01Introduction
The performance of the UK economy within the G7 group of countries – made up of France, Canada, Germany, Italy, Japan, the UK and the US – has long been a yardstick for analysis by both policymakers and commentators in the UK. A recent example of this has been the Labour Party’s objective in their ‘economic mission’ to “secure [for the UK] the highest sustained growth in the G7” over the next Parliament.1 Another has been the Prime Minister’s claim in his speech announcing the 2024 General Election on July 4th that the UK economy has been growing “faster than anyone predicted – outpacing Germany, France, and the United States” on the basis of high growth in the first part of 2024.2
Certainly, the UK does not lead the pack on either an output per hour or output per worker measure of productivity. As Figure 1 shows, the UK is mid-ranking in the G7. When measured by output per hour, productivity is higher in the UK than it is in Italy, Canada and Japan.
But the average worker in France, Germany and the US produces 14 per cent, 13 per cent and 22 per cent more per hour respectively than the average UK worker. This productivity underperformance ultimately results in lower living standards and a greater tax burden than the leading members of the G7, creating a ‘prosperity gap’.
Figure 1: The UK has a prosperity gap
This analysis, while true, like much of that on the G7 solely looks at national economies. There will be differences in national conditions and policy that explain large portions of the gaps between G7 members. But if there are issues within local economies, a national-only analysis will overlook them and neglect important policy solutions to improve performance.
The purpose of this report is to investigate the role of cities in the UK in closing the national prosperity gap with the rest of the G7. It does this by looking at the performance of the largest cities in each G7 country (defined in Box 1) to understand how well they perform in the context of their national economies and relative to one another.
This analysis does not comprehensively explain gaps in performance – there will be other factors such as national institutions, trading relationships, and monetary policy among others. However, in light of growing concerns around regional inequality and the underperformance of cities in the UK, it does show the important role of local economic policy in a successful national economic strategy that is felt everywhere across the country.
The report is split into five sections. The first assesses the performance of the largest cities in the G7, and what this means for national performance. The second and third sections investigate what explains this varying performance. The fourth shows the impact of the big cities in the UK catching up with the leading cities in the G7 on the national economy. And the fifth sets out what needs to change in the UK’s large cities and local economic policy for the UK to close the prosperity gap with the rest of the G7.
Box 1: Definitions used in this report
This report uses the OECD ‘functional urban area’ (FUA) definition of a large city, including their commuting zones. This is a departure from Centre for Cities’ usual primary urban area (PUA) definition. FUAs result in larger cities for the UK than either PUAs or the mayoral boundaries but they allow a consistent definition of the cities in question given the data that is available.
Two lists of ‘large city’ are used for comparisons. First, the nine largest cities in each G7 country. The second, the 112 cities in the G7 the size of Nottingham (922,349 residents in 2018) or larger.
This distinction is made because the definition of ‘large city’ needs to distinguish between size in a national context, and in an international context.
The former is important for understanding the contribution each city makes to their national economy controlling for differences between countries, which is particularly important given the larger size and high productivity of the United States. The latter is important for understanding how cities perform in direct comparisons with each other and as economies in their own right.
A city like Winnipeg (population 904,275 in 2018) should play a more important role in the Canadian economy than Albany (population 979,689 in 2018) does to the economy of the United States. But they should in direct comparison with each other (all else being equal) perform in a similar manner as local economies for they are a similar size.
The British cities included in the report include UK cities include London; Manchester; Birmingham (the West Midlands urban area); Leeds (West Yorkshire); Glasgow; Liverpool; Newcastle; Sheffield; Bristol; and Nottingham as the tenth city.
In addition, one “primary city” in each country is defined as the FUA that makes the single largest contribution to national GDP to better understand how the role of the large cities in G7 countries varies. These primary cities are London; Paris; Munich; Milan; Toronto; New York; and Tokyo.
All prices are in constant USD 2015 values adjusted for PPP, unless otherwise stated.