One of the most striking findings of our recent Competing with the Continent report is that most UK cities lag behind European counterparts in terms of productivity – a trend particularly evident in the Northern Powerhouse region, where all 21 cities are below the European urban productivity average of £56,300 Gross Value Added per worker, and all but two (Leeds and Warrington) are among the 25 per cent least productive places in the continent.
Indeed, as the map below shows, productivity in Northern cities is closer to that of places in the East of Germany and Eastern Europe, than to cities in the Greater South East of the UK, most of which perform above the continental average.
This highlights the scale of the task ahead for the Government in achieving the primary aim of the Northern Powerhouse initiative – building a powerful network of cities capable of counterbalancing London’s weight and influence. The outlook for Northern cities appears even more challenging when we take a more detailed look at how their economies compare to European counterparts. Below are three big conclusions that can be drawn from our data:
1. The Northern Powerhouse’s largest cities are being out-performed by most Western European cities.
Leeds is the most productive place in the North, but is ranked 239th out of 330 places in Europe with an average economic output of £46,600 per worker – 22% lower than in Essen (£59,470 per worker), the European city which has the most similar economic structure to Leeds, and closer to Poznan (£47,300). Manchester fares even worse, with an average economic output of £43,600 per worker – significantly lower than its most similar European counterpart Hamburg (£67,100), and roughly the same productivity as Vilnius (£43,800).
2. Most Northern cities are home to significantly more low-skilled residents than European competitors.
One of the aims of the Northern Powerhouse initiative is to secure more investors and businesses for places in the region, whether nationally or internationally. The availability of a skilled labour force is a key factor in where firms choose to locate, yet Northern cities are performing poorly on this front compared to competitors across Western and Eastern Europe. All Northern cities bar York are home to a higher share of low-skilled residents (i.e. less than 5 good GCSEs as a highest level of education) than the European city average (25%).
In Hull, 43% of residents are low-skilled, ahead of Liverpool (40%) and Leeds (32%) – similar to the share of low-skilled residents in Polish cities, and more than twice as high as in cities in Eastern Germany, Estonia, Lithuania, Hungary and Bulgaria:
3. Higher labour costs in UK cities could potentially make cities in Eastern Europe more attractive to firms to invest in than Northern Powerhouse cities.
Labour costs in UK cities are roughly three times higher than in Poland and Hungary, and about six times higher than in Bulgaria. So while Northern cities are home to large shares of low-skilled workers, their relatively high labour costs mean that they are not well-placed to compete with Eastern European cities for globally mobile low-skilled jobs. Instead, Northern cities need to focus primarily on becoming attractive places for high-skilled businesses – particularly in the knowledge-intensive services sector – if they are to be successful.
It’s all about skills
These findings demonstrate the scale of the challenge that national and city leaders face in helping Northern cities overtake Eastern European counterparts, as well as start to catch up with places in the South East of England. Above all, they highlight the central importance of improving skills in Northern cities at all levels – from early years to GCSE attainment, academic and vocational qualifications. Doing so will be vital in ensuring places across the North are well-placed to compete with European counterparts for the high-value businesses and jobs which offer the best prospects of long-term growth and prosperity.