The UK’s decision to leave the EU has swept away many standard assumptions about the national economy and its future, replacing them with big questions – including what caused the divisions exposed by the referendum, how will Brexit affect the key drivers of economic growth, and what should political and business leaders do to manage the uncertainty that lies ahead?
One of the biggest talking points has been the way the referendum has split the country. Leave voters were more likely to be older, rural, less skilled, not in work, and living in the regions; Remain voters were more likely to be younger, urban, skilled, working and from a major city. But a closer look suggests both that these divisions may not be as clear-cut as they seem, and that this Leave vote has been at least fifty years in the making – shaped in part by an increasingly globalised, connected economy and technological change.
Our report A Century of Cities shows that as the global economy changed over the past 100 years, places which have been able to create jobs in new, knowledge-focused industries have thrived. In contrast, places that have replicated jobs in declining industries with lower skilled, routinised jobs have struggled. It is many of the latter which came out strongest for Leave, including cities like Sunderland and Sheffield as well as more rural areas like Lincolnshire.
Alongside the challenges of globalisation, there is a longstanding sense that political institutions (in Westminster as well as the EU) – do not understand the realities of daily life for certain people and places. As Will Davies points out, some places and people who have received subsidies from Government or Europe have resented being dependent on handouts rather than being in control – a key component of the Leave campaign. Add to that concerns about the impact of immigration on public services and jobs, high turnout from older people and low turnout from younger people, and suddenly the Leave victory seems less surprising than it was to many commentators and pollsters alike.
But for voters who are hoping that Brexit will signal a profound shift in the way the economy works, disappointment is likely to be in store. The fundamental drivers of economic growth – such as trade, investment, skills, and connectivity – are global rather than national, and so will not be altered by Brexit. If anything it is likely that the move towards an hourglass labour market (characterised by more high skill and low skill jobs, with fewer middle-ranking roles) will be accelerated by the upheavals of moving out of the EU (just as in the last recession), with the greatest impact being on many of the places and people that gave Leave its victory. These are also the places which have received most EU funds in the past and will want reassurances that the level of funding will be maintained.
What has changed, however, is certainty about the trajectory of the national economy. While politicians grapple with issues such as when to invoke Article 50 and whether the UK can stay part of the single market, businesses are likely to be reluctant to consider significant additional investment and recruitment, or may even decide to go for a safer bet outside the UK. Funding for infrastructure is also likely to be paused while negotiations are underway. This is likely to have a short term impact on growth in all cities, particularly the larger cities most exposed to international firms.
This means that for cities to thrive longer term, it is vital that they signal they are still are open to trade, investment and skills. The latter will be contentious in light of debates about immigration; the UK is only likely to have access to the single market if it offers freedom of movement and many voters, particularly for Leave, may struggle with this. Yet businesses, as well as universities, regularly note the importance of access to skilled labour, not just homegrown but also overseas – and attracting and retaining talent will be critical in the months and years ahead.
Local politicians have a role to play in this too. The announcement by Sadiq Khan, Mayor of London, and Anne Hidalgo, Mayor of Paris, that they will work together more closely is a welcome reminder, amidst the post-referendum chaos, that local leaders can take pragmatic steps to work with one another to boost jobs and growth even before we have greater certainty about what happens next at a national level.
Pragmatic policies and closer international city networks are needed more than ever, as is devolution, which risks being derailed by the focus on Brexit. Devolution of powers cannot simply be from Brussels to Westminster; what the maps of the Leave and Remain votes show clearly is that centralised policymaking is not responding to the concerns of local areas. Greater power and decision-making locally has a much better chance of doing so.
Finally, national and local leaders need to do much more to understand how they can respond to the concerns of the 17.4m voters who voted to leave – including addressing how globalisation has left some people and places behind. None of the solutions tried in the last 50 years – relocation of public sector jobs, high levels of subsidy, EU handouts – have managed to create the economic resilience that people want for their local area.
Rejecting the way the global economy works may be tempting, but it isn’t a viable option. Instead, considering how best to attract more investment and jobs, and ensuring far more people and places are better placed to access them, will be vital as the UK and its cities work out their place in the post-Brexit world.