05Lessons for policy

As places where companies can benefit from different kinds of agglomeration effects, hotspots have an important role to play in advancing the development of the new economy. Britain is already a leader in financing and developing innovative companies.⁵¹ Considering the well-known national productivity slowdown, building on these strengths is of national importance.

Hotspots do not form in a vacuum, rather they are attracted to specific locations because of their attributes. Existing agglomeration, the extent of the skilled labour market, anchor institutions, and connectivity all play important roles. Any attempts to develop hotspots in new places should therefore be mindful of the degree of commitment required, the sorts of anchors available, and the characteristics of the wider labour market.

Working to support existing hotspots, and expanding the clustered new economy in places with the greatest potential, are much more likely to bear fruit. In that regard, the analysis of this report suggests that different interventions are required in different places. This means that national and local government, in conjunction with other stakeholders, have important roles to play in supporting and expanding the clustered new economy.

Land use policy has a critically important role to play in developing hotspots. In existing centres of clustered new economy activity, relieving physical constraints on places where demand is high is of paramount importance. This means releasing land and permitting new commercial development around hotspots in Cambridgeshire, London, and other locations in the Greater South East. Stakeholders should now work to ensure there is enough available space for existing hotspots in central locations and near well-connected transport hubs to expand. The best tools for achieving this aim include:

• Making full use of the National Development Management Policies contained in the Levelling Up Bill and Local Development Orders to speed up planning processes. Interventions such as these will be especially important in places such as Oxfordshire and Reading, where there are already many new economy firms and floorspace costs are high.
• Taking advantage of the introduction of ‘Class E’ commercial space in the Use Class Order, which allows commercial space to be used flexibly, and focusing less on retail in future development.⁵²

The failure of previous attempts to pursue development in the Greater South East, such as the last Labour government’s proposal to create a string of ‘eco-towns’, or the more recent political difficulties in implementing the proposed ‘Ox-Cam Arc’, demonstrate the scale of the challenge. One particular sticking point will be the release of green belt land for commercial development, which has faced widespread opposition. In the long run, moves towards a planning framework based on flexible zoning will help alleviate some of these problems.⁵³

Outside the Greater South East, the most significant opportunities for growth lie in the major cities. Although they are presently falling short of their potential, they have significant amounts of clustered new economy activity in their cores and have been successful in organising the firms they have into hotspots. The big cities also possess deep labour pools, research-intensive universities, and robust local institutions in their mayors and combined authorities.

Considering the opportunities for growth, the analysis in this report suggests that the Government’s decision to pivot the Investment Zone strategy towards the Mayoral Combined Authorities (MCAs) was the correct one. However, other interventions, such as assistance in expanding commercial space, R&D funding allocations, and expanding and extending the City Region Sustainable Transport Settlement would also assist the development of hotspots in major cities.⁵⁴

Elsewhere in the country, especially in locations where clustered new economy activity does not appear to face any specific constraints, places with hotspots should be viewed as nodes of activity around which future policy interventions can be structured. In practice, this means ensuring that regeneration schemes and new transport investment work with, rather than against, the interests of existing local hotspots.

Attempts to promote levelling up through the relocation of public bodies should similarly consider hotspots when choosing sites. As places with existing innovative activity, places with hotspots are among the best equipped to capitalise on new investment in their local economies. This is especially the case in struggling towns, where new investment is less likely to generate brand new hotspots and is therefore best targeted on pre-existing assets. Policymakers should, however, be mindful of the type of activity being moved, as civil service administration is less likely to have an impact on the new economy than broadcasting or public research institutes.

Recommendations for Investment Zones

While Investment Zones are not the only intervention required to make the most out of Britain’s clustered new economy, the findings of this report have clear implications for MCAs developing their proposals and the implementation of the policy by central government. The priority should now be focused on:

1. Choosing Investment Zone sites where hotspots presently exist and focus on improving them.
   • The government’s intended model for Investment Zones includes a central ‘core’ surrounded by a broader ‘cluster ecosystem’.⁵⁵ In each of the 12 combined authorities which will host an Investment Zone, the centre of the largest city possesses the largest hotspot. This means that city centres should be an important focus of Investment Zone proposals, and MCAs should make full use of the planning and local infrastructure parts of the Government’s policy offer to improve connectivity and ensure that companies have access to suitable premises.
   • Other locations should be chosen carefully, and MCAs should resist the temptation to spread their resources too thinly. Lessons from regeneration projects such as those at Canary Wharf and King’s Cross in London emphasise the importance of concentrated investment over many years.⁵⁶
2. Carefully selecting higher education institutions and large, high-technology employers to act as anchors, and ensure that new developments are situated to benefit from their input.
   • This research has found little evidence that anything but the leading research-intensive universities have an impact on the formation of hotspots, and that their impact, as well as that of high-technology employers, is felt most strongly in the immediate vicinity. Both the Government and the MCAs need to select institutions with the most capacity to support innovative activity to anchor Investment Zones and provide them with the support they need to translate research into meaningful development in their localities.
3. Helping cities grow the entirety of their clustered new economies and avoiding sectoral prejudices.
   • The hotspots identified by this report are seldom specialised, and relatively few clustered new economy firms are in manufacturing-orientated industries that require large premises and investment in heavy machinery. This means that, in most cases, policymakers keen to promote the formation and expansion of hotspots should focus on the Government’s more broadly defined ‘priority sectors’ (such as ‘Digital and Tech’) rather than commit to specific industries with more complex needs and a greater propensity to produce lower quality jobs – if, indeed, the Government is to continue to insist that hotspots are to be organised around sectors.⁵⁷