Re-shoring presents £1.4bn ‘once-in-a-generation’ opportunity for the East economy, says EY


16-02-2015

Re-shoring presents a once-in-a-lifetime opportunity for the East of England to benefit from the most potential GDP and employment impacts of re-shoring, according to new research from EY.

The report Re-shoring – Time to seize the opportunity, has calculated that re-shoring could contribute £1.4bn in GDP and 27,600 jobs to the East of England economy over a ten year period to 2025, with computers and electronics set to be key sectors for the region.

It also revealed that re-shoring could add £15.3bn of GDP to the UK economy and equate to more than 315,000 jobs across the UK.

The top five regions that offer the greatest re-shoring potential are North West, South East, West Midlands, Yorkshire and The Humber, and East Midlands. The East of England ranked in seventh place of UK regions that offer the greatest re-shoring potential, behind South West in sixth position.*

Cathy Taylor, EY’s senior partner in Cambridge, comments: “Offshoring in the 80s and 90s saw a dramatic reduction in British manufacturing and a shift to services industries that resulted in a fundamental restructuring of the British economy. While other regions saw rapid growth and wealth creation, others suffered from high rates of unemployment.

“But the economics underpinning this trend appear to be reversing and presents the region with a once-in-a-generation opportunity. While increasing wages in developing countries are eroding their labour cost advantage, there are many more factors driving business to choose British shores. The desire to guarantee quality and the imperative to reduce time to market are increasingly important drivers of location decisions.”

What sectors and where?

While the cost advantages of producing goods in the developing world are lessening, wages are still significantly below those in the UK, therefore it is unlikely that re-shoring will occur across the board. However, the report says that certain sectors could see a high proportion of activity re-shored given the right incentives.

Continuing, Steve Wilkinson, UK & Ireland Managing Partner, Markets at EY  said: “Those businesses that do relocate to the UK will predominantly be capital intensive sectors such as aerospace, defence, automotive, petroleum products and clothing, serving the European market. They will be businesses where quality and brand are important and consequently the supply of a highly skilled workforce is imperative. When firms do choose to re-shore to the UK they will tend to cluster in regions that best serve their business, in close proximity to key suppliers, infrastructure and an able workforce.”

Re-shoring to UK is not a done deal

But the report heeds a cautionary note, saying that re-shoring industry and jobs back to the UK are not guaranteed. The Government has taken some important steps to ensure that the UK remains an attractive place to invest and start a business, but competition is intensifying.

Cathy Taylor adds: “The UK is not the only country vying for re-shoring investment; competition from other developed countries such as the US, Germany and France and emerging markets in Eastern Europe puts the opportunity at risk. Government and business must work together to provide the correct framework so that the advantages of moving production to the UK can be realised.

“While steps have been taken to make the UK more attractive to businesses looking to re-shore such as reducing the headline rate of corporation tax to the joint lowest in the G20, providing competitive reliefs for innovative and high tech industries, and UKTI’s ‘Britain is Great’ campaign, more can be done.”

More balanced, sustainable and robust economy

Beyond the positive effects on employment and GDP, the research also reveals the wider benefit that re-shoring could bring, helping to rebalance the UK’s economy between regions and sectors.

Taylor concludes, “Re-shoring is a growing trend that has the potential to bring significant advantages to the UK economy. By supporting those sectors which offer the greatest return from re-shoring in terms of employment and GDP, the UK will have a far more balanced, healthy and robust economy where consumers, manufacturers, service businesses and other sectors are pulling in the same direction. Whether Cambridge and the East is able to take full advantage of the re-shoring will depend on how the region manages the infrastructure and housing consequences as a follow on to the already significant investment needed.

 “If the infrastructure issues are managed, this will lead to a more sustainable economy which is better able to weather future global shocks, helping set the UK on a path to where it is not only competing but winning in the race for global growth.”

 

EY is a global leader in assurance, tax, transaction and advisory services. With over 400 employees in our Cambridge and Luton offices, our teams provide a range of services to a variety of sectors, including manufacturing, life sciences, consumer products and retail, technology, real estate and construction, health, and the public sector. The broad array of companies across the East allows us to bring real, relevant and key insights to our clients.

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