Member Article

Britain can’t count and it affects our regional economy

Recent announcements by Government departments on the state of the economy have been found to have simple arithmetical errors. But this is not just a one off problem, says Dr Stan Higgins CEO of NEPIC. The Cluster organisation has been wrestling with this issue for the last 8 years. We should all be concerned about this because of the nonsensical conclusions that can be made by politicians using the poor data that they are provided with. NEPIC’s concerns are mostly about UK industry data and how our region and the process sector is analysed and misrepresented using Office for National Statistics (ONS) SIC codes. Standard Industrial Codes (SIC) are being used to try to understand UK industrial output and development as well as regional industrial variations. NEPIC says that these SIC codes are so incorrect they do not reflect industrial reality and often come up with such nonsensical answers that anyone with a bit of common sense can see that they are wrong.

Two areas that ONS data does not reflect correctly on a regional basis are workforce numbers and business contributions. Common sense says that there are more chemical workers in the Northeast of England or other regions with chemical industry clusters than in the City of London but that is not what is reflected in the ONS data. The fact is that codes suggest that there is only a 12000 strong chemical workforce in the NE when in fact a bottom up count is nearer 35000. Why is this? It is because of what is known as the “branch office effect”. The NE in particular suffers from this more than any other region of the UK, but it is still prevalent elsewhere outside London. This error arises because business outcomes and statistics reported through SIC codes are reported by “Head Offices” and not where the value is created nor where the staff may actually be working. So staff numbers and profits of many of the UKs value adding business activities are in fact being generated in the regions but are being reported as being created in the City of London or elsewhere. A further example of this is that 35% of the GDP in pharmaceuticals, often regarded as the “Jewel in the Crown of British Industry” is manufactured in the NE of England and yet again these results are reported through head offices in the South of England.

Another problem arises from the choice of which SIC code a business should use, which is left to the business to choose for itself. There are so many examples of mistakes here we will show just three. Chemical companies manufacturing materials ultimately being used in the construction industry can call themselves construction companies, while chemicals being manufactured for food protection , flavouring or packaging can be allocated to the food industry etc. A polymer company can call itself a food company when part of its product line is used in food packaging. In other words companies are allocating their business to the markets they serve not the industries they are in. This means that the SIC code data going in is wrong so any conclusions drawn will be wrong. This is a clear example of “garbage in – garbage out.” As a result of this problem the contribution made by a number of important sectors to the UK economy is being completely undervalued.

Why is this important? Firstly we are underestimating the significance of the regions to our economy, as well as underestimating some of the UKs key industrial activities. Many in the UK do not realise that the NE is the UKs only net regional manufacturing exporter (UKTI Statistics) and the chemical industry the only net exporter of the whole UK economy (Chemical Industries Association). When trying to sell the regions to industry around the world, in order to attract new products and new investment, as NEPIC does, the bottom up numbers - which are closer to the truth than those of ONS are being challenged. Statisticians around the world can easily look up our incorrect ONS SIC based numbers and counter our trade and investment proposals with “Where is the workforce?” “Nobody is based in your region!” and even “Why does the production of pharmaceuticals look to be in decline?” when in fact the reverse is true. There are so many instances where our national statistics are incorrect it is making our country a laughing stock around the world and harming the prospects of the regions.

This was posted in Bdaily's Members' News section by Dr Stan Higgins .