GDP per person in the North East in 2022 was 18% below England exc. London and lower than most other core city areas​. This reflects lower productivity (output per hour/person) and lower employment​.

The GDP gap has increased since the 2008 recession, due to weaker productivity growth in the North East​. The pandemic caused the biggest known non-wartime contraction in the UK’s economy.

Weaker productivity in the North East is usually attributed to a range of factors:​

• Sectoral composition​
• Innovation and R&D​
• Business density​
• Skills and labour force density​
• Health​
• Infrastructure, including transport links

Even though some sectors have low measured productivity, they are foundational to the economy/society – providing health, education, food, retail, transport and access to public services.

Sectors

The public sector is an important employer, alongside a growing education and health sector. Retail and hospitality are big employers, providing many ‘entry level’ job opportunities. Manufacturing employment in the North East remains well above the average national levels, despite jobs falling in recent years (although manufacturing output has remained steadier).

We have seen a big rise in ‘knowledge-intensive private services’ (which include ICT, financial services and many creative industries), with the sector accounting for more than a third of employment growth in past ten years. But the knowledge intensive service sector still remains much smaller than the national average.

There are important employment clusters across all local authority areas. Advanced manufacturing, Health/life sciences and the Visitor economy are dispersed with significant clusters in Northumberland and Durham; energy companies include offshore clusters along the Tyne and Blyth. The biggest professional services and digital companies are based in city centres and business parks – but with smaller companies more widely spread.

Low carbon sector

The North East region currently has around 7,600 individuals employed in the low carbon and renewable energy economy. Businesses in the sector have a high turnover relative to the size of workforce

The low carbon workforce is expected to grow considerably in response to the drive to Net Zero and global demand. The North East’s growth potential is based on distinctive strategic assets in electrification, offshore wind and heat networks. Modelling suggests: 

• The direct wind supply chain could reach 3,500 jobs and provide £140m in GVA in the next 10 years [Cambridge Econometrics]
• 3,300 to 13,300 net additional jobs could be created from the heat networks pipeline in the North East’s economy by 2033 [Steer ED]
• A Government study found that aiming for Net Zero by 2050 could create an extra 27,000 direct jobs in the North East region through key opportunities in Energy, Transport, Buildings and Carbon Capture

There is significant domestic demand to support sector growth. The number of licenced plug in vehicles in the North East has increased 8% per quarter since 2009.

Business

The North East has a relatively low number of businesses per head compared to other regions of the UK​. This is because of the cumulative impact of low business births in the region, though in recent years these have been higher than England and the gap has closed​. The proportion of high growth businesses and business survival rates are comparable to the national average​.

The North East region has a fair share of finance deals relative to the business density (3%), but when excluding British Volt deals, the proportion of funding secured is lower than other regions​. Both equity and debt funding availability are cited as a constraint on growth by SME – gaps from early-stage to follow-on investment​.

The North East region has a greater share of private sector employment in SMEs and a smaller share in large businesses​. SMEs account for 99.9% of all businesses in the North East region, 67% of all business employment and 60% of business turnover.

R&D and innovation

The scale of innovation activity is below the national average in the North East. Expenditure on R&D tax credits is well below the national average. On a per capita basis, the North receives a smaller amount of R&D expenditure from all sources.

Manufacturing, IT and scientific and technical activities are the sectors with the largest numbers of R&D tax credits claims and expenditure in the North East region. Higher R&D nationally is driven by research intensive clusters and large firms, such as the manufacturing cluster in the West Midlands

The Universities and the four catapult centres with a presence in the North East are key assets in leveraging private sector R&D across the mayoral combined authority area. 

Inward investment and trade

In 2021/22 the North East created more jobs through FDI than every region outside of London and more jobs than London on a per capita basis. In 2022/23 it still created more than England excluding London​

This has been driven by investment in the electrification sector in particular, as well as offshore wind, digital technologies, and business services​

The North East region is a strong exporter of goods, exporting a greater value relative to overall output than England exc. London. Automotive is the major contributor to regional exports accounting for almost a quarter of the total value​

The growth rate of goods exporting over the past decade has been below the national average and the North East has seen a slow recovery from COVID (partly reflecting global supply chain issues in automotive sector). Regional pharma exports have seen significant growth post Covid​

The North East region also exports a significant amount of services although less on a per capita basis than nationally​