England’s Regions 2005-15

Improving the economic performance of the north of England is a major policy priority of all the main political parties. Initiatives such as the Northern Powerhouse, Northern Futures, and a commitment to further devolution for cities and city regions have all been announced in recent months, and generated extensive debate and comment.
But it is helpful to step back and take a long-run view of the trends and issues.

In 2004-05, when with Arup, I was the project manager for a study looking at disparities between different parts of the UK in regional economic performance, population change, and spatial development. The project team brought together leading experts in economic forcasting, demography and strategic land use planning. The report of the study, Regional Futures: England’s Regions in 2030? was published almost exactly ten years ago. http://www.southwest-ra.gov.uk/media/SWRA/RSS%20Documents/Technical%20Documents/Regional_Futures_Report.pdf

The report sought to tell some “home truths” about the UK economy. Its findings, which generated comment in the national press (see www.economicsuk.com/blog/000199.html), were not particularly popular with some at the time. It argued that there were significant variations in the economic strength of different parts of the UK. Whilst differences within regions were in some cases a great as those between them, the report identified the scale of a north-south divide.

Ten-years on it is interesting to look at the main conclusions and predictions of the report.

1. The impact of changes in public spending.

The report forecast that there would be a future economic slowdown creating pressure on public spending, and this would lead to a widening of the north – south divide. It argued that the strong economic performance of many parts of the midlands and the north in the decade before 2004 had been driven primarily by increases in public spending, not underlying strength of the private sector.

Of course nobody forecast the financial crisis in 2008, and the severity of reductions in public expenditure that followed. In the towns and cities in the north, midlands and parts of the South West the public sector forms a larger proportion of the economy than it does in London and the South East. They have therefore been hit hard as a result of spending cuts. With austerity and further public sector job losses to continue, regardless of the result of the general election, growth in private sector jobs will be needed just to enable the towns and cities outside London and the South East to stand still.

2.  Structural economic change

We predicted that employment in manufacturing would continue to decline, and financial and business services would continue to grow in London and the South, and also in the main regional cities.

Whilst manufacturing employment has, in line with long term trends, continued to decline, manufacturing is now seen as a more important part of the UK’s economic future than it was in 2005. The financial crisis demonstrated the folly of over reliance on the financial services sector. Manufacturing remains an important part of the economy, for example in the city of Leeds there are almost 30,000 manufacturing jobs, and around 140,000 across the wider city region. Manufacturing has modernised rapidly with the rise of advanced and innovative manufacturing characterised by increasing emphasis on research and development, collaboration with universities, a more skilled workforce, high quality product design, strong export performance, and success in selling associated services (manu-services).

However some commentators, such as Andrew Sentence, have recently argued that the mantra of “rebalancing” the economy has led to us under-appreciated the importance of financial and business services to non-London cities (see: http://pwc.blogs.com/economics_in_business/2014/11/separating-myth-from-reality-in-the-uk-regions.html). Nowhere is this more the case than Leeds (the largest UK concentration of financial and business services jobs) where growth in these sectors, along with digital, headquarters and health sector is driving rapid jobs growth in Leeds City Centre (see the recent report by Centre for Cities: http://www.centreforcities.org/publication/leeds-city-centre/)

3.  Continued growth, success and housing pressures in London

We predicted that the economy of London would grow faster than the rest of the UK, London would continue to act as a magnet for international and domestic migration, but would not deliver the housing growth to support its growth.

All of which has proved correct. Centre for Cities have highlighted recently the way London sucks in young, talented migrants. All of which has driven phenomenal levels of population growth in London (see: http://www.centreforcities.org/publication/cities-outlook-2014/). London’s economic success is driving growth across what the late Professor Sir Peter Hall identified in our report as the London and South East Mega-City Region, a functional urban area of 19 million people.

But London, and its surrounding areas have failed to deliver the housing needed to support its growth. This, combined with hot overseas money, has hugely inflated London housing prices. This has led to fears that the high cost of living will stifle London’s economic growth (http://www.independent.co.uk/voices/if-we-dont-act-now-londons-housing-crisis-will-plunge-us-into-recession-9689356.html)

4. Policy interventions

Our report recommended various policy initiatives to improve the economic performance of the midlands and north. These included high speed rail, better commuter transport networks focused on the core cities, measures to attract and retain graduates and skilled workers including urban regeneration, proactive regional planning policies, and public sector relocation away from London.

Of these ideas, high speed rail has emerged as the big idea to help rebalance the national economy. A compelling wider case for HS2 was set out in the recent report by Sir David Higgins, Rebalancing Britain (https://www.gov.uk/government/publications/rebalancing-britain-from-hs2-towards-a-national-transport-strategy). But with the possible exception of Manchester, investment in city region commuter transport networks has not kept pace with the huge improvements in London’s transport network.

The importance of cities attracting and retaining skilled graduates was highlighted in the excellent recent Magnet Cities work by KPMG (http://www.kpmg.com/uk/en/topics/magnet-cities/pages/default.aspx) and the City Growth Commission set out some interesting ideas around local graduate career fairs (http://www.citygrowthcommission.com/knowledge-economic-power-how-universities-can-strengthen-city-growth/).

There has been less progress in terms of the other policy ideas. Most previous urban regeneration programmes are no more. The regional planning system and Regional Development Agencies have been abolished. There has not been a concerted effort to relocate Government functions from London (although Ed Balls has been developing proposals on this: http://www.birminghampost.co.uk/news/regional-affairs/well-tell-civil-servants-move-8185356).

The big recent development, which we did not predict, was the consensus on the need for greater devolution to cities and city regions. Lord Heseltine’s report No Stone Unturned report (https://www.gov.uk/government/publications/no-stone-unturned-in-pursuit-of-growth) set out the scale of change that could be possible. The Labour party have also set out bold proposals (http://www.yourbritain.org.uk/uploads/editor/files/Adonis_Review.pdf). And the Liberal Democrats, with the Deputy Prime Minister leading the charge, have also made the case for devolution (http://www.libdems.org.uk/nick_clegg_northern_cities_should_be_freed_from_the_stifling_grip_of_whitehall).

What is clear ten years on is that the issue of regional disparities in economic performance may have changed in nature, but they have increased in importance. How to strengthen the economic performance of the north, how to ensure our cities and city regions grow to their full potential, and how to accommodate London’s growth, and the capital’s relationship with the rest of the UK, will remain big questions over the coming months and years.

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About citypolicy

Interested in what makes cities and regions dynamic, competitive and sustainable. I blog in a personal capacity. I work for Leeds City Council as Chief Economic Development Officer. Previously worked for Arup in their planning, policy and economics practice, and before that for London First.
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