04Why do cities and large towns in the Midlands not reach their productivity potential?

The Midlands Engine cities – in particular, the city centres – are a key driver of the underperformance in the region. The analysis above suggests that they are not offering the agglomeration benefits that they should be.

As outlined earlier, the main agglomeration benefits that cities provide to service exports are matching (the ability to recruit from a larger pool of workers with relevant skills), sharing (the ability to share inputs, supply chains and infrastructure, such as roads, rail and street lights) and learning (the ability to exchange ideas and information between co-operating and competing firms).

This section looks at how well the cities offer these benefits. It finds that, compared to the rest of the country, the skills base, commercial space, and the density of the built environment of the cities and large towns of the Midlands Engine all could be improved, especially within biggest urban areas.

The Midlands Engine’s urban economies have a skills problem

Figure 18 demonstrates that all the Midlands Engine urban economies have fewer graduates than on average in the UK. Derby and Coventry, two of the best performers in the Midlands Engine, have the highest share of graduates in their population, while Mansfield has the least.

The lack of skills is not limited to the graduate labour market. Figure 19 shows that, except for Derby, all the Midlands Engine’s urban economies have a higher share of the population without any qualifications than the national average. The Birmingham conurbation performs particularly poorly on this point, with 10 per cent of the workforce lacking any qualifications.

Together, the lack of graduates and the high number of people without qualifications indicates that improving the skills base of the Midlands Engine’s urban economies is important to ensure service export firms are able to match to the relevantly skilled workers. More training and attracting in skilled people will both be important for this.

The Midlands Engine’s city centres lack office space

Skills are not the whole story though. City centre commercial space may also be a potential limitation to service export work, as it requires office space and trends towards city centre locations.

Figure 20 shows that all the Midlands Engine city centres have a smaller proportion of office space than the UK city centre average of 51 per cent. And almost all the city centres have much more retail than the national average, despite falling demand for retail space. Given the ongoing change on the high street this suggests that many centres may have too much space given over to retail.

The exception is Birmingham city centre, which has a below average share of retail space, but a high share of industrial space, primarily around Digbeth.

The quality of office space in the Midlands Engine’s city centres is more mixed. Using Energy Performance Certificate ratings as a proxy for quality, Figure 21 indicates that Coventry, Telford, and Birmingham all have above average quality of office space compared to the country and the Midlands Engine as a whole.

In comparison, the relatively low quality of commercial office space in the city centre may be a potential barrier to attracting in high skilled service export work into the centres of Nottingham, Derby, Leicester and Mansfield.

Nottingham and Birmingham have poor transport accessibility

Transport is also a plausible constraint on local economic growth in the Midlands Engine’s urban areas. Better transport increases the effective size of the local economy market and this matters for economic growth because it connects pools of workers to businesses, and businesses to suppliers and clients. This deepens agglomeration effects and means that urban economies should be able to reach higher levels of productivity.

An implication of this is that the mode of transport used within the urban economy is less important than the number of people who can access the city centre in a reasonable commute, as it is the latter that determines the size of the local labour market.

Figure 22 shows the share of the urban population of the Midlands Engine that can reach their urban area’s city centre within 30 minutes. It demonstrates that, for most of the region’s cities and large towns, accessibility is good. For Coventry and Derby, an above average share of the population can reach the centre by both car and public transport. All other urban areas have below average accessibility by public transport.

The poor public transport accessibility for most Midlands Engine urban areas is counteracted by their high levels of accessibility by car, except for the Nottingham and the Birmingham conurbations. Even though they both have tram systems, the two largest cities have below average accessibility in both public transport and by car, reducing the size of their labour market.

This result implies that, while improvements in public transport across the Midlands Engine may be desired for social or environmental benefits, they are unlikely to improve the economic performance of the region unless they are associated with increased commuting into the city centres of Nottingham and Birmingham. Commuting by car into these large city centres is challenging due to the distances and physical capacity of the road network (and will become a bigger challenge if their city centre economies grow), and public transport can enhance productivity by overcoming these constraints and increasing the total amount of commutes.

Birmingham and Nottingham lack mid-rise housing, not transport infrastructure

However, this problem is not solely due to a lack of public transport infrastructure. Figure 23 shows that the large cities of the Midlands Engine have public transport networks that cover a comparable or greater physical area in 30 minutes compared to European cities of a similar population.¹³ The Birmingham conurbation’s public transport network covers an area greater in 30 minutes distance than any city outside of London.

The explanation for Nottingham and Birmingham’s poor accessibility is not just a lack of infrastructure, but also their urban form. Previous research by Centre for Cities has shown that British cities are unusual in Europe for not increasing in population density as their population grows. Away from the city centres, they maintain a low-rise urban form throughout their built-up area, which constrains the number of people who can live in walking distance of transport stops and therefore within 30 minutes of the city centre.

As a result, the density of the built environment needs to change in those neighbourhoods with transport stops in Nottingham and the Birmingham urban area for public transport accessibility and the economic performance of the Midlands Engine to improve.