6.3.1 Table 6.3 is intended to give an indication of the strength of the first round supply chain multiplier effect associated with any increases in turnover enjoyed by award winners (see Chapter 5). The third row hints at the extent to which the multiplier effect will have been dampened by the leakage of expenditure abroad (i.e. by imports); and it shows that, on the basis of award winners’ rough estimates, the leakage was only 17% overall, albeit greater than this amongst firms undertaking development/exceptional projects and GRD award winner. The first and second rows indicate the extent to which award winners’ local economies and the national economy, respectively, will have enjoyed multiplier effects. The first row suggests a relatively strong regional multiplier effect overall. In combination, the first two rows suggest strong national multiplier effects.
Table 6.3 By value, from where does your firm purchase the goods and
services it uses?
Percentage (%) Average (mean) of all projects. Total Micro Feas/
resch Devel/ excep
1-9 10-49 50+ Smart GRD
In the same region / part of the country
as yourselves 37 44 41 24 40 29 17 40 30
Elsewhere in the UK 47 42 46 52 46 48 63 45 50
Overseas 17 14 13 24 14 23 20 15 20
Effective Sample Size 392 63 201 132 275 85 14 226 185
Source: PACEC Survey (Q51A)
6.3.2 Table 6.4 is intended to give an indication of the first round local income multipliers associated with award winners’ additional staff spending their wages and salaries. The table suggests that, regardless of class of respondent, there will have been very little leakage of expenditure outside the UK and relatively little leakage outside the award winners’ own regions into the rest of the UK. However, it should be cautioned that this table might overstate the strength of the regional and national income multiplier effects because, increasingly, consumers spend their wages and salaries buying goods and services over the internet. Consumers can now spend much of their wages and salaries in far distant economies without leaving home.
Table 6.4 And where do your staff live?
Percentage (%) Average (mean) of all projects. Total Micro Feas/
resch Devel/ excep
1-9 10-49 50+ Smart GRD
In the same region / part of the country
as yourselves 94 97 95 89 94 94 96 96 90
Elsewhere in the UK 5 2 3 9 5 4 3 4 7
Overseas 2 1 2 2 1 2 1 1 3
Effective Sample Size 405 65 203 143 280 89 17 240 182
Source: PACEC Survey (Q51B)
6.3.3 Table 6.5 is intended to measure the displacement effect associated with the schemes. It shows the extent to which increases in turnover enjoyed by award winners are at the expense of competitors in the same region, elsewhere in the UK and overseas. In broad terms, the first two rows suggest that 30% of turnover increases amongst award winners are at the expense of other UK firms. The third row indicates that just over a quarter of the turnover increases amongst award winners are at the expense of overseas rivals. The fourth row reflects the fact that many award winners believe that their project outputs are novel and, hence, do not actually displace competitors’ turnover, as such.
6.3.4 The table indicates that the displacement effect within the UK is relatively strong amongst medium sized firms (50+ employees). Displacement of overseas competitors’ sales appears to be relatively strong amongst firms undertaking development/exceptional projects; and it appears to be positively related to firm size. The lack of a displacement effect associated with novel outputs seems to be most associated with firms that undertook feasibility projects, the smallest firms and those that had Smart awards.
Table 6.5 If your firm were to cease trading tomorrow, what proportion of
its sales arising from participation in the scheme would be taken by it competitors in the following areas?
Percentage (%) Average (mean) of all projects. Total Micro Feas/
resch Devel/ excep
1-9 10-49 50+ Smart GRD
In the same region / part of the country
Panel 6.1 Summary of key findings
● A large minority of projects had positive effect (e.g. improved technology, business performance etc) on the award winners’ customers. Smaller proportions of projects had similar effects on award winners’ suppliers, competitors and collaborators.
● Unsuccessful applicants were very much less likely than award winners to claim such effects.
● The first round supply chain and income multiplier effects associated with turnover and employment increases flowing from award winners’ project outputs appear to be relatively strong, although the latter are difficult to gauge.
● Correspondingly, displacement effects - the tendency for award winners’ turnover increases to be at the expense of competitors within the UK – appear to be muted.
7
Economic impacts and cost-effectiveness of the
schemes
7.1 Introduction
7.1.1 The purpose of this chapter is to derive some measures of the cost-effectiveness (or value for money) of the schemes with respect to jobs and GVA. This is done by first using some of the data presented in chapters 5 and 6 to estimate their aggregate economic impacts. These impact estimates are then set against the costs of the schemes to obtain the desired measures. It should be noted that some 40% of businesses sought to grow, including employment and turnover, and 40% and 30% respectively said they did.
7.1.2 It is emphasised that the economic impacts focused upon here include only those that the survey research was designed to measure precisely: that is, the aggregate impacts on award winners’ Gross Value Added (GVA) and employment. Conclusions on the totality of the economic impacts of the schemes also need to take into account the intermediate effects of the schemes (e.g. the capability-related effects outlined in chapter 4), the full range of business performance effects (i.e. those referred to in chapter 5) and the wider effects (e.g. the effects on customers, suppliers, etc. outlined in chapter 6) and the longer term diffusion of technology effects.
7.2
Total measurable economic impacts
7.2.1 The process for estimating the impacts of the schemes is illustrated in Table 7.1. It should be noted that the process produces two different estimates of net additional effects, one which excludes the multiplier effects of the sort considered in chapter 6, and one which includes them11. These figures give a lower and upper bound for the likely impact of the schemes.
7.2.2 Table 7.2 applies the process illustrated in Table 7.1 to the average per firm employment effect data from chapter 5 and the national level displacement effect data from chapter 6. The table indicates that, overall, the schemes had a net additional employment effect of between 1.4 and 2.1 full time equivalent jobs per firm (with and without the multiplier effects). The average additional impact is 64% accounting for deadweight and displacement. It also shows a wide variation in the
Table 7.1 Estimating the total economic impacts of the schemes
Gross attributable impacts
(i.e. changes in GVA & employment as a result of the support – see chapter 5)
Less
Deadweight – counterfactual
(i.e. changes that would have happened anyway – see chapter 5)
Equals
Gross additional impact
(i.e. effects attributable to the support)
Less
Displacement
(i.e. increases in GVA/employment at the expense of competitors – see chapter 6)
Equals
Net additional effects
(or total measurable annual economic impacts without linkages and multipliers)
Plus
Linkages and multipliers
(i.e. effects due to purchases by businesses and their staff )
Equals
Full net additional effects
(or total measurable annual economic impacts)
Multiplied by
Average duration
(in the case of GVA, how many years the effect lasts)
Equals
Cumulative net effect
(i.e. total cumulative measurable economic impact)
Table 7.2 Employment effects per project (FTE jobs)
Total Micro Feas’y/ Res’rch Devel/ Excep 1-9 10-49 50+ GRD Smart Gross effect 2.2 1.5 1.0 5.0 1.8 2.6 7.1 1.8 2.5 Less Deadweight -0.1 -0.2 -0.1 -0.2 -0.1 0.0 -0.8 -0.2 -0.1 Equals
Gross additional effect 2.1 1.3 0.9 4.8 1.7 2.5 6.3 1.6 2.4
Less
Displacement -0.7 -0.5 -0.3 -1.5 -0.6 -0.8 -2.3 -0.6 -0.8
Equals
7.2.3 The control totals at the foot of the above table (i.e. the numbers of projects) were used to gross-up the per firm impact values in that table to derive the whole-scheme impact estimates shown in Table 7.3 following. The table indicates that the schemes generated between 6,000 and 9,000 net additional jobs in total (without and with multiplier effects), predominantly from development/exceptional projects, firms in the 1-9 size band and Smart support. The italicised numbers show the moderate extent to which gross effects were dissipated through deadweight and displacement.
7.2.4 The cost effectiveness section of Table 7.3 also includes figures for the total amount of grant paid, overall and for each class of firm and in the cost benefit section of table, these cost figures have been adjusted to their 2008 present values. These grant figures enable the derivation of the cost-per-FTE job ratios shown in the final two rows (one excluding and one including multiplier effects); and they reveal some considerable variations. For example, the cost-per-job (i.e. employment cost- effectiveness ratios) associated with feasibility/research projects (£43,000) was more than three times that for micro projects (£12,000), and Smart projects (£17,000) were almost three times as cost-effective as GRD projects (£49,000). This pattern is repeated for the cost benefit ratios and the cost-per-job ratios.
Table 7.3 Total employment effects (FTE jobs). Cost effectiveness and cost benefit ratios
Total Micro Feas’y/ Res’rch Devel/ Excep 1-9 10-49 50+ GRD Smart Gross effects 9,392 1,102 2,311 5,979 5,409 2,461 1,522 3,053 6,339 Less Deadweight -535 -159 -184 -192 -312 -46 -177 -336 -199 (as % of Gross) 6 14 8 3 6 2 12 11 3 Equals
Gross additional effects 8,857 943 2,128 5,787 5,097 2,416 1,345 2,717 6,140
Less
Displacement -2,941 -361 -770 -1,809 -1,716 -739 -485 -928 -2,013
(as % of gross additional) 33 38 36 31 34 31 36 34 33
equals
Net additional effects 5,916 582 1,357 3,977 3,380 1,676 860 1,789 4,127
(as % of gross) 63 53 59 67 62 68 56 59 65
Plus
Linkages and multipliers 2,958 291 679 1,989 1,690 838 430 895 2,064
Equals
Full net additional effect 8,875 873 2,036 5,966 5,071 2,514 1,290 2,684 6,191 Cost effectiveness ratios (current values)
Total value of grants,
£m 239 11 88 140 142 71 26 133 107
Cost per net additional
FTE, £000 40 18 65 35 42 42 30 74 26
Cost per full net
additional FTE, £000 27 12 43 24 28 28 20 49 17
Cost Benefit ratios (2008 prices) Total value of grants,
£m 280 12 104 164 166 83 31 147 133
Cost per net additional
FTE, £000 47 21 77 41 49 50 36 82 32
Cost per full net
additional FTE, £000 32 14 51 27 33 33 24 55 21
Source: PACEC
7.2.5 Table 7.4 and Table 7.5 focus on the GVA effects of the schemes; and they correspond with the previous two tables on the employment effects. Table 7.4 indicates that the schemes had a net additional effect of increasing GVA amongst supported firms by an average of between £95,000 and £143,000, ie without and with multipliers. The pattern of variation in the GVA effects according to class of
Table 7.4 GVA effects per project (£’000) Total Micro Feas’y/ Res’rch Devel/ Excep 1-9 10-49 50+ GRD Smart Gross effect 156 54 128 272 77 238 902 125 176 Less Deadweight -19 -3 -11 -43 -8 -30 -127 -11 -24 Equals
Gross additional effect 137 51 116 229 69 208 775 113 152
Less
Displacement -41 -20 -32 -72 -21 -61 -240 -34 -46
Equals
Net additional effect 95 31 84 157 48 147 536 79 106
Plus
Linkages and multipliers 48 15 42 79 24 74 268 39 53
Equals
Full net additional effect 143 46 126 236 72 221 804 118 159
Multiplied by
Average duration (yrs) 4.2 4.1 4.1 4.3 4.2 4.2 4.3 4.2 4.2
Equals
Cumulative net effect 601 186 517 1,019 298 932 3,426 497 669
Number of projects 4,215 735 2,285 1,195 3,037 964 214 1,654 2,561
Note: GVA is estimated to be 38% of turnover, following analysis of the 2006 Annual Business Inquiry Source: PACEC
7.2.6 Table 7.5 applies the control totals estimated above to the per-firm GVA effects to derive aggregate estimates of the schemes’ GVA effects. It shows that the schemes generated a net additional increase in GVA of between £401 million and £602 million (without and with the multiplier effects). It also suggests that the non-additionality of the GVA effects was slightly greater than the non-additionality of the employment effects.
Table 7.5 Total GVA effects (£ million). Cost effectiveness and cost benefit ratios Total Micro Feas’y/ Res’rch Devel/ Excep 1-9 10-49 50+ GRD Smart Gross effects 656 40 292 325 234 229 193 207 450 Less Deadweight -80 -2 -26 -51 -24 -29 -27 -19 -61 (as % of Gross) 12 6 9 16 10 13 14 9 14 Equals
Gross additional effects 576 37 266 274 210 201 166 188 389
Less
Displacement -175 -15 -74 -86 -65 -59 -51 -57 -118
(as % of gross additional) 30 40 28 31 31 29 31 30 30
equals
Net additional effects 401 22 191 188 145 142 115 131 271
(as % of gross) 61 57 66 58 62 62 59 63 60
Plus
Linkages and multipliers 201 11 96 94 72 71 57 65 135
Equals
Full net additional effect 602 34 287 282 217 213 172 196 406
Multiplied by
Mean duration (years) 4.2 4.1 4.1 4.3 4.2 4.2 4.3 4.2 4.2
Equals
Cumulative net effect 2,535 136 1,181 1,217 904 898 733 822 1,713 Cost effectiveness ratios (current values)
Total value of grants,
£m 239 11 88 140 142 71 26 133 107
Cost per £1m increase
in GVA, £m 0.60 0.47 0.46 0.75 0.98 0.50 0.22 1.01 0.39
Cost per £1m increase
in full GVA, £m 0.40 0.31 0.31 0.50 0.66 0.33 0.15 0.68 0.26 Cost per £1m increase
in cumulative GVA, £m 0.09 0.08 0.07 0.12 0.16 0.08 0.04 0.16 0.06 Cost Benefit ratios (2008 prices)
Total value of grants,
£m 280 12 104 164 166 83 31 147 133
Cost per £1m increase
in GVA, £m 0.70 0.54 0.55 0.87 1.15 0.59 0.27 1.13 0.49
Cost per £1m increase
7.3 Value for money
7.3.1 Table 7.6 provides some summary cost-benefit ratios (first column) and cost- effectiveness ratios (second column) for the schemes, with comparisons from the 2001 evaluation (third column). The key employment cost-benefit ratio, in terms of cost per unit of impact (top half of the table), is that the cost (in 2008 prices) per full net FTE job was £32,000 (with multiplier effects). However, in order to compare this with the 2001 analysis of the Smart evaluation in which multiplier effects were not considered and a cost-effectiveness approach was adopted, this cost effectiveness ratio is £40,000 per full time job, which is higher than the 2001 figure of £31,000. 7.3.2 The key GVA cost-benefit ratio, in terms of impact per unit of cost is that the return on
£1 investment is £9.00 in terms of cumulative GVA (with multiplier effects). However, in order to compare this with the 2001 analysis in which cumulative and multiplier effects were not considered and a cost-effectiveness approach was adopted, this ratio is a £1.70 return on £1 investment, which is slightly higher than the 2001 figure of £0.90.
Table 7.6 Value for money measures (based on net additional employment
and GVA effects of Smart and GRD). Cost benefit and cost effectiveness ratios
Cost Benefit
Ratios** Cost Effectiveness Ratios 2008 Evaluation 2008 Evaluation 2001 Evaluation
Cost per unit of impact:
Cost per £1 increase in net GVA £0.70 £0.60 £1.10
Cost per £1 increase in full* net GVA £0.47 £0.40
Cost per £1 increase in cumulative GVA £0.11 £0.09 n/a
Cost per net FTE £47,000 £40,000 £31,000
Cost per full* net FTE £32,000 £27,000
Impact per unit of cost:
Increase in net GVA per £1 cost £1.40 £1.70 £0.90
Increase in full* net GVA per £1 cost £2.10 £2.50 Increase in cumulative GVA per £1 cost £9.00 £10.60
Increase in net FTE per £1m cost 21 25 n/a
Increase in full* net FTE per £1m cost 32 37 32
*Full net impacts include multiplier effects; Net impacts exclude multiplier effects.
Panel 7.1 Summary of key findings
● During the period under review, Smart and GRD awards led to the creation of between 6,000 FTE jobs (without the multiplier) and 9,000 FTE jobs (with the multiplier effect).
● They also led to an aggregate increase in annual business GVA of between £400m (without the multiplier) and £600m (with the multiplier), or over £2.5bn cumulatively.
● The cost effectiveness ratios indicate that the net cost per FTE job for GRD was £40k and £27k (without and with multiplier effects). The cost per £1 increase in net GVA was £0.60 and £0.40 (without and with multiplier effects).
● Each £1 million of Smart and GRD support (in present value) led to increased annual GVA of between £1.4m and £2.1m, cumulative GVA of £9.0m and to between 21 and 32 FTE jobs. The ranges reflect the multiplier effects. ● These effects were net additional, i.e. they allow for deadweight and
displacement, and the higher figures allow for multiplier effects.
● The effects shown are only those which the evaluation was specifically designed to measure. The totality of the economic impacts of the schemes will have been greater through, for example, intermediate and technology diffusion effects.
8
Firms’ assessments of the schemes
8.1 Introduction
8.1.1 This chapter starts by examining whether the award winners used other support in addition to the support provided via the Smart and GRD schemes, where the support came from and how useful it was. It then focuses on the award winners’ assessments of different aspects of the two schemes.