Centre for Cities

Lessons for Luton: aim for resilience, not only growth

This year’s Cities Outlook revealed that while the UK economy has experienced a downturn of two halves – rapid decline from 2008-09 followed by a three year period of minimal growth – the performance of UK city economies has been more variable. Places such as Swindon and Cambridge recovered rapidly after a sharp decline early on in the downturn while others, such as Swansea or Bradford, were only hit in the later stage of the crisis.

Luton is another city which bucked the national trend. In the decade prior to the recession Luton’s economic output grew by 3.6% a year exceeding the growth rate of the national economy by 0.5  percentage points, yet the city struggled through both phases of the downturn.

Luton’s economy is dominated by the private sector which accounts for almost three quarters of jobs in the city. This helps to explain why it struggled during the first phase of the downturn when businesses were feeling the effects of the credit crunch. From 2008-09 Luton lost eight businesses for every 10,000 people which contributed to a 50% increase in the share of people claiming Job Seekers Allowance.  

During  2009-12, when the national economy was shifting between low growth and stagnation, Luton didn’t recover as strongly as some of the UK’s other cities with strong private sectors. The make-up of Luton’s business base helps explain this. Despite Luton having a high share of jobs in the private sector,  meaning it is less vulnerable to public sector cuts than many other cities, its private sector relies heavily on large employers. Luton is ranked 48^th (out of 63 cities) on the number of businesses for every 10,000 residents.

Cities Outlook 1901 showed that  reliance on a small number of large firms can limit the resilience of a city economy and Luton’s experience illustrates this

Although the flow of business closures stemmed during 2009-12 and house prices recovered, real weekly wages fell by £86. This was due in part to job losses at Vauxhall, a significant local employer. The firm pays relatively high wages and, as a result, the 350 jobs lost in 2009 had a significant impact on the city’s economy.

A significant drop in the number of passengers passing through the airport, the other major employer, also contributed to poor economic performance. Most significantly the decision of Easy Jet to reduce its presence in the airport  affected the 550 strong workforce employed by the airline in Luton.

Figure 1. The impact of the downturn on Luton

 

Source: NOMIS Annual Survey of Hours and Earnings workplace-based analysis, DCLG, Office for National Statistics Business Demography, NOMIS Claimant Count

So what does the future hold for Luton? Vauxhall recently confirmed that it will produce its new Vivaro van at its Luton plant, safeguarding 1,100 jobs for a decade. And, Easy Jet’s decision to introduce new flights along with rising passenger numbers suggests the airport is on its way to recovery.

To further support Luton’s economy there also needs to be a focus on improving residents’ skills. Luton is currently the city with the second highest share of residents  without any formal qualifications in UK. As the UK economy continues to shift towards knowledge intensive activities higher level skills will become increasingly important. Luton  Council is already working with schools to highlight the range of local career opportunities available and the qualities and qualifications needed to get these jobs.  A combination of short term interventions and a long term strategy to increase skills and qualifications will be vital if Luton is to be more resilient in the future.

Deprivation - an urban issue?

There are almost 122,200 very deprived households in England and Wales.

Yesterday, another slew of Census data was released. This included statistics on deprived households measured across four different factors: levels employment, education, and health and disability as well as quality of housing.  

To some extent the data tells us what we already knew; a disproportionate number of England and Wales’ very deprived households – those counted as deprived on all four of the factors listed above – can be found in cities.

But levels of deprivation do vary across cities. As the map below shows Hastings, Liverpool and Bradford have the highest share of people in very deprived households. But, naturally, it is England and Wales’ largest cities that house the largest number of very deprived households – London and Birmingham together account for almost one third (or 38,500 households) of all very deprived households.

At the opposite end of the spectrum in places such as York, Aldershot and Crawley only a very small proportion of households are very deprived. In York, for example, only 211 households (0.2 per cent of the total number of households in the city) are very deprived.

Figure 1: Share of households that are very deprived

Source: Contains Ordnance Survey data © Crown copyright and database right 2013, Census 2011

Urban deprivation is of course a bad thing and is, quite rightly, being tackled through initiatives such as the Work Programme and Troubled Families programme.

Yet, as Ed Glaeser reminds us, although cities house lots of poor people, they don’t make people poor. As we showed in Cities Outlook, cities cover nine per cent of landmass but house 53 per cent of businesses and 58 per cent of jobs. Because of this, helping those living in deprived households access these job opportunities is critical. And to do this policy makers should focus on things like improving skill levels and making transport to and from employment nodes more affordable.

Milton Keynes shows the way out of the housing crisis for our cities

'So how many houses do we have to build in our city'? This is the somewhat surprised question that has been posed to us on a number of occasions in media interviews for Cities Outlook in recent days. It is not for the Centre for Cities, just as it is not for Whitehall, to prescribe a magic number to answer this question. But a look to Milton Keynes suggests how cities should go about tackling their housing affordability problems.

Milton Keynes has been one of the UK’s strongest city economies in recent years. But unlike many other strongly performing cities, most recent house price data shows that at £219,000 its house prices were not only below the South East city average but also below the English average of £249,000. This is despite the city seeing the strongest population growth of all UK cities between 2001 and 2011, when its number of residents increased by over 17 per cent.

This is partly explained by the pro-development stance taken in Milton Keynes. By allowing supply to move broadly in line with demand – the housing stock increased by 18 per cent between 2001 and 2011, the largest of any English city – house prices are much lower than many other cities in the south east. This in turn makes it easier for people to access the job opportunities that exist within the city’s economy. Despite the large increase in its population, the employment rate in the city remained on average almost six percentage points above the English employment rate over the 10 years.

Milton Keynes' consistent expansion allows it to play an even bigger role in the success of the national economy. Our other strongest performing cities should look to the example set by Milton Keynes to deliver the housing growth needed to tackle the affordability crisis that they face.

East London leads the way on business base growth in the Capital

New figures released by ONS highlight that while the Capital as a whole has displayed remarkable economic resilience since the crash of 2008, the growth of new businesses across the Capital has been uneven in recent years, with East London leading the way on growing their business bases between 2009 and 2011.

While LB Westminster, LB Camden, LB Barnet and the City of London remain home to the largest number of businesses in the Capital, the latest data shows that LB Newham, LB Redbridge and LB Waltham Forest have seen the biggest relative growth to their business base in recent years, with each of these three Boroughs outstripping the national average. In total, seven of the ten Boroughs that have seen their business base increase most in percentage terms between 2009 and 2011 are located in East London.

Contains Ordnance Survey data © Crown copyright and database right 2013, Office for National Statistics Business Demography, 2009 and 2011 data

These latest figures emphasise the complex nature of the London economy, and the varying levels of economic performance experienced across different parts of it. They may also reflect the impact of the London Olympics, with each of the six Host Boroughs seeing improvements in the size of their business base during this period.

The nature and growth of business activity across London has been a recent focus for the Centre. Last month we published research examining the role of small businesses in the London economy, and called for the GLA, London Boroughs and Government to do more to ensure that enterprise policy in the Capital reflects the specific circumstances businesses face in the Capital.

You can find out more about the work here.

Follow Ben on twitter: @BenCities

Where are the jobs?

New employment data released today gives us the latest picture on where jobs are located across the country. 

It shows that, if you draw a line horizontally across the country from London to Bristol, these cities and those to the south accounted for a staggering 42 percent of total city employment in 2011. London was the main contributor providing almost three quarters (or 5.0 million) of the 6.8 million employment positions housed in these 13 cities.

Unlike in the South and Midlands, there are more mid to large urban areas in the North, measured in employment terms. Manchester, Glasgow, Leeds, Liverpool and Sheffield together accounted for half of employment in cities north of Mansfield. That said, there were some smaller cities too. Blackburn, for example, had 15 times fewer employees than Manchester. 

Figure 1: Total employment, 2011 data

Contains Ordnance Survey data © Crown copyright and database right 2012. Business Register and Employment Survey.

In sum, the data provided by the Business Register and Employment Survey shows that cities in the South dominate in employment terms. Yet these jobs are housed primarily in London. In contrast, employment opportunities in the North are more evenly spread across its cities. 

City Matters - my weekly cities reading list

I hope you enjoyed some, if not all, of my reading suggestions from last week.  I received some great suggestions via Twitter and email from fellow city geeks, which are much appreciated.

This week I’ve gone for a mix of the current, the old and the classic.  I hope you enjoy these and please continue to suggest others that I should read and recommend. 

• ‘Homeownership and Entrepreneurship’ by Philippe Bracke, Christian Hilber & Olmo Silva (2012) - highly relevant analysis of how buying a house influences whether someone is likely to start their own business.
• ‘Regional Economic Resilience, Hysteresis and Recessionary Shocks’ by Ron Martin (2011) - provides substance to the widely used notion of resilience and explores how places can and do respond to economic shocks and what this means for their long-term success.  
• ‘Abundance of land, shortage of housing’ by Kristian Niemitz (2012) – critiques some of the reasons offered to explain why UK housing costs have increased over the last decade before calling for a more ‘liberal’ planning system.  
• ‘Contrasts in Agglomeration: New York and Pittsburgh’ by Benjamin Chinitz (1961) - all I can say is read this and enjoy.  10 pages of great insight into how industry dynamics affect city success.
• ‘Soft City’ by Jonathan Raban (1974) – a travel writer’s perspective on what makes cities so appealing and revolting.  Includes a great chapter on anonymity in crowds that reminds me of travelling on the tube every day.

Follow @AndrewCities on Twitter

City matters - my recommended reading list

One of the many joys of working at the Centre is having the opportunity to read and think about some of the great research that is undertaken across the globe looking at cities, their economies and why they matter to the future wellbeing of individuals, businesses and communities (however you define it). 

Also if you’re like me, you rely on a very wide range of sources and contacts to alert you to all this great work.    

So in my very humble way I thought I’d start a weekly blog highlighting my recommended reading list of research on cities that I’ve come across that week.  My recommendations whilst obviously personal and subject to all my biases and judgment errors, will be guided by the following criteria: a) those I’ve actually read; b) contains or is based on research; c) is accessible to a wider readership; and d) I enjoyed reading them.

So my initial list is:

• ‘Education or Creativity: What matters most for economic performance?’ by Emanuela Marrocu & Raffaele Paci - combines Glaeser’s ‘human capital’ and Florida’s ‘creative class’ ideas into three separate groups – creative  graduates,  bohemians and non-creative graduates – and looks at the effect of these groups on the economic performance of 257 regions across the Europe.
• ‘Defining a Great Street’ by Kaid Benfield - photo-based consideration of what makes a great street drawing on city streets from across the US and Europe.
• ‘When Migrants Rule: the legacy of mass migration on economic development in the US’ by Andrés Rodríguez-Pose & Viola von Berlepsch – fascinating analysis showing the lasting effects of migration in the late 19th and early 20th century on the current economic performance of US counties. History matters!
• ‘Great Britain’s Second-Order City Regions in Recessions, 1978-2010’ by Tony Champion and Alan Townsend – compares the jobs performance of UK’s big city regions in the current recession to show how much ground cities have lost  and how this differed from previous recessions.
• ‘New Geography of Jobs’ by Enrico Moretti – brilliant rich and insightful exposition of why and how the modern economy benefits certain people and places more than others.  He also has some interesting things to say about urban manufacturing.

I hope you like them.  Please feel free to add to my list and let me know other research that I should be reading.

Follow @AndrewCities on Twitter

 

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.

Follow @urbantweetUK on Twitter

 

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.

Thriving High Streets need strong city centres

The anticipated Portas Review of the High Street has been published today. And it is not short on ideas – it proposes 28 measures to “save” the High Street. The problem is that the study’s narrow focus means that these recommendations are unlikely to make much of a (positive) difference.

Some of the proposed measures seem very reasonable. Portas calls for increased accessibility, attractiveness and safety of High Streets and improved provision of parking. The introduction of “town teams” might help High Streets to be better managed if their responsibilities are defined properly. And the proposed initiatives to encourage small businesses are also commendable.

But a closer look at the Review reveals several underlying problems. Henry Overman has already pointed out that a call for reduced regulation of some parts of the High Street (such as freedoms around market trading) stands next to proposition of more red tape in others (such as forcing large retailers to support local business). And the desire to re-empower the community contradicts the fact that the poorest community members might suffer the most as higher burdens are put on chain stores that provide better variety of products at lower prices.

The biggest flaw in the report is that it treats retail sector as though it is isolated from the rest of the economy. But vibrant city centres are more than just shops. High Street retailers are dependent on footfall generated not only by Saturday shoppers but also weekday workers. The problem is that the lack of relative scale of some city centres, such as Preston and Sunderland, mean that they have a relatively small proportion of total jobs in their cities. And it is this issue that is likely to have the largest impact on city centre retail. 

It is this narrow focus that has led to proposal of the most controversial recommendation in the report that the Secretary of State should give “exceptional sign off” to all out-of-town developments. The assumption made here is that shops that would otherwise have set up out of town will now choose to locate in the city centre. The reality is much less clear and such a recommendation could serve to actually restrict overall city growth. Businesses should be encouraged to choose a city centre location because it is the most profitable place to set up, not because they are forced into a second best choice.

Portas would like to return many of the UK’s faded High Streets back to their former glory. Even setting aside changes to consumer behaviour, failing to understand that High Streets are part of wider city centre ecology will likely undermine her efforts.