The UK economy continues to expand and, in recent months, the north-east has been the fastest-growing region. The question now is how we bring about long-term productivity gains, and how do we improve connectivity between our towns and cities to make this happen? We gathered seven business leaders to discuss the challenges. IoD director general Simon Walker hosts…
Director general, IoD
Commercial and customer service director, East Coast
Chief executive, Highland Spring Group, Perthshire
Chairman, Elmwood, Leeds
Senior partner, PwC, Newcastle
Managing director, Rosh Engineering, Newcastle
Regions managing partner, Grant Thornton, Glasgow
Founder and managing director, Tea Monkey, Northampton
Simon Walker I’m delighted to welcome you all to the IoD. While this building is the IoD’s most visible presence, it shouldn’t hide the fact that one of our great strengths is our network of regions and branches. Some of the most exciting elements of the economic upturn are emerging far outside London, with Yorkshire, the east of England and the north-east, in particular, offering huge cause for optimism and all with thriving IoD branches. Just consider the £15bn plan to improve road and rail connections in northern England, as outlined in the One North report. Our chairman Ian Dormer, who is here today, is a north- easterner and a regular traveller on the East Coast route.
According to Lloyds Bank, north-east England was the fastest-growing region in May and June this year – the first time it has led the country in four years. It’s also creating jobs at the rate of knots, with regional unemployment down one per cent over the last six months. The Yorkshire-Humber region is moving even faster in terms of reducing unemployment with 135,000 new jobs created over the last year, and the East Midlands has seen nearly 200,000 new jobs in the last couple of years.
It’s a really encouraging story that also throws up other questions – how do we bring about long-term productivity gains, and how do we improve connectivity between our great towns and cities? That’s the heart of our discussion today. I’d like to start by talking about the current business climate. I’ve given you some big, bullish data; is that reflective in your businesses?
Les Montgomery We’re in the business of bottled water, which isn’t yet 40 years old. Highland Spring has been established for 35 years of that time and for the first 20 years of business it was growing at 20 per cent. I joined the business in 1985 and we saw growth of 50 per cent in some of the following years. It was amazing as the market developed and evolved, and people understood the benefits of bottled water. Of course, that slows down – growth went down to two and three per cent. However, in the past two years we have seen it back to double-digit growth. A lot of that has been down to general health awareness as the government is now on track to remind people not to drink their calories and that, compounded with the economic recovery, has definitely had an impact.
Jonathan Sands Ours is a different business and we’re seeing something slightly different. If I go back 10 or 15 years most of our clients were national clients, or global clients operating on a national basis, so Nestlé in York would be a big client. Now to get serious work out of Nestlé you have to go to Vevey [Switzerland]. We took a decision seven years ago that we had to be prepared to shrink because our client base was shrinking and we needed to go where there was a bigger buffalo herd. We decided to go international. Today more than half of our revenue is overseas and our lead studio’s biggest client is in Switzerland.
Walker And you don’t need to be based in London?
Sands Our business started in Leeds but our most profitable studio is now in London because you need to be where the hubs are. It’s an interesting time for the regions because I think London can be that hub and a gateway for international business to go to Leeds or Manchester. HS2 is really quite crucial to that. It’s like London has just got a bit bigger, rather than Leeds being 200 miles away. For me, the positioning of Britain is as a nation that’s very accessible, with centres of excellence all over the place.
Walker Bill, how is the general atmosphere both in terms of PwC and your client base?
Bill MacLeod We’ve got a June year-end and operating from Newcastle we had double-digit revenue growth last year. We’re seeing very strong economic activity, we’re seeing clients undertake transactions and make investments that they wouldn’t have done previously. There’s confidence out there. However, in the north-east unemployment remains stubbornly high but employment is booming. That’s quite a paradox. I don’t know if there’s more people coming into a growing population but the level of employment is the highest it’s ever been in the north-east.
And yet one of the structural changes that we’ve seen is that shift of decision- making to London. I’ve personally dealt with three FTSE250 companies that were all taken over in the space of 12 months and the concern is that, while the economy is coming back, loss of regional decision-making has had a significant knock-on effect for a whole host of support businesses. If decisions are not being taken in the region, that region is likely to be disadvantaged. If you’re based in London it’s much easier to make the cuts in the north-east as opposed to on your home territory.
Ian Dormer I’m fascinated by the number of mid-sector companies that are booming now. I had dinner with a family-owned business which is international, with a several hundred million-pound turnover, but very low key in terms of profile.
Robert Hannah Our regional business has gone from about £140m to £180m in the last three years. That’s predominantly on growth in mid-sized businesses. So what was mid-sized business doing during the recession? Capital investment in people and equipment in that period was at its highest in the mid-corporate space. Smaller businesses were struggling to find finance and larger corporates were tidying up balance sheets. Most of the activity has been in that mid-corporate space and its growth is coming from export markets. That brings us back to connectivity in international markets.
Walker Tracey, yours is again a very different sort of business.
Tracey Bovingdon I’m at a new stage because I’ve set it up with my own cash. Previously I had an education outsourcing business but I’m in food and beverage now, so it’s a very different industry. We’re out in the provinces but I’m in London two or three times a week, doing my work on the train – it’s constant. We’re also doing some international franchising so we’ve just signed a master franchise with Canada, but getting international people to come out of London is quite tough.
Partners want to know that you’ve got a presence in London and we don’t at the moment. We’ve done the other thing by starting in the provinces first and then getting the finances to come back into the city. This is a micro-climate here in London for sure. It’s tough for a small brand to get into these places because these companies don’t cut you any slack – we’re having to pay the same as very large brands. It’s an interesting one.
Walker Peter, could I ask about how East Coast is doing and also the connectivity issue.
Peter Williams East Coast is owned by the government but it’s a very hands-off relationship. We tend to lead when the economy is doing well and lag when the economy is performing poorly. I think that’s because we have a very big discretionary customer base – about 45 per cent of our journeys come from the business market and the balance comes from leisure travellers.
We’re doing comparatively well at the moment – not the double-digit growth that some people refer to but we’re growing at about five per cent. But to get to that five per cent growth we have had to be proactive as there are so many different dynamics to our business in terms of regions, customer types, product types. We fix one thing, get ready to step up to the next level and then something falls behind in terms of the growth trend. It’s a very dynamic marketplace.
In terms of connectivity our view of the future is that there is still growth to come from the traditional East Coast route. We want to speed up journey times and frequencies between major cities. Whenever we speak to local communities everyone says the same thing; they want more trains stopping at our stations. But the problem is there’s always going to be a trade-off because the more we do that then the less we’re going to serve the major cities. And we need to improve the level of service we provide to those big cities – Leeds, York, Newcastle, Edinburgh and so on.
Walker What do you as business travellers need from the train services, and what are you getting?
Montgomery I use the train a lot and over the past few years awareness of travel costs has been a big thing for us. I use the sleeper regularly. It’s a great journey but I’d use it far more if there was comfort at the other end, with proper lounges and showers. That would then be much better value than the cost of a flight and hotel. The journey from Edinburgh to London could do with being 40 minutes shorter – although you get about three hours of useable working time.
Bovingdon If you can work, it’s great. The only thing I get frustrated with is the WiFi. It comes and goes and you end up using your own network, but you can work and you can turn your phone off. It’s so great when you can say, ‘I can’t talk to you, I’m on the train’. Everyone understands that.
Montgomery Although if you end up sitting with three people who are going on holiday and they are chatting while you’re trying to work…
Bovingdon There could be working hubs?
Williams Both of those points are really interesting: we’ve just invested over £2m in upgrading our WiFi so you should find that level of service you need. All of our fleet has been upgraded – it took about four months to roll it out across our fleet. But the connectivity is far better now although there are still some limitations because ultimately we’re still reliant on the mobile service providers and the strength of the signal that they offer.
Longer term, there are big plans in terms of Network Rail, who manage all the infrastructure and have fibre-optic cables underneath the rail network. There’s work going on to see how we can get the signals from those cables onto the train. That would be a real step change, but that’s a few years out.
As for the seating, we did research on this last year because the basic train configuration hasn’t changed for a century or more. We found that in First Class 70 per cent of people travel on their own and yet the on-board layout means they often find themselves sitting together. With regard to the new Intercity Express Programme, we’re trying to influence future thinking in this area to change the offer so it matches the needs of the modern business traveller, with a hub, privacy and better facilities. I think we’ll get there because there’s a real business demand for better seat configuration on board.
Sands Our business is relatively small – our fees are about £13m a year. Of that £13m, we spend nearly £1m on travel, which is huge. It’s mainly on flights and hotels but it still comes off the bottom line. Reducing those costs is a real focus. We had a purge last month and, just by booking trains early and using video conferencing, we saved £20,000.
I think a lot of businesses will start to look at the real efficiency of the time now. I hate flying. Trains are great because our Leeds studio is right by the station and we’re looking at moving our London studio closer to King’s Cross because that half an hour journey to get into the centre of town from King’s Cross is both expensive and dead time. However, I’d like trains to be a bit cleaner, I’d definitely like to be able to get a seat – even though I pre-book, sometimes I don’t get a seat [East Coast runs a Seat Guarantee Scheme] – and the WiFi needs to work.
Walker What about international links?
Dormer People in the north-east think of Paris, Brussels or Amsterdam when flying somewhere, not London. Every day we’ve got six or seven connections to Amsterdam, the same number to Paris but only about five to London. I’m off to Japan and Australia next week and I’m going through Amsterdam. I didn’t even think about London. It’s much easier to go through Schiphol. However, the East Coast trains are brilliant – there’s a train every 30 minutes from Newcastle to London. That’s a fantastic service.
Hannah This is a major issue. I remember being at a life-sciences dinner in Edinburgh and the chief executive of a science centre in Minneapolis said the first thing he did when he was appointed was to strike a deal with Northwest Airlines to ensure that they set up a hub in Minneapolis so that anybody wanting to come from the private equity community in California, or the banking community in New York, could get there in one flight.
I know that there’s talk about a fifth runway, and expanding Heathrow and Gatwick, but if we really want to have a policy in the UK that’s going to help the regional economies then, frankly, Manchester is the obvious choice for expansion – that connectivity to Shanghai, Singapore or California is really important for business.
MacLeod A lot of small businesses in Newcastle are exporting but a large part of business or sales potential is in London. That’s why East Coast connectivity is so important. If you can do the top line operating from the north-east, that’s quite a strong proposition.
Sands I nearly always fly through Manchester. I always try to use Star Alliance aircraft to get my miles and then I use them to upgrade on the night flight back from the US. I had a choice of flights coming back from Australia for my next trip and I’m going to go through Heathrow for the first time in ages because I got a connection on BA to Leeds Bradford. However, I’ve got a five-hour wait in Heathrow; I’d rather have taken the train but it’s the connection to King’s Cross from Heathrow that’s the challenge.
Walker That lack of connectedness between different kinds of transports is a real issue.
MacLeod The other issue in the north is the connectivity east-west. We’re talking about East Coast coming to London but getting from Newcastle to Manchester is far slower than getting from Newcastle to London. It’s terrible.
Hannah If you’re going to really allow the regional economy to take all these opportunities internationally then people need to come here and be able to move around quickly so I think east-west connections are very important. That investment needs to happen and if it was coupled with connecting international flights which could get you from one place – say, Manchester to Leeds in half an hour – that’s when somebody travelling from Shanghai or San Francisco is going to be happy to do that.
Bovingdon Do you talk to the airlines, or the airports, or are you very separate in terms of your strategy?
Williams We tend to be separate because we regard ourselves as competitors. We’re trying to steal market share from them by improving our services – by speeding them up, running more services, upgrading WiFi, those kind of things.
Sands Maybe you should join the Star Alliance network. That would be really cool if East Coast trains became a Star Alliance partner.
Walker It’s an interesting idea. In France, for example, SNCF aligns itself closely with Air France flights. Back to the question of London, Jonathan, you mentioned it is getting bigger but what will the relationship be like in the future?
Sands I’m not a futurologist and these things are cyclical but I think for the rest of my working career, London will continue to grow and to dominate because global organisations are concentrating around international hubs – Geneva, New York, London, Shanghai and Singapore. Those places are going to grow because it’s about economies of scale and connectivity for global organisations. Small supplier organisations like my own will be limpets on the back of those organisations, so it just makes it easier.
The other day a large Canadian organisation knocked on our door and said we want to come and see you while we’re still in London. If I’d have said, well, our head office is in Leeds, they’d have replied: ‘Where?’ Leeds will always be the soul for our business but we opened in London only 10 years ago and it’s now much bigger in terms of revenue. I only see that trend continuing.
Montgomery There must be a political plan from central government to say that they do want to have provision for five or six key hubs in 20 years’ time.
Dormer And infrastructure can only be delivered by government. Businesses will do everything else. You give us the infrastructure and we’ll build it.
Hannah For the health of the UK, it shouldn’t be seen as taking anything away from London. London has been a great success story so we should do everything we can to make that more successful. But I agree there are certain other hubs around the UK where some good government policy now would give a great advantage. We’re back to connectivity.
Bovingdon I set up my last three companies in Milton Keynes. I live out in the provinces but chose Milton Keynes because I could get into London in 30 minutes, and you can get good candidates and good rentals. Lots of people diss Milton Keynes but there’s an awful lot going on. You’ve got the head offices of Audi Volkswagen and DaimlerChrysler there as well as Scania and other huge companies.
You’re wedged between the M1 and the M40 – there’s good connectivity and great service. Would I want to live in Milton Keynes? Probably not, but there’s a lot of good business going on there.
However, for raising finance you still have to come to London – all the investment houses are here. We’re going through our next level of investment because we’ve got a big order book, but we’re also getting interest from the Middle East. There’s a lot of cash coming into London from the region.
Dormer We’re in engineering and London is irrelevant to us. In Newcastle, we’re in the middle of Britain because the power industries are near John O’Groats and then we go all the way down to Indian Queens in Cornwall. For us, it’s eight hours to Inverness, the same to Truro and then, of course, we can skip to the Netherlands on the overnight ferry.
Walker Everything goes back to this theme of connectivity, both internally and internationally.