The North-East region, like much of the industrialised world, has been shifting towards a more service-oriented economy for most of the post-war period.  As manufacturing has weakened, greater emphasis has been placed on professional relationships, personal interactions and customer service.  The number of people employed in service provision has increased significantly in recent years, and the sector contributes a growing proportion of national outputs.  The service industry provided around half of national GVA in the 1970s, whereas now it accounts for over three-quarters.

Despite the decline of manufacturing, many service sector jobs today exist in close proximity to manufacturing operations, adding value by providing different services along the production chain.  It is a subject of much debate as to whether the service industry depends on manufacturing for its existence, or whether manufacturing flows to areas where the service infrastructure is most efficient and well developed.  The North East has traditionally had a service industry connected to its manufacturing base, but in recent years new types of service employment have become prominent.  Call centres have replaced many of the jobs lost in manufacturing, and the tourism and culture sectors have grown too.

Whilst certain aspects of the service industry have flourished in the North East, there are areas the region has struggled to capitalise on.  Financial and business services tend to be much stronger outside of the region, particularly in London and the South East, where these services are exported worldwide.  Human capital is vital within this sort of knowledge-based industry, and it may be the lack of certain skills that is holding the region back.  Banking, finance and insurance are skills identified as lacking in the region – diversification into areas such as these may be needed for the region’s economy to become more competitive nationally. Surveys of skills and vacancies consistently show that the core characteristics employers are looking for, and not finding, include motivation and flexibility, willingness to work and learn, confidence, appearance and good manners.

Fact File

•  UK Treasury has claimed the service economy is at least one third less productive than manufacturing, as the rigour has not been applied to improving productivity in services as it has in manufacturing.
•  A 2005 survey of 20,000 employers revealed that what they most lacked from new recruits was oral communication skills, customer handling, problem solving and team working.
•  In the North East only 2.3% of workers are employed in the financial sector, the lowest proportion of any region.  National average is around 4.2% whereas in London the figure is 8.3%.
•  Since 1984, over 5 million new jobs have been created in the service industry.