00Executive Summary

Cities play an important role, not only in the UK economy, but the European one too. They account for just 3 per cent of the land area of Europe1 but 42 per cent of European gross value added (GVA).

Europe’s economy is particularly concentrated in its largest cities, with the continent’s 50 largest cities producing a quarter of European output. London is the leader, having the largest economy of any city in Europe. And Manchester and Birmingham are both among the top 20 largest cities.

But while the UK is home to Europe’s largest city, this report shows that its cities lag behind their continental comparators on a range of indicators – the majority trail on skills, innovation and productivity, and a number have an industrial mix that has more in common with cities in Eastern Europe than those in the West.

This matters because it affects the ability of UK cities to attract business investment, create jobs and grow both their own economies and in turn the UK economy as a whole. UK cities cannot compete with Eastern Europe for lower-skilled investment because they are too expensive – labour costs in Bulgaria are six times cheaper than the UK. But because of the large number of people with few or no qualifications, many UK cities struggle to compete for higher-skilled investment too, particularly those further north. All but six UK cities have greater shares of their residents with few or no formal qualifications than the European city average.

The result is that UK cities are much less productive than cities on the continent. Just six cities had higher productivity than the European city average. And of the UK’s largest cities, London was the only city to outperform this average. This impacts both the types of jobs available to people in the UK and the amount of money in their pay packets.

These findings have three implications for policy.

1. UK cities need to compete in the knowledge economy if they are to be successful

Many cities, particularly in the North of England, are struggling to compete when it comes to the knowledge economy. They have small shares of business services jobs in their cities, low levels of patent activity and large numbers of residents with few or no formal qualifications.

This must change if cities are to successfully compete for international investment. Policy should focus on making the UK’s cities more attractive to investment from businesses in higher-skilled, better-paid activities.

2. Low skills is a stand out problem

A major factor in a business deciding where to invest or where to expand is whether it can recruit the workers that it needs. This report shows that UK cities are at a disadvantage when competing against many other European cities on the avaliability of skilled labour. Policy must therefore address the skills challenges faced in many UK cities if it is to make them more competitive.

3. Making the most of big cities

The UK’s biggest cities are currently punching well below their weight. To change this policy needs to improve their two key advantages – their ability to create new ideas and spread information, and the access they give businesses to many highly-skilled workers. This requires planning policies that take account of the roles of different parts of cities, for example encouraging the creation of commercial space in dense city centres. It also requires investment in transport within cities and their wider areas to better link jobs in city centres in particular to residential areas in suburbs and hinterlands. This should be coupled with steps to improve the skills of residents.2