North set to lose more years of economic growth than the rest of England due to Covid-19
New analysis by iwoca shows that the North of England is forecast to lose more years of growth because of the economic impact of the pandemic than other regions in England
Northern regions have the biggest proportion of businesses in worst hit sectors
Leading small business lender iwoca pledges £220 million over the next 3 years to help businesses in the North recover from the crisis
London, 23 October, 2020. Research by iwoca, one of Europe’s largest small business lenders, has found that regions in the North of England could lose between 6 and 14 years worth of growth due to the financial hit created by the pandemic.
The North East, North West and Yorkshire and the Humber have been forecast to lose 11.7%, 11.2% and 12% of GVA respectively in 2020. Analysis of the region’s GDP statistics from previous years suggests that these falls would erase the economic growth made between 2004-2018 in the North East, 2012-2018 in the North West and 2010-2018 in Yorkshire and the Humber. In terms of total years of growth lost, these regions make up three of the top six in England.
Businesses in the North could also be more vulnerable to the adverse effects of the Covid-19 crisis. The ONS identified the sectors of ‘Accommodation & food services’ and ‘Arts, entertainment, recreation & other services’ as being the two worst affected by the pandemic between January and July, and these are sectors likely to be greatly impacted by further local lockdowns. iwoca research has found that the three regions in the North have the highest proportions of businesses in these sectors in the country. In the North East 16.4% of businesses fall into these sectors, with the North West having 12.8% and Yorkshire and the Humber with 13.5% of businesses in these sectors.
According to the most recent data from HMRC, these sectors have also seen the highest proportion of jobs furloughed. In the arts, entertainment and recreation sector, 45% of employees were on the furlough scheme at the end of July, and 43% of workers in accommodation and food services were furloughed.
iwoca funding pledge
This higher vulnerability could compound the economic effects of additional restrictions which the Government has outlined for towns and cities in the North. iwoca is therefore announcing a pledge to lend £220 million to small businesses in the North by the end of 2023 to help them recover from the Covid-19 crisis. This commitment comes on the back of a £100million pledge for small businesses in the North made by iwoca in 2018, which was achieved almost a year ahead of schedule.
Over the past two years iwoca has funded nearly 3,000 small business customers in the North and in December 2019 the lender opened an office in Leeds reaffirming its commitment to the region. As the Government champions a levelling up agenda, iwoca’s pledge will help small businesses across the North grow and contribute to the UK’s economic recovery.
Alexander Alfieri, founder of North West based online antique jewellery retailer – Butter Lane Antiques – and iwoca CBILS customer: “We were in such a good phase of growth pre pandemic. As a business we took five steps forward and then this happened and left us six steps back. But it’s just the nature of running a small business. It wasn’t all doom and gloom at all, but it was tough, and there were some really squeaky moments. We ducked and dived, got our heads back on, and started thinking of different ways to get things back on track, which – through social media – we did. There were some really positive adaptations that came out of it: our podcast was born, and I had to become incredibly more specific with the stock we were buying and the manner in which we were selling it.”
Christoph Rieche, CEO of iwoca said: “Small businesses around the country have been hit hard by the pandemic, but it’s clear that some parts of the country – particularly the North – are suffering disproportionately. We want to support business owners in these areas to give them the best chance of recovery over the next few years. With this financial commitment we hope that we can drive up growth and help businesses across the North thrive.”
Images of Christoph Rieche, Co-founder and CEO of iwoca here.
Images of Butter Lane Antiques, Alexander Alfieri here – full case study available on request.
Notes to the Editor:
iwoca is unlocking economic growth by expanding the financial possibilities available to small business owners. Since launching in 2012, we have made funding available to 50,000 businesses and have raised over £400 million in equity and debt finance. For more information go to www.iwoca.co.uk, like our Facebook page and follow us on Twitter @iwoca and Instagram @iwoca.
Loss of growth
To work out the loss of growth: iwoca have used a forecast of Projected GVA growth in 2020 by Oxford Economics, published by the House of Commons Library and applied this to real GDP figures in the regions in 2018 published by the ONS. The GDP regional figures for 2018 is the most recent available data. As the measure GVA is based on GDP, with the inclusion of subsidies and taxes on products, the two measures have a close relationship and mostly mirror each other in relation to growth. This means that when assessing growth trends GVA and GDP are comparable.
Using these data sets iwoca has compared GDP levels by year to work out how many years of growth, based on past performance, could be lost in 2020 based on the projections by Oxford Economics.
For the North East:
Oxford Economics forecast that GVA growth in 2020 will be -11.7%
The ONS GDP volume measure index (which accounts for inflation and prices changes year on year and allows for easier comparison from year to year) in 2018 was 101.4.
By reducing the GDP volume index measure by the forecast fall in GVA, we can identify what level the region’s GDP will return to (89.5).
According to the ONS, the most recent year when the GDP volume measure index in the North East was 89.5 in 2004 (93.6). Given that this is 14 years earlier than the volume measure index of 101.4 in 2018, we can conclude that the fall in GVA of 11.7% means that the region is forecast to lose 14 years of growth.
For the North West:
Oxford Economics forecast that GVA growth in 2020 will be -11.2%
The ONS GDP volume measure index (which accounts for inflation and prices changes year on year and allows for easier comparison from year to year) in 2018 was 103.8
By reducing the GDP volume index measure by the forecast fall in GVA, we can identify what level the region’s GDP will return to (92.2).
According to the ONS, the most recent year when the GDP volume measure index in the North West was just above 92.2 was 2012 (92.3). Given that this is 6 years earlier than the volume measure index of 103.8 in 2018, we can conclude that the fall in GVA of 11.2% means that the region is forecast to lose 6 years of growth.
For the Yorkshire and The Humber:
Oxford Economics forecast that GVA growth in 2020 will be -12.0%
The ONS GDP volume measure index (which accounts for inflation and prices changes year on year and allows for easier comparison from year to year) in 2018 was 103.4
By reducing the GDP volume index measure by the forecast fall in GVA, we can identify what level the region’s GDP will return to (91).
According to the ONS, the most recent year when the GDP volume measure index in Yorkshire and The Humberside was just above 91 was in 2010 (91.1). Given that this is 8 years earlier than the volume measure index of 103.4 in 2018, we can conclude that the fall in GVA of 12.0% means that the region is forecast to lose 8 years of growth.