“Stop worrying about hairdressers”: The UK government has misdiagnosed its productivity problem

We’re going as fast as we can, here. Image: Getty.

Gonna level with you here, I have mixed feelings about this one. On the one hand, I’m a huge fan of schadenfreude, so learning that it the government has messed up in a previously unsuspected way gives me this sort of warm glow inside. On the other hand, the way it’s been screwing up is probably making the country poorer, and exacerbating the north south divide. So, mixed reviews really.

Here’s the story. This week the Centre for Cities (CfC) published a major report on Britain’s productivity problem. For the last 200 years, ever since the industrial revolution, this country has got steadily richer. Since the financial crash, though, that seems to have stopped.

The standard narrative on this has it that the problem lies in the ‘long tail’ of unproductive businesses – that is, those that produce less value per hour. Get those guys humming, the thinking goes, and the productivity problem is sorted.

But the CfC’s new report says that this is exactly wrong. The wrong tail: Why Britain’s ‘long tail’ is not the cause of its productivity problems (excellent pun, there) delves into the data on productivity in different types of businesses and different cities, to demonstrate two big points.

The first is that the long tail is the wrong place to look for productivity gains. Many low productivity businesses are low productivity for a reason:

The ability of manufacturing to automate certain processes, or the development of ever more sophisticated computer software in information and communications have greatly increased the output that a worker produces in these industries. But while a fitness instructor may use a smartphone today in place of a ghetto blaster in 1990, he or she can still only instruct one class at a time. And a waiter or waitress can only serve so many tables. Of course, improvements such as the introduction of handheld electronic devices allow orders to be sent to the kitchen more efficiently, will bring benefits, but this improvements won’t radically increase the output of the waiter.

I’d add to that: there is only so fast that people want to eat. There’s a physical limit on the number of diners any restaurant can actually feed.

At any rate, the result of this is that it’s stupid to expect local service businesses to make step changes in productivity. If we actually want to improve productivity we should focus on those which are exporting services to a bigger market.  There are fewer of these, but the potential gains are much bigger. Here’s a chart:

The y-axis reflects number of businesses at different productivities, shown on the x-axis. So bigger numbers on the left are bad; bigger numbers on the right are good. 

The question of which exporting businesses are struggling to expand productivity is what leads to the report’s second insight:

Specifically it is the underperformance of exporting businesses in cities outside of the Greater South East that causes not only divergences across the country in wages and standards of living, but also hampers national productivity. These cities in particular should be of greatest concern to policy makers attempting to improve UK productivity overall.

In other words, it turned out, again, to the north-south divide that did it. I’m shocked. Are you shocked? This is my shocked face.

The best way to demonstrate this shocking insight is with some more graphs. This first one shows the distribution of productivity in local services business in four different types of place: cities in the south east (GSE) in light green, cities in the rest of the country (RoGB) in dark green, non-urban areas in the south east in purple, non-urban areas everywhere else in turquoise.

The four lines are fairly consistent. The light green, representing south eastern cities has a lower peak on the left, meaning slightly fewer low productivity businesses, but is slightly higher on the right, meaning slightly more high productivity businesses. In other words, local services businesses in the south eastern cities are more productive than those elsewhere – but the gap is pretty narrow. 

Now check out the same graph for exporting businesses:

The differences are much more pronounced. Areas outside those south eastern cities have many more lower productivity businesses (the peaks on the left) and significantly fewer high productivity ones (the lower numbers on the right).

In fact, outside the south east, cities are actually less productive than non-urban areas. This is really not what you’d expect to see, and no a good sign for the health of the economy:

The report also uses a few specific examples to illustrate this point. Compare Reading, one of Britain’s richest medium sized cities, with Hull, one of its poorest:

Or, looking to bigger cities, here’s Bristol and Sheffield:

In both cases, the poorer northern cities are clearly lacking in high-value exporting businesses. This is a problem because these don’t just provide well-paying jobs now: they’re also the ones that have the potential to make productivity gains that can lead to even better jobs. The report concludes:

This is a major cause for concern for the national economy – the underperformance of these cities goes a long way to explain both why the rest of Britain lags behind the Greater South East and why it performs poorly on a

European level. To illustrate the impact, if all cities were as productive as those in the Greater South East, the British economy would be 15 per cent more productive and £225bn larger. This is equivalent to Britain being home to four extra city economies the size of Birmingham.

In other words, the lesson here is: stop worrying about the productivity of hairdressers. Start worrying about the productivity of Hull.


You can read the Centre for Cities’ full report here.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites

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It’s time to rethink how the British railway network works

Nothing doing: commuters await a long-delayed train. Image: Getty.

The recent meltdowns on Northern and Thameslink not only left many passengers besides themselves with frustration about not being able to get to work on time, if at all. It also led to a firestorm of criticism and condemnation from politicians and media alike.

With the immediate shock of that first Monday morning of the meltdown passed, there’s a now a bigger debate about whether the way that rail services are provided for cities needs some far reaching reform. But before coming to that, the first thing to say – and as we set out in our Rail Cities UK report, launched today – is that the fundamentals for urban rail remain very strong.

Here’s why. All cities want to become denser, more dynamic places which attract the best people to the growth sectors of the economy (including the ‘flat white economy’ of media, communications and information). In order to achieve this, as well as to improve air quality, cities are also reducing space for motorised traffic in favour of space for people.

It’s very difficult to see how this can be achieved without expanding rail networks and their capacity. What’s more, if housing need is to be met without creating more sprawl and traffic congestion, then again its rail that will be key – because it opens up former rail-connected brownfield industrial sites, it extends commuting range, plus housing can be built above or around new or existing rail stations and interchanges.

In some ways there’s nothing new here. From Metroland to Docklands, successful cities have always grown with their rail networks. And to be fair, there is significant investment going into urban rail at present. Northern will get a lot better (the pacers are doomed) and both Merseyside and Tyne & Wear are getting a whole new fleet of trains for their urban rail networks.

However, much (but not all) of this investment is incremental, or replacing rolling stock on its last legs. It stops short of the wider vision for the rail cities that we need.


What would that look like in practice? There comes a point when the biggest cities need more cross-city routes, because running trains in and out of edge-of-centre termini can’t cope with the numbers. That explains the push for Crossrail 2 in London, but also the need for more cross-city capacity in cities like Birmingham (on the Snow Hill route) as well as in Manchester (on the Oxford Road to Manchester Piccadilly corridor, as well as a potential new underground route).

Tram-train technology can also help – allowing the lucky commuter that benefits to get on board at their local station and get off right outside their city centre office on main street in the city centre, rather than piling out at a Victorian railway terminal on the edge of that city centre.

Tram-trains aren’t the only tech fix available. Battery packs can extend the range of existing electric trains deeper into the “look ma, no wires” hinterlands, as well as allow trams to glide through city centres without the expensive clutter of overhead wires.

More mundane but equally useful work to increase capacity through signalling, station, track and junction work offers the opportunity to move to turn-up-and-go frequency networks with greater capacity and more reliability – networks that start to emulate the best of what comparable German rail cities already enjoy. Interlocking networks of long distance, regional express, regional, S-bahn, U-bahn, trams and buses, all under common ticketing.

But in talking about Germany and common ticketing I am now getting back to where I started around the debate on whether some fundamental change is needed on how urban rail networks are provided. Obviously there is a bigger national discussion going on about whether the current structure is just too layered, with too many costly interfaces and too fractured a chain of command. And in addition another, on whether the railway should be publicly or privately owned and operated.

But it’s been heartening to see the growing recognition that – regardless of how these debates are resolved – more devolution for urban and regional services should be part of any solution. That’s not only because fully devolved services have been out-performing comparators both operationally and in passenger satisfaction; it’s because local control rather than remote control from Whitehall will mean that the dots can be joined between rail and housing, between rail and the wider re-fashioning of city centres, and between rail and local communities (for example through repurposing stations as wider hubs for local community use, enterprises and housing). It will also allow for rail and the rest of local urban public transport networks to be part of one system, rather than be just on nodding terms as is all too often the case at present.

The crisis on Northern and Thameslink has been a miserable experience for rail users, affected cities and the rail industry. If any good has come out of it, it is that it shows how important rail is to cities, and opens up a space for some bigger thinking about what kind of rail cities we will need for the future – and how best we can make that happen.

Jonathan Bray is the Director of the Urban Transport Group which represents the transport authorities for the largest city regions. You can read the group’s full report here.