Is London too successful?

Some argue that imbalances in the UK result from London’s overperformance, rather than the underperformance of the country’s next largest cities. Making comparisons with European cities suggests this isn’t the case.

Blog post published on 16 August 2021 by Paul Swinney

A critique of Centre for Cities’ recent levelling up briefing has been that removing London from the analysis makes the underperformance of the UK’s next largest cities much less clear cut. Comparing their performance to other Western European cities shows that this isn’t the case.

A long running puzzle in the UK is that, unlike many other Western European countries or in the US, UK cities do not get more productive as they get larger (see Figure 1). But adjusting the definition of a city from people living within its boundaries to potential workers within commutable distance (which is actually what contributes to agglomeration, rather than city population size per se) changes this. As Figure 2 shows, a loose positive relationship results.

Figure 1: Unlike in a number of other Western European countries, productivity does not increase with city size in the UK

Source: ONS; Eurostat; Centre for Cities’ calculations

Note: The Western European countries used here are France, Germany, the Netherlands, Belgium, Denmark and Sweden. Population is on a log scale.

Figure 2: When adjusting city size to account for its commuting hinterland, a relationship does exist between city size and productivity

Source: ONS, Regional gross domestic product (GDP) reference tables; ONS, Census 2011

Note: Data is on a log scale

It is the movement rightwards of smaller, high productivity cities that creates a positive relationship. And it sheds light on why so many small cities have such high productivity – while they are small in population terms, they are more like medium-sized cities in terms of the benefits they offer to businesses (particularly access to workers). It’s fair to say though that the relationship isn’t a slam dunk. And that’s because most of the UK’s largest cities after London continue to underperform after the adjustment, lying well below the trendline. By Centre for Cities’ conservative estimates, this costs the UK economy close to £50 billion each year.

The critique offered here is that if London is taken out of this analysis then there is no relationship in the data. While this is true, it should serve to deepen concern, rather than allay it.

This is because as shown above, the UK is unusual. And this can be shown even by removing London from the analysis. Comparing the UK’s nine largest cities outside of London to comparably sized cities across Western Europe shows that all of these cities lag the productivity average of their peers (see Figure 1). This result does not change when removing capital cities from the analysis.

Figure 3: UK large cities trail behind their Western European comparators

Source: ONS; Eurostat; Centre for Cities’ calculations

Note: Cities used in this chart are sized between 600,000 and 3.5 million in Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweden and the UK.

A fair argument from critics at this point is that London still looms large in the data, sucking activity away from other large UK cities. But this ignores the fact that productivity is lower in London than in Europe’s only other megacity, Paris. And despite Paris’ even stronger performance, all of its large cities have higher productivity than the UK equivalents in Figure 3.

While this should be deeply concerning for policymakers, it should also offer some hope. It shows that improving the performance of the likes of Manchester, Birmingham and Glasgow is not pie in the sky. It is possible, and works with the grain of what has been seen in other countries as the knowledge economy has grown.

This of course raises the question of why this underperformance occurs. The second blog in this two-part series looks in more detail at the make up of France and Germany’s large cities.