Agenda item

4.1

The Committee received a report of the Director of Policy, Performance and Communications on the implications for Sheffield of the vote to leave the European Union (EU).  The report was supported by a presentation by Chris Lowry, Policy and Improvement Officer.

4.2

Also in attendance for this item were Laurie Brennan (Policy and Improvement Manager) and Richard Wright, Executive Director, and Tom Sutton, Corporate Partnerships Manager (Sheffield Chamber of Commerce and Industry).

4.3

Chris Lowry provided an analysis of the EU referendum, which had been held on 23^rd June 2016, including statistical information in terms of how people voted in countries in the United Kingdom (UK), and the Core Cities, as well as in Sheffield City Region and other City regions.  He reported on a number of suggested reasons as to why the UK had voted to leave the EU, based on information held by a number of policy think tanks, including the Resolution Foundation, and referred to the correlation between employment rates and education levels and how people had voted.  Mr Lowry reported on the impact of the vote on the national policy agenda and on the potential implications for Sheffield.  He concluded by referring to the Government’s next steps and the Prime Minister’s goals and what she had confirmed in terms of moving forward.

4.4

Richard Wright stressed that there was a considerable level of uncertainty within businesses as to the implications of the vote for Sheffield, as well as for the UK.  He considered that, from a business point of view, the decision would provide a number of opportunities in terms of new trade deals and growth, as well as a number of potential threats.  He stressed that there was a need for a positive deal in terms of the Customs Union, as if this was not the case, this could have an adverse effect on the UK economy, with a knock-on effect in Sheffield.   

4.5

Mr Wright further considered that the independence of the UK’s legal system was very important, and the decision had provided an opportunity for the UK to build on its regulatory framework.  He referred to the predictions of the Office of National Statistics (ONS) which had not actually predicted a contraction of the UK’s economy, but had indicated that the economy would possibly not grow as much as it would if we had stayed in the EU.  Taxations and Customs were two main areas on which the Chamber of Commerce was currently in discussion with the Government.  In terms of specifics regarding Sheffield, Mr Wright stated that, at the present time, Sheffield did not export enough, but tended more to supply companies that exported the goods.  As the City was not productive enough, it did not create sufficient wealth and, to some extent, this was independent of whether or not we were in the EU.  He believed that Sheffield needed a balanced and diverse business sector (including education and social enterprise), but could deliver growth in three key areas – manufacturing, health care and digital sector.  He stressed that growth of Gross Domestic Product alone should not be the only objective. Growth may mean that the UK was losing money, so it had to be profitable growth that created wealth, which then needed to be distributed properly. He stated that pensions were under enormous strain at the moment, particularly final salary schemes, due to changes after the referendum, with major changes having been made, or planned, in terms of several pension schemes.

4.6

With regard to the issue of migration, Mr Wright believed that the country had confused the free movement of people with the free movement of skills, with the latter obviously bringing advantages.  He concluded by stating that the biggest problem for the business sector at the moment was the obvious uncertainty as to what the future would bring following the negotiation.

4.7

Members of the Committee raised questions and the following responses were provided:-

·                Although there was some good work in some areas, in terms of Sheffield competing with the international market, Mr Wright had concerns with regard to the competitiveness of the construction  and professional services sectors when the UK had left the EU.  The professional services sector was already too small when compared with the other Core Cities. The City needed to focus on selling knowledge, as well as goods, and by doing this, as well as focusing on the positive aspects of its economy, there could be some positive outcomes.

·                Although the UK would no longer be subject to the high number of EU regulations, there would still be a level of regulatory frameworks.  Whilst it was not clear at this stage, some people believed that there would be a relaxation in the level of regulations, which could possibly bring more flexibility in some areas. It should be understood, however, that compliance to European standards for many products was required to sell into Europe and how this was maintained after the exit was not known.

·                There was still a lack of clarity surrounding the continuation of EU-funded schemes, including the Peak National Park.  A recent announcement from the Chancellor of the Exchequer had indicated that multi-year EU-funded projects that went beyond the Horizon 2020 cut off point (the likely departure date from the EU) would receive guaranteed match-funding by the Treasury.

·                As well as the threats and negative aspects connected to leaving the EU, there were a number of opportunities for both Sheffield and the UK, which included increasing trade links with Asia, the benefits of English Law independence and developing growth industrial areas, such as the carbon trading and the digital sector. It was hard to envisage the London metals exchange and expertise in insurance moving very quickly.

·                Whilst apprenticeships were very popular and beneficial to both the young person and employer, it was not considered that commencing apprenticeships any earlier in a young person’s life would be any more beneficial.  The Chamber of Commerce worked very closely with the University Technical College, Sheffield College and the two Universities in connection with creating good vocational educational routes, and maintaining relationships between the establishments and local businesses.

·                The expected financial cost of £58 billion, in connection with leaving the EU, referred to the reduction in the growth of the economy, rather than a direct financial penalty.  There were no details in terms of the financial cost of the decision to the Council, but it was hoped that information on this could be provided to Members sometime during the next two years.

·                Both Sheffield and the UK, with the exception of London and the South East, were recognised as suffering from low productivity. A report – Centre for Cities – Competing with the Continent, containing more detail on this issue, would be circulated to Members of the Committee.

·                Whilst Sheffield was competing reasonably favourably with other Core Cities, the UK as a whole was not competing sufficiently with other parts of the world.  Many developers cite issues in Sheffield around the planning process, but despite this, the more positive attitude in the City did mean people wanted to invest.  Sheffield did not attract Venture Capital type funding as other areas of the UK did.  The Chamber of Commerce had organised an event – “Sheffield 2050 - Bigger, Brighter, Bolder”, which had been attended by a number of local property developers, the aim of which had been to look at what Sheffield needed to do to attract more investment and increase development in the City.  At the event, there was a general view that Sheffield had lacked an identity in the last few years, and it was acknowledged that relevant people, bodies and organisations, needed to come together and create such an identity for the City.

·                In terms of Sheffield’s comparison with other Core Cities in terms of productivity, only Liverpool came below us. 

·                Whilst details of the precise figures were not available, and could be forwarded to Members, migration levels from EU countries, following the vote, was less than 1000.  There was some concern amongst some sectors which regularly filled vacancies from outside the UK, such as the health sector.  The views of businesses differed in terms of whether the decision would bring in advantages or not, and this depended on the nature of the business.

·                In terms of future co-operation and working with the EU, the Government, in its Autumn Statement, had announced £4bn funding towards research and innovation projects.  By 2020, Government spending on research and development would grow to an additional £2bn over and above existing spending, an increase of around a fifth. The investment increases year on year to reach this level, resulting in a total boost of £4.7bn by 2010/21.

·                There was a need for people to be realistic in terms of Sheffield’s and Sheffield City Region’s economic performance.  Sheffield did not compare well with other areas of the UK, and there was concern that the City may not be in a good position to make use of any of the opportunities in connection with the positive aspects of the decision to leave the EU. 

·                It was not possible to predict whether there would be any further depreciation in the value of the pound.  Mr Wright believed that inflation would rise and the pound would stay low.  Sheffield would be in a much better position if its performance in terms of profitable exports was better. 

·                It was very difficult to predict what the effect of the decision would be on pensions.  It was not, however, anticipated that the problems surrounding a number of pension schemes would be resolved without problems. Some profitable businesses were starting to fail because their pension deficits were unsustainable.

4.6

RESOLVED: That the Committee:-

(a)       notes the contents of the report now submitted, the information reported as part of the presentation and the responses to the questions now raised;

(b)       thanks Chris Lowry and Richard Wright for attending the meeting, and responding to the questions raised; and

(c)        requests (i) the Director of Policy, Performance and Communications to submit a report to a meeting in three months’ time, providing an update on the position, with Richard Wright being invited to attend such meeting, and (ii) consideration be given to the issue, when further details become available, being considered at a Full Council meeting.