Britain is home to 2.5 million private sector businesses and 21 million private sector jobs. But these businesses do not locate just anywhere, suggesting that geography has a role to play in determining their performance, and in turn the performance of the national economy.
It is not just the clustering of businesses in specific locations that is important, but how this clustering differs across geographies. Our research reveals that there are geographical differences, particularly when looking at the nature of the export base of different areas. It shows that:
- City centres are home to 8 per cent of businesses, despite accounting for 0.08 per cent of land. And they tend to be particularly attractive to high-skilled service-exporting businesses and jobs – we estimate that 32 per cent of Britain’s high-skilled service export jobs were in city centres in 2015.
- Hinterlands tend to be relatively more attractive to goods-exporters. This area accounts for 44 per cent of the nation’s goods-exporting businesses, compared to 35 per cent of all businesses.
- Rural areas account for a very small share of the economy, being home to 10 per cent of jobs despite accounting for 53 per cent of land. Given that rural areas are most dependent on goods exporters, with 22 per cent of jobs being in this sector, the contribution that the rural economy makes to the national one is likely to continue to reduce in the future.
The very distinct geography of jobs and businesses discussed in this report plays out because of the benefits of agglomeration. Cities offer access: access to knowledge, greater access to infrastructure (such as roads and public services) and access to deep pools of workers. But they also tend to have higher costs – such as the costs of space and congestion. Where businesses locate depends on the trade-offs that they are prepared to make, with higher-skilled services businesses preferring the density of a city centre and manufacturing businesses preferring the cheaper land that hinterlands offer.
This has very important implications with respect to the changing nature of the export base of different areas. Recent times have seen the continued contraction of the role of manufacturing, both in terms of businesses and employment. This has shifted the onus onto service exporters to play an ever larger role in generating income independent of the local economy.
These shifts make cities ever more important to the performance of the regional and national economies that they operate in. Given that services exporters (particularly in high-skilled ones) prefer a city location, then cities, and city centres in particular, will play an ever larger role in the national economy. If policy is to support the continued growth of the national economy, then it will need to remove the barriers to growth that our urban areas face.
Of course, the performance of city centres and suburbs differs across cities as agglomeration plays out to differing extents across them. This divergence will be the focus of a second paper in this research series that will be released later in 2016.