Why big cities are crucial to ‘levelling up’

The underperformance of big cities is at the heart of the North-South divide. If the Government is to ‘level up’ the economy then it needs to tackle this major economic problem.

Report published on 6 February 2020 by Paul Swinney and Kathrin Enenkel

Unlike many other developed economies, the UK’s largest cities and towns do not become more productive as they get bigger. In Germany, France, and the United States, there is a positive relationship between city size and productivity, as measured by GDP per worker.

This relationship does not hold in the UK. A number of small cities, such as Slough and Swindon, are more productive than expected and, with the clear exception of London, most large cities are less productive.

Even after adjusting the size of cities to take into account people who commute into them for work, most of the UK’s large cities still underperform. Their underperformance affects many more people than the underperformance of small- and medium-sized places, and has much larger implications for the national economy.

Among those underperforming cities, if the eight largest closed their output gap, the UK economy would be £47.4 billion larger in total — equivalent to adding two extra economies the size of Newcastle to national output. Manchester, Birmingham and Glasgow account for 70 per cent of this gap. For comparison, if all of the underperforming small- and medium-sized cities closed their output gaps, the UK economy would be £22.5 billion larger in total.

What needs to change

1. Focus on the city-centre economy of big cities in particular, ensuring there is sufficient commercial space for business.

2. Prioritise the improvement of skills of residents, with particular focus on improving maths and English skills for those workers lacking them, and improving school performance for the next generation.

3. Improve the performance of the public transport network within and around the cities, using bus franchising powers where available, creating Transport for London-style bodies and investing in new infrastructure where needed.

4. Extend mayoral devolution deals to cover big cities that currently do not have them, and extend the powers of existing mayors to at least match the powers of the Mayor of London.

5. Negotiate multi-year ‘single pot’ budgets with mayors, giving them full control about how this money is spent in their area and the ability to plan over a number of years.

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