Southampton Economic Assessment background
The coronavirus pandemic has exacted a heavy toll on lives and livelihoods around the globe; more than 100 million people have had the virus and 2.5 million have died from it. Governments around the world introduced public health restrictions in order to control the virus, as a result of these restrictions world GDP fell by 3.5% in 2020. The UK has been hit particularly hard by the pandemic, with the fourth highest mortality rate in the world and the largest decline in GDP among G7 counties (Office for Budget Responsibility – March 2021).
Prior to the pandemic there was a renewed focus on growth; the government emphasised that no cities or regions should be left behind when it comes to local growth. This requires leaders from the public and private sectors across a place to develop a clear vision for growth, based on good local data and intelligence, to foster sustainable, long term prosperity. Growth is also critical in order to improve outcomes for local people, which is the aim of the Economic and Green Growth Strategy 2020-2030; ‘to build our economy for and with our communities so that everyone benefits from improved opportunities and outcomes’. This is arguably more important now than ever, as Southampton and many parts of the country will be looking to restore and grow economies in the wake of the recent economic shock.
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 2021 report ranks Southampton as the third highest ranked city for good growth. This recent report also highlights Southampton (TTWA) as one of the least affected areas across the country in terms of the impact of coronavirus on productivity and growth.
Although the findings of these reports provide an indication of the direction of travel and the economic impact of coronavirus, they are not specific to Southampton. There therefore continues to be a need for specific intelligence on the Southampton economy to compliment wider regional analyses and to help drive strategic decision making on economic development. The Southampton Economic Assessment is intended to provide a baseline as to the strength of the Southampton economy, based on the administrative boundary of the local authority. It considers productivity and growth, business and enterprise, the job market, employment, skills and earnings. Some of the key findings from the latest updated report can be found below, whilst the full report and its subsequent updates can be found in the resources section below.
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.
Most recent data (2018) estimates the Southampton economy to be worth 7.7 billion. Economic growth up to this point was healthy, with GVA(B) increasing by 2.8% between 2017 and 2018. Additionally, GVA(B) per head of population in Southampton (£30,419) was higher than the national average (£29,356) in 2018. GVA(B) per head is a useful way of comparing regions of different sizes and is an important indicator for benchmarking economic growth.
However, the economic landscape has changed considerably in the last 12 months due to coronavirus. PwC published quick and slow recovery scenarios for UK GVA in 2020 and 2021 in their January 2021 UK Economic Outlook. The quick recovery scenario assumes a fast roll out of the vaccine, which would front-load most of the recovery in those hardest hit sectors, for example, hospitality and transport. It also assumes a loosening of social distancing restrictions in the first few months of 2021 allowing consumers to return to shops, pubs and restaurants. Under a quick recovery scenario PwC estimate that across the UK GVA shrunk by -11% in 2020 but is predicted to grow by 4.8% in 2021. A slow recovery scenario assumes recovery is hampered by the extension of social distancing restrictions due to a slower vaccine roll out, as well as businesses being slow to adapt to the end of the Brexit transition period. Under a slow recovery scenario PwC estimate that across the UK GVA shrunk by -11% in 2020 but is predicted to grow by 2.2% in 2021. These estimates can be applied to Southampton to give an indication of the potential impact of coronavirus on productivity and growth. Using 2018 GVA(B) data as a baseline the Southampton economy could shrink between -£500 and -£700 million by 2021 (based on quick and slow recovery scenarios published by PwC).
Between 2017 and 2018 public administration and defence (-£66 million) and information & communication (-£46 million) experienced the greatest declines in GVA(B). The largest growth in GVA(B) was in financial & insurance activities (+£177 million) and human health & social work (+£73 million).
Again, the above picture does not capture the impact of coronavirus on different industries productivity and growth in Southampton. PwC also produced quick and slow recovery scenario estimates for GVA by industry, which were applied to the industrial profile of Southampton to give an indication of which industries were likely hardest hit and recovery of these industries. Very few industries are expected to recover to 2018 levels by 2021 under both scenarios; the only industry estimated to grow by 2021 under both scenarios is the public sector. The transportation and storage industry is likely to be hardest hit; transportation and storage is the largest contributor to Southampton’s economy (21% of GVA in 2018). Retail, education, administration & support, accommodation & food services as well as arts, entertainment and recreation are also hit hard under both scenarios. Further information can be found in the resources section below.
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 of 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 guidance. It is important to note that both datasets for Southampton have been impacted by multiple business registrations to a single postcode, which explains the large increase 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 2020, there were 8,310 businesses in Southampton. This is an increase of 18.5% (+1,295) compared to the previous year; however, as noted above this increase is likely due to the impact of multiple registrations at a single postcode. Almost all the increase in the number of businesses over the last year in Southampton is driven by growth of micro enterprises (less than 10 employees) (+1,290) within the retail sector (+1,135).
Despite these increases, business density (per head of population) remains much lower than the England average (483 per 10,000 compared to 681). This may be reflective of the local industry profile (large public sector employers) and a large student population. However, it may also be reflective of the lack of suitable premises for new businesses in the city as floorspace has declined since 2000-01.
Research by the ONS and Bank of England suggests that smaller firms were more likely than bigger ones to have had to temporarily close or pause trading, but this varies across industries. Additionally, smaller businesses are more likely than larger companies to operate in sectors that have been most affected by the pandemic, such as accommodation and food services, arts and recreation and construction. A quarter (25%) of enterprises in Southampton are within these most affected sectors.
There were 1,960 business births in Southampton during 2019; however, 29% (570) of these were at postcodes with multiple registrations. After adjusting for multiple registrations, Southampton still experienced an increase in the number of business births (13%, +160) compared to the previous year. Despite this increase the adjusted business birth rate (80.1 per 10k aged 16-64) for Southampton in 2019 remains significantly lower than England (99.6 per 10k) and the South East (97.5 per 10k).
In 2019, there were 930 business deaths in Southampton, which is a decline of -4.1% (-40) compared to the previous year. 91.5% of businesses formed in 2018 survived at least 1 year, which is the highest among comparators. However, longer-term business survival remains an issue in Southampton; only 42% of businesses formed in 2014 survived 5 years, which is lower than England (42.5%) and the South East (45.6%). Challenges brought about by Brexit and the coronavirus pandemic is likely to bring additional uncertainty to business survival, particularly those operating in sectors hardest hit by the pandemic.
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 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 22.8 jobs per hectare, although this is below Portsmouth (26.2 jobs per hectare). In terms of the number of jobs per head of population, Southampton continues to be below the national average and one the lowest amongst comparator areas at 0.66 jobs per working age adult.
In 2019, there were 113,707 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.
Between 2015 and 2019 there was a net loss of -1,552 jobs, a reduction of -1.3%. In contrast, the number of employee jobs across England (5%) and the South East (3.5%) grew during the same period. The majority of job losses were part-time (-5.8%), with the number of full time (1.2%) jobs increasing during the same period. This potentially demonstrates the unstable nature of some of the part-time job creation post-recession and a shift towards more stable employment in recent years in both the public and private sector. The public sector continues to be a major employer in the city, with approximately 35% of all jobs in health, education and public administrations & defence.
However, the above picture of jobs in the city does not reflect the impact of coronavirus. Data from Emsi shows that the number of unique job postings in Southampton reduced by -27.7% Between January 2020 and January 2021. This suggests the number of job opportunities in the city has declined, likely as a result of the pandemic. We can apply national furlough data by industry to Southampton’s job profile to better understand the number of jobs potentially at risk by industry. Based on national furlough data from January 2021, there are potentially 17,544 (15.4%) jobs at risk in Southampton, with the greatest number in accommodation and food services.
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.
Prior to the start of the pandemic, economic activity and employment rates continued to increase in Southampton. In 2019/20, 80.3% of the working aged population in Southampton were estimated to be economically active, which is higher than the England (79.4%) average.
In contrast, unemployment in Southampton has experienced an overall decline since 2009/10, with 5.4% of the working aged population in Southampton unemployed in 2019/20. 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.
Again, unemployment data above will not reflect the impact of coronavirus on employment. Claimant count data is published monthly, which has allowed us to monitor the proportion of adults claiming out of work benefits since the start of the pandemic. In Southampton, the number of adults claiming out of work benefits more than doubled from 5,295 claimants in January 2020 to 11,410 claimants in January 2021; with this trend also experienced nationally.
However, the impact of coronavirus on unemployment is not evenly distributed across the city, with the inequality gap in the proportion of adults claiming unemployment benefits increasing between the 20% most and 20% least deprived neighbourhoods in the city. More information on this ongoing time series can be found on the vulnerable communities 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 + (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 increased in recent years; but experienced a decline in the last year from 41.2% in 2018 to 39.5% in 2019. Southampton continues to be lower than the national average for high end skills (39.5% compared to 44.5% with NVQ 4 +). Given that the city has two universities, and a ready supply of graduates this is a little surprising and raises possible questions on graduate retention rates after graduation which may need further investigation.
At the other end of the skills spectrum, 15% of Southampton’s economically active population have no or low qualifications (NVQ Level 1 or below), which is higher than the England average (14.1%). Similar to the national trend, the proportion of adults with no qualifications in Southampton has fallen over time from 10% in 2004 to 5% in 2019; but at present remains higher than the national average (4.7%).
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, particularly 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. Due to the coronavirus pandemic, the summer exam series was cancelled in 2020. Pupils scheduled to sit GCSE and A/AS level exams in 2020 were awarded either a centre assessment grade or their calculated grade using a model developed by Ofqual (whichever was the higher of the two). Due to the way in which grades were awarded in 2020, data on attainment is not comparable to previous years; however, we are still able to benchmark against statistical neighbours. Southampton had the second lowest pupil attainment 8 score among ONS comparators in 2019/20. 40.7% of pupils in Southampton achieved a grade 5 or above in English and Maths, which is lowest among comparators and below the national average of 49.9%.
In terms of workplace skills, employers in Southampton are reporting proportionally fewer skills-shortage vacancies than the national average. 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.
Around 90% of the current labour force may be active in the labour market a decade from now. Therefore, initial education alone is not enough to remain competitive. 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 information on skills and qualifications can be found in the resources section below.
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. Therefore, more recent and robust growth in the economy has raised the issue of earnings and wage growth.
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. It is important to note that most recent data are unlikely impacted by the coronavirus pandemic, as the most recent survey was conducted in April 2020, with the first national lockdown implemented late March. At this time there was also uncertainty around how long restrictions would last and what the health and economic impact of coronavirus would be.
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 2020, the median gross weekly pay for full-time workers was £635, compared to £563 for residents; a difference of £72, the second largest gap amongst comparators areas. Workplace pay is higher than the national average, whilst resident pay is lower than average.
Both resident and workplace pay has generally increased since the recession. Adjusted for inflation, resident (0.9%) and workplace (2.3%) earnings both increased over the last year, however, pay in ‘real’ terms for both groups remain below the 2008 peak.
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 is 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 information on earnings and economic flows in Southampton can be found in the resources section below.
Southampton Economic Assessment 2021
The Southampton Economic Assessment was updated in March 2021. A slide set was produced updating the key messages for the city. This assessment differs slightly to previous assessments, as there is a particular focus on the economic impact of coronavirus on different aspects of the Southampton economy. Archived assessments from 2017 onwards can be downloaded from the section below.
2021 Summary slide set
This section contains archived reports from previous Southampton Economic Assessments. For the latest report and data on the economy in the city, see the Southampton Economic Assessment 2021 above.
2020 Summary slide set
2019 Summary slide set
2018 Summary slide set
2017 Overall report
Coronavirus impact reports
PwC - Good Growth for Cities 2021
PwC - UK Economic Outlook
ONS - Coronavirus (COVID-19) roundup
Office for Budget Responsibility – Overview of the March 2021 Economic and fiscal outlook
ONS economic data and resources
The Office for National Statistics (ONS) publish a range of statistics on the UK economy each year including data on productivity, businesses, jobs and earnings. Data is published annually and is available at local authority level which enables local benchmarking and trend analysis to be conducted. Links to some of the most valuable datasets and analysis are provided below.
ONS - Gross Value Added (GVA) balanced (B)
ONS - UK Business: activity, size and Location
ONS - Business Demography
ONS - Guide to Business Statistics
ONS - Business Register and Employment Survey (BRES)
ONS - Annual Survey of Hours and Earnings (ASHE)
Benefit maps time series Southampton
In order to better understand and track the economic impacts of COVID-19 on our communities, a time series of maps has been produced illustrating the change in the percentage of the working age population claiming Universal credit and Job Seeker Allowance claimants.
Benefit maps time series Southampton
OCSI - A guide of unemployment data
A look at the data behind the headlines, how it was collected and what it can and can’t be used for.
OCSI - A guide of unemployment data