The concept of the national economy is a catch-all term for many hundreds of economies across the country. While talking about the national economy simplifies matters for bureaucrats, it fails to acknowledge the variation seen across the country, and is blind to the implication that these variations have for economic performance.
These economies (which themselves are made up of cities, towns and villages) do not stand alone. They interact in a number of ways, but they do play very different roles. Understanding the relative contributions that these different places make, and the impact that they have on each other, has implications for the standards of living that people enjoy across the country and the performance of the national economy as a whole.
This research sets out the nature of these interactions. It shows that the impact of cities goes well beyond their boundaries in a number of ways. Most importantly, cities are home to the majority of the economy. Despite covering just 9 per cent of land, they are home to 55 per cent of Britain’s businesses and 60 per cent of its jobs, with this concentration increasing in the last two decades. And this has a number of implications for people who do not live in a city:
- In terms of tax, cities raised 63 per cent of all economy related taxes in 2013/14, which was then used to provide public services across the country.
- Cities provided 22 per cent of those living outside of cities with a job in 2011.
- In terms of specialisms in healthcare and education, 76 per cent of NHS consultants practised in English and Welsh cities in 2018, and 81 per cent of university students studied in British cities in 2013/14 to 2014/15, benefiting residents beyond city boundaries.
- And because of the size and density of markets that they provide, cities were home to three quarters of all employment in creative arts and entertainment activities in 2016, which can be enjoyed by city dwellers and non-city dwellers alike.
Cities also shape and impact on the economies and economic outcomes of the places around them. Our most successful cities both provide jobs for people in neighbouring towns and influence how attractive these towns are to business investment.
This is good news for those towns located close to successful cities which benefit from their success. But this research shows that the underperformance of a number of cities is bad news not just for that city’s residents and the national economy overall, but for the residents in towns around them too. This poor performance restricts the employment opportunities cities are able to offer the residents of their neighbouring towns, and it reduces the town’s chances of attracting in higher-skilled, better-paid work.
This is important in the context of ongoing policy debates about the industrial strategy, inclusive growth and productivity. After long-overdue government recognition of the roles of cities in the national economy between 2010 and 2016, leading to the creation of City Deals and Devolution Deals, policy has since cooled. The current government has been less city focused, while the current Labour leadership’s comments on subnational growth have focused more on the plight of towns than struggles of cities.
But the performance of towns cannot be viewed in absence of their links to their nearest cities. For many struggling towns, their problems are linked to the underperformance of their closest city. A response to the problems of towns cannot just be town focused, nor can it ignore the causes of the underperformance of their nearest cities.
Instead, a policy approach to the myriad economies that make up the UK needs to acknowledge and work with the network that these economies have created, and reflect their different roles. This report represents a starting point towards a better understanding of these issues and recommends that policy should:
- Focus on improving skills across the country. Skills are a strong predictor of employment outcomes whether someone lives in a town or city, and this must be the focus of any policy looking to improve the employment outcomes of people wherever they live.
- Recognise the role that cities play in their wider local economies and the national economy. Strongly performing cities are crucial to the performance of the national economy, and the underperformance of many of them is a problem not just for those people who live in cities but for those who live around them too.
- Proceed with further devolution to tailor policy responses to different areas. Cities and their surrounding areas are best placed to respond to their specific needs, but they require the policy tools to do this effectively.