Herefordshire Area Council Sector Update

EDUCATION

Difficult period for the University sector, with restrictions on international students leading to less coming into the country to study and a financial shortfall.

Most students got their first choice this year too, leaving clearing quiet this year. Still working on promoting NMiTE as a new University choice. First cohort have now graduated, and have been employed in some great roles locally. The driver for NMiTE is still to keep young people within the County, supporting them to graduate and retaining skills locally. Also attracted and retained students from wider than the County, and the recently graduated cohort have remained in employment locally. New courses for next year include  mechanical engineering and construction management. Likely to have a January cohort too, to boost numbers and support those who have changed direction from Sept 24 plans/starts. Now have 100 students and aiming for more next year.

 

FOOD AND DRINK AND AGRICULTURE

Hospitality industry – ‘miserisms’ really affecting the feel good feeling and hospitality sector. Lots of stories of pubs and eateries shutting, but others still very successful. Many customers now looking for niche, bespoke products. Those selling core, basic  products maybe struggling.

October budget worry is about duty – increasing this will increase cost and mean more upheaval. Low alcohol drinks are becoming more popular. Guinness report that 40% of future sales will be low alcohol versions.

Some challenges for sectors to get MP representation in Government on re-formed committees and sector groups. 2 new future legislative concerns – Extended Producer Responsibility (EPR) – packaging tax if over £1m t/o and 25 tonnes of packaging – this will apply to all sectors. Legislation was Oct 23 and the first charges could land this October, but many maybe unaware of this legislation. Deposit Return Scheme (DRS) – fairly new, where glass charges in the future will have a premium, but small refunds will be given at deposit sites for glass bottles returned.

Farming and Agriculture has seen yields down, but better grapes and apples, which will lead to a better product. Rain always a challenge. Labour issues remain, although labour in factory somewhat stabilised.

 

LIFE SCIENCES

Long term demand environment remains healthy, but trends have normalised from previous unprecedented levels and all CROs are observing pipeline reprioritisation and tighter budgets among most type of clients, with a noticeable shift in larger client spending towards commercialising their late-stage programs, resulting in less focus on early stage projects.

Gross book-to-bill remains strong with new business awards, but net book-to-bill has declined due to increased cancellations, leading to a drop in backlog. These higher cancellation rates are driven by budget constraints, funding issues, and pipeline rationalisation, affecting both global biopharma and small biotech companies.

IPOs and the creation of new biotech companies have slowed, but VCs still have capital to invest, though they are deploying it more selectively and in stages. This is expected to have a significant downstream impact, with the belief that pharma will continue to rely on biotech licensing, partnerships, and M&A to advance their pipelines and fuel growth.

While there are some signs of stabilising trends based on external factors such as macroeconomic environment significant improvement is unlikely in the second half of the year.

Geopolitical tensions are likely to make China less attractive to Western clients, further emphasising the importance of US and EU-based Contract Research Organisations.

Strategic outsourcing for phases of the development of life-saving treatments for rare diseases and other unmet medical needs presents a compelling opportunity to enhance cost efficiency and accelerate time to market, making the long-term outlook positive.

 

MANUFACTURING/CONSTRUCTION

During August, residential construction starts increased significantly vs May-Jul (+22%). Private housing is performing particularly well. Despite this positive trend, the market remains operating circa -8% vs 2023 levels. Non-residential construction starts fell in August vs May-Jul and remain circa -9% down vs 2023 levels.

Regarding manufacturing output, September witnessed a fifth consecutive month of growth, according to the UK Manufacturing PMI (Purchasing Managers’ Index). While positive, growth was at a lower level than in previous months and cost burdens increased. There is also a feeling of uncertainty within the sector regarding the impact of the Autumn Budget.

The Labour Government have announced that in order to achieve their target of building 1.5M new homes, they will impose mandatory housing targets on local councils. Further planning reforms are expected in the coming months with a review of the greenbelt also underway.

On Friday 20/09, The UK’s sixth biggest construction contractor, ISG, announced its collapse. This has made 2.2K employees redundant and the impact on creditors and subcontractors is a major concern for the industry.

Sources Manufacturing: Key Economic Indicators – House of Commons Library (parliament.uk) Glenigan Index of construction starts to end of August 2024 | Glenigan ISG: Construction giant collapse sees 2,200 jobs cut (bbc.com) Housing targets increased to get Britain building again – GOV.UK (www.gov.uk)

Finding people still remains a challenge, strategy remains to seek those with right attitude and internally train skills. To support this changes in the levy rules would be welcome, including paying the cost of part of the apprentice salary to cover the learning time. Minimum wage increase an ongoing challenge, including the knock on effect on the total salary bill.

 

CONSTRUCTION

Sector need led by demand. Ongoing need for land, simplified planning processes, including timeframes and layers of committees. Pre application process is now encouraged, adding a further 2-3 months to the planning cycle, typical timeframe from start to handover is 3 years, from 2 years.

Labour policy to tackle planning challenges doesn’t yet have the detail for sorting out the hugely complex issues, including bio-diversity, local infrastructure as well as the many layers of the planning process. These challenges can stifle enthusiasm. Labour still a challenge plus overall wage inflation.

 

DEFENCE

Defence has not ‘moved’ since the last update.  Continued spending freezes have significantly impacted the sector and everyone I speak to is reporting ‘business is unusually quiet’.  Concerns that ‘old labour’ is back, and despite the rhetoric channelled through left-leaning media, the next 4 years is going to be challenging as Defence takes a lower priority in Government Spending.  The Unions are already flexing their power and influence, and recent pay rises (train drivers, doctors etc) have to be funded from somewhere; the NHS is arguably broken and politically untouchable, Education is financially struggling, Policing and UK Border security continues to be a hot topic, so Defence is the easier target….

The US Elections in November will have significant impact.  The media is heavily biased towards Harris; however, a very close result is predicted.  If Trump wins, expect a plan to stop the war in Ukraine, refocus US spending on domestic issues, and place increased pressure on European NATO members to ‘do their fair share’ (as apart from Poland, none do).  If Harris wins, nobody knows what will happen. Democrats tend to be more internationally minded (potentially good for UK), however, domestic issues in US are significant (crime, drugs, unemployment) and will surely affect US involvement in overseas issues.

Over the short/medium term, big UK Defence companies should be OK, as instability in the Middle East, Africa, Asia and Central Europe create sales opportunities for the likes of BAE, but small companies need to be agile and look to create export opportunities.

 

ENERGY/SUSTAINABILITY

Labour Government Pledge Post Election:

  • Delivery of the mission to boost energy independence and cutting energy bills through clean power by 2030
  • Taking control of energy with Great British Energy
  • Upgrading Britains homes and cutting poverty through Warm Homes Plan
  • Standing up for the consumers by reforming the energy system
  • Creating good jobs in Britain’s industrial heartlands
  • Leading on the international climate action based on domestic achievement

What does this mean?

  1. Clean power for 2030

Double off-shore wind

Invest in carbon capture and storage, hydrogen and marine energy

Lifetime of Nuclear plants will be extended

A strategic reserve of gas power station to be maintained

  1. Great British Energy – create a new publicly owned company; £8.3b investment
  2. Energy System Reform

Work with industry to upgrade national transmission infrastructure and rewire Britain

Ensure a tougher system of regulation that puts customers first

  1. Warm Homes Plan

Invest £6.6b to upgrade five million homes to cut bills

Offer grants and low investments in insulation and improvements such as solar panels, batteries and low carbon heating

Work with the private sector to provide further private finance to accelerate home upgrades

Ensure homes in private rented meet minimum efficiency standards by 2030

Cut energy bills for good, taking up to £1,400 off the household bill and £53billion off for businesses

  1. High quality jobs

Invest in industries of the future through the National Wealth Fund to create 650,000 new jobs by 2030

Reward clean energy developers with a British Jobs Bonus, allocating up to £500m per year from 2026

  1. Accelerating Net Zero

Support the introduction of a carbon border adjustment mechanism

Make the UK the “green finance capital of the world” mandating UK regulated financial institutions to implement credible transition plans that align with the 1.5 degrees C goal of the Paris agreement

Technologies:

Heat Pumps: There has been significant growth in this sector with July 2024 being the best month for Boiler Upgrade Systems, having doubled compared to July 2023.

Battery Storage & SMART Technologies:

The ability to store energy sits at the heart of any energy efficient ecosystem. Customers can store cheap clean energy in their battery, then discharge it at the right time to run devices in the home.

Through SMART technology battery storage can link to EV chargers, Air Source Heat Pumps, Solar, Smart Plugs and Smart Meters with usage monitored through energy management applications.

Integrating systems moves away vis single system and silo installations increasing efficiency and reducing energy bills.

 

TRANSPORT

A busy time for the industry as we struggle through the holiday season, bank holiday and the back to work / Christmas uplift.

Confidence amongst the sector is at a all year high and the number of insolvencies have slowed down to normal levels.

The cost of fuel at the lowest level for 15 months although the retail price still seems disproportionately high.

Availability of drivers have improved although there are a lot of novices, supported by the Government boot camp scheme with 90% support to obtaining licences, but as you can appreciate, this is just the start of the learning journey.

HGV technicians still an issue with Volvo transferring staff from South Africa.

Shortage of training facilities, inadequate funding, lack of interest to join the industry and the challenge of fast changing technology (EV)

Road conditions and driver facilities remain a high level lobbying issue for the Road Haulage Association.

A grim milestone of 500,000 road deaths since 1926 in the UK.

EU experienced 100,000 road deaths in the last five years which is the equivalent to a fully loaded A350 crashing with all loss of life, every week.

This is despite great improvements in technology but no doubt working against it is congestion and distraction.

A third of all crashed on UK roads involve someone driving for work.

Construction remains the most dangerous sector, but with falls from height the most common accident across all sectors.

Just an interesting concept is the change in interpretation of job requirements between managers and teams with managers assuming that Above and Beyond is the norm and that everyone will be keen to progress  and do more than the basics of the job.