2. City economic performance: a 10-year perspective
At the beginning of the 21st century, policymakers and commentators began to talk of an urban renaissance in Britain. For decades UK cities had been thought of as places in decline, with most outside London struggling to reinvent themselves in a post-industrial age.
A spate of task-forces, research programmes and commissions emphasised a renewed focus on how, with the right kind of investments and policy interventions, UK cities could once again drive economic growth, not just in the South of England, but across the country.6
Encouraging growth outside of London and the South East has been a challenge that has occupied both the current and previous governments, with both pledging to ‘bridge the North/South divide’ or ‘rebalance the economy’.
With the next election now only months away, and with each of the major parties pledging again to rebalance the economy should they win, this chapter reflects on the performance of city economies from 2004 to 2013, reviews the approaches taken by major policy interventions during this period, and proposes a future direction for urban policy.
The widening divide between cities
Despite a consistent political commitment from all parties to improve the relative economic performance of places outside of the South, the gap between cities in the South and cities in the rest of the UK has increased, not diminished. Looking over a 10-year period from 2004 to 20137 – which allows an analysis of longer term trends rather than year-to-year fluctuations – shows that the differences in population growth, the number of businesses, the number of jobs and house price affordability have continued to widen between cities in the South and cities elsewhere in the UK.
Between 2004 and 2013, cities in the South grew at double the rate of cities elsewhere. During this period the population of southern cities increased by 11.3 per cent, compared to 5.5 per cent in cities elsewhere.
Milton Keynes was the fastest growing UK city, expanding by 16.5 per cent, as shown in Figure 4, followed by Peterborough and Swindon. Only two cities outside of the South – Northampton and Cardiff – feature in the top 10 cities for population growth. Sunderland, meanwhile, was the only city to shrink, losing 1.4 per cent of its population over this period.
Cities in the South also saw a much larger increase in the number of businesses in their cities between 2004 and 2013. There were 26.8 per cent more businesses in cities in the South in 2013 relative to 2004, compared to 13.7 per cent more in cities elsewhere in the UK.
That said, the 10 cities with the fastest growing business base have a more even split geographically. Aberdeen and Warrington saw some of the largest increases in the number of businesses, while Edinburgh and Coventry also made the top 10. Grimsby, which saw the largest fall, and Blackpool were the only two cities to have fewer businesses in 2013 than in 2004.
The divide that grew most sharply between 2004 and 2013 was in the number of net additional jobs created. Cities in the South had 12.4 per cent more jobs in 2013 than they did in 2004, far outstripping the 0.9 per cent growth seen in cities elsewhere.
This means that between 2004 and 2013, for every 12 net additional jobs created in cities in the South, one was created in cities elsewhere in Britain.
On a percentage basis, Milton Keynes saw the largest net increase in jobs, followed by London, Cambridge and Brighton. Four cities outside of the South – Coventry, Newcastle, Aberdeen, and Nottingham – also made the top 10. Gloucester had the highest contraction, and was one of 22 cities to have fewer jobs in 2013 than in 2004.
This differing performance is even more marked when looking at private sector jobs. Cities in the South had 12.6 per cent more private sector jobs in 2013 than in 2004. But cities elsewhere had fewer private sector jobs in 2013 than they did a decade ago – a contraction of 1.1 per cent.
This means that between 2004 and 2013, for every 10 net additional private sector jobs created in cities in the South, one was lost in cities elsewhere in Britain.
London saw the largest net increase in private sector jobs, followed by Milton Keynes, Brighton and Cambridge. Four cities outside the South – Coventry, Aberdeen, Barnsley and Derby – also made the top 10. Gloucester had the highest contraction, and was one of 34 cities to have fewer private sector jobs in 2013 than in 2004.
Box 2: Definition of the public sector
In this analysis as in previous analyses by Centre for Cities, the public sector is defined as:
While this definition will include some private sector employment, such as private hospitals, it does give a consistent estimate of public sector employment over the 10-year period.
BRES & ABI are used to measure the number of jobs here as they are the only dataset provided by ONS that allows jobs to be measured by sector at the local authority level.
These differences in economic performance led to demand for new housing rising significantly in cities in the South compared to other cities across the country over this period. The result was that by 2014, houses in cities in the South had become even more expensive, exacerbating a problem already significant in 2004.
In 2004 the average house in a city in the South was nine times average earnings. By 2014 it had grown to more than 13 times the average wage. Meanwhile there was virtually no change, on average, in affordability in cities elsewhere.
Overall, London experienced the greatest increase in its affordability ratio. By 2014 the average house was almost 16 times average earnings, up from 9.5 in 2004 (see Figure 10). While Hull and Burnley also saw large increases over the period, both cities continued to have some of the most affordable houses of all cities in Britain in 2014.
Between 2004 and 2013 cities in the South saw stronger growth in the number of houses than cities elsewhere – an increase of 7.8 per cent (470,000 homes) in the former as opposed to 5.6 per cent (430,000 homes) in the latter. But with an increase of 1.6 million people, the population of southern cities increased at 1.5 times the population of cities elsewhere. So it is no surprise that houses became even more unaffordable in cities in the South over this period.
The policy response
This review of UK cities’ economic performance over the last decade illustrates the continued dominance of London and other cities in the South of England, and the scale of the challenge that has faced successive governments in their efforts to boost the relative performance of cities in other parts of the country.
In attempting to address these challenges, broadly speaking, two different policy approaches have been adopted to drive city and regional growth over the last decade. The first, pursued by the Labour governments of 2001-2010, placed an emphasis on regional planning, urban regeneration and physical-led development, underpinned by centrally driven targets and administered by the Regional Development Agencies and other arms-length public agencies.
The second, pursued by the Coalition government since 2010, has favoured instead a local, place-based approach, ‘deal-making’ between individual localities and central government, and a wave of new, discrete funding pots allocated either by competitive bidding or by Local Enterprise Partnerships.
There have been some notable policy successes within both approaches over this period – for example, Multi Area Agreements (which encouraged cross-boundary working between local authorities) and Total Place (which supported a more coordinated approach to how public money was spent in a place) under Labour, and growth incentives such as the New Homes Bonus and City Deals under the Coalition.
However, neither approach has adequately met the scale of the economic development challenges facing UK cities. Despite many of the policy initiatives launched over the last 10 years beginning with big ambitions to transform urban Britain, the majority have ended up focusing on the granting of discrete, often small, pots of money for specific development projects within localities, rather than supporting the fundamentals that underpin urban economic success, such as transport, housing, adult skills and education.8
Furthermore, the fragmented and time-limited nature of urban policy during this period has led to disjointed delivery. For example, Business Link has been introduced, abolished and re-introduced in different forms over the last decade, while the Regional Growth Fund was originally announced as a one-off intervention which has, for now, been given an extension.
Despite a number of attempts to push power down from Whitehall to town halls across the country, relatively little progress has been made on decentralising strategic or fiscal powers to UK cities and city-regions. Policy initiatives have tended to require cities to submit proposals to central government for Whitehall approval, rather than create a new framework to incentivise and empower places to pursue growth at the city-region level. This has constrained cities’ ability to tailor policies and investment to address the specific challenges they face, with the result being that too many have underperformed.
The exception to this rule over this period, somewhat ironically in the context of a desire to rebalance the economy, has been London.
Following the establishment of the Greater London Authority (GLA) in 1999, led by a directly elected mayor of London, the capital has benefitted from city-region wide governance, and powers over strategic planning, transport investment and skills. The 2007 GLA Act provided the mayoralty with additional powers over housing, skills, waste and the environment, and in 2010 the functions of the Homes and Communities Agency were passed to the GLA.
Although still weak compared to the powers wielded by international capital cities, these powers have allowed London to better plan for growth, direct investment where it can generate the biggest economic returns, and has empowered the mayor to exert significant influence over how the government invests its budgets.
Where next? Supporting cities to fulfil their potential over the coming decade
It has taken 10 years for cities to rise towards the top of the national policy agenda as a means to boosting growth across the country, and for decisions about devolving significant powers to the city-region level to be taken within the corridors of Whitehall. This has been marked by the Chancellor’s welcome announcement at the end of 2014 to devolve a number of powers and funding streams to Greater Manchester.
Box 3: Rebalancing the economy: what has been said?
“For far too long the economies of too many regions and countries of the United Kingdom have been allowed to fall behind…The Government believes that regionally balanced growth, led by the regions themselves, is not only desirable in its own right but also essential to deliver economic prosperity and employment for all.” – Gordon Brown and Patricia Hewitt foreword in Productivity in the UK – No. 3 The Regional Dimension, HM Treasury 2001
“Today our economy is heavily reliant on just a few industries and a few regions – particularly London and the South East. This really matters. An economy with such a narrow foundation for growth is fundamentally unstable and wasteful – because we are not making use of the talent out there in all parts of our United Kingdom. We are determined that should change.” David Cameron’s first speech as Prime Minister, 28th May 2010
“We need to rebalance our economy away from its overreliance on London and the South East.” Nick Clegg, speech at Mansion House, 18 February 2013
“Let us choose today to make reducing the gap between north and south, London and the rest, one of the central ambitions of the next Conservative government.” George Osborne, Conservative Party Conference 2014 speech, 29th September 2014
Given the political, economic and financial challenges that lie ahead, the party (or coalition of parties) that forms the next government must look to build on the positive steps taken to support UK cities to grow over the last decade, by:
Agreeing devolution deals with other UK city-regions: Given the merits of the GLA model, the recent announcement that Greater Manchester is set to receive similar powers to those afforded to London is encouraging, as is the broad political support for extending this approach to other city-regions across the UK.
Similar deals need to be brokered with other UK city-regions, equipping them with the necessary powers over transport, housing, planning and skills to drive their economies forward. This will require city authorities themselves to step up and provide assurances of city-region wide accountability and governance.
Devolving new fiscal powers to UK city-regions: If cities across the country are to make bigger contributions to the UK economy’s future growth, then they will need more control over their tax base. The inability of cities to raise and retain taxes locally, or to spend their budgets according to local priorities, constrains them from focusing resources and investment where they can best support their local economy. And the lack of flexibility and incentives for improvement does not encourage innovation in service delivery.
The next step, once the new governance arrangements for Greater Manchester have been established, should be for the mayors of London and Greater Manchester to be given further financial and fiscal freedoms from Whitehall, as recommended by the London Finance Commission.9
Cities and the future of the national economy
Achieving a national economy in which more places and people both contribute to and benefit from economic success is a significant and long-term challenge. To address this challenge, UK cities and city-regions must be armed with greater powers over the factors that affect their economies, with more control over their budgets, taxes and assets, and led by directly elected mayors who are accountable to the whole of the city electorate.
These radical changes will take time to implement, and they will not create an instant turnaround in the economic performance of those cities that have struggled over the last 10 years. But the changes will at least enable cities to tailor policies to address the big economic development challenges that they face, and will begin to drive growth in both their local and the national economy.
The economic and political imperative to tackle these challenges is clear. As David Cameron said in January 2015: “When it comes to the next generation – to Britain’s long-term future – few things are more important than rebalancing our economy…we need a strong London, but we need a northern powerhouse too.”10