Centre for Cities

Where are the foreign businesses in the UK?

Andrew set out yesterday how housing could deliver a short term stimulus to the UK’s economic conundrum. Another area that the Chancellor has hoped will deliver jobs and growth is inward investment, as shown by his cutting of corporation tax and the PM’s recent trip to India.

Cities have been keen to jump on the agenda of inward investment from foreign businesses too. The suitably vague request for the signing of a 'Memorandum of Understanding’ with UKTI has been almost ubiquitous across City Deal submissions and conversations around them.

It’s no surprise that cities are eager to encourage investment from foreign shores into their cities. But if the Chancellor takes the opportunity to further incentivise international business into Blighty, where are they most likely to want to locate?

Our Open for Business report last year looked at the geography of foreign owned businesses across the UK. Cities in the Greater South East, led by London, are the most popular destinations for foreign owned businesses. Almost one in three of foreign owned firms in the UK are based in these cities, compared with one in four businesses overall (i.e. those domestically and foreign owned). Cities in the North West, on the other hand, tend to be the least popular. They are home to 7.1 per cent of all businesses but just 6.1 per cent of all foreign owned businesses.

Individually, the two most successful cities in attracting foreign owned businesses lie outside of the Greater South East. At 7.2 per cent of the total business base, Swindon has the highest proportion of foreign owned businesses. It is followed closely by Aberdeen at 7.1 per cent. 

While there is large variation across cities in terms of the share of foreign owned businesses, there is much less variation in terms of the countries that these businesses represent.

Businesses from the USA dominate the total number of foreign firms in our cities. With the exception of Belfast, businesses whose ultimate parent is based in the USA account for the most foreign owned businesses in every city in the UK. Reading in particular is a hotspot for US owned firms – 2.8 percent of its total businesses had an ultimate parent from the USA in 2010. The next most frequent countries represented are near neighbours France, Germany and Holland.

The economies such as China and India are likely to become increasingly important for purchasing our goods and services. But the BRICS countries are conspicuous by their absence. Companies from these countries make up no more than 0.2 per cent of the total business base of the most popular city, Luton. The maps below show the geographies of businesses from the USA, Eurozone and BRICS across UK cities.

It is likely that any further moves by the Chancellor to attract companies to our shores in this week’s Budget will fall more loudly on the ears of business bosses in our traditional heartlands of Europe and the USA, rather than the fast growers of the developing world. And if history repeats itself, those businesses listening are most likely to choose cities in the Greater South East.

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(Not) spending pennies on the High Street

Seven per cent – that’s how much of the £10 million High Street Innovation Fund, set up last year to bring empty shops back into use, has been spent to date.

The figures come from a Freedom of Information request by Paul Turner-Mitchell, an independent retailer, who appears to be on a one-man fact finding mission on all things High Street policy related - his earlier FOI revealed that just 12 per cent of the £1.2 million money assigned to Portas Town Teams had been spent to date. His investigations also reveal how the money has been spent to date. In Dartford, £1,600 was used to hire a man in Peppa Pig costume.

Whilst understandable, Mr Turner-Mitchell’s displeasure at how much of this money has been spent to date, and how it has been used, misses the point. Regular visitors to this blog will be aware of Centre for Cities’ view on the Portas Review, as detailed here.

In short, a focus on retail alone is far too narrow to solve the malaise of the High Street. Retailers need sustained footfall. Unfortunately no end of grant spent on bunting and flower pots is going to deliver this. In the majority of instances the steadiest source of footfall past the doors of High Street retailers is likely to be by non-retail workers. But the Portas Review completely ignores this fact, and so too have a raft of studies published on the back of it.

The latest to do so is the London Assembly Economic Committee’s report on empty shops, published earlier this week. At the launch event, London Assembly Member Andrew Dismore, Chair of the Economic Committee, remarked that it is the outer lying High Streets of London that are struggling in particular, and it is these places that require specific attention from London policymakers to reverse their retail fortunes.

It’s worth reflecting on this point for a second to show why something that is well intended is ultimately misguided. A key economic role played by Outer London Boroughs, as shown in our report Size Matters, is to ‘export’ workers to business-rich central London. This means that the population of central London swells massively during standard trading hours, as illustrated in the infographic below (with thanks to Alasdair Rae - see his excellent blog). And so too does the potential market for retailers – this large in-migration of people every day provides them with punters to sell their wares to.

It is because of these commuting patterns that retailers such as Pret thrive in Central London. There are 193 Pret stores in the capital, the highest of any city in the UK (the next highest is Birmingham, with five). Where are these Prets located? 80 per cent are in the Inner London Boroughs. And almost 60 per cent are in Westminster, Islington and the City of London alone.

London’s core has been strengthening in recent years – more and more of the capital’s businesses are choosing to locate  and is likely to continue to do so as density becomes ever more important for knowledge based businesses. This, coupled with the on-going national economic malaise and the rise of internet shopping, means that for many Outer London High Streets retail is likely to be inappropriate as a response for reversing their fortunes. Instead policymakers in London should be thinking about what other uses are suitable for these areas.

What does this mean for cities more generally? Retail thrives where footfall is concentrated. This means that, particularly in cities where we have seen a dispersal of economic activity in recent years, any attempts to revive ailing retail-dominated High Streets should be thinking about how they can encourage a concentration of economic activity in their city centres. While not the only required response – tourism, residential and leisure also have a role to play - only when this has occurred will bunting and flower pots have any sort of impact.

We should worry less about Portas money not being spent – its approach means that the money is likely to have little impact even if it had been used. This could even be a blessing in disguise – at least it gives the opportunity for it to be recalled and spent on something a little more sensible. Instead we should be thinking about how to support growth in underperforming city centres. The Centre for Cities will be investigating this in more detail in the coming months.

Follow Paul on twitter - @paul_swinney

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.

Maintaining the golden glow

After six months of relative silence, the debate about the Olympic Legacy reappeared on front pages yesterday with a joint article by David Cameron and Boris Johnson. And it appears that they have been reading our report “A Marathon, not a Sprint” that we published in September. 

In our report we looked at the experiences of past Olympic cities to see what London can learn from them.  In their article the PM and the Mayor used the same approach to show that London is already taking lessons on board and to restate their commitment to the 2012 Olympic legacy.

Here are some of the recommendations we made and how they have been reflected in Cameron’s and Johnson’s article:

1. Use the success of the Games to help business grow. The agreement announced yesterday between the British Olympic Association (BOA) and International Olympic Committee (IOC) to allow businesses to promote their Olympic experiences will benefit suppliers across the country and is likely to unlock more export-led growth.  The fact that the Prime Minister is engaged in conversations about getting British firms involved with future Olympics is also a sign of the Government’s commitment to making the most of business opportunities created by the Games.
2. Develop a clear legacy vision for the Olympic park. The speed with which the conversion of the Olympic Park and venues is progressing is also good news. With a number of venues reopening this summer and several events already scheduled, the threat of these venues becoming white elephants appears to be receding.
3. Use the Games to deliver a social legacy for east London. The commitment to deliver more jobs and apprenticeships, housing and social infrastructure as part of the legacy is welcome.  Yet it is still unclear whether any of the new development will be located outside the Olympic Park, and whether local communities will benefit from new developments. In our report we showed that most of the direct Olympic interventions were limited to the Olympic Park and its immediate boundaries. East London remains one of the most deprived areas in the country. The challenges of low skills, unemployment and poverty are deep rooted and can’t be resolved through developing the Olympic Park alone. The Host Borough Unit is committed to narrowing the gap between Olympic Boroughs and the rest of London, and has seen some success. But broader initiatives focused on addressing deprivation are still missing from the Olympic legacy framework.
4. Be patient and be ready to invest more. A long term plan for legacy development outside the Olympic Park needs to be put in place, and the Government needs to commit to it and be ready to invest more to make it happen. It remains unclear whether any progress has been made in this regard. It took Barcelona’s Olympics over a decade to be recognised as a legacy success, and that was based on considerable political commitment and more investment. There is no reason to believe that it will take less than that in London.

The Olympics produced a once in a lifetime summer of sport.  Its legacy is likely to take more than a lifetime to realise.  

Related articles

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

2012 was a big year for UK cities; now 2013 is all about delivery

David Cameron and Boris Johnson: Six months on, we won't let the Olympic Games legacy die

The Olympic legacy has failed to bring jobs to London's East End | Rushanara Ali

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

No stone unturned – Heseltine’s economic plan for the UK

With 89 recommendations, comprehensive is certainly one word you might use to describe Lord Heseltine’s Review launched today in Birmingham. Others may view it as an attack on Government. But Heseltine claims to be a “glass half full” man who sees his Review as an opportunity to rise to the challenge.

Heseltine points to the UK’s world class businesses and internationally renowned universities but urges “these are standards to achieve not grounds for complacency”. Jerry Blackett from the Birmingham Chamber of Commerce was clear in his introduction that “no one thinks the status quo is an option for the UK economy”.

Heseltine’s view is there is a better way. That way centres on reinvigorating local leadership across England – something Centre for Cities has long been calling for.

What’s included in the Review?

It’s difficult to summarise all of the Review’s recommendations in a short blog. Heseltine himself is reluctant to prioritise out of the 89 recommendations for fear of people losing sight of the others. His view is that every single one is a “contributor to growth”. If he did have one priority though, it would be to build a “universal understanding that the responsibility for growth lies with every individual”.

There are several key themes running through the report, along with some stand out recommendations:

• PM-led National Growth Council – An overarching long term strategy should be underpinned by a strong governance structure. The Growth Council should drive the implementation of the Growth Strategy across all departments.

• A Single Funding Pot – A single funding pot for local areas to include significant parts of budgets held by central government that would be ‘more effectively managed by local leaders’ (including skills, housing, infrastructure and employment support). This goes with the grain of developments around City Deals and Community Budgets but would give city leaders much more discretion over how funds are spent locally.

• Putting local partners at the heart of economic policy – Local Enterprise Partnerships should be given resources (with the allocation of £250,000 new public funding) to develop local economic plans. LEPs should then bid for funding from the single pot. Where LEPs lack capacity they should be given support.

• Functional economic areas – Emphasis is also placed on LEPs ensuring their boundaries match functional economic areas – the most effective level for urban economic decision making and implementation. Heseltine also believes a more simple structure for local government should be created: all two-tier authorities outside London are encouraged to move towards unitary status.

• Public-private partnerships – Central to the Review is partnership between the public and private sectors. Recommendations around broadening the role of the private sector include the Chambers of Commerce receiving enhanced legal status to provide access to business support and local authorities building stronger relationships with private sector partners.

So where next?

There is a lot of support for Heseltine’s recommendations. As always there is also some scepticism, some surrounding the ability of Chambers of Commerce to provide effective business support and mechanisms for fair allocation from a single funding pot. A real shift of power to LEPs will bring with it more experimentation too. With experimentation comes the need for proper evaluation of what works.

What really matters now is the reaction from Government, and what we see in terms of action and implementation.

Heseltine acknowledges that many of his recommendations are not new. There are lots of references back to past initiatives and reviews. In some ways this is reflective of the lack of implementation and consistency. For Heseltine “inertia forms a substantial part of the blockage” when it comes to policy implementation. For those who think there’s merit in his plans, Heseltine urges people to “stand up and be counted” in order to drive change.

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Does the productivity slump mean good news for manufacturing cities?

The recent increase in employment at a time when the economy has been contracting has caused a fair bit of head scratching.  There’s certainly been no shortage of explanations put forward. But yesterday’s ONS release has confirmed the only clear answer so far is that no-one is really sure what is going on.

Labour hoarding - the tendency of companies to hold onto workers (or even employ new workers) during a downturn – is a common reason put forward to explain this trend. The reasoning goes that hiring and firing labour is expensive, and so businesses decide to keep hold of their employees instead. This may also indicate that businesses are expecting to get much busier before long, which was reflected in business confidence survey in Q2 2012.  While this is plausible when looking at national figures, when looking at individual industries some interesting divergences emerge (Fig. 1).

Figure 1. Employment and labour productivity (2009=100)

 

*Source ONS Employment productivity, ONS employment by industry

In the beginning of the recession both employment and productivity in manufacturing collapsed rapidly, while the service sector saw a much greater decline in productivity than employment. In many ways this is unsurprising. It is intuitive that the service sector should hoard labour, as its activity is on average more labour intensive than manufacturing. For a service sector business, letting go of employees may mean losing competitive edge, while competitiveness in manufacturing is much more dependent on capital and on production processes.

This national trend plays out differently in cities, however.  Cities that are traditionally more reliant on manufacturing, such as Middlesbrough and Bolton (Fig. 2), have lost jobs quicker than service-based cities such as Reading  and Milton Keynes , as Cities Outlook 2012 shows. This also tends to reinforce a north-south divide, as there are more cities reliant on manufacturing in the Midlands and the North than the South.

But now something different is happening.  For all of 2012 productivity decline and employment growth have been happening in both sectors and, most surprisingly, the effect has been much greater in manufacturing. So it looks as though manufacturing companies have also been hoarding employees.  Whilst we don’t really know why this change has taken place and how significant it will be over the longer-term, if nothing else, it provides a reason for optimism for some of the cities that have suffered the most during the current recession.

First, this is because new phenomenon may lead to some jobs being created or secured in the cities where arguably they are most needed. This may be a very short-term effect, but definitely a positive one. Second, if hoarding is actually a result of improved confidence there may be more good news for manufacturing cities in the months to come.

For those of us interested in the role of cities within the national economy next quarter’s ONS employment and productivity data will be even more exciting than usual.

Figure 2. Manufacturing and service Cities in England and Wales*

 

Source: ONS BRES 2011. Ordnance Survey.

*Manufacturing cities are defined as those with a share of manufacturing employment 10 per cent greater than the average for UK cities. Same methodology is used for defining service sector cities. Cities that didn’t fall into any of these categories are marked in blue.

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.

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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.

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