KPMG survey reveals North East business leaders identify rail investment as top priority

Businesses say investment in rail infrastructure is a top priority to stimulare the region's economy, according to a new KPMG survey

Mick Thompson of KPMG
Mick Thompson of KPMG

Businesses across the region view investment in rail infrastructure as the number one stimulus that will transform the region’s economic prospects over the next 10 years, according to a survey.

KPMG have published their annual Business Instincts Survey, a poll of 108 senior executives from companies across the North, which found that projects such as HS2 and the Northern Hub were predicted to bring the most significant benefit to the northern economy during the course of the next decade.

Mick Thompson, office senior partner for KPMG in Newcastle, said: “The message from business is loud and clear: investment in our transport infrastructure will ultimately prove to be the linchpin of future economic growth in the North.

“Only this week, Chancellor Osborne proposed to create a high-speed east-west ‘HS3’ rail network as part of his plans to create a ‘northern powerhouse’ – a ground-breaking initiative which rightly seems to have gained almost unanimous approval. Couple this with investments in our local airports, road and ports, and we have an almost unparalleled opportunity to transform the North for the better, making us better connected and finally acting as a counterweight to the economic strength of London.”

People and skills also topped the list of investment priorities for companies across the North, following years of under-investment during the recession.

Over a third (36%) of executives survey ranked people skills as their number one investment priority for the short to medium term, with one in five respondents saying investment in new technology and machinery was vital. Meanwhile, 65% of businesses said that they were actively planning to increase their workforce over the next 12 months, with just 27% saying they would keep workforce levels unchanged.

A total of 90% of businesses also expect to increase their turnover this year, with 81% believing their profitability will also improve.

Thompson said: “There is an increasing optimism among northern businesses who have indicated a gradual, rather than explosive, approach to their investment plans this year. Many businesses are concerned that under-investment in staff during the downturn has led to a skills deficit, meaning the war for talent is most definitely back.

“Unfortunately, the solution is not as simple as going out and re-recruiting talent. The right people are not always available, and competition is tough for the best hires. Businesses may continue to struggle to find the expertise they need, especially in highly skilled areas.”

Access to finance in order to fund growth was not found to be a major issue according to respondents.

Just under a third (32%) of businesses claim they have so far this year not needed to borrow funds, with many having built up significant cash reserves during the recession and strengthened their balance sheets.

Just 6% of respondents claimed they have realised cash through transformation projects or the sale of assets, and only 8% of companies say they have raised money through alternative funding platforms such as crowd funding.

Of those businesses which are now looking to borrow, only three said that they are having difficulty securing funds. Nearly half (44%) of respondents said that they will continue to borrow from their current lenders.

Thompson added: “Many companies will have gone through stringent checks to secure lending during the recession. This makes going back to the bank to renew or extend facilities more straightforward now. With economic conditions improving, there will likely be an increase in the number of companies looking to divest themselves of underperforming or non-core assets. Alternative funding clearly remains a minority pastime, though one which is expected to gain importance.

“Although the general picture is of a loosening in the credit market, there is no room for complacency. Borrowing remains expensive in sectors with a perceived higher risk profile. Moreover, with the likelihood of interest rate rises next year or even during 2014 growing, and with concerns in some quarters about a possible housing bubble, borrowing conditions could get tighter – and more expensive – again.”

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