Five big themes to watch in British urban policy this year

A new day dawns. Image: Getty.

If 2016 was a dramatic year in national and global politics, 2017 has been no less eventful – with the continuing fall-out from the Brexit vote, a wildly unpredictable general election which produced stalemate in Westminster, and cabinet sackings taking place on a near-weekly basis.

In this context, urban policy appears to have slipped somewhat under the radar in terms of the national political and media agenda. Nonetheless, 2017 saw major developments for UK cities which will have a significant bearing on their economic prospects for the coming year and beyond, including a radical shift towards localised forms of leadership. Moreover, it is our urban areas where the big national and global issues outlined above play out, and in the absence of significant policy making at the national level, it has been and will be up to city leaders to ensure that their place is ready for the challenges 2018 may bring.

With that in mind, here are my reflections on the five issues which have dominated urban policy in the past 12 months:

1. The election of six new metro mayors

As Tony Travers recently noted on our blog, the six new city regional mayors elected in May 2017 were a radical innovation in England’s otherwise centralised system of governance. And seven months on, they are already demonstrating the benefits this model can bring.

As well as benefiting city economies, metro mayors also signify a democratic shift with more accountable and visible local leadership. Happily, turnout in the elections was higher than many anticipated, ranging from 21 per cent in Tees Valley to 33 per cent in Cambridgeshire & Peterborough. More surprisingly (and probably more politically advantageous in the short-term), the Conservatives won four of the six mayoralties, including shock victories in the West Midlands and Tees Valley – places where Labour had 10 and 13 point leads respectively at the 2015 general election.

They have carved out an important role for themselves in the UK’s political landscape. By knowing the needs of their place, and working together, the new metro mayors have already positioned themselves as champions for their cities, against a government whose perspective is often flatly national. For example, after the government decision to scrap the electrification of the Manchester-Leeds trainline in July, Andy Burnham and Steve Rotheram (mayors of Greater Manchester and Liverpool City Region respectively) were instrumental in forcing them to offer new promises on improving northern train links.

If there was any doubt about the merits of having a metro mayor, the autumn Budget put those misgivings to bed, demonstrating that mayoral city regions will be prioritised in government investment and policy making. In the new ‘Transforming Cities’ fund, a £1.7bn initiative to improve transport and infrastructure in cities, half of the total investment was immediately allocated to mayoral city regions. (Other cities will have to fight for their share in a competitive process.)

The onus is now on other major cities such as Leeds and Sheffield, which are yet to introduce a metro mayor, to step up efforts to agree or finalise devolution deals – or risk falling further behind.

2. Devolution (with or without a mayor)

During the first half of 2017 the Government’s enthusiasm for city devolution was lukewarm at best.  Indeed, since George Osborne’s exit from 11 Downing Street, there have been big question marks over the future of the ‘devolution revolution’ which he championed.

This in part explained the demise of the Sheffield City Region deal, the lack of progress on the Leeds city region deal, and the re-emergence of calls for a ‘One Yorkshire’ approach. All three of these developments risk diluting the importance of the Leeds and Sheffield city regions at a time when the opposite is needed.

Even the new Conservative metro mayors have expressed frustration at the government’s lack of engagement with them on the biggest issues facing their communities. The delay in devolving the Adult Education Budget, for example, has highlighted the extent to which this agenda had been allowed to drift.

However, as shown with the metro mayors, the autumn Budget was a welcome (albeit partial) re-engagement with the devolution agenda. It brought a new North of Tyne deal covering Newcastle, North Tyneside and Northumberland, and city deals for Belfast and Dundee. This was in addition to a second round of devolution for the West Midlands, and the potential for further powers in both Tees Valley and Liverpool City Region.

Given its weak position, and the challenge of Brexit, in 2018 and beyond the government needs to deliver on the level and scope of devolution demonstrated in the Budget and put it back to the top of the political agenda (as it was under the Cameron/Osborne administration). By returning to its original economic focus, and extending devolution to medium and smaller cities, cities can ensure they are ready for the challenges and opportunities of leaving the EU, while national government negotiates the right deal for the country.


3.Industrial Strategy

Last summer the then new Prime Minister Theresa May promised a new industrial strategy to drive growth “up and down the country, in rural areas and our great cities”.

It’s striking how much enthusiasm there was for the industrial strategy, with the government receiving more than 2,000 responses to its Green Paper published in January, and different advocates claiming that the industrial strategy could solve all the country’s economic travails.  With this level of expectation, it was inevitable that the White Paper – published in November – was going to disappoint.

The strategy rightly identified the need to tackle the UK’s poor productivity, and set out sensible solutions to do so, covering five ‘foundations’ – People, Ideas, Infrastructure, Business and Place. Specific initiatives included the extension of the National Productivity Infrastructure Fund, the Transforming Cities Fund, and the National Retraining Scheme to allow people and places adapt to on-going economic change.

But missing from the strategy was an appreciation of the overarching importance of ‘place’ as the mechanism for coordinating and integrating different policies at the local level. The other four foundations of the Industrial Strategy play out mainly in cities, which act as the platform where ideas are created and commercialised, where businesses trade, and where people live and work.

In 2018, as the industrial strategy is put in place, cities should set out how they are going to use their local strategies to put together a package of policies that deal with the specific challenges their area faces. And with that in place, the government will need to give cities the powers and resources to deliver.

4. Business rates and local government finance

Business rates devolution was first announced in 2015, but progress has since slowed. Legislation was introduced in January and was making its way through Parliament for implementation in 2020, but at the announcement of the general election it was dropped.

Yet, true to the pattern already seen with mayors and wider devolution, in the second half of the year, the government began to push the agenda once more, albeit in ways that don’t require primary legislation. It introduced several pilots to test full rates retention, including in Greater Manchester and the Greater London Authority, and more recently, the government announced that local authorities would be able to retain 75 per cent of their business rates from 2020-21.

Devolving business rates could be a major step towards giving cities more of the powers, resources and incentives they need to tackle the economic challenges they face.  But for that to happen, the government will need to make the current system more inclusive and responsive to the needs of struggling places.

As our recent briefing showed, that means giving places more incentives to improve their commercial property, as well as making more business space available. Doing so will reward places for taking the right steps to support more high value firms and jobs. It will also help generate more business rates revenue overall – some of which can be redistributed to places which are struggling.

5. Political divides between successful cities and the rest of the country

Economic divides between the Greater South East and the rest of the country are well known – but the June General Election results pointed to increasing political divides around the country, too. As seen in the US, one of the major divisions is between people living in successful cities and those living in struggling cities and rural areas. This is a pattern already seen in last year’s EU referendum.

Analysis of the 2017 General Election shows that the Conservatives lost ground in two key demographics in particular: young people, and people living in major cities – with the Labour consolidating its power in London, and in other major cities across England and Wales.

That said, in some of Labour’s urban heartlands which tend to perform less well economically – including Stoke, Middlesbrough, and Sheffield – saw swings to the right, resulting in its one loss – Mansfield, on a 17 per cent swing to the Conservatives.

These voting patterns mirror wider economic patterns. Successful cities attract more and more high skilled workers and high waged jobs, whereas less successful cities and rural areas are seeing their local economies increasingly dependent on low paid and precarious work, often having lost their traditional industries to global economic shifts.

The political consequences of this division are unsurprising; our most successful cities look to the future with openness and optimism, while our struggling places hope for a return to their more successful past.

With these divides reflective of entrenched economic circumstances, bridging the political gap between these places will not be easy. And exacerbating the problem is the widespread distrust of national politicians and elites. In such an environment it is possible that even as situations improve, popular opinions will remain entrenched and resistant to policies intended to be beneficial.

Local politics, and the metro mayors in particular, offer new opportunities for national parties to reconnect with a sceptical, divided electorate.  For Labour, there’s an opportunity for mayors to show that Labour can deliver demonstrable change grounded in local priorities rather than political ideology. For the Conservatives, there’s a chance to demonstrate their relevance and value to urban voters, such as in Manchester and Liverpool, places that have otherwise largely ignored them.

Should Brexit lead to the government centralising power further, the already difficult issue of trying to craft national policies that meet the needs of increasingly diverse places will only get worse. Yet on the other hand, if Brexit leads to the wholesale devolution of policies allowing local politicians much more control over the issues that affect the daily lives of the people they represent, then bridging the stark political divides seen since the EU referendum might be possible.

At the start of the year it looked as though national policy development would be incremental at best, an observation seemingly compounded by a government weakened after the general election. Yet there has been significant movement in other policy areas relevant to the urban agenda, including in housing – with the government setting ambitious targets, though not offering a clear sense of how it will achieve them –  and in developing transport infrastructure across the north and midlands, a hotly debate topic about which we can expect further announcements over the next few weeks.

At the Centre, we’ll be continuing to focus in 2018 on the big issues affecting city economies, including the impact of automation and globalisation on urban labour markets – and how cities can manage competing demands for housing and commercial space.

Andrew Carter is chief executive of the think tank Centre for Cities, on whose blog this article previously appeared.

 
 
 
 

“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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