Centre for Cities

Birmingham needs to grow its private sector

Here's a stark fact. Between 1997 and 2008, total private sector employment across the wider Birmingham economy actually fell by 50k jobs - and over the same period, public sector employment increased by more than 80k jobs.

With public spending cuts on the horizon, cities like Birmingham will not be able to rely as much on the public sector to drive future growth. Adding private sector jobs - especially in the knowledge economy - will be crucial.

We've just published a report on Birmingham, highlighting the need for the city to grow its private sector economy. Birmingham has a lot of assets, but needs to make better use of them - e.g. its young and diverse population, and big pool (over 30k) of research students.

The report has triggered quite a bit of debate in the city. Here's some reaction from the Birmingham Post and blogger Kate Cooper - plus my comment in the Post.

Burnley on the up?

Burnley usually means bad news - the 2001 riots, the rise of the BNP, the slow decline of the town's economy.

But this morning, the town woke up to the unreal reality that Burnley FC had beaten Man Utd 1-0. That's Burnley's first win in the top flight footie league since the mid-70s.

Will this new-found fame benefit Burnley's economy? This short film from the FT's Andy Bounds says it might do - but only if the direct rail link with Manchester is restored - as I said in March - and as we reported last year.

Obviously, a city needs more than a football team to turn around its economy. This recent R&R blog shows that loads of Premier League clubs are located in some of the most deprived areas in England - Everton, Man City, Arsenal, Hull. Hardly a surprise, given that most football grounds are based in inner-city locations.

But Burnley's arrival in the Premier League can only be good news - and will give the town a more positive brand, after years of bad news. So long as the results go their way, of course. Next up is Everton on Sunday...

Edinburgh

Am just back from a week at the Edinburgh Festival Fringe - my first time, was brilliant.

Particularly enjoyed Morecambe (a one-man show about the life of Eric M), Chronicles of Long Kesh (a play about the former Maze Prison), and quirky comedian Andrew Lawrence. Also saw my good friend Posh Radio 4 Lady in Scott Mills - The Musical (which was v funny).

Edinburgh seems to be avoiding the worst of the recession so far - despite the banking disasters, tramworks disruption and binmen strike.

Edinburgh City Council will report later this week that the Scottish capital has benefited from a surge in tourism - attendance at the Festival is up 10% on last year, and hotel occupancies are also holding up well. See this recent report in the Scotsman and two stories in the Times - here and here.

So far at least, the city seems to be having a relatively soft recession - despite the city's exposure to financial services job losses. A bit like London, the Scottish capital is having a less-bad time than expected.

And here's some evidence - Edinburgh has seen one of the lowest increases in JSA claimant count over the past 18 months. Over 4k net new people have signed on for Jobseeker's Allowance, but the city's overall claimant rate of 3.2% is a lot lower than most other cities. The JSA numbers don't tell the full picture, because not every unemployed person actually claims JSA. And there will no doubt be more job losses to come in the banking sector. But so far, things aren't as bad as had been feared. 

How come Edinburgh has done OK so far? Critically, the city entered the recession last year in relatively good shape, with a relatively high employment rate of 76% in 2008. The city also has the best skills profile in the UK. In 2007, 44% of Edinburgh residents had a degree-level qualification and only 7% had no formal qualifications at all. This strong skills base has helped to attract continued flows of inward investment, even this year, e.g. from Gigle Semiconductors (Spain).

Meanwhile, cities with weaker skills profiles are finding the recession much tougher - like Rochdale, where the claimant count is 5.9% - nearly twice as high as in Edinburgh 5.9%. As I said last month, cities with a higher proportion of high-skilled residents are doing much better in this recession, than those with a lower skills profile. Sounds obvious, but highlights the urgent need to sort out adult skills.

Managing decline

Interesting comment piece from Jonathan Guthrie in today's FT, picking up on last year's infamous Policy Exchange report Cities Unlimited - the one that said Scousers should move to Cambridge.

Report author Tim Leunig last year concluded that big, well-connected, high-skilled cities in the South East are always going to have an edge over smaller, more peripheral towns and cities in the North. One year on, the impact of the recession is bearing that out - unemployment has increased most sharply in smaller cities like Hull and Barnsley, while London has been less badly hit than expected. But the North-South split in Leunig's report hasn't fully materialised - cities like Milton Keynes and Swindon have both been hit hard by rising unemployment.

Leunig also questioned the impact of regeneration over the last decade, saying that it had failed to narrow the inequality between Northern and South-East cities. He said: "We need to accept that we cannot guarantee to regenerate every town and every city that has fallen behind."

Most controversially, Leunig called for more internal migration from declining cities like Liverpool to more prosperous cities like Cambridge: "If we really want to give people in Liverpool, Sunderland and so on the opportunities that people in most parts of the south-east take for granted, we need to let many of them move to the south-east." Ouch.

My colleague Adam Marshall gave our response to the Policy Exchange report last August. We agreed with a lot of it, like devolving regeneration funds, but we took issue with the bit about moving from Liverpool to Cambridge.

Today, Jonathan Guthrie has some sympathy for Leunig - who was pilloried in Liverpool last year. Guthrie agrees there should be more internal migration. He says that our welfare and housing system restricts labour mobility (true), and suggests that some regeneration funding should be turned into relocation grants for those that want to move cities (unlikely).

This is all very difficult for elected city leaders. As I say in Jonathan's piece: "Local representatives have difficulty finding the realism to tell the story of places in managed decline." Cities with declining populations and underperforming economies - like Stoke - find it hard to accept they may never rediscover strong growth.

We can't give up on these places, but we should encourage them to be totally honest about their prospects. Cities like Barnsley and Wigan also need to work much more collaboratively with their neighbouring larger cities - Leeds and Sheffield, Manchester and Liverpool. And as I said yesterday, we need to focus increasingly scarce regeneration funds on the Stokes and Barnsleys much more effectively than we have in the past.

Spending crunch for UK cities

Budgets always look different a couple of days later - and this one is no exception. That's why we held our Post-Budget Breakfast with Treasury minister Stephen Timms this morning at the City of London. Thanks to everyone who came along, including our friends from Manchester, Brighton and Birmingham.

The Chancellor's fiscal outlook two days ago was bad enough, with public sector borrowing hitting £175 billion this year and £173-140-118 billion over the next 3 years. Check out this scary powerpoint from the Institute for Fiscal Studies - and this IFS chart on the borrowing numbers. Remember that in Budget 2008 this year's deficit was only supposed to be £38bn... 

Also remember that these latest borrowing numbers are based on a trampoline recovery with GDP shrinking by 3.5% this year and bouncing back to +1.25% next year and +3.50% in 2011. 

Today's GDP numbers raise a big and quick question mark over the Treasury's growth forecasts. The economy shrank by a further -1.9% in the first quarter - the sharpest quarterly contraction in 30 years. Manufacturing output fell by just over 6%, while business services and finance dropped by almost 2%. The IMF forecast of a 4.1% decline this year now looks more likely.

     

Back to the Treasury's fiscal outlook...The Budget book (Table 2, page 33) shows that the recession has had a "profound effect" on the public finances. From 2011, total spending growth (in real terms) has been cut from 1.1% to 0.7% pa. Between 1997-2007, public spending grew by 3.6% pa. After paying off debt repayments and rising social security costs, most departmental budgets will be in for real terms cuts from 2011 onwards. Eye-watering indeed.  

To make matters even worse, public capital investment is going to be hit massively - falling from £44bn this year to £22bn in 2013-14. That means much less cash for new transport and housing, from 2011 onwards.

What does all this mean for UK cities? Their revival over the last decade relied heavily on public spending and employment growth. That source of growth is now coming to an end. And other sectors - like financial services - will provide less of a boost in the years to come.

If they are to return to growth, our cities will need to hold onto their existing assets and find alternative sources of new employment and investment. Every city will need to be  realistic about the prospects for green technologies, creative industries, etc. And all cities will have to start exploring new ways of financing new infrastructure - like the Accelerated Development Zone approach being pioneered by Birmingham City Council.

Daytrip to Dubai

I couldn't resist a daytrip to Dubai last week, before leaving the United Arab Emirates and Global City Forum.

Dubai is a city of extremes, the Manhattan to Abu Dhabi's Washington DC - flash, glitzy and very tall. It's got the tallest building in the world (Burj Dubai), and one of the tallest hotels too (Burj Al Arab). And it's been one of the fastest-growing global cities, expanding from 180k in 1975 to 1.5m today.

But Dubai has now been massively hit by the global recession - this is one city that  definitely wasn't "well-placed to weather the storm". As the FT reported last week, "traffic is thinner, housing prices are in freefall, and hotels are more affordable". You can say that again. When I was there, parts of the city were deserted. The Starbucks at the foot of Burj Dubai was totally empty at 3pm - and when I asked the staff how many customers they get per day, they said "15".

It's a totally bizarre city. I was struck not just by the huge number of skyscrapers (lots of them empty and unfinished), but the newness of the place - most of what I saw just didn't exist about 10 years ago. There's been far too much development in recent years, dwarfing our own city-centre apartment boom. And with widespread job losses, the population looks set to shrink by about one-fifth in the next year or two. Longer term, though, the FT reports that Dubai should make a comeback as the main business hub of the Middle East.

Less than 10% of Dubai's 1.5m population are UAE nationals - all the others are expats and migrant workers. Towards the end of my visit, at around 6pm, I spotted lots of construction workers queuing up for buses to take them home. "Where do they all live?" I wondered. Last week's Panorama gave a few answers.

Most of Dubai's 1 million construction workers (who mainly come from the Indian sub-continent) live in camps well outside the city. Panorama highlighted the very poor conditions in two of those camps. The programme reported that Dubai's migrant workers pay about £2k each for a visa, and then spend 2-3 years paying that off - working for about £120 per month on 12-hour shifts, 6 days a week.

Panorama also featured developments such as The Diamond at Dubai Sports City - check out this promo video, with footballer Michael Owen flying a helicopter. Oh, and tonight's Doctor Who was filmed in Dubai.

It's not all doom and gloom

There's been a lot of bad news recently, so thought you'd like to hear a few cheery recession stories....

Quite a few businesses are doing well out of the recession, as we cut back on fancy holidays abroad and do more eating at home:

• Pontin's has reported a 30% increase in bookings this year - and is planning to hire 2,000 extra staff.
• Pukka Pies are much more popular, with 10% more sales and £2.5m increase in turnover
• Greggs recently posted 4% sales growth for the second half of 2008
• And of course those big supermarkets like Asda and Tesco are doing quite nicely  

Meanwhile, Hull came out quite badly in our recent Cities Outlook report, with the sharpest increase in JSA claimants over the last year. But apparently, Hull's men are the most romantic in the UK - last year, they sent the most (and most expensive) bouquets to their other halves on Valentine's Day. Bradford, Plymouth and Stoke are among the other most romantic cities. Edinburgh and Bristol came bottom.

...which kind of suggests that the best-performing cities are the least romantic, and the poorer performers are more loved up. Well done, Hull - and shame on you, Bristol.

Do let me know about any other recession-busting stories... 

How to be a distinctive city

Here's a dilemma for UK cities. Should they specialise in a distinctive niche industry or two, to gain a bit of an edge over other cities? Or should they go for diversity, and spread their exposure around?

Distinctiveness and diversity are both promoted as great economic development strategies:

• Liverpool is now building up its niche in creative industries, following the success of Capital of Culture. And Science Cities like York and Newcastle are promoting their cutting-edge science base.
• Meanwhile, Bristol (another Science City) prides itself as one of the most diverse urban economies in the UK - with strengths in financial services, retail, aerospace, plus a sizeable public sector.

The recession has probably tilted the scales in favour of diversity. Niches are all very well in a strong economy, but they can suddenly look very vulnerable in a recession. Just look at financial services in Leeds and Edinburgh. A nice combination of distinctiveness and diversity is obviously the best bet.

So how does a city become distinctively diverse? Ivan Turok, at Glasgow University, sheds new light on this, in his report The distinctive city: pitfalls in the pursuit of differential advantage.

Ivan says that distinctive niches are useful for cities. But here's the catch - cities tend to pursue distinctiveness in, well, the same kind of way. In their search for distinctiveness, they sort of end up looking the same.

There's a "similar recipe" for distinctiveness, which goes something like this - develop a new or nascent industry (like bio-tech or life sciences), get or expand a university (to attract highly-skilled workers), build a few signature buildings (Sage, Baltic, Beetham Tower, etc), and do a bit of fancy branding to attract the latte and laptop types. Sound familiar?

Here are the main messages I took from Ivan's report:

• Know your own city. Cities will do better if they really understand their own strengths and weaknesses. Importing ideas from other cities might not work.  
• Don't forget the basics. Instead of getting distracted by the latest fad (e.g. bio-tech cluster, creative quarter), cities should make sure their basic infrastructure is up to scratch.
• Build on what you've got. Diversity is good, but not easy to achieve. It's quite hard for cities - especially small, ex-industrial ones - to broaden out into brand new sectors. Better to support existing assets and capacity, instead of going after unrealistic aspirations.
• Don't just do flagship buildings. Cities have been far too obsessed with shiny new buildings, and not focused enough on the more mundane (and difficult) task of narrowing disparities and tackling long-run worklessness.
• More graduates need more jobs. Cities that expand their universities also need to trigger a corresponding increase in demand from employers, otherwise the graduate talent will leak out. 

There's loads more in there, so give it a read. It makes a refreshing change from a glossy economic development strategy, but is probably sobering reading for quite a few 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.