Centre for Cities

Urban policy is back in town

Urban policy is back again. This is the message I took from the seminar on cities I attended at  No 10 Downing Street this week, with about 40 of the great and the good from the cities world.

The event itself was fascinating, especially for a cities geek like me. It brought together experts in architecture, design, technology and city leaders to talk about how cities might change in the future.

But what was really striking was not only that the seminar was organised in the first place, and seen as a priority by Cities Minister Greg Clark and Rohan Silva (No 10 adviser). It was also the presence of both the Prime Minister and the Deputy Prime Minister to talk about how important cities are to the economy.

Both the PM and the DPM talked about the importance of rebalancing the UK economy, benefiting from London but doing more to make the most of English cities outside London. They talked about the role that successful cities play as engines of growth, innovation and cultural enrichment. And they mentioned the opportunities that cities create for the UK economy, not just domestically but in relation to exports.

Arguably urban policy never entirely went away. But it’s very encouraging to hear such strong messages from the top of Government. The Centre has always called for recognition of the importance of cities to economic growth, and it’s great to hear that the Coalition is committed to giving cities greater autonomy to respond to local economic circumstances. When I talk to cities, too, there’s a sense that greater devolution might happen this time because of the focus on specifics such as City Deals.

But we have been here before and, for the Government, the challenge will be to ensure that this drive towards devolution continues during a very difficult year for the UK economy, when pressure on Ministers to take charge will be immense. Getting initiatives like City Deals right will be critical to demonstrating to sceptics that cities are ready to take on some of the responsibilities and risks that go with taking greater charge of their economic destinies. And that means cities need to rise to the challenge too; if they don’t prove this works, it will be hard to gain greater freedom in the future.

Teetering steps towards more autonomous cities

When the Government announced a series of "City Deals" in December it marked a significant step towards the kind of devolution of powers and funding to cities that the Centre has been arguing for over the past seven years.

But it’s the success of those next few teetering steps towards greater autonomy for cities – working out specific areas where devolution can happen, implementing those policies, making sure they’re successful, then working out what else might be devolved - that will determine whether this time cities get to walk by themselves, or whether central government swoops down again to hold cities’ hands.

Centre for Cities has been involved in convening conversations between cities and Whitehall around "city deals" over the past few weeks, and a few clear themes have emerged that should be of interest to other cities considering what they might ask for from city deals.

First, what’s on the table from Government is firmly a "deal". It’s about something for something; about cities “making Government an offer it can’t refuse”, as Greg Clark MP, the Minister for Cities, puts it. If cities can’t promise better outcomes or cost savings – and our research suggests that cities have the potential to offer one or both in a whole range of areas - then they’re going to struggle to convince mandarins that they should gain new powers, funding or roles.

Second, the focus is firmly on specifics. Rather than general notions of partnership working, successful city deals are going to be the ones that focus on specific areas where additional powers or funding for cities can make a difference.

Third, it’s also clear that this is seen as an ongoing process, with further powers possible when cities demonstrate what they can do. This is important. There are good reasons why the Government is focusing on specifics – it makes it much more likely that change will happen and makes it much easier to demonstrate progress. But if the UK is to have a better balance between national and local powers then we have a lot further to travel down the road towards devolution than individual deals on specific issues can ever hope to achieve on their own.

With Greg Clark announcing at our Cities Outlook launch that City Deals would be extended to cities beyond the 8 Core Cities, the Centre for Cities is going to be doing further work to bring together different groups of cities to talk about what those city deals might look like. More on this soon.

Austerity and the labour market

Today’s labour market statistics show that the Government’s austerity measures are having two impacts on the labour market beyond the impact on headline unemployment. The first is that public sector pay growth has slowed rapidly in recent months. And the second is that there has been a large fall in number of people not in the labour market due to long term sickness. 

On point one, the growth in public sector pay has declined steadily since 2008, and grew by just 1.1 percent in the year to December 2011. Given the Chancellor’s commitment to cap public sector pay increases to one percent until 2015 pay growth in the public sector is likely to remain sluggish and below the rate of inflation throughout 2012. 

Turning to point two, the Government’s reforms to welfare are feeding through to reductions in labour market inactivity. Overall the number of people classed as ‘inactive’ (either not in employment or searching for a job) fell by 72,000 people in the three months to December. Of this total, 70 percent had been inactive because of long term illness. There are now 2.1 million people out of the labour market due to long term sickness, the lowest number since the three months to May 1995.

The long term nature of the Government’s public sector spending cuts means that these figures are likely to only show the start of longer running trends. For more information, look at Cities Outlook 2011 for our analysis of how the spending cuts are likely to play out across our cities, Cities Outlook 2012 for more detail on unemployment across cities and this month’s Labour Market Update for more analysis on today’s labour market figures.

Liverpool’s ahead in the mayoral game

Last week, Liverpool’s councilors voted to bypass a referendum and go ahead with a May election for a Liverpool Mayor.  While it’s not the Mayor for Merseyside the Centre for Cities has advocated, Liverpool’s eagerness to embrace the mayoral model – as Leicester has also done – demonstrates that the benefits of a Mayor are being more seriously considered in the major cities than the “no” voices sometimes makes out.

So, will having an elected Mayor make a real difference in Liverpool?  Our joint report with the Institute for Government suggested that mayors had the potential to make it easier to be decisive on strategic economic issues, bring coherence to the actions of the public sector, collaborate with other partners and to represent their cities to the public and private sector.

A first positive sign that some of these benefits could be realised is that the city is also now the first to strike its “City Deal” with Whitehall – a deal which is set to come with £130 million funding.  

The Deal involves creating a new enterprise zone for the central business district and five mayoral development zones to target regeneration in other areas of the city. There will also be powers to help young unemployed people through welfare-to-work pilot schemes, oversee the development of city assets owned by the Homes and Communities Agency and, using DCLG funding, build six new secondary schools.

Our evidence still suggests that mayors have the greatest potential to be effective when they’re across a travel-to-work area, rather than simply a local authority. And Liverpool has already recognized the importance of ensuring the mayor works well with the Local Enterprise Partnership, which covers Merseyside.

But, grumbles about city-region mayors aside, what is clear is that Liverpool’s willingness to take this step has reaped dividends. While the Government has acknowledged that different structures of governance will be appropriate for different cities, it also seems that moving to an elected mayor was the clearest way for Liverpool to demonstrate that it has the strong and accountable leadership that all the City Deals will be conditional on.

We’ve been working closely with the Cabinet Office and cities currently brokering their City Deals – I’ll write more on how this process is working, and what Government is looking for, later this week.

A golden ticket for 12 lucky High Streets?

It’s not quite City Challenge. And it’s not Willy Wonka and the Chocolate Factory, despite the offer of a "golden ticket". But on Saturday the Government unveiled that a £1 million fund aimed to revitalising the High Streets of twelve towns or cities. Housing Minister Grant Shapps has even made a YouTube video about it.

We’ve stated our position on the Portas Review in previous posts. In essence, the High Street is only one part of a strong city centre. So any efforts to boost the High Street are likely to be hamstrung if retail is the only reason for people to go to the city centre.

Even setting aside the scepticism about the approach, the money set aside for the "Portas Pilots" is fairly small beer - £1 million spread amongst twelve places isn’t going to go very far. The fundamental issue that these places face is that they do not have consistent footfall to support retail. And they are unlikely to be fixed with £80,000 to improve the appearance of some shop fronts or setting up a weekly market. We’ll be addressing these issues in forthcoming work which looks to build on last year’s partner city report on Preston.

In the meantime, interested applicants have until 30 March to submit their application (which also requires the submission of a YouTube video) to be in with a chance of winning a "golden ticket".

Framing the Statistics: A work in progress with the New Homes Bonus

 Housing Minister Grant Shapps announced the second round of New Homes Bonus allocations, and the numbers are neither surprising nor telling. Analysis shows that it is too early to know whether the incentive scheme will bring forward more homes in Britain. More importantly, there is no evidence yet that those places which need the incentive the most are building more.

Our previous work on the NHB in Room for Improvement set out the key issues with the incentive. We estimate that the NHB will increase the housing supply by 6 to 16 percent (see figure below). This is not enough to raise house building to the level needed or to deliver enough homes in the places with the highest level of demand.

 

Figure: Estimated impact of the New Homes Bonus

Local government, though, hasn’t yet had a chance to respond to the incentive. The NHB only came into effect in February of 2011. This is not enough time for local authorities to create new planning schemes, housing builders to bring forward new developments, and the houses to be finished. Despite payments going out to local authorities, the earliest we should expect to see a noticeable impact of the NHB will be next year’s payout.

Just over half of the UK’s cities saw an increase in their NHB allocation for 2012. That means that many cities (like Birkenhead, Portsmouth and Preston) increased the rate at which they built new housing, even before the incentives of the scheme have had an impact. However, half of cities (including Bradford, Nottingham and Brighton) saw declining house building rates. When the incentive’s effects can be seen, it will likely be in those cities on the margin (such as Sunderland, Leeds and Reading) which have steady house building rates since the NHB was announced.

We are keeping one eye on the NHB to see what might come out of it. While we wait, we reiterate that the NHB it is not big enough to encourage local decision makers to address housing affordability issues and build more housing. Specifically, the incentive is not strong enough to target those places that need to grow the most—with the highest housing prices and which are most resistant to development. Additionally, its small size relative to business rates retention could encourage commercial development over residential. Looking forward, we have to manage expectations of what the NHB will deliver.

UCAS applications – a city by city breakdown

Yesterday’s release of the UCAS university applications data showed that there was a 5 percent fall in the number of degree applications for the academic year starting next September.

We’ve broken down the data to look at what this looks like across cities. Here are the headline findings: 

• Of the 41 cities that have higher education institutions, only 12 saw an increase in degree applications
• Reading saw the largest increase – there were 10 percent more applications for the year 2012/13 than 2011/12, amounting to a 1,900 increase
• Derby saw the largest decrease – there were 3,300 degree level applications to the University of Derby, a 19 percent fall on the previous year

The top 10 and bottom 10 cities can be seen in the table below. Source: UCAS, http://www.ucas.com/about_us/media_enquiries/media_releases/2012/20120130appdig 

Note: This data is for degree applications to higher education institutions

Although the variation in these numbers is very interesting, they should be viewed with a little caution. Firstly, the introduction of higher tuition fees is likely to have caused a spike in applications last year as students opted for a cheaper degree over a gap year. This is most striking for Derby – its university had a 23 percent increase in applications last year. And a similar pattern is seen in Sunderland. Secondly, these figures are for those students who applied before the 15 January deadline – more students are likely to apply before the academic year begins. For these reasons it is better to look at several years data before passing judgement on the impact of higher tuition fees. 

There could be significant implications for the business base in cities such as Derby and Hull if the decrease in demand for places at their universities is persistent. Our report Starter for Ten showed that the biggest economic impact that universities have on their local economies is through the staff they employ and the students they attract. Although these numbers reflect applications, rather than entrants, a continuation of these patterns would mean that student spend in these cities would see a large reduction. The Centre will keep a watching brief on these figures and their implications for cities.

 

Cities Outlook sets out an overview of city performance, not the detail of city potential

There has been a healthy discussion about Cities Outlook 2012 in Estates Gazette this year.  As readers of this blog will know, Cities Outlook is Centre for Cities’ annual health check of UK cities and urban areas.  It is an overview of how cities are faring across a range of different indicators and its role is to measure the economic performance of cities over the past year.  The report is a tool for cities and national government, to help places understand the fundamentals of their economies; to help them assess how they have changed since the previous year, to take advantage of their strengths and to meet their challenges.

At Centre for Cities we really value feedback from our colleagues on our work.  So we were interested to read our good friend Jackie Sadek’s blog, (Centre for Cities should revisit Sunderland, 30 January 2012) and I thought it would be useful to clarify a few points.  

Most importantly, we all seem to be in agreement that Sunderland is a great city with potential. We’ve been working with Sunderland too, identifying opportunities to bring forward development in the city, so we know how committed the council is to harnessing the city’s potential for growth. The fact that the city is also working with IBM and UK Regeneration demonstrates how hard it is working to take advantage of business opportunities.

But Cities Outlook is not about a detailed picture of each city. Its role is to respond to the bigger picture and assess how different UK cities are likely to be affected by changes in the national economic climate.  This year the backdrop of limited national growth, continued turmoil in the Eurozone and further cuts in the public sector means that unemployment will be one of the most significant challenges facing cities in 2012.  Against measures such as business start-ups, high skilled residents and private sector jobs growth – indicators which suggest how well placed cities are to offset the contraction of the public sector – cities like Sunderland are more vulnerable to further increases in unemployment.

Over 2012 the Centre for Cities will continue to investigate how all cities can improve their economic performance in our more analytical reports. And we’ll continue to argue that it is precisely because Sunderland, similar to other cities, has opportunities as well as challenges that it is one of the places needing some extra support from government to overcome these hurdles. But even without that support it’s clear that the city will be proactive about making the most of any investment opportunities.

We know that Sunderland City Council has big plans for the city and Centre for Cities is behind them all the way. 

Feeling the Pinch: Declining wages in cities

Nick Clegg will warn today that “the squeeze on middle-income Britain has reached ‘a state of emergency.’” This is on the back of the fact that real wages have been falling since 2008. And, as Cities Outlook 2012 illustrates, incomes in some cities are being squeezed much harder than in others.  

Undoubtedly 2011 has been a challenging year for the UK economy. Rising unemployment has forced more people out of work. But the position for many people in work has also deteriorated; poor wage growth, coupled with high inflation, has squeezed take-home pay.

Cities Outlook 2012 shows just how much wages have fallen between 2010 and 2011 across the UK's cities. Even ignoring inflation, almost half of the UK’s cities saw a decline in the average wages paid to those working (see chart below). This has been compounded by price increases in 2011. While average wages in the UK increased by £4 per week (0.8 percent), inflation averaged around 5 percent. That means that the same pound will buy you less this year than it would have last year—your weekly paycheque feels smaller.  

So when we factor in the effects of inflation, the average wages in almost all cities have fallen. In fact, only four cities (Milton Keynes, Grimsby, Southend and Worthing) saw a real increase in average wages. As the table below illustrates, even if your wages did rise on your paycheque, the increasing cost of products and services means that you can actually afford less. Ipswich saw the largest decline in ‘real’ wages; the average worker took home an equivalent of £54 less in 2011 relative to 2010.

So will the UK continue to feel the ‘big squeeze’ over 2012? The Bank of England expects a sharp fall in inflation over the year. But even if inflation falls, we could still see continued decline or stagnation in nominal wages. High unemployment means lower wages are offered for new jobs. At the same time, firms are offering less or no pay rises. While easing inflation will help, many of us may continue to feel the pinch over 2012.

National contraction, city implications

The GDP figures released today showing a contraction of the national economy of 0.2 percent in the final quarter of 2011 underline the fragile nature of the UK’s economic recovery.  

As we stressed in Cities Outlook 2012, the impact of this contraction is likely to have been felt very differently across our cities. While some places may have seen an expansion of their economies in Q4 2011, others are likely to have seen a contraction much larger than the -0.2 percent seen at the national level. 

Although we don’t have data for ‘city GDP’, looking at the performance of different sectors at a national level can give us some clues as to how the contraction of national GDP is likely to have impacted UK cities. Manufacturing and construction both saw contractions of 0.9 percent and 0.5 percent respectively, while services saw no change to the previous quarter. The implication of this is that those cities that have a higher number of jobs in manufacturing and construction, such as Barnsley and Blackburn, are likely to have been hit harder by the contraction at a national level than others. 

We do have much more detailed data on unemployment, and this year’s Outlook focuses specifically on the unemployment challenge that cities face. This data shows that there is very strong divergence in city performance. And the worry for these places is that if unemployment continues to rise as expected throughout 2012 the gap between some of our strongest and weakest city economies will continue to widen. We’ve already seen the difference in the JSA claimant rates of Cambridge and Hull double since the start of the downturn in 2008. Continued public sector job cuts and the weak performance of the private sector mean that this gap could become ever larger.  

JSA claimant count rates across cities

Source: Nomis 2012, Claimant count, non-seasonally adjusted data

Cities will be key drivers of the recovery in the national economy. They are home to 58 percent of national employment and 62 percent of national output. As such it is vital that policy removes barriers to their growth, especially in the context of the latest disappointing national growth figures. City Deals offer a key opportunity to the Core Cities to do just that. The challenge now to Government is to expand this policy out to allow other cities more freedom to tackle their specific challenges too.