Andrew Carter is Chief Executive of the think tank Centre for Cities.
As with previous years, the upcoming Budget will once again be dominated by the UK’s sluggish productivity. Indeed, Phillip Hammond’s scope to act has already been seriously hamstrung by the Office for Budget Responsibility’s admission last month that it has persistently over-estimated Britain’s productivity over the past seven years.
The full extent of those over-estimations will become clear on Budget day. But while few people doubt the scale of the UK’s productivity problem, what’s too often overlooked is its geography.
As new Centre for Cities research shows, cities in the Greater South East are among the most productive in Europe – but those elsewhere in the country are dragging down national economic output.
In particular, while major cities like Manchester, Birmingham and Liverpool should be leading the national economy, they are instead causing it to lag behind that of other countries. Unless the Chancellor can get these places to punch at their weight, the national economy will continue to be hamstrung.
This ought to be a top priority in the Budget (as well as the Industrial Strategy) – here are three things Hammond can do to start to tackle this problem:
Scrap plans to raise the tuition fees repayment threshold – and divert that investment to Further Education instead
One of the biggest problems holding back the economies of cities in the North and Midlands is skills gaps in their workforces. Birmingham, for example, has the highest share of residents with no formal qualifications of any UK city (17 per cent), and Liverpool and Manchester fare little better (14 per cent and 13 per cent respectively).
The Government’s plan to raise the earnings threshold for repaying student loans – expected to cost £2.3 billion each year – will help middle class students, but does nothing for people who have few or no qualifications.
A better use of that money would be to invest it in the severely under-resourced Further Education (FE) sector. That would help more people in cities outside the South East gain the skills they need to go into work, in industry-relevant sectors – a crucial point raised by Lord Sainsbury in his review on improving technical education (full disclaimer: Lord Sainsbury is the main funder of Centre for Cities through the Gatsby Foundation).
This would also go a long way in ensuring places outside the South East have the skilled workers they need to attract more investment, support more businesses, and boost their contribution to national productivity. The Government has promised to act on Lord Sainsbury’s proposals to reform and strengthen the FE sector – now it needs to make the necessary investment available to deliver on that pledge.
Back Crossrail in Manchester and in Leeds – but not across the whole of the North
Over the summer the Government found itself under fire from Northern leaders after cancelling plans for the electrification of the Leeds-Manchester train line (while giving London the green light for Crossrail 2). Hammond tried to address this discontent during conference season by announcing £400 million investment for Northern inter-city train links.
This suggesting the Government was moving towards the ‘Crossrail for the North’ which Northern leaders are campaigning for – that is, a high-speed train link connecting Liverpool to Hull, and all major cities in-between.
However, research shows that the best way to boost the economies of Northern cities is to improve transport links within these places, not between them. The reality is that people in Leeds don’t commute to Manchester for work (or vice versa).
That’s not because the transport links are poor, but because commuting is a cost and people don’t want to do it between cities unless there is a financial imperative to do so – which in the North, there isn’t. For the fastest route to higher productivity in northern cities, the Chancellor should therefore prioritise Crossrail for Manchester and for Leeds – not across the whole of the North.
Put devolution back at the top of the political agenda – and reprise its original city region focus
Under Hammond and Theresa May’s watch, the Government’s enthusiasm for city devolution has waned. More specifically, its commitment to the original economic rationale for city devolution – empowering cities across the North and Midlands to grow their economies – has been lost.
Indeed, even the new Conservative metro mayors have expressed frustration at the Government’s lack of engagement with them on issues such as skills – highlighting the extent to which it has allowed this agenda to drift.
If the Chancellor and his cabinet colleagues are serious about arresting the poor productivity of cities across the North and Midlands, they need to put devolution back at the top of the political agenda (as it was under the Cameron/Osborne administration), and return to its original economic focus.
That means ignoring calls for Yorkshire-wide devolution, which would be little improvement on the one-size-fits-all approach to policy-making we already across most parts of the country. It also means doubling down on the powers held by the current mayors and combined authorities, and renewing efforts to extend these arrangements to more major cities such as Leeds and Newcastle.
Of course, the UK’s poor productivity is a complex and long-term problem for which there is no silver bullet solution. But there are steps the Chancellor can take to address this issue in the Budget, and the sooner he acts, the sooner he can start to reverse these trends. Failing to do so will mean that the UK will fall further behind European counterparts.