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Why we need more ‘trickle out’ economics

The underperformance of many of the UK’s largest cities hurts not only residents in them but the towns and villages around them too.

Blog post published on 5 September 2023 by Paul Swinney

Does success in big cities benefit their residents only, or does it generate prosperity for a much broader area? Critics of this idea have catchily – but rather unhelpfully – called this ‘trickle out’ economics (drawing parallels with the idea of ‘trickle down’ economics) and claimed that it doesn’t work. But Centre for Cities’ latest work shows that prosperity doesn’t so much trickle out but flood out from big cities to their richer surrounding areas.

Looking at average incomes of towns and villages that surround the English Core Cities, as shown in Figure 1, reveals several interesting findings. The first is that most surrounding towns and villages have higher incomes than in cities. For those who have followed the somewhat unhelpful debate that has pitched cities against towns in recent years, you would be forgiven for thinking that resident incomes are much higher in cities than their surrounding areas. In reality, most towns and villages around England’s largest cities have higher wages, and some substantially so. Of all the towns and villages used in this research, 81 per cent have average incomes above their nearest large city, and 37 per cent have incomes at least 10 per cent higher.

Figure 1: Big cities provide prosperity for their surrounding towns and villages

The relationship between incomes and commuting into large cities for their surrounding towns and villages

Source: ONS; Census 2011

The second is that these incomes increase with the share of working residents that commute to the city. Around Newcastle, for example, a place like Seahouses, which is 50 miles north of Newcastle and 80 miles south of Edinburgh, has weak commuting links to Newcastle and low average incomes. Morpeth on the other hand, which is much closer, has high levels of commuting and high incomes. While correlation isn’t causation, that this results from jobs in Newcastle is backed up by separate data which shows that high-paid jobs in big cities are disproportionately taken by commuters.

The implication of these two points is that the underperformance of most of the UK’s large cities outside of London limits the prosperity available to residents in surrounding towns and villages. Comparing Bristol – the strongest performer amongst the core cities – with Newcastle illustrates this (see Figure 2). The relationship that both places have with their surrounding neighbours is similar, with incomes increasing with commuting. But Bristol’s stronger performance means that it generates much greater prosperity for these places. Bristol has 18 towns or villages, home to 89,000 people, that had at least 20 per cent of their working residents commuting to Bristol in 2011 (the most recent data available) and had incomes above £17,500 in 2018. The equivalent figure for Newcastle is nine, home to 36,000 people.

Figure 2: Bristol provides a greater amount of prosperity to its surrounding area than Newcastle does

Source: ONS; Census 2011

The performance of the city is also shaped by the number of competing economic centres nearby, as this influences the geography of its hinterland. For example, while the positive relationship holds for Liverpool, it does so only for a much smaller number of towns and villages than for other core cities. This is because of the effect of Manchester being nearby. Though much smaller, Chester is another influence on Liverpool, with many of the affluent villages in west Cheshire pointing more to Chester than to Merseyside. The unusually strong performance of Chester is good news for the people who live in and around it but, given its scale, Liverpool should be a larger source of prosperity for its surrounding area than is currently the case, reflecting the dynamic seen between Bristol and Bath, for example.

There are separate, valid questions to raise about the impact of ‘trickle down’ economics and how wealth spreads (or doesn’t) between people. But this is very different to the different functions and relationships that places have with each other, making the ‘trickle out’ moniker deeply unhelpful.

Cities have a relationship with their surrounding towns and villages in which the latter provide workers and the former provide opportunity and prosperity. Understanding this relationship is an important part of the policy approach required to bring greater prosperity to a large city’s surrounding communities. If the towns and villages around Newcastle and Sheffield, for example, are to be better off, then part of this will require a stronger performing Newcastle and Sheffield.