High flying UK cities trade on strengths

Successful cities are set to open a wider gap with struggling ones in terms of jobs and business growth over the next four years, as public spending cuts intensify an already powerful trend, according to research for the Financial Times.

These forces threaten not only to widen the north-south divide but also to open an economic gulf between strong regional centres and their weaker neighbours, according to ana­ly­sis by the Centre for Cities think-tank.

Its forecast – endorsed by other urban policy experts – poses a challenge to the objective of David Cameron, the prime minister, to “make sure that growth is balanced right across our country”.

Gaps have already begun to widen as a consequence of the recession. Hull has seen the biggest rise in jobseeker’s allowance claimants, up 3.6 percentage points since February 2008, while Cambridge has had the smallest, with 0.5 points.

The centre has compiled data for the FT that identify 10 cities with growth potential and 10 vulnerable ones, based on the health of their labour markets, skills profile, public sector dependence and stock of businesses. Towns and cities such as Edinburgh, Bristol, Leeds, Norwich and Reading are singled out for their high growth potential, while others such as Dundee, Hull, Liverpool, Sunderland, Leicester and Swansea are vulnerable.

New pressures come on top of an existing trend for bigger, better connected cities – including Manchester, Leeds and Newcastle, as well as London – to outperform weaker or more peripheral neighbours.

London has been the most effective in sharing growth with nearby centres such as Oxford, Reading and Milton Keynes – helped by skills and good transport connections – while northern towns such as Burnley, Barnsley and Middlesbrough have fallen behind their regional centres.

These divisions were growing even before the recession, although they were masked by rising public spending. For every extra private sector job generated in the north and Midlands between 1998 and 2008, 10 were created in London and the south, according to the Centre for Cities. Some northern English cities and towns did well: Preston, Wakefield and Newcastle were all in the top 10 for private sector jobs growth. But others such as Blackburn, Burnley, Barnsley, Middlesbrough and Hull fell behind the larger regional centres.

Now spending cuts and the squeeze on household incomes threaten to widen the gaps further. “Many of the cities that were least strong in the boom and affected most by the recession are quite vulnerable to public spending cuts,” says Alexandra Jones, the centre’s chief executive.

Some towns are simply in the wrong place: they were established in the Industrial Revolution near to natural resources such as coal and iron ore. But the 21st century’s service-dominated, knowledge-intensive economy requires a pool of highly qualified people, favouring big cities where such high-flyers tend to congregate.

Mark Prisk, minister for business and enterprise, accepts there is a risk that gaps will widen but he argues that competition for jobs and investment – not just within the UK but Europe-wide – will spur cities to catch up on, or outdo, their rivals. “When you talk to the leadership in Manchester, Birmingham or Leeds, they are already talking about Bilbao or Milan,” he says.

He insists that cities are central to the coalition’s economic strategy and that the government’s controversial regional development shake-up, incl­uding the abolition of the Regional Development Agencies and their replacement with local enterprise partnerships, is proof of its commitment to thriving urban centres. “If you look at the 12 largest English cities, they tend to be at the heart of the new [LEPs] around them,” he says.

But business leaders remain to be convinced that the LEPs, which have few powers and little central funding, can deliver private sector growth in areas that have for more than a decade been sustained by public sector spending. A £1.4bn Regional Growth Fund, for which LEPs and businesses can bid, may also prove insufficient.

Alan Harding, professor of urban and regional governance at Manchester University, says that while “you can’t really doubt the sincerity” of the government’s initiatives, “the impact of public expenditure cuts is loaded against cities and has a pretty strong north-south dimension to it as well”.

He cites the government’s local spending settlement, which imposed the biggest cuts on cities such as Liverpool, Manchester, some east London boroughs, Doncaster and Hull, and the smallest ones on Dorset, Wokingham and Richmond upon Thames.

Prof Harding says the gap between successful cities “grew during the boom, it grew during the bust and it’s likely to carry on growing during the upturn”.

Michael Parkinson, professor at Liverpool John Moores University, agrees that “much of government policy is going to favour London and the south-east. If I look at the initiatives – enterprise zones, tax increment finance, new homes bonus – all these things are likely to work better where you have a more buoyant economy.” But he praises the regional growth fund and calls for it to be extended, with more money.

In the north and Midlands, Prof Parkinson foresees a hierarchy emerging whereby Manchester and Leeds cope better than most, places such as Sheffield, Liverpool and Birmingham lag slightly behind them and “one-horse towns” such as Sunderland, Hull, Blackburn and Stoke are hit hardest.

He says it is “not all doom and gloom” and cities that achieved successful regeneration will not slip back to the state they were in the 1980s. “Significant public investment in those places did pay off. The real cost is that cutting too deep and too soon will put at risk that investment”.

Tim Leunig, an economic historian at London School of Economics, says the government needs to think more radically about how to price low-skilled workers into employment.

“We ought to be able to get to a world where someone on the minimum wage not only pays no income tax but also pays no national insurance and the employer pays no national insurance on them,” he says.

A big question is how the larger cities can transmit growth to their surrounding regions. London has achieved this trickledown effect more impressively than northern cities – although, says Prof Harding, Manchester and Leeds have had a similar effect, albeit on a smaller scale.

Manchester has attracted highly qualified professionals in areas such as finance and media to work in the city centre and Salford Quays. That in turn has boosted the leafy Cheshire suburbs. It has been less successful in spreading growth northwards to industrial towns such as Oldham and Rochdale that have languished low down the economic league table even as their big neighbour transformed itself into a buzzing European city.

There has been anguished debate in the north in recent years on the factors that allow growth to spread. A workforce with the right skills, plentiful affordable housing and transport links are all seen as vital. But it is not easy to achieve results quickly.

“In terms of real investment and policy initiatives, we have got some way to go,” Prof Harding says.

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