Sunday, November 28, 2021
Fix our cities first, or we'll never level up this country
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thetimes.co.uk This is an excerpt. Not to be reproduced without permission.

People, including the leader of the opposition Sir Keir Starmer, have taken to asking the prime minister whether everything is OK. I can’t answer that, though after a sequence which has included Kermit the frog references in a speech to the United Nations’ General Assembly and the Peppa Pig interlude to a bemused CBI audience, you do have to wonder.

I am more concerned about whether the levelling-up agenda, the government’s one signature policy, is OK. The government’s integrated rail plan for the north and the midlands, which involved scrapping the eastern leg of HS2, has gone down like a bus replacement service on a wet Wednesday in Wigan.

The “landmark” white paper on levelling up, promised by Boris Johnson a few months ago for this year, has yet to appear. I asked the Department for Levelling Up, Housing and Communities – yes there really is a department called that, under Michael Gove – when we might see the promised white paper and was told that it is “forthcoming”. So far, we have had to make do with a prime ministerial speech which, while it did not contain any references to children’s TV characters, was also content-free in other respects.

There are reasons to hope that we will get something. Gove has a reputation for shaking things up and getting them done, and he turned to the services of an expert, the former Bank of England chief economist Andy Haldane. He, in his capacity as chairman of the now disbanded industrial strategy council, threw himself into the levelling up agenda, which predated the Johnson government.

So we wait. In the meantime, I have become interested in one aspect of levelling up which has probably not received the attention it deserves. We tend to think that the “left behind” problem is concentrated in smaller communities which have lost their livelihood, such as former pit villages.

Bringing prosperity to these smaller, left-behind communities, which are not all in the north, is important. However, as Paul Swinney, director of research and policy at the Centre for Cities argues, the nub of the problem is the poor performance of the UK’s regional cities.

In evidence a few days ago to the Productivity Commission, which is being jointly run by the National Institute of Economic and Social Research (Niesr) and the Productivity Institute, he set out the position clearly.

“The UK’s largest cities outside the Greater South East are principally responsible for both the North-South divide and the UK’s poor productivity,” he said. “While the UK lags other Western European countries in terms of productivity, the Greater South East is one of the most productive parts of Europe.

“The UK’s low productivity is a result of the poor performance of the rest of the country. The principal driver of this is the underperformance of large cities such as Birmingham, Manchester and Glasgow.”

Analysis by the Centre for Cities shows this very clearly. The UK’s regional cities compare very badly with their counterparts elsewhere in Europe. Even in France, which like the UK is dominated by its capital, regional cities make a far bigger contribution to the economy and to productivity than the UK’s regional cities.

Looking at regional cities with a population of between 600,000 and 3.5 million, the UK’s big regional cities are all the wrong end of the productivity table, competing for the wooden spoon, compared with their European counterparts. If you think some cities are missing from the table, it is because they are too small to make the cut.

The underperformance of regional cities outside the Greater South East explains almost 60 per cent of the economy’s lost output, which the Centre for Cities conservatively estimates at 4 per cent of gross domestic product (GDP) a year, or more than £83 billion. It could be a lot more.

Some people will be puzzled by this. Many of the UK’s regional cities have had a makeover to what the planners call their central business districts and look a lot better than they used to. Some have diversified their economic bases.

The problem, however, persists. One cause, according to the Centre for Cities, is that cities have not been successful in attracting high productivity, exporting businesses, firms in so-called “tradable” sectors. “These are the businesses that bring money into an economy by selling beyond its borders, and are able to absorb new innovations,” it notes.

Instead, cities have attracted low productivity “non-tradable” businesses and activities, such as hospitality, the arts, entertainment and leisure. These bring a liveliness to city centres but they do not bring innovation and lasting prosperity.

Other countries in Europe do better because there is more genuine regional autonomy, as opposed to the UK government’s branch office mentality to relocating bits of central government to regional cities. This applies to the private sector too. Banks locate their high value-added investment banking activities in London, because that is where the skills and knowledge are, but put their lower productivity data-processing and call-centre operations in regional cities.

The underperformance of regional cities is frustrating because it should be easier to fix than achieving catch-up for thousands of smaller places. Many of these smaller places, which are quite close to cities, would in any case be lifted if their local cities did better.

Cities exist to accrue the benefits of “agglomeration” – bringing people and businesses to foster innovation, skills and economies of scale – but too many of the UK’s cities are not doing this enough. As Swinney pointed out: “These large cities are punching well below their weight and aren’t playing the role that the likes of Munich and Lyon play in their respective national economies … Manchester’s productivity looks much more like Cumbria’s than Bristol’s, and trails far behind Munich’s.”

The good news is that if other European countries can do it, there is no reason why we should not be able to do it in the UK. Regional cities have to be made more attractive for the private sector to invest in.

The Centre for Cities makes six recommendations for starting to fix the problem. They include: spending on skills needs to be increased; the austerity squeeze on local government should be ended to improve day-to-day public services; local areas should be given more devolved powers over services and spending; transport services needs to be improved, particularly buses, but also to focus transport infrastructure spending on big cities.

Government also needs to invest in struggling city centres through a City Centre Productivity Fund to make them more attractive places to do business, and target R & D (research and development) spending in places that are currently underperforming, it says.

There is no magic wand to be waved here and lifting the performance of the UK’s regional cities will take time. But there is no reason not to try, without which there will never be any meaningful levelling up.

There is also, without wanting to end on a downer, a sting in the tail. We have got used to London’s productivity performance, and that of the Greater South East, being superior to the rest of the country, as pretty much it always has been. But London’s productivity growth, like that for the rest of the economy, has been dismal for the past decade or so, since the financial crisis. Let us hope that is not a harbinger of levelling down.