Insights
In this guest blog, Paul Swinney, Director of Policy and Research at Centre for Cities sets out why the Industrial Strategy should be focused on the productivity of our biggest cities. Examining the intersection of place and the Industrial Strategy was discussed in our recent webinar ‘Industrial Strategy: Thinking through local responses‘. This blog was originally published on the Centre for Cities website.
The Government has committed to putting more money in people’s pockets across the country. But how much money this will be will depend on how much policy can influence wages in different places. And this in turn depends on the role that different places play in the national economy.
The goal of the Industrial Strategy and (for those places tasked with writing one) Local Growth Plans should be to make places the best possible versions of themselves. But crucially this potential varies across the country.
This is because different places play very different roles in the economy resulting from the inherent benefits that they offer to businesses. Rural Mid Wales, for example, offers spectacular scenery. In contrast, Manchester offers access to a large number of workers and a network of other businesses to interact with, particularly in its city centre. While we should want Mid Wales to perform as best as it possibly can, we should not expect it to be as productive as central Manchester. And crucially, there is very little governments can do to change these inherent advantages (beyond building a new city in Mid Wales), despite what politicians are fond of promising.
This means that while both Manchester and Mid Wales can both perform better than they currently are, the best version of Manchester should generate more prosperity than the best version of Mid Wales.
In principle how prosperous a place increases with its size. Larger places are better able to offer the benefits that higher-skilled exporting activities (the part of the economy that influences prosperity, determined by the number of jobs and the skill level of them) than smaller ones. Looking at the relationship between the size of the export base and workplace wages in a place gives a rule of thumb measurement of how far places are from their potential.
Figure 2 looks at those places below the line in Figure 1, and the wage increase that a city would see if it reached its potential. It shows that:
Figure 1: Places generally pay higher wages as their export base gets larger
Figure 2 looks at those places below the line, and the wage increase that reaching their potential would generate. It shows that:
- Leicester is furthest from its potential wage, followed by Huddersfield and Middlesbrough. Average annual salaries would be at least £4,500 higher if these cities performed as well as their size would suggest.
- The potential of places varies. Of all the cities that underperform on wages, only four cities have the potential to raise wages above the national average – Leeds, Glasgow, Manchester and Birmingham.
- The scale of the impact of these changes also varies across places. The average pay increase in Burnley and Manchester would be similar if they were to reach their potential. But such an increase in Manchester would affect 19 times as many jobs (shown by the pink bubbles) as it would in Burnley.
Figure 2: Many places are below their potential, but that potential varies
This has implications for what the Industrial Strategy and Local Growth Plans should aim to do. Local plans should attempt to make a place like Huddersfield the best possible version of itself. But even within West Yorkshire, while this best version would pay higher wages than is currently the case – a 16 per cent increase in the modelling above – this wage would be 9 per cent lower than the wages generated in the best possible version of Leeds.
The national Industrial Strategy is concerned with improving regional prosperity and national economic performance. Combining the increase in wages with the number of jobs affected by this increase shows why the Industrial Strategy Green Paper is explicit about improving the performance of big cities.
If the eight largest cities amongst the underperformers were to perform at their potential, the total amount of wages earned in the UK would be 1.5 per cent higher than is currently the case (and Manchester and Birmingham account for most of this). In contrast, if the remaining 31 cities in Figure 2 did the same then total wages earned would increase by 0.8 per cent.
Different places play different roles in the national economy. This influences the scope that policy has to improve their economic performance. Where policy has scope to bring about improvement, it should do it. But it should also recognise what it is able to achieve, and use this to govern how it uses its resources.
