Centre for Cities

Gordon's outlook

Our Cities Outlook report this week said that the recession will be more severe and widespread than first thought. Given the sharp deterioration in the economic outlook, we think cities should adjust down their expectations (and language) and get ready for a rough ride.

The "well-placed" mantra from lots of cities needs to change. They picked this up from Gordon, who last year repeated that the UK was "well-placed" to deal with the global downturn. The problem was that cities kept saying this, as the outlook kept getting worse. If we're facing the deepest recession of any big industrialised country, then our cities cannot all be "well-placed".

Just look at the IMF's latest outlook. They now say the UK economy will shrink by almost 3 per cent this year - about twice as bad as its previous estimate. That's the exact opposite of the Treasury's last Budget forecast, which predicted strong positive growth in 2009 of almost 3 per cent. This sharp reversal of fortunes in the UK economy is the reason why we need to drop the "well-placed" stuff, and talk more realistically about the impact of the recession.

Gordon started to do that yesterday, in his speech to the NLGN, saying "this will be a difficult year". Which is a bit of an understatement, but closer to reality.

Cities Outlook also said that "fiscal pressures will constrain government spending in the medium term, with tighter budgets and less public sector jobs growth in our cities". The Institute for Fiscal Studies this week confirmed our view, saying that there will need to be big spending cuts in the next Spending Review. There's a scary table on page 183 of their report, forecasting real cuts in spending for BERR, DWP, CLG and DfT.

We all know that regeneration has taken a massive hit over the last few months. Today, Mike Parkinson's report on the credit crunch and regeneration makes particularly grim reading - see our comment. The freeze on new development, Parkinson says, is hitting Northern cities especially hard - which chimes with our finding in Cities Outlook, that the JSA claimant count has risen most sharply up North.

Cities Outlook called for more powers for our cities, so they can tackle their own recession on their own patch. Gordon reinforced that yesterday, saying "the downturn is absolutely the wrong moment to turn our back on devolution". He didn't talk much about cities, but CLG did publish the latest plans for powerful new city-regions - including more info on Multi-Area Agreements and Economic Prosperity Boards. More on that next week. The next big announcement on that will come in the Budget.

So, our view on the recession - and our call for more powerful cities - has quickly been followed by similar views from the IMF, IFS and Parkinson, and a further nudge towards devolution from Gordon. Quite a busy week, really.

Cities Outlook

The recession is now official, and it's getting worse.

A few months ago, the focus was mainly on financial services and the housing market. Lots of cities kept saying "we are well-placed to weather the storm". But with unemployment heading towards 3 million, that can't be right.

Now it looks like all cities will get hit - but in different ways, and some more than others. All sectors are now shrinking and losing jobs - including retail (Woolies), autos (Nissan), manufacturing (Corus), and distribution (Wincanton).

So far, smaller Northern cities like Hull, Barnsley and Wigan have seen the sharpest increase in Jobseekers' Allowance claimants. Cambridge, meanwhile, has seen the smallest increase. Which suggests that this recession could impact most on the North, rather than the South East.

Our Cities Outlook report today highlights which cities are most exposed to further job losses. We've put Northern cities like Hull, Liverpool and Belfast on red alert - mainly because they have relatively low skills levels, and low employment rates. Major cities like Bristol and Edinburgh are on "amber" - they will definitely see job losses, e.g. in financial services, but they are better-placed because workers there are more highly-skilled. The least exposed cities, unsurprisingly, are ones like Cambridge and Reading.

Cities Outlook includes three different league tables - on economic performance, social deprivation and built environment. The top cities are Cambridge, Oxford and Reading - and the bottom ones are Hull, Stoke and Blackburn.

Here's the BBC coverage from yesterday, including a slot on the Politics Show - plus comment from James Purnell in the Independent, Tory candidate Jesse Norman in the FT, and me in the Guardian.

So what needs to happen?

First, cities need to get real about the impact of this recession. Understandably, they want to talk up their own economy - and many think we're being too pessimistic. But with the recession getting deeper and longer, cities risk being behind the curve. They also need to press ahead with their own front-line action plans, to retain jobs and retrain those who are losing their jobs.

Second, cities need more powers from central government, so they can deal with their recession on their own patch. The Government is edging towards more powerful cities, and has started to unveil new Multi-Area Agreements for Greater Manchester and others. But so far, cities still don't have enough powers at their disposal.

President Obama

A day of mixed fortunes here in Washington. Totally fantastic slice of history, but here's the nearest I got to it..!

Crowds started to gather around 3am. By the time we got to the Capitol, over 1 million were standing on the National Mall - and a million more were stuck outside.

But it's still brilliant to be here. The speech was momentous. The whole atmosphere is huge. And I did get to see Al Gore and Nancy Pelosi, at the Green Inaugural Ball last night - very fancy.

PS The speed of the transition is quite something. A couple of hours after handing over the presidency, George W was on his way back to Texas. Don't think he'll be back in DC for a while...

Obama concert

Today's Obama concert was fantastic. I was about a mile away from the Lincoln Memorial, with half a million people. Barack was a tiny dot on the horizon - and so were Beyonce and Bono. But it was still brilliant to be there.

Washington DC has turned into one big party venue. The Capitol is all dressed up with stars-and-stripes bunting. Obama merchandise is on sale everywhere. And there's a real sense of history in the making.

I'm staying with my friend Matt, not far from the Capitol in the North East district of DC. In 1968, this was one of the areas that rioted after the assassination of Martin Luther King. And it was one of the last areas to redevelop in recent years. It's still got some serious crime issues, but is relatively affordable and less scary than it once was.

Here is Obama's pre-inauguration interview on CNN today. And here's the President-Elect's website.

Mr Finch goes to Washington

I'm off to Washington tomorrow, for the Obama inauguration. Am going to the Green Inaugural Ball on Monday night - Al Gore will be there, plus quite a few celebs. Leonardo, perhaps? Before that, there's a big concert at the Lincoln Memorial - with Beyonce and U2. And on the Big Day, I'll be watching President Obama make his way back to the White House. Can't wait.

As I reported in November, Obama is setting up a new Office of Urban Policy at the White House. Adolfo Carrion will head up the new Office - he's been Bronx Borough President for the last few years. It's not yet clear what the new Office will do, but I'll keep you posted.

Another New Yorker, Shaun Donovan, is going to be the new Secretary for Housing & Urban Development. Donovan was formerly New York City housing commissioner. He will be looking to revive HUD's fortunes, after it was effectively sidelined under the Bush Administration.

Meanwhile, Will Straw at the Center for American Progress has just published this article on UK innovation policy - it includes a nice summary of UK policy under Labour, and namechecks recent work by NESTA and others. Our own Chris Webber also gets a mention.

And after Gordon's New Deal-esque promise to invest more cash in our infrastructure, here's a memo from the Brookings Institution to Obama, calling for massive new investment in US infrastructure, skills and innovation.

Former Brookings senior fellow, Peter Orszag, is to become the new director of the White House Office of Management and Budget - one of the most difficult jobs in the new Administration. He will inherit unprecedented and soaring budget deficits, which are set to exceed 8% of GDP in the next year or so. After the imminent Obama stimulus package, Orszag's job will be to return the US finances to some kind of balance over the next 4 years. Not easy.

It's getting worse

It's been a depressing week for the UK economy. Last week, the last Woolies shut. And today, 4,000 job losses were announced - from Jaguar, Zavvvi, Barclays, etc. 

Some people criticised our Into Recession report last week for being too gloomy, especially our forecasts of 5% job losses in cities like Leeds and Bristol. But yesterday, we got the "frightening" report from the British Chambers of Commerce - even more gloomy than ours. And tonight, Peter Mandelson admitted this is "no ordinary recession". 

As each day goes by, our forecasts and the BCC's outlook are looking more and more realistic. 6,000 SMEs have gone bust since October. And the most recent economic data have been much worse than expected. The Purchasing Managers Report for December was very bad - it showed the sharpest ever contraction in services and construction. Global data is uniformly weak, which spells trouble for UK exporters.

This points to a very severe contraction of GDP in the fourth quarter of 2008. The first GDP estimate for Q4 is out next Friday 23rd, and is likely to show a fall of around 1.5% (quarter on quarter). This will force the Treasury to revise down its PBR growth forecasts - and suggests a steep rise in unemployment over the coming months.

It's worth comparing this recession with previous ones. MPC member Andrew Sentance gave a big speech last month, on the current recession. In a footnote to that speech, he revealed:

"Output declined by 3.3%, 4.6% and 2.5% from the peak level of activity in the periods 1973-75, 1979-81 and 1990-92. Claimant count unemployment rose by 540,000 in the three years from the peak of the 1973-75 cycle, and by 1.40 million and 1.34 million respectively in the equivalent three years in the following two recessions."

If we see anything like those peak-to-trough drops in output - which seems likely - then we're in for a big rise in unemployment. 

It's also worth looking at unemployment in the United States, which is roughly 6 to 9 months ahead of us in its recession. (The US went into recession in Dec 07, whereas we nosedived in the third quarter of 08.) Over the last 4 months of 2009, the US lost 1.9 million jobs - and now has an unemployment rate of 7.2% (up from 4.9% a year ago). Our unemployment rate is 6.0% - and is heading towards 7%.

All of which helps to explain today's new package of measures, aimed at getting the banks to lend again to SMEs. Expect more action like this in the next few weeks.

It's not all bad news, though - Tesco has just announced 1,700 new jobs in Greater Manchester. But that hardly amounts to green shoots just yet. I don't think Shriti will be saying that again for a while...

Into Recession

Yesterday, Nissan announced 1,200 job cuts in Sunderland. And today, our latest report says that cities like Leeds, Brighton and Bristol could lose over 5% of their jobs over the next 3 years.

Just a few months ago, most cities outside London had not felt the full force of the recession. There was a lot of loose talk about job losses being mainly confined to the Greater South East. We didn't believe that, so we decided to commission our own job loss forecasts, in three successful cities with (previously) vibrant sectors like financial services, retail and manufacturing.

Today's report shows that no city will be immune from the recession. Even successful cities like Leeds, Brighton and Bristol will get hit - and could lose up to 56k jobs between them. That's the worst-case scenario in our report. But given that the economy has deteriorated a lot in the last couple of months, we reckon that worst case is quite likely to happen.

This is clearly bad news for UK cities, and an uncomfortable message for city leaders. Some have called our report "unduly pessimistic" and "alarmist", and don't quite believe our job loss numbers. I hope we're wrong, but I've a sneaky feeling we're going to be proved right. The worst way to enter a recession is in denial. The best way is to be realistic about the future, and put in place an effective action plan.

Gordon Brown, Peter Mandelson and Alistair Darling have got more to do - to get banks lending again to small businesses, and to inject more public cash into infrastructure jobs.

But cities have a role to play, too. Leeds' Financial Services Initiative, Brighton's Economic Partnership and the South West Manufacturing Advisory Service are all good examples of what cities can do to get to grips with their own recession. These cities also need to look to the longer-term, and work out where their future jobs are going to come from.

If cities had more financial powers of their own, they would be able to do more. Which is why we need more devolved powers for cities, even in a recession - something we'll continue to call for throughout 2009.

Cabinet in Liverpool

I was at a different kind of meeting today - the Cabinet's latest regional gig, in Liverpool. They were all there - Gordon, Mandy, Darling and co - each sitting at a table with hand-picked members of the public. That's Gordon in the picture, with his back to me...

GB thanked Phil Redmond, for leading the successful Capital of Culture - which comes to an end this Saturday. He defended the Government's VAT cut, which is worth £5 per week for the typical family (which isn't that much, is it?). He repeated his call last weekend for a new surge of investment in schools, hospitals, rail and broadband. And he chaired an earlier meeting, to promote more tourism into the UK.

But his main message was on the recession, promising new measures to get the banks to start lending again to small businesses. Peter Mandelson said he and Alistair Darling were trying to sort that out, but it would take a bit more time.

The best bit was the Q&A session, when 14-year old Matthew Bracegirdle (from Swinton high school) asked: "Why does the Government want to bail out Jaguar, which employs 6 thousand people, but did nothing to bail out Woolies, which employs 27 thousand?" Alistair Darling had to answer that one, and was a bit stumped. Jack Straw wrote a personal note to Matthew afterwards, saying it was the best question of the day. And George Parker, political editor of the FT, bounded over to Matthew and started interviewing him.

These regional Cabinet meetings tend to get overshadowed by the real news. The one in Leeds last November took place just after the Mumbai attacks, for example. And today was no exception. First came the good news, with the Bank's interest rate cut to 1.5%. But just after the meeting, we got Nissan's announcement of 1,200 job cuts in Sunderland - dreadful timing, as Jim Pickard says in his FT blog.

The "Cabinet on Tour" has also started getting a bit of stick. Jeremy Paxman put the boot in last night, on Newsnight - he then forced employment minister Tony McNulty to admit that he didn't know whether the 35k new apprenticeships were actually new or not. The Taypayers' Alliance have also started kicking up a fuss about the cost of each regional Cabinet - about £200k, apparently. Here's NLGN's James Hulme saying why that's still worth it.

On balance, I reckon regional Cabinet meetings are OK. Yes, they're a bit gimmicky - and the actual discussion isn't that profound. But at least the Cabinet are getting out of London and seeing what's going on in cities like Birmingham, Leeds and Liverpool. That's better than staying holed up in Whitehall, surely. But meetings like this aren't enough on their own. When they get back to their desks, Cabinet ministers need to get on with sorting out the economy. And they need to give cities like Liverpool more powers to tackle the recession for themselves.