Centre for Cities’ Realising Regional Growth event brought together Lord Sainsbury and West Midlands Mayor Andy Street, alongside other local leaders, to discuss the city-region’s economy and...
Centre for Cities’ Realising Regional Growth event brought together Lord Sainsbury and West Midlands Mayor Andy Street, alongside other local leaders, to discuss the city-region’s economy and its potential for the future.
Last Thursday, Centre for Cities hosted the final event in its Realising Regional Growth series, in Birmingham, alongside Lord Sainsbury, West Midlands Mayor Andy Street, and other local leaders, academics and business representatives. The guests and panellists discussed and took questions on West Midlands’ economic history and future, their priorities for driving growth, and how they aim to deliver their ideas for the region.
The West Midlands economy went through substantial change over the 20th century, most notably characterised by the growth of the manufacturing and mining sectors from the 1930s to the 1970s, after which low value-add services and the public sector became the predominant sectors in the region.
As highlighted by Centre for Cities’ Senior Analyst, Anthony Breach, government policy in the 1960s deliberately stifled Birmingham’s economy after the Second World War, where restrictions on office supply were unfairly introduced to deal with the city’s growth in population and increases in office employment. As of 2021, Birmingham has more industrial space (28 per cent) than the English city centre average (10 per cent) but still lags behind the country average for office space (41 per cent versus 53 per cent). A priority should be to increase the provision of office space for high-value add businesses to locate in.
Fast forward to the 21st century, and while manufacturing remains an important part of West Midlands’ economy, it now only accounts for 11 per cent of jobs in the city region compared to 43 per cent in 1981. This has occurred in parallel to a rise in high-value add jobs, namely those in knowledge intensive business service (KIBS) sectors, which are the drivers of economic growth, in particular in Birmingham, increasing from six per cent of all jobs in 1981 to 12 per cent in 2019.
In a Q&A session, Andy Street noted that the West Midlands is the UK’s top performing region for economic growth since 2011, highlighting Coventry, Solihull and Birmingham as the three key “growth nodes”. However, he also noted the disproportionate impact of the pandemic on the West Midlands, given the 25 per cent decrease in manufacturing output, predominantly in the auto industry, since the beginning of Covid-19.
Ultimately, Birmingham’s city centre economy (i.e. the growth in jobs) has improved over the years, growing 30 per cent between 1998 and 2015. However, it still lags behind Manchester (85 per cent), Bristol (40 per cent) and Leeds (35 per cent). Across the city region, workers’ wages are lower than the national average, yet in the Birmingham local authority they are higher than the national average. Therefore, the focus for policy must now be to support those workers to access those higher wages and jobs in the region’s city centres, particularly in innovative industries, thereby improving living standards across the whole of the West Midlands conurbation.
Whilst all panellists agreed that innovation is key to the region’s growth and prosperity, several structural issues with West Midlands’ innovation system were highlighted by speakers. During the panel discussing the role of innovation in levelling up the UK, Dr Pam Waddell, Director of the West Midlands Innovation Alliance, noted that there is a “huge imbalance in West Midlands’ innovation ecosystem”. She argued this was due to the combination of low public sector investment in R&D and high private sector investment, with the latter being “deep but narrow” in the fields of manufacturing and engineering.
The priority should therefore be expanding business investment into other sectors, such as cleantech, healthtech and medtech. Meanwhile central government must deliver on its pledge to increase R&D investment to 2.4% of GDP by 2027, in particular due to the UK’s historically low expenditure on R&D compared to its OECD peers, and the resulting regional imbalances in R&D spend. This was also highlighted by the Mayor, who discussed how public R&D funding is concentrated in the Greater South East, and that his “single biggest ask of government” would be to increase this, as otherwise the current “tiny [public] investment” would continue to severely hinder SMEs in the city region.
Waddell added that innovation needs a market for it to be commercialised, so businesses will only thrive if they identify markets for their products and processes, and that SMEs in West Midlands should focus more on “exploiting R&D assets to turn into innovation” by working with local authorities to invest in new technologies such as retrofit and create new markets for businesses.
Henrietta Brealey, Chief Executive of the Greater Birmingham Chambers of Commerce, discussed other barriers to increasing prosperity in the region, including that it takes a long time to build trust as a SME in the business community, and funding options present a key roadblock for business owners. She also noted that entrepreneurs in the West Midlands are “very good at starting companies but they don’t always grow”, and that this barrier lies in the lack of support for start-ups moving into the scale-up phase. Separately, minority business owners, from both gender and ethnicity perspectives, tended to be underrepresented in accessing innovation support through existing networks, and that needed to urgently be addressed.
Panellists also agreed that the Midlands Innovation partnership of eight universities presents a “transformational opportunity” to harness excellence and resources in the region to drive innovation, according to Professor Simon Green, Pro-Vice-Chancellor (Research), Aston University and Chair of Midlands Innovation, particularly against a backdrop of “chopping and changing policy” from central government.
Over the longer term, as discussed by the Mayor, businesses in the city region must identify their competitive advantage, as “the race to the top is the single most important thing” for a successful innovation system. Places should consider which new areas of innovation they can be leaders in – for example, Wolverhampton is demonstrating its international competitiveness in modern methods of construction through the University’s National Brownfield Institute.
Another example is the electric vehicle industry, which the West Midlands needs to “fight for leadership of”, otherwise its competitive advantage in terms of the established manufacturing base in the region will “evaporate”, and Birmingham will not be able to beat other large cities by solely competing on price.
The panellists all agreed on the criticality of the private sector investment in driving growth in the city region. Andy Street discussed how the current pipeline for business investment was “better than ever”. He added that the two overarching themes which consistently emerged from conversations with investors included the importance of a quality, high-skilled workforce in the region, and providing connectivity to customers across the country and within the city region, using Birmingham as a ‘hub’. However, the Mayor also raised the need for money at the local level to attract investors in the first place, speaking about how metro mayors do not have a “war chest” to bring those businesses in.
This was also noted by Pete Gladwell, Group Social Impact and Investment Director at Legal and General Capital, who, in his presentation of L&G’s £4billion commitment to the West Midlands, mentioned the issues around central government not providing enough revenue to combined authorities and local authorities, leading to constrained resources and capacity issues in departments.
Gladwell also analysed how L&G’s investment in the West Midlands is a clear example of levelling up in practice, noting the “collaboration between place, finance and business” to harness investment. L&G’s projects in the region span various sectors, including the provision of specialist commercial real estate, transforming housing outcomes, developing world-class sci-tech innovation districts, creating energy efficient homes, and providing SME finance.
Ultimately, there is a shared priority between firms like L&G – a financial institution stewarding 248,000 people’s pensions and savings in the West Midlands – and the Government to achieve “place-based impact” and deliver “demonstrable absolute and relative increases in the economic, social, education, transport and health realms of the levelled up community”. Gladwell discussed the mindset shift of the financial services industry since the 2008 crisis, where firms are “becoming clear about their role in society” and once the social need for investment is identified, firms can receive strong risk-adjusted returns.
Andy Street discussed how there are thousands of vacancies across the sectors driving innovation growth in the region, whilst Brealey noted that vacancies in the region’s tech sector in the first half of 2021 were 42 per cent higher than the same period in 2020. The focus for the Combined Authority must be on developing the skills base of the West Midlands population. This is not just about increasing the number of graduates in city centres, but ensuring that residents’ average skill levels are “internationally competitive” and attractive for high-skilled businesses.
He also highlighted a “reverse brain drain” between London and Birmingham – where the latter has seen an increase in high-skilled workers arriving from the capital city – and added that the question now is around how to upskill workforces. The Combined Authority has “some” powers around skills development but not a full toolkit, so work needs to be done to improve in-work training and progression, or the training provision for those looking for reemployment, such as through Digital Bootcamps. Brealey underlined how of the Chamber of Commerce’s members, 60 per cent of businesses were keen to recruit new staff but 74 per cent struggled to do so due to the skills gap.
Crucial to linking a skilled workforce to available jobs is a robust city region-wide transport system, but the Mayor noted the imbalance in transport investment across the country, comparing ongoing investments in London to Leeds still lacking a metro system. He highlighted the importance of combined authorities having the powers to invest in their own transport systems, and the inefficiencies of this decision-making process remaining as part of central government’s remit. For the West Midlands, a priority will be continuing to prove to Whitehall that devolution of powers does indeed work in practice.
Part three of Centre for Cities series of Realising Regional Growth events exploring what the Levelling Up programme means in reality for local economic growth around the country.
The second in our series of regional events exploring what the Levelling Up programme means in reality for local economic growth around the country.
Centre for Cities’ hosted the first in a new series of regional events exploring what the Levelling Up programme means in reality for local economic growth around the country.
Valentine Quinio compares footfall data in Birmingham city centre with eight surrounding town centres in the West Midlands to monitor recovery
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