Political gains, economic realities

The political imperative for investing in the North and Midlands is clear from last month’s election. But the Government must work with economic realities if it is to deliver for the voters who delivered its majority.

I believe that talent and genius and initiative and chutzpah are evenly distributed across the whole UK. But it is also clear that opportunity is not evenly distributed and it is the job of this one-nation Conservative government to unlock talent in every corner of the UK because that is the right thing to do in itself and because that is the way to release the economic potential of the whole country.

Boris Johnson, Conservative Party Conference 2019

The last decade was one of stagnation for the economy and of turbulence in politics. Four general elections, four prime ministers and two referendums have been set against a backdrop of public sector austerity, barely positive wage growth and poor productivity improvements.

The UK enters the third decade of this century with a former Mayor of London as Prime Minister. He presides over a government with the largest majority in almost 15 years, elected on a promise to level the country up and govern as a ‘one nation’ or ‘people’s government’.

Much has been written about how voters in towns helped secure the political ambition of a parliamentary majority. But if the Government is to achieve its economic ambitions – genuinely ‘levelling up’ regions across the country – then it is larger urban areas that hold the key.

The election result has led to calls for the Government to reward those areas that helped it win its majority with increased spending. The political imperative here is obvious. The make-up of the Conservative Government looks less southern than would ever have seemed feasible 10 years ago. In May 2010, the Tories held 107 seats in the North and Midlands compared to Labour’s 143. Today, 150 are blue and 111 red.

Of this 43-seat increase, there is a distinctly urban flavour. Compared to 12 more in non-urban areas, the Conservatives gained 31 urban seats in the North and Midlands, of which 17 were part of larger urban areas such as Birmingham, Sheffield and Manchester.

There has been no such change in the geography of the economy in the last decade. In 2010, the south of England accounted for 53 per cent of all economic output, up from 51 per cent in 1998. By 2018 (the latest available data), this had continued to widen to 54 per cent, driven by the growth of London.

These patterns are not sustainable either economically or politically. But the economic reality means that the Government must be careful what it promises so as not to create a noose for its own neck. To govern is to decide – to deliver on pledges requires prioritisation driven by an understanding of both the politics and the economics.

A clear set of policies should be put in place to help all areas of the country – be they central London boroughs, cities, towns or villages – to improve the quality of public services available to people no matter where they live. This should be done in two ways.

The first is to end austerity for local government in this year’s Spending Review. As Cities Outlook 20191 showed, local government is the part of government that has by far and away been hardest hit by austerity. This has had implications for the range and quality of services local government delivers, particularly those for which it does not have a statutory obligation. To protect spending in social care for example, other areas such as spending on planning and cultural services have seen even larger cuts.

The second is to make good on its election commitments to increase spending on other public services, such as education, policing and the NHS. In doing so it can pull a lever over which it has clear control to improve the standard of living for people everywhere, including in its newly-won constituencies.2

In stark contrast, the levers it has to pull to significantly reshape the economy – and specifically where certain parts of the economy locate – are much more limited, despite claims made by politicians for many decades.3

The move to a more knowledge-based economy that has happened in recent decades and that will most likely continue in the coming ones is one that, in principle, benefits the largest cities and towns. This has been seen in a number of developed countries,4 and occurs because of what urban areas allow businesses to access – deep pools of talent and knowledge.

The major problem for the UK is not that these trends have left some smaller places behind, although clearly a number have suffered, but that many large cities in particular have not been able to sufficiently grasp the opportunities these global forces have presented to them. Cities such as Manchester and Liverpool lag behind the national economy in terms of productivity, when they should be leading it. In 2018, cities in the South5 were 43 per cent more productive than those in the North and Midlands (see Figure 1). If the cities of the North and Midlands ‘levelled up’ to those of the South, the UK economy would be £183 billion — or 9 per cent — larger.

Figure 1: Productivity of British cities (GDP per worker)

Source: ONS (2020), Regional gross domestic product (GDP) reference tables, Business Register of Employment Survey, 2018 data.

This has limited the increase in job opportunities and wages for the 16 million people who live in cities in the North and Midlands and those people living in smaller towns around them. The contrasting fortunes of places such as Hertford and St Albans to those of Hartlepool and St Helens help illustrate this.

This means that, in order to achieve its objective of ‘levelling up’, the Government needs to identify the cities that, with support, have the potential to be more successful than they currently are and can have a ‘pull-up’ effect on surrounding areas.

The support offered should take two forms:

The first is to go further on devolution. The last decade has seen the introduction of eight new metro mayors to add to the mayoralty in London. This did not seem likely in 2010 and constitutes welcome progress, but it has stalled since the EU referendum. Some major cities, such as Leeds, have no mayor in place and so have a very limited suite of powers to improve their economy. This needs to change.

And, while other city regions, such as Greater Manchester and Liverpool City Region, do have a mayoral devolution deal in place, the powers they have in a number of areas are inferior to those held by the Mayor of London, not to mention mayors elsewhere in the world. The Government should use May’s metro mayoral elections to ensure that the existing and new metro mayors can stand as equals with global counterparts such as New York’s Bill de Blasio, Paris’s Anne Hidalgo and Berlin’s Michael Mueller.

But market forces and policy challenges are too big and persistent for local effort to do this alone. While devolution is necessary, it is not sufficient on its own. So, secondly, there should be direct intervention from the Government in conjunction with the city regions it aims to improve, based on the following principles:

Selective investment in a few places reflecting relative potential, rather than jam-spreading money across lots of areas.

Significant investment — in the billions per year — rather than one-off pots of smaller sums of cash.

Sustained investment, with funding over a 10-year period, rather than short, ad-hoc funds to deal with specific issues.

The 2010s will be viewed as a decade of austerity, uncertainty, stop-start policy and hiatus. The 2020s must represent a new decade of investment from national government and more devolution of power to help tackle the nation’s number one economic problem: the underperformance of many of its largest cities and towns. For the success and cohesion of the country as a whole, we cannot afford for this decade to be anything else.

Footnotes

  • 1 Centre for Cities (2019), Cities Outook 2019, London: Centre for Cities.
  • 2 Westlake S (2019), Hunting for Hinzelmann, or: helping towns without magical thinking.
  • 3 Swinney P and Thomas E (2015), A Century of Cities: Urban economic change since 1911, London: Centre for Cities.
  • 4 For example, see Moretti, E. (2013) The New Geography of Jobs. Houghton Mifflin Harcourt, New York for how this has evolved in the USA.
  • 5 Defined as the regions of London, South East, East and South West.