03Summary and policy implications

Policy implications for trade deals

The EU was by far the biggest market for city exports in 2017, being more than three times larger than the US and more than 20 times larger than China. While this, of course, is a static picture, to make up for even a 10 per cent drop in current levels of British cities’ exports to the EU would require more than a doubling in trade with China or increasing trade with the US by nearly a third. And the variation seen across cities means that those negotiating a post-Brexit deal with the EU, as well as trade deals with other countries, will need to consider the geographical impact of the deals struck.

To make the most of city economies and boost Britain’s productivity, trade deals will need to ensure they do not solely focus on one or two sectors but look more broadly. Many high-profile sectors, such as the car industry, are concentrated in a small number of places. For example, striking a deal on cars would benefit Swindon and Sunderland, and deliver a tangible political win, but it would do little for many other cities where there are few jobs related to the car industry.

It will be important to ensure that places that are heavily reliant on one industry are considered and supported, but given that large parts of the export base are spread across the country, negotiators should consider how they can reach an agreement for all goods and services to support British cities to continue exporting to the EU and beyond. Crucially, deals that protect trade in goods but overlook trade in services — which would likely be the case with any customs arrangement with the EU — would not cover the majority of exports from cities. Given this, trade negotiations should focus on ensuring services exports are not penalised in future deals.

Implications for national and local industrial strategies

Given the role of exporters in increasing productivity of economies, part of the Government’s efforts to increase Britain’s productivity will require a better understanding of why some places export so little. Many export policies in the past have been focused on attempting to encourage existing businesses to export more, through interventions such as export credit. There is a role for this. But the bigger question in many places may be about asking why exporters do not choose to locate in these cities in the first place. This means that part of a plan to increase the exports of a city has to be about improving its economic fundamentals, particularly skills, to make it more attractive to business investment.

Having high exports does not necessarily go hand in hand with having a more productive economy; while some cities with low productivity have been successful at exporting, to improve their economies they will need to attract in higher-value business investment. The problem is not that these cities do not export, but that their contribution to the product that they export is not necessarily that large. For these cities, while celebrating their success in exporting is important, it should not be done at the expense of addressing the underlying challenges in their economies – namely skills – that limit the number of higher-paid jobs available to the people who live in and around them.

Box 2: Defining cities

The analysis undertaken in this report compares Primary Urban Areas (PUAs) – a measure of the built-up areas of a city, rather than individual local authority districts or combined authorities. A PUA is the city-level definition first used in the Department for Communities and Local Government’s State of the Cities report. The definition was created by Newcastle University and updated in 2016 to reflect changes from the 2011 Census.

The PUA provides a consistent measure to compare concentrations of economic activity across the UK. This makes PUAs distinct from city region or combined authority geographies. You can find the full definitions table and a methodological note on the recent PUA update at this page: www.centreforcities.org/puas.

Box 3: Methodology

To estimate exports by city, two data sources were used – HMRC’s regional trade data and the ONS’ estimates of services exports by region.

To move from regional to city level estimates, the regional data was apportioned according to the regional share of jobs in each city. So if
Birkenhead, for example, was home to 15 per cent of the North West’s car manufacturing jobs, then it was assumed that it also accounted for 15
per cent of the region’s car exports. To match the export classifications
to sectors, the following was done:

  • For services, the apportionment was straightforward, using the broad Standard Industrial Classification codes that roughly match the sectors ONS used to present the regional services export data.
  • For goods, the Standard International Trade Classification (which classifies goods exports) was mapped on to the Standard Industrial Classification codes (which are used to classify jobs by industry).

The goods data is cut by country of destination, but the services exports data is not. To create estimates of where cities export to, it was assumed that the proportion of services exported to a country was the same as the proportion of goods sent to that country. Analysis of national trade data suggests that this assumption broadly holds.