The UK knowledge economy is a rapidly growing sector which is responsible for much of the growth in the national economy; it is responsible for an average of 21.2% of total employment and around 28% of total GVA.

The North East as a whole has struggled to keep pace with the development in the UK and, as a result, the sector is relatively small compared to the rest of the UK regions. In the North East, only 15.4% of employment is in knowledge intensive (KI) businesses. What knowledge intensive employment there is in the region, is dominated by the public sector. In the North East just 8.9% of total KI employment is in the private sector, compared with a national average of 29%. It is estimated that the North East would require another 200,000 employees in the KI sector to reach the national averages for employment and output.

Within the region there is a large disparity between the best and poorest performers. Areas such as Stockton-on-Tees and Newcastle-upon-Tyne perform at, or above, the national average, whereas areas such as Berwick-upon-Tweed and Easington perform at around half the national level. These high performing areas show what is possible given a focussed approach to the problem. If time and money are invested wisely, it is possible to create highly effective localised clusters which attract even more businesses in as they grow.

One of the main reasons highlighted for the region’s mixed performance in this sector is that lack of relevant skills. KI businesses generally require employees to have a skills level of KS4 or above. In the North East there is a lack of individuals with level 4 and 5 skills and an over supply of skills below that level.

The knowledge economy is heavily reliant on research and development (R&D); this could be another reason for the relatively small size of the sector in the North East. R&D spending per head in the region is around 25% the national average. The North East does not benefit from government funded R&D in the same way as other regions. It is the only area not to have any personnel employed in a government funded research establishment. 

Investment in private sector companies is strong in the North East, relative to the number of VAT registered businesses; companies within the region appear to be relatively successful at accessing the funds which are available to them.

Fact File

• Increasing the level of private sector employment in the knowledge sector to the UK average would increase the average salary in the North East by 24%. 
• There is a large gap between the best and worst performing local districts within the North East. The worst performing district is Berwick-upon-Tweed where only 8.1% of businesses are knowledge based. The best performing district is Stockton-on-Tees (21.3%).
• North East expenditure on R&D in 2004 was £269m
• In 2005, £85m was invested in companies through venture capital firms, £6.6bn was invested nationally.
• 357 patent applications were filed in 2006 by North East based inventors, out of a UK total of 14,484. This represents 2% of the UK total and is lowest by a significant margin of any region except Northern Ireland.
• London based organisations were responsible for 3,075 or 17% of the UK’s patent applications.