Cities Outlook 2017 Introduction

Last June the UK took the momentous decision to leave the European Union. Since then, the national debate has focused on how Brexit will affect economic growth and the UK’s international trade relationships once Article 50 is triggered. Yet this is not only a national issue. Leaving the EU has implications for different parts of the UK and their relationship with the UK Government, the EU and beyond.

Whatever the specifics, the arrangement the UK comes to with the EU and other trading partners will affect cities across the UK in quite different ways, depending on the make-up of their economy. This means that future economic growth up and down the country, and the devolution agenda, will be dependent on the trade deals struck.

The national picture

There are two big themes that have guided the current Government’s approach to the economy. The first is a redoubling of efforts around improving the productivity performance of the UK economy, which formed the core of Philip Hammond’s 2016 Autumn Statement, and the second is to encourage growth across the country, a central theme of Theresa May’s first speech as Prime Minister on the steps of Downing Street. Centre for Cities’ research in 2016 has shown both of these to be pressing issues. Figure 1 below highlights some key findings from our recent research.

Figure 1: Key findings from Centre for Cities’ 2016 research

Key findings from Centre for Cities’ 2016 research

EU productivity – data for 2011 in Bessis H (2016), Competing with the continent: How UK cities compare with their European counterparts, London: Centre for Cities; Graduates data for 2013/14-2014/15 in Swinney P and Williams M (2016) The Great British Brain Drain: Where Graduates Move and Why, London: Centre for Cities; Taxes – data for 2014/15 in McGough L and Piazza G (2016) 10 years of tax: How cities contribute to the national exchequer, London: Centre for Cities. Tax data refers to economy taxes including: labour taxes, capital taxes and property taxes.

While some feared that a change in Prime Minister and Chancellor would lead to a reduced appetite for local economic growth policies, the vote to leave appears to have further strengthened the resolve of politicians to create ‘an economy that works for everyone’, recognising that many of the places that voted to leave have not felt the benefits of globalisation.

Yet since July 2016, policy has shifted to focus on economic growth everywhere. While the current Government has reaffirmed its commitment to Osborne’s favoured project, the Northern Powerhouse, this has become part of a UK-wide approach to economic growth, encapsulated by plans to develop an industrial strategy that is ‘place-based’.

The Government has shown it is keen to consult widely on what the most effective industrial policy would be. Our evidence suggests that, for any strategy to be successful, it must have a much greater focus on place than is usual in industrial strategies, which tend to preference sectors. The Secretary of State for Business, Energy and Industrial Strategy has echoed this, stating that being place-based will be vital to the industrial strategy’s success.

“The truth is economic growth does not exist in the abstract. It happens in
particular places when a business like yours is set up, or takes on more people, or
expands its production. And the places in which you do business are a big part of
determining how well you can do.”

Speech by Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, to the Institute of Directors annual conference 2016.

There are two main reasons why place will be important to the overall industrial strategy. Firstly, no one knows which sectors will drive future growth. For example, 10 years ago very few people knew what smart phone app development would be. Yet, as you read this, you are likely to have numerous apps within arm’s length on at least one device. In the same way that it was near impossible for those outside the sector to predict the emergence of this industry a decade ago, it is difficult to predict in 2017 which industries will be growing – or declining – by 2027.

Secondly, the economy is not flat. As our recent report Trading Places1 showed, different places offer different advantages to businesses. Where businesses choose to locate depends on the trade-off they make between access to workers with particular skills and to other businesses (which a city offers) and the cost of land (which, in general, becomes cheaper the further from a city it is). While we do not know the specific industries that will drive growth in the future, global competition is likely to mean continuing growth in knowledge-focused businesses. And we know that these businesses have increasingly preferred city centre locations in recent years, because of the advantages that such locations offer.

Some cities, however, have been much more successful at attracting these businesses than others, mainly because they offer greater access to skilled workers and networks. If the fastest growing industries of the future continue to preference access to such benefits, then those cities that do not offer these benefits to the same extent will find it harder to attract investment in the future, with implications for the number and type of jobs available. These cities will need to consider how best to build on their strengths, how they complement those of neighbouring areas, and what this means for residents.

There are several implications for the forthcoming industrial strategy: a focus primarily on sectors will neither support the growth sectors of tomorrow, nor help different places provide the business conditions to attract investment. In contrast, a focus on place will help both the growth sectors of today and tomorrow. Where there are specific market failures within individual industries, there is a case for intervention in that industry. But most businesses are looking for very similar things – skilled workers, good transport, housing for their employees and a planning system that supports growth. Availability of these things varies across the country (which can be seen in Chapter 3); resolution of these issues also requires a place-focused approach.

A successful policy to support growth at the national level, whether through the Northern Powerhouse, Midlands Engine or place-based industrial strategy, is one that focuses on making the most of city regions, creating jobs and opportunities for the people that live not only in them, but around them too.

The local picture

Last year was a momentous year for national politics. This year will see radical political change at the local level too, and this will have very big consequences for efforts to improve the economic performance of our largest cities. In May we will see the election of six new metro mayors in Greater Manchester, Liverpool City Region, Tees Valley, West Midlands, the West of England and Cambridgeshire and Peterborough, representing a significant shift in the way England is governed.

In the aftermath of the referendum vote, some leave voters said their decision was guided by a feeling of being ignored or neglected by national government. The new metro mayors could help to address this. While their specific responsibilities will vary from place to place, the new mayors’ ability to tailor the powers that they are given to address the specific challenges and opportunities facing their city regions has the potential to greatly improve the effectiveness of decision-making in these places.

The new mayors, whoever they may be, will also be crucial in making place-based industrial policy a success in their area. For too long, the discourse about policies aimed at supporting economic growth – for example, the productivity plan and the industrial strategy – has been led by national politicians and framed in a national context. Devolution will change this. It puts powers in the hands of directly elected mayors and local politicians. And while we would like to see the mayors be given more powers than they will have on their first day in office, from May 2017 they will have the opportunity to implement policies to support their economies, rather than being entirely beholden to the whims of Whitehall.

This doesn’t mean national government is off the hook. It will of course need to continue to play a big role. The announcement by Philip Hammond in the Autumn Statement of the £23 billion National Productivity Investment Fund (NPIF) is thelatest – and welcome – example of this. But such initiatives will need to work closely with metro mayors and with city regions across the UK to set out how they will complement local efforts and resources. National government needs to use its resources to help cities adapt to the changes brought about by globalisation and technology which places and the UK as a whole must deal with if they are to be successful in the future.

It also requires a new and more equal relationship between national government and city regions. Given the UK’s continued poor productivity performance and the Government’s desire to support growth across the country, it will be vital that the Chancellor and Ministers work with metro mayors on any ideas about how money can be better spent in their area.

This year’s focus

The triggering of Article 50 will have direct implications for the trading relationships that the UK has with the EU and the rest of the world. This in itself presents a challenge for all cities and for the new mayors specifically – their role as figurehead of a city region will no doubt involve brokering trading relationships around the world. To contribute to the debate about Britain’s new role in the world, the next chapter presents estimates on exports for each city in Britain, looking at both the goods and services that cities specialise in, and where they send their exports to.

Box 1: Defining cities

The analysis undertaken in Cities Outlook compares Primary Urban Areas (PUAs) – a measure of the built-up areas of a city, rather than individual
local authority districts or combined authorities. A PUA is the city-level definition first used in the Department for Communities and Local Government’s State of the Cities report. The definition was created by Newcastle University and updated in 2016 to reflect changes from the 2011 Census.

The PUA provides a consistent measure to compare concentrations of economic activity across the UK. This makes PUAs distinct from city region or combined authority geographies. You can find the full definitions table and a methodological note on the recent PUA update.