03The geography of the clustered new economy
While hotspots are spread across the UK, there are common themes in terms of where they can be found. This section explores the geography of the 344 hotspots in more detail.
Hotspots are in every region, but they are overwhelmingly urban
Figure 5 shows that hotspots are present in most parts of the country. They exist in every region, and more than four in every five people live within ten miles of at least one. Firms in hotspots add value in every part of the country. Around 40 per cent of the jobs and 30 per cent of the output generated by the clustered new economy can be attributed to companies based outside of London.22
Two measures are relevant when trying to understand the geography of the clustered new economy. On one hand, there is the location of the hotspots themselves. On the other is the relative amount of clustered new economy activity, which can be measured by comparing the number of firms to the working-age population of a given place. The two measures are displayed together in Figure 5, where the locations of individual hotspots are displayed alongside the amount of new economy activity in urban and non-urban parts of Britain’s various regions.
From a regional perspective, the Greater South East (London, the South East and the East of England) stands out as central to the clustered new economy. Together, this part of the country accounts for 60 per cent of all hotspots – far outstripping that of any other region. As with other types of high-technology and knowledge-intensive businesses, the ability of this part of the country to attract activity means that the geography of the clustered new economy reflects Britain’s longstanding north-south divide.23
Figure 5: Distribution of hotspots and the intensity of clustering across regions and PUAs, 2022
Despite these regional imbalances, the formation of hotspots is an overwhelmingly urban phenomenon. Almost nine in 10 clustered new economy firms are located in cities and large towns. Even in the Greater South East, where non-urban areas perform strongly, London alone accounts for 77 per cent of all clustered new economy firms.
These forces are similarly at work within urban areas. More than half of all the innovative firms in hotspots observed nationally can be found in city centres. Although suburban locations are relatively more popular outside the Greater South East, as Figure 6 shows, city centres are the most common choice. Even firms located outside urban areas tend to be located close by. Of the 13 per cent of clustered new economy firms not located in cities and towns, 89 per cent are in the hinterlands of urban areas. Hotspots tend not to form in deep rural locations.
Figure 6: The share of all clustered new economy firms in city centres, suburbs, hinterlands, and deep rural locations, 2022
The dominance of city centre hotspots can also be explained by the fact that they tend to be much larger than those found elsewhere. The average city centre hotspot contains more than 200 firms, while the average suburban hotspot has 32 firms. Rural and hinterland hotspots contain just 20 new economy businesses on average. The larger scale of city centre hotspots likely has benefits in relation to innovation. Recent analysis of patent data over the long run suggests that the number and quality of patents filed by inventors increases when they move to places with larger clusters in their respective fields.24
The most striking example of these differences in scale can be seen in London, which has an extremely dense clustered new economy, and the Greater South East, where the average non-urban hotspot contains 24 businesses. As can be seen in Figure 7, alongside London’s immense central hotspot – spanning an area from Paddington to the City – are sizeable hotspots in Camden Town, Pimlico, and along the South Bank. Examples of successful regeneration, notably Canary Wharf but also parts of the project at King’s Cross, also overlap with significant clustered new economy activity. In all, the centre of London hosts nearly 7,000 new economy businesses – 37.8 per cent of all clustered new economy firms in the country.
Figure 7: Hotspots in the centre of London, 2022
In suburbs, most clustered new economy firms are in smaller economic centres with strong transport links.25 A good example of this trend can be seen in Altrincham and Stockport within Greater Manchester, which contain relatively large numbers of clustered new economy firms in their town centres.
Other leading locations for hotspots outside city centres include science and business parks. For example, 60 per cent of Cardiff’s clustered new economy firms are located in a business park to the north of the city centre. Good examples outside urban areas include the Milton Science and Technology Park and Harwell Innovation Centre in Didcot and the ‘Sci-Tech’ campus in Daresbury near Runcorn in Cheshire. Each of these locations are important centres of significant scientific research which play host to high-technology new economy firms.
These trends relate both to local opportunities and firms’ individual needs. Although the scale is much smaller than that observed in city centres (hotspots in business and science parks have just 20 firms on average) places such as science parks provide the facilities and proximity some innovative firms need to benefit from agglomeration.
Box 4: Business park hotspots, transport, and high-technology employers
Business parks with hotspots are often in close proximity to transport connections such as major road junctions and stations and, as in Runcorn and Didcot, possess large high-technology employers. Another example of the phenomenon can be seen in relation to the hotspot located in a large business park in south Stevenage (Figure 8). The hotspot sits next to Junction 7 of the A1(M) and approximately one mile from Stevenage station (displayed as an orange square). Trains travel between Stevenage and Kings Cross around 100 times per day and the journey takes 39 minutes on average.26
Figure 8: The location of a hotspot in Stevenage, 2022
Source: The Data City, OpenStreetMap, and Centre for Cities calculations
Among other activities, the hotspot is situated between campuses belonging to two high-technology employers. The first, MBDA, is firm which develops and manufactures missiles. The second, GlaxoSmithKline, is a multinational pharmaceutical and biotechnology company, which is presently spending £400m on expanding its campus in the area.27 It is not possible to establish a direct link between all the hotspot’s firms and the area’s major employers. Nevertheless, a number of them are either in the same or allied sectors, and others list one of the major employers as a client. In the long run, a successful hotspot will grow and diversify into a host of different innovative activities and, ideally, create multipliers for local services.
Box 5: Public sector relocation has a mixed record
The relocation of public sector jobs – especially civil servants – is one of the most direct tools that policy makers can use to move jobs around the country. Recent examples include the creation of the Darlington Economic Campus, first announced in 2021, which the government argues plays a role in its levelling up agenda.28
Projects such as these have political value, but prior Centre for Cities research has shown relocation to have variable economic consequences on local economies.29 A mixture of impacts can also be seen in relation to the formation of hotspots, with relatively successful relocations such as Salford Quays standing in contrast to others such as that of the ONS to Newport.
The Salford Quays example suggests that the ability of relocations to foster new areas of clustered new economy activity depends at least somewhat on the type of activity moved. It is easier for a relocation to eventually lead to a self-sustaining innovation ecosystem if there are roles for firms either in allied industries or in the supply chain to which other firms can, in turn, supply goods and services and benefit from knowledge spillovers. This is certainly the case in broadcasting, which is a highly ‘unbundled’ industry that relies heavily on small companies and freelance workers.
Figure 9: Hotspots in Salford Quays, 2022
Source: The Data City, OpenStreetMap, and Centre for Cities calculations
The relocation of the ONS to Newport, by contrast, has not led to the appearance of a hotspot in that economy. All the hotspots in Wales are confined to Cardiff and Swansea. Here, the lack of an obvious role for businesses in the supply chain has probably been a factor. However, other constraints, such as the skills profile of Newport or the composition of its economy, are also likely to have played a role.
A different, longer-term, example of public sector relocation can be found in Cheltenham, which possesses Britain’s 25th largest hotspot at its centre. At 82 firms, this hotspot is more than twice the size of those in Salford and contains almost as many clustered firms as there are in the entirety of Sheffield. Cheltenham’s clustered new economy contains a range of activities including design and modelling, media and publishing, net zero, and rehabilitation.
One potential explanation for the Cheltenham phenomenon is the presence of the headquarters of GCHQ, Britain’s signals intelligence agency, and the area’s previous association with telecommunications technology.30 The secrecy of GCHQ’s work means that its impact cannot be explained in terms of supply chains or direct knowledge spillovers. However, it is possible that over the last seventy years the presence of the agency has helped to foster a highly-skilled and technologically-orientated labour market which has allowed other sorts of innovative activity to thrive.
The big cities are falling short of their potential
While hotspots are overwhelmingly urban, there is a great deal of variation between cities and large towns both in terms of the size of their new economies and the degree to which innovative companies are organised into hotspots (see Figure 10).
- The top-right quadrant contains urban areas where the new economy is large and the share of new economy firms in hotspots is high. The places in this quadrant, such as Reading, Brighton, and Milton Keynes, tend to be strong performers in most economic metrics. London, Bristol, and to a lesser extent Leeds and Manchester appear alongside the top performing local economies.
Figure 10: Clustering rates and the size of the new economy across urban areas, 2022
- The bottom-left quadrant is populated by places where the new economy is small and clustering is uncommon. Swansea, Sunderland, and Bradford are accompanied in this quadrant by Sheffield, the worst performing major city.
- The bottom-right and top-left quadrants indicate intermediate situations. Places in the bottom-right quadrant have reasonably large new economies but relatively little clustering. In Blackburn, Huddersfield, and Telford, this is explained by a lack of cluster-prone, service-orientated new economy firms. The cause in Slough and Aldershot is less clear, although limitations imposed by the built form are a possible explanation.
- Finally, the top left quadrant contains places with relatively large amounts of clustering despite a general lack of new economy firms. Five major cities – Glasgow, Liverpool, Nottingham, Newcastle, and Birmingham – are in this category.
As can be seen in Table 2, the resulting difference in scale between London’s clustered new economy and those of the other major cities is enormous. Although it is less than one-tenth the size of that found in London, Manchester has by far the largest clustered new economy outside the Greater South East. Sheffield has the smallest, consisting of just 87 firms spread across four small hotspots.
Table 2: Hotspots and clustered new economy firms in major cities
|City||Hotspots||Clustered new economy firms||Size of largest hotspot|
The issue for these places is not that they struggle to foster hotspots, but that they have a broader problem of attracting new economy firms. For example, Liverpool’s new economy firms appear in hotspots at rates not dissimilar to those seen in Oxford or Cambridge, yet the relative size of its new economy is closer to that of Bradford or Barnsley than anywhere in the Greater South East. Even Manchester, a relatively strong performer, is closer to Blackburn, Portsmouth, and Telford than Cardiff, Edinburgh, or London in terms of the number of new economy firms per capita.
The relative lack of innovative businesses in the major cities therefore limits the overall size of the clustered new economy at both regional and national levels. As Table 3 shows, cities account for the overwhelming majority of clustered new economy firms in their regions, but their lead in relation to the amount of new economy firms per 10,000 working-age residents is smaller. A striking exception to this rule is the West Midlands, where urban areas anchor the clustered new economy to a lesser degree than elsewhere.
Table 3: Amount of new economy firms and location of hotspots by region
|Region||Share of clustered NEFs in urban areas (%)||NEFs/10k (urban)||NEFs/10k (non-urban)||Urban lead (%)|
|Greater South East||88||28.8||25.5||13|
|Yorkshire and Humber||83||17.0||18.9||-10|
One of the reasons for this is the relative lack of cluster-prone, service-orientated new economy firms in the urban parts of the West Midlands. On average, 64 per cent of new economy firms in urban areas are engaged in services. In Birmingham, by contrast, it is just 52 per cent, and in Coventry it is 51 per cent. This structural difference puts a natural limit on the formation of hotspots.
However, the structural factors provide an incomplete explanation. As Table 3 shows, West Midlands stands out as a place in which the amount of new economy activity in urban areas is far below that found in the rest of the region. This can be partly attributed to the relative strength of the non-urban parts of the West Midlands, which contain a similar number of new economy firms per 10,000 working-age residents as Edinburgh. However, the new economy of the urban West Midlands is small, possessing similar numbers of firms per capita as Huddersfield.
The West Midlands’ problems therefore have two dimensions. First, the region’s urban areas have comparatively fewer cluster-prone firms than other parts of the country. Second, the size of the urban new economy is small relative to its population. Addressing the underperformance of the West Midlands’ urban centres therefore presents significant opportunities for growth.