warehouse operatives and health care assistants taking 4 of the top 5 most advertised job titles). Additionally, 3.9% of Southampton job postings included ‘green skills’; a grouping defined by Lightcast that has been used to estimate green job creation (including conservation, environmental sciences, renewable energy, waste management, etc.). This is a significantly higher proportion than the national average (3.2%), but lower than several ONS comparators. Moreover, whilst Southampton remains a major centre for employment in the South East, attracting higher value businesses and more skilled jobs could benefit our residents.

Further data on employee jobs in Southampton can be found in the interactive Power BI dashboard linked below. The dashboard allows the user to interact with a range of economic data to help better understand different aspects of the city’s economy. Further information, including a range of relevant reports and datasets can also be found in the resources section at the bottom of the page.

Labour market

As well as considering the number and makeup of businesses and jobs in Southampton, it is important to understand in detail the character of Southampton’s resident working age population; not least because this is materially important with regard to the city’s wider economic prospects.

Despite the COVID-19 pandemic, economic activity and employment rates have been on an upward trend in recent years. From January 2022 to December 2022, 79.6% (137,600) of the working age population in Southampton were economically active, increasing by +0.5 percentage points (+800 people) from the previous period, and remains similar to both the national (78.7%) and South East (80.7%) averages.

In addition, unemployment in Southampton has experienced an overall decline since 2010, with fluctuations since 2017. As of December 2022, 4.5% (6,100) of working age adults in Southampton were unemployed, a decrease from December 2021 (6.2% adults unemployed). Although, it is important to emphasise that the changes observed in Southampton in recent years are not statistically significant. Unemployment data is from the Labour Force Survey (LFS), which is considered the most reliable source of unemployment data, following changes to the benefits system and the introduction of Universal Credit.

Claimant count data is published monthly and allows for the proportion of adults claiming out of work benefits to be monitored in detail. Locally and nationally the number of adults claiming out of work benefits has significantly decreased over the last year. As of March 2023, 4.2% (7,060) of the working age population were claiming out of work benefits in Southampton; a decline of -4,940 claimants (-41%) since April 2021 (7.1%). This highlights the progress that has been made in recovering from the COVID-19 pandemic. However, Southampton is yet to return to the pre-pandemic baseline (less than 3.5% in January to March 2020). The claimant count also appears to have slowly increased in recent months, which is possibly linked to recent financial pressures and growing economic uncertainty.

Unemployment is not evenly distributed across the city. As of March 2023, there was a 5.0 percentage point inequality gap in the proportion of adults claiming unemployment benefits between the 20% most and 20% least deprived neighbourhoods in Southampton. This is similar to the average 4.6 percentage point gap throughout 2019 but appears to be widening again; having peaked at an 8.1 percentage point difference in April 2021. More information on this ongoing time series can be found on the benefits page.

Further data on the labour market in Southampton can be found in the interactive Power BI dashboard linked below. The dashboard allows the user to interact with a range of economic data to help better understand different aspects of the city’s economy. Further information, including a range of relevant reports and datasets can also be found in the resources section at the bottom of the page.

Skills and qualifications

It is also important to consider skill levels of both the residents and workforce and whether they meet the needs of employers in the city. The Annual Population Survey (APS) records the qualifications of working age residents classified into a number of NVQ and equivalent levels.

NVQ Level 4 and above (degree level) qualifications are often taken as a prerequisite for participation in the high value-added knowledge economy. The proportion of the population qualified to NVQ Level 4 or above in the city has increased overall since 2015; with a significant increase from 39.5% to 48.1% between 2019 and 2020. This was sustained into 2021, with 47.9% of the population qualified to NVQ Level 4 or above in Southampton. This proportion is similar to both the national (48.4%) and regional (49.3%) averages. Moreover, this could indicate that graduate retention has improved in Southampton over the last two years. As of January 2023, data from Lightcast suggests that 13.1% of residents in Southampton with online job profiles attended either the University of Southampton (6.9%) or Southampton Solent University (6.2%). This places Southampton mid-rank among ONS comparators; highest among southern comparators and York, but lower than other northern comparators and Bristol.

In 2020, 19.9% of economically active adults in Southampton have NVQ Level 3 qualifications only; the second highest amongst ONS comparators and higher than the national average (16.7%). This is likely because of the large student population in Southampton, who require NVQ Level 3 qualifications as a gateway into university. Although this proportion has fallen in the past two years, having been 23.8% in 2019. The two universities in Southampton are valuable assets in terms of employment, improving workforce skills and supporting knowledge-based industries in the city. Moreover, the increase in NVQ Level 4 and above over last year in Southampton, coupled with decline in NVQ Level 3 may suggest improved graduate retention in the city.

At the other end of the skills spectrum, 11.9% of Southampton’s economically active population have either no or low qualifications (NVQ Level 1 or below), an increase compared to the previous year (10.9% in 2020). Similar to the national trend, the proportion of adults with no qualifications in Southampton has fallen over time from 10% in 2004 to 3.0% in 2021. This trend would suggest that the level of qualifications among Southampton residents is improving, particularly over the last two years.

It is also important to consider school attainment in the city, as attainment is key to improving the life chances of young people in the city. In particular with regards to finding skilled employment after leaving school. This is especially important for children from the most deprived areas of the city, where school attainment is poor and benefit claimant rates high. In 2021/22, Southampton had the fourth lowest pupil average attainment 8 score (45.9) among ONS comparators. As well as the third lowest proportion of pupils achieving a grade 5 or above in English and Mathematics (41.9%) in 2021/22. The 2022 summer exam period was the first without major interference from the COVID-19 pandemic in three years. Therefore, trends in school attainment have not been considered.

In terms of workplace skills, employers in Southampton reported proportionally fewer skills-shortage vacancies than the national average in 2019. 19% of establishments in Southampton reported staff proficiency issues, which is higher than 13% across England. 66% of establishments in Southampton had provided training for staff in the last year, which is higher than England (61%); this likely coincides with a higher proportion of establishments in the city reporting proficiency issues.

The workplace is a vital location to develop these skills and it is therefore vital that businesses invest significant resources in training. Data on workplace skills has been taken from the Department for Education Employment and Skills Survey (2019), which examined the experiences of over 70,000 employers in the UK. As only a relatively small sample of businesses will have been taken from Southampton, the results may not reflect the experiences of all employers in the city.

Further data on skills and qualifications in Southampton can be found in the interactive Power BI dashboard linked below. The dashboard allows the user to interact with a range of economic data to help better understand different aspects of the city’s economy. Further information, including a range of relevant reports and datasets can also be found in the resources section at the bottom of the page.

Earnings and economic flows

In a period of sustained austerity since 2010 in response to the economic downturn and deficit reduction, wages for many were cut or frozen. However, wages have been on an upward trend in Southampton since 2013. Yet as a result of unprecedented inflation since late-2021 (the cost of living crisis), issues of earnings and real wage growth remain topical.

The Annual Survey of Hours and Earnings (ASHE) available from the Office for National Statistics (ONS) evaluates earning levels nationally and locally. This provides a picture of the median gross incomes of residents living in an area and of those people working in an area. The information on wages is based on full time employees working more than 30 paid hours a week, or 25 or more for teaching professions. The data does not include the self-employed or those that work in the armed forces. It is based on a 1% sample of employee jobs from HM Revenue and Customs PAYE records.

In Southampton, there continues to be an inequality gap in terms of pay between those working in the city and those resident in the city. In 2022, the median gross weekly pay for full-time workers was £680, compared to £643 for residents; a difference of £37, the second largest gap amongst comparators cities. Workplace pay is higher but not significantly than the national average (£646), whilst resident pay is lower but not significantly than the average (£646).

After adjusting for inflation, pay declined in ‘real’ terms between 2008 and 2013. Yet since 2013, weekly pay has generally increased in ‘real’ terms for both residents and workers in Southampton. Adjusted for inflation, resident (-£21, -3.0%) and workplace (-£24, -3.1%) earnings both declined from 2021 to 2022. This is a result of unprecedented inflation experienced since late 2021; the consumer price index for all items rising from 110.1 in April 2021 to 130.4 in April 2023. Given continued high inflation, unadjusted weekly earnings would need to increase by a further +£56 for residents and +£59 for workers to negate inflation as of April 2023 (130.4 CPI all items). This would be an unprecedented increase in unadjusted earnings. Therefore, it can be expected that adjusted earnings may continue to decline.

Based on 2011 Census data, almost 42,000 people commute into the city for work and a similar number commute out. There is a clear relationship with Eastleigh, with a large economic flow in both directions (12k). Significant numbers also commute into the city from the New Forest, Test Valley and Winchester.

Given the difference between resident and workplace earnings, it is possible that some lower skilled residents are being displaced into lower paid employment outside of the city by skilled workers commuting into the city. Higher levels of income for workers are not directly reflected in the economic wellbeing of residents, which amongst other things is likely to result in poorer outcomes and higher demand for public services including health and social care.

Further data on earnings and economic flows in Southampton can be found in the interactive Power BI dashboard linked below. The dashboard allows the user to interact with a range of economic data to help better understand different aspects of the city’s economy. Further information, including a range of relevant reports and datasets can also be found in the resources section at the bottom of the page.