Centre for Cities

Will the 'feel-good' factor translate into Olympic legacy?

Just a few days after the Olympic closing ceremony and already those mesmerizing two weeks seem a world away.

No longer tethered to the TV, cheering on the athletes while pressing ‘refresh’ on that wretched ticketing website (a wonderfully effective way to raise blood pressure), I’ve been using my suddenly free time to consider the impact of the Games that we can assess so far – the feel-good factor.

Looking back over the coverage – both formal and informal, via social media – there’s been a dramatic shift in attitude towards the Games. Just before the event, the commentariat consensus was broadly a weary cynicism about the Games and a certain smugness on the part of those escaping London for the fortnight.

Yet as soon as the vast majority were captivated by the opening ceremony, the nation and the commentators were almost universally caught up in the rollercoaster of cheering on Team GB, and starting to chase elusive tickets (and becoming furious about empty seats).

Now, with the Olympics over and Team GB having surpassed most expectations, the ‘feel-good’ factor seems to be lingering as preparations for the Paralympics continue. Many London and UK residents have been surprised by how much they enjoyed the Games and a recent Ipsos Mori poll showed that, within the UK, the reputation of the BBC, the Royal Family and Londoners have all been boosted.

International coverage has been positive; London has created an impression of friendly efficiency and passionate enthusiasm. And there are hopes from Ministers that initiatives such as ‘London House’ will help businesses convert meetings into leads and profits in the future.

The feel-good factor should not be underestimated - not only does it make people happy, which is never bad, but there may be an impact on economic growth – two-thirds of respondents in the Ipsos Mori survey thought that London’s economy would benefit from the Olympics, and nearly 3 in 5 people (58%) thought that the Olympics would have a positive impact on the UK economy as a whole.

Yet reports about the impact of the Olympics on tourism and retail suggest the Olympics did not help boost custom in the short-term. And with school and grey autumn days fast approaching, feel-good will rapidly turn to nostalgia. The economy is still struggling, despite positive employment figures. And the public mood is shifting once again, with attention already turning to what kind of long-term legacy there will be once the Paralympics leaves the venues in early September, once the triumphs of Mo, Jess, Sir Chris Hoy and all the other winners has faded.

The feel-good factor means that the first part of the legacy is already secured: the UK and international viewers broadly regard the Games as having been efficient and friendly (think about the effect of lingering perceptions, however unfair, of an over-commercialised Atlanta ’96 or not feeling safe at the Football World Cup in South Africa).

But short-term feel-good is not enough. Now the focus has to be on sustaining and making the most of this goodwill. The Centre has been looking at what can be learned from past Olympic cities and has produced a six point guide to making the most of Olympic legacies. We’ll be publishing it once the Paralympics is over – watch this space for further details.

Let the Games begin

Almost a billion people around the world will watch the Olympic opening ceremony in East London tonight. 80,000 will be watching it inside the stadium (some of them having only gained their tickets today as politicians vie to give up their tickets to troops guarding the Games).

Some of those in the crowd may remember how Stratford looked 7 years ago. It’s a stark contrast. Stratford has been transformed and London as a whole has also gained two Olympic size pools, a velodrome, an athletics stadium, another huge shopping centre and over a dozen pedestrian bridges.

Over the next few weeks, the papers will be full of the winners, the losers, and the Twenty Twelve style gaffes that are inevitable with a Games of this scale, whether it’s the army filling in for absent security guards, bells nearly injuring innocent bystanders or organizers mixing up two flags that, of all the flags, really shouldn’t be mixed up.

And afterwards will come the inevitable soul searching. Was it worth the money? Was it worth the hassle? (and the regular, slightly startling recordings of Boris telling people to ‘get ahead of the Games’ that echo around tube and railway stations across London at the moment). And will not just London but the UK as a whole reap the benefit?

Just after London won the bid, the Centre published a paper about the Olympics legacy, so it won’t be a surprise that just after the Games we’ll be publishing a short paper that considers how London can learn from previous Olympics in order to ensure a lasting positive legacy. Making the most of the physical infrastructure – the houses and sporting venues – as well as the business opportunities generated will be key. And Boris might need to re-think his pledge not to spend any further money on legacy…

But that’s for later. In the meantime, whatever your view of the pros and cons of the project, today is a day to be proud of one of the most complex and diverse cities in the world hosting one of the most complex sporting spectacles in the world. The rest – the post opening ceremony analysis, the angst or joy about how many medals we have won – can wait, at least until tomorrow.

Capital Accounts: How will local government fund infrastructure in an age of austerity?

Wednesday, we received news that UK GDP contracted by 0.7 percent. David Cameron has said that more needs to be done. I agree – and much of that should be done in cities to respond to the local economic conditions.  However, despite the rhetoric around the localism agenda, central government still retains its firm grip on the purse strings. Shrinking budgets and limited flexibility leave local authorities with much to do but few resources to do it.

The Centre for Cities’ latest report, Banking on Growth, highlights a key challenge to supporting growth: how will local government pay for capital projects that can unlock economic growth during this age of austerity and with limited financial powers.

Capital projects managed by councils include roads, schools, housing, and waste infrastructure—the very things that help our cities run effectively. About 80 percent of local government’s capital spending is in these areas, putting them in charge of investments that can support economic growth.

But, the spending cuts and recession have brought significant budget challenges to many councils across England. Councils’ revenues are declining year-on-year due to lower capital receipts and shrinking government funding, but capital spending cannot fall as quickly due to the long-term nature of capital finance commitments.

The gap between how much central government gives to local authorities for capital projects and how much authorities spend has more than doubled since 2006/07 from £4 billion to £9.3 billion. This makes paying off existing loans an increasing challenge for authorities before they even think about borrowing for new capital projects. 

New borrowing by local government has fallen since the recession. Public Works Loan Board advances dropped by more than half from 2007/08 to 2010/11. So, local authorities are having to be especially prudent given their lack of control over funding, and this will have an effect on their ability and appetite to invest in future projects that will create jobs and contribute to the economic recovery.

So what needs to change?  While there are limits to devolving funding in the short term, our work highlights two things that need to be done now:

• First, local government needs to continue to explore new funding and finance mechanisms that don’t require central government funding or underwriting of debt (e.g., bundling budgets within local government, pooling across authorities or bringing forward pension fund investment).
• Second, local and central governments must work together to find ways to fund local infrastructure projects while operating under deficit reduction targets.

Our work, as always, is ongoing.  Next we’ll be looking at the advantages, pitfalls and barriers to the range of financing mechanisms local government can use to support economic growth.

The UK needs investment now: Plan C for cities?

Yesterday’s GDP figures showed the national economy shrank by 0.7 percent in the last quarter, largely due to a sharp slowdown in the construction sector. Although the latest labour market figures show that employment has been growing modestly and there are always questions about the accuracy of such rapidly produced GDP figures, it seems undeniable that at best the UK economy is stagnating. At worst, the figures are right and we’re in the longest recession since the Second World War.

If ever there was a time for Government to invest, surely it’s now.

The Government is clinging on to Plan A for the moment but now is the time to step up with new policies – whether they’re Plan A Plus, Plan B or even Plan C for Cities - to ensure that this recession does not extend into decades of no growth.

Our retrospective Cities Outlook 1901, launched earlier this month, showed how cities and industries have risen and declined over the course of the twentieth century. It found that failure to invest in skills and in physical infrastructure has negative impacts that can last for decades or longer, for both people and places. Getting this right matters not just for the short term – improved productivity through skills or construction jobs through infrastructure projects – but for the medium and longer term competitiveness of the UK.

Last week’s announcement that Government would underwrite up to £40bn of infrastructure investment plus give up to £10bn to support struggling exporters is a start, and the Chancellor has referred back to this repeatedly over the last 24 hours. But a scheme of this sort can only ever have limited impact, partly because of the tight qualification criteria. Conditions of funding include: being a big project; being a project put on hold because of difficulties raising private finance; being able to get started within 12 months; having a demonstrable impact on economic growth; and being good value for taxpayers. As the BBC’s Stephanie Flanders put it, “…it has to be a perfect project in every possible respect, but somehow not quite perfect enough to get up and running entirely on its own.”

If the Government is to kickstart growth, making some of the smaller-but-high-impact infrastructure projects happen is vital, from unlocking road junctions to improving rail connections between northern cities.

For this to happen requires a 'Plan C' - and that means more local autonomy to make things happen. As Greg Clark said in January when he launched our annual Cities Outlook report, the battle for growth will be won or lost in our cities. More autonomy and incentives to pool pots of public money in order to access private sector funding (see our report published today talking about local authorities and capital expenditure for more on this) and more power to flex skills and welfare budgets to respond to distinctive local circumstances. These are not expensive changes that could damage the deficit, but they are changes that could make a big difference to growth. Three quarters into a double-dip recession, it’s time for Government to step up a gear and deliver for our cities and their residents.

Learning from history: urban Britain 1901 to 2012

Yesterday we launched Cities Outlook 1901, a report exploring the evolution of cities across Britain from the turn of the 20th century. At the launch event, our expert panel - Sir Peter Hall, Tony Travers and Tristram Hunt MP - reflected on the report’s findings and helped build the picture of our cities’ rich histories. It was a reminder of just how vital it is that we learn from the past if future policy is to be effective.

Here are some of the key lessons shared:

· Skills matter but it’s about a mix of skills not just graduates. For many cities back in the 20th century their ability to adapt to the changing economy came down to the fact that they had a strong professional skills and an advanced engineering base. Take Swindon and Honda or Derby and Rolls Royce. The two cities were able to attract these firms because of their strong engineering backgrounds.

· The best connected cities in 1901 tended to be the strongest economically. Places connected by rail and within two hours of London were at an advantage in 1901. Newport and Doncaster are two notable exceptions, highlighting the importance of economic diversity as well as transport. In the latter half of the 20th century it was Sir James Drake's invention of the motorway that led to Preston’s and Warrington’s success; the Preston By-Pass built in 1958 was the first motorway in the country.

· Small and large cities can suffer from a lack of diversity. Smaller cities tended to be less diverse, although the stories of Birmingham and Glasgow show that large cities can become overly reliant on single industries too. For Birmingham it was the automotive sector; for Glasgow it was shipping.

· City leadership can make a big difference. The success of cities is partly down to time and chance. Places like London, Cambridge and Oxford started with a strong base and high skills in 1901 putting them in a far better position than others. But cities like Reading and Swindon demonstrate that a city can transform itself if it has the right leadership.

· Strong municipal authorities in the 19th century raised standards. The disempowerment of local government and loss of local financial autonomy coincided with deindustrialisation. The 20th century saw local government lose the capacity to make decisions and invest locally. Until this is reversed it will be very difficult for cities to reinvent themselves.   

Follow Naomi on Twitter @Naomi_Cities

Now the City Deals are done, four key questions on what happens next

The Government’s ‘City Deals’ mark one of the biggest shifts towards devolution of power to local areas that England has seen for decades. It’s a day to celebrate some hard-won freedoms and flexibilities – but there’s a long road to travel before cities can say they have real autonomy over their local economies.

The six remaining Core City Deals have been announced today: Birmingham, Bristol, Leeds, Newcastle, Nottingham and Sheffield. These join the Manchester and Liverpool Deals already announced (although Liverpool has today extended its deal to the wider city region). Areas devolved include: funding and finance, skills, infrastructure and business support.

As the Centre’s summary shows, each city has agreed a mix of different policies, all in exchange for commitments to deliver jobs, apprenticeships or even a ‘NEET-free’ city.

This kind of bespoke approach for the first round of devolution is welcome – the Centre for Cities has been calling for this for years as it enables cities to tailor policies to their particular needs, rather than having a ‘one-size-fits-all’ policy that doesn’t really fit anyone properly.

But it’s what happens next that will really determine whether cities continue to gain more autonomy from central government. In my mind there are four big questions.

First, will the cities deliver? Many in Whitehall are still looking for any excuse not to relinquish power and funding. The Core Cities are trailblazers; they will know all too well that with their additional powers comes additional responsibility. If they don’t keep to their promises, however big, the implications will be felt by all cities.

Second, who will be in the second wave of City Deals? Centre for Cities’ analysis suggests that it should include some of the fast-growing small cities (e.g. Cambridge, Milton Keynes), where policy intervention could make a big difference to growth and jobs, as well as some of the mid-sized cities (e.g. Sunderland, Coventry) that could really benefit from intervention. We talked about the benefits of a mid-sized cities £500m investment fund for city centres in our report published last week.

Third, will there be a ‘basic package’ of policies on offer to a wider group of local authorities? There are some core themes running through the Deals, like single Economic Development pots, that could easily be rolled out more widely, provided local authorities can demonstrate they can take tough decisions. This would be a big step for a reluctant-to-devolve Whitehall, but could make a big difference to local authorities strapped for cash and keen to make all existing money work harder for the local and national economy.

Fourth, will Whitehall deliver? And will the Government keep to its very welcome commitment that this is just a first step? The Government has been clear that it will keep talking to the Core Cities about developing their Deals and this is vital. It is only through keeping the dialogue going, keeping on demonstrating how cities can deliver better outcomes and / or greater efficiency, and keeping on encouraging Whitehall to let go of a little bit more, that we will give cities the autonomy that could make a big difference to local economies.

Today marks an important first step towards devolution and the Core Cities should be delighted with progress so far. But we will need to wait for a while yet before we know whether City Deals will really mark a turning point in relationships between central Government and England’s cities.

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Cities - the relationship between the urban core and the urban fringes

Yesterday I travelled way up north to Aberdeen to hear about the Sustainable Urban Fringes project. For me the conference was a reminder that a city’s success isn’t just dependent on the strength of its urban core, urban fringes matter too. Businesses located in urban cores draw on the large pool of skilled labour urban fringes house and this helps them be more productive. Despite this, the conference also made me question the extent to which various stakeholders recognise, and seek to build on, these mutually beneficial links. 

But urban fringes don’t just house workers – they’re increasingly providing lower skilled job opportunities too. As our report showed, lower skilled jobs are dispersing out into cities’ hinterlands whilst higher skilled jobs are becoming increasingly concentrated in city centres.

Greater Manchester is a good example as, although lower skilled jobs are available in the heart of the city, they’re also found in places to the east like the Kingsway Business Park in Rochdale as well as in places to the very south of the city region like the airport.

Source: Contains Ordnance Survey data © Crown copyright and database right 2012 Annual Business Inquiry, workplace based analysis, 2008 data  

But does the dispersal of lower skilled jobs into urban fringes actually matter? Well with the latest figures recording an unemployment rate in the UK of 8.2 percent clearly every job is valuable. But, dispersal can make access to employment more challenging particularly because people with lower skill levels don’t tend to travel as far for job opportunities as those with higher skill levels and the cost of travel makes up a higher share of their income.

So the challenge for Greater Manchester is to ensure orbital links around the urban fringes enable people who live in places like Bolton and Ashton-under-Lyne to access employment opportunities in locations like the Kingsway Business Park and airport. More widely, for all cities it’s about recognising and understanding the links between urban cores and urban fringes and seeking to strengthen these mutually beneficial relationships.

Beyond the Core: City Deals for mid-sized cities

The Government is due to conclude its City Deals negotiations with the Core Cities in the next week or so.  As part of the sign-off ceremony there’s likely to be an announcement about the next wave of City Deals.  

 In preparation for City Deals Round Two on Tuesday we launched our work on mid-sized cities. The work identifies that there are several medium sized cities – including Derby, Coventry, Sunderland and Preston – that have similar economic characteristics and challenges.

 Because of these similarities we argue that there are advantages to be gained by Government by dealing with them as a group in the first instance. The research deliberately does not strictly define which cities should or shouldn’t be in this group. Our only criterion for the group is that it’s a group of the willing – it should provide the platform for other cities that feel that they identify with these issues to come forward to join the group.

 Using Sunderland as the main focus, the research shows that the recent underperformance of its city centre has undermined its overall economic performance. The city was one of the stronger performing cities in terms of private sector jobs growth before the recession. But at a time when its economy overall was exceeding expectations, its city centre actually lost private sector jobs.

The report shows that very similar patterns have also been seen in Preston. And it identifies other cities such as Derby, Wakefield and Coventry that are displaying similar symptoms that are characteristic of a city with an underperforming city centre.

For this group of cities the report calls on the Government to create a £500 million mid-sized cities investment fund as part of the City Deals process. Commercially-run the fund would change the way that European Regional Development Fund (ERDF) money is allocated, moving from the allocation by regions, as currently occurs, to allocation according to economic issue. It would then be matched by central Government monies such as the Growing Places Fund, local authority assets and private sector money. There are a couple of different ways that this fund could be set up, but I’ll do a post at a later date looking at this issue.

The fund should be used to reconfigure the city centres of our mid-sized cities. It’s important to stress here that the operative word is reconfigure – these cities should look to reshape their city centres so that they better operate as environments to do business. So while it may mean building some new office space, it will also mean removing office stock, either through demolition or conversion.  It may also mean encouraging more residential.

The fund will not provide a free lunch for cities either. The Government has been very clear that the City Deals process is just that – a deal. This means that cities also have to bear some of the risk and cost of the reconfiguration. See the report - Hidden Potential - for more detail on this.

But given the knock on impacts that underperforming city centres have on wider economic performance and the growing economic importance that city centres are likely to have in the future, the weak urban cores that some cities suffer from is a pressing issue. City Deals provide an opportunity for these places to tackle this fundamental problem head on.

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Bang in the middle - the re-emergence of the city centre

The city centre is re-emerging as the preferred location for office space, away from out-of-town locations and business parks.

The 1980s and 1990s saw the rise of the business park, offering large floorplates and vast amounts of car parking space. However, Centre for Cities research in 2011 suggests that there has been a shift back towards the city centre as a preferred location for offices, and particularly for higher skilled jobs. Employers located in city centres benefit from proximity, as well as finding it easier to attract and retain employees.

Offering a range of modern office space within mixed-use areas, which include other amenities such as restaurants, shops and gyms and are well served by public transport, is likely to become ever more important as high skilled jobs and businesses increasingly concentrate within city centres. It also supports city centres to become more diverse, as over-reliance on the retail sector is not good for long term growth.

Making the Grade highlights this shift and shows how Cambridge appears to be responding to the challenge of the increased attractiveness of the city centre.

The city’s response to increasing requests from businesses to be located close to historic centre, which has limited site availability, has been to prioritise new development to the east. This means that the existing railway station will now sit at the heart of an expanded commercial and residential area; a move that has attracted Microsoft to relocate from its out-of-town site.

The fast rail links from Cambridge to London Kings Cross, combined with a large amount of land available for development within a ‘new’ city centre, provides an excellent base for one of the UK’s top performing cities to build on its success and drive economic growth.

Map of Cambridge

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Size apparently does matter - smaller cities could be a better bet for office developers & investors

Office market developers and investors tend to focus on the UK’s largest cities as their key markets and often miss the opportunities that other smaller, dynamic cities offer.

Globalisation has meant that, as the UK has moved from a principally manufacturing based economy to a services based one, the country’s comparative advantage now lies within the office and knowledge based sectors. This makes the provision of office space extremely important for city growth.

As shown in our latest report, Making the Grade, however, the problem is that despite strong demand, some of our most economically successful cities are not seeing large increases in floorspace growth. Conversely, cities with weaker office markets, such as Bolton and Blackburn, have seen large increases in floorspace.

Average rateable value of office space in 2000 with annual average growth in office floorspace between 2000 and 2008

The reasons for this mismatch in supply and demand are different for different cities and include:

1. Land supply and planning restrictions - which can restrict development and push up prices, meaning it is potentially too expensive for some productive firms to locate there;
2. Public sector driven investment and relocation – where the public sector has built office space and is either subsidising its use or is no longer using it, leading to an increase in supply and pushing down prices. This can have a negative effect on the built environment and could deter business;
3. Employee density - some cities have seen an increase to employee density because more flexible office arrangements and modern office space has been designed so there may not be an increase in floorspace and;
4. Domestic business relocation - a firm upgrading and/or consolidating many offices in to one means office floorspace hasn’t necessarily increased and/or can lead to an increasing amount of obsolete space.

But more significant to determining development is the size of the city. Larger cities have high aggregate demand and a higher occupancy churn and are therefore less risky for an investor – hardly surprising then that they choose to develop here – whilst smaller cities often have very specific demand for office space and can suffer from infrastructure issues.

Development models for small and large cities

In order to maximise choice for developers and investors and benefit from economies of scale, smaller cities should work closely with their neighbouring authorities on issues such as infrastructure, housing and planning.

Cities also need to understand the demand from their existing business base, as well as what they could need in the future, and tie this with a good knowledge of their current office provision. This should be communicated to agents in order to boost the city’s national profile.

Supporting some of the strongest performing cities by ensuring office space responds to high levels of demand will have substantial benefits both for these cities and the UK economy in our quest to move out of recession.

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