Brexit and the Future of the <scp>UK</scp>'s Unbalanced Economic Geography

IT is often said, but bears repetition, that by international standards, the UK has some of the largest geographical inequalities in the developed world. Significant inequalities between different areas are evident in almost all aspects of the economy, including productivity, incomes, employment status and wealth. Brexit Britain is a nation made up of cities and towns with contrasting economic trajectories (see figure 1 below). The economic divides across urban Britain Source: ONS, Annual Survey of Hours and Earnings (ASHE); NOMIS, Annual Population Survey; Land Registry, Market Trend, Price Paid data. Simple average used. Scottish neighbourhood statistics, 2016, mean house prices; DWP; HMRC; DCLG; Welsh government; Scottish government; NOMIS, population estimates; ONS, birth summary tables; National Registers of Scotland, births by sex, year and council area. While the traditional economic dominance of London and its hinterland is growing, the economic outcomes of many towns and cities in the Midlands, the north of England, Northern Ireland and Wales have more in common with poorer places in Central and Eastern Europe or the US South. Most big cities outside London still have productivity and employment rates lower than the national average and their weaker performance also holds back surrounding towns. Many de-industrialised areas, often on the fringes of city-regions, present difficult combinations of social, educational and economic problems, while some of the country's most disadvantaged communities are found on our coasts and in isolated rural places.1 And even our most successful local economies are often our most unequal.2 These economic divides map closely to political ones (as discussed in the chapter by Jennings and Stoker). In the 2016 referendum, smaller cities and towns in the north and Midlands and on the coast tended to poll a greater share of votes for leaving the EU. It's perhaps not surprising, then, that it has become conventional wisdom among commentators to cast the Brexit vote as the ‘revenge of the left behind places’,3 a chance for those living in struggling places to stick it to the Westminster ‘metropolitan’ elite. If we are to address these spatial inequalities, and close the economic and political divides associated with them, we have first to understand their long history. Over the last century, economic change has come to all places in the UK, from the biggest cities to the smallest towns and villages. Globalisation, technology and shifts in transportation have demanded continual adaptation, both to continue to provide jobs and to contribute to national economic growth.4 But the impacts of these changes have played out unevenly across the country. At the regional level, for every one additional job created in the whole of the north, Midlands and Wales since 1911, 2.3 have been created in the south. In 1911, the north, Midlands and Wales accounted for 57 per cent of all jobs in England and Wales. By 2016 this had fallen to 47 per cent. Looking specifically at Britain's largest urban areas, figure 2 shows that the majority have grown over this period. Fifty-five cities had more jobs in 2016 than 1911, and twenty-eight have more than doubled their total, while only seven cities had fewer jobs in 2016 than 1911. Jobs growth in cities, 1911–2016 Note: Map does not display Crawley and Milton Keynes due to their very small size in 1911 and the subsequent distortive impact this has on their growth figures. But looking at jobs growth alone is insufficient—understanding the type of jobs that have been created is important too. Some places, particularly in the Greater South-East such as Reading, Aldershot and Brighton, have been particularly successful at reinventing their economies in the face of constant change, seeing strong jobs growth in knowledge-based employment as a result. Crucially, this success has also been beneficial to their surrounding towns and villages, providing work for their residents and making them more attractive places for business investment.5 Many places in the North, Midlands and Wales—such as Hull, Doncaster and Swansea—have struggled to adapt to the changes that technological developments and globalisation have brought. Whilst these post-industrial economies have been successful in creating jobs, they replaced coal mines with call centres, and dockyards with distribution centres. In other words, they have replaced one set of relatively low-skilled, lower-paid jobs with another, essentially replicating rather than reinventing their economic structure. Moreover, some places have struggled even on this front. Burnley, for example, had half the total number of jobs in 2016 that it did in 1911. The pattern of job creation seen in recent decades results from the relative advantages that different places offer to businesses, particularly knowledge-led businesses. Those cities that have reinvented their economies have been able to offer these types of businesses two things—access to a pool of high-skilled workers and access to a network of other knowledge-based businesses and institutions, including universities and research institutes. The jobs growth seen in replicator cities also shows that they have been able to attract business investment. But this has mainly been based on their offer of providing access to a pool of lower-skilled workers, access to motorways and cheaper land. Relatively speaking, they continue to play the role of places of low-cost production that they played 100 years ago, rather than becoming centres of knowledge production. History matters in explaining these patterns. Firstly, success begets success. The better-performing places in the twenty-first century typically began the last century with a higher base of knowledge-rich and professional jobs, and responded to the evolving global landscape through innovation and adaptation. Over time, their economies transformed to favour knowledge-intensive industries and workers, enabling them to offset job losses in declining fields and build competitive and dynamic places. Secondly, the sheer scale of traditional industries in 1911 and their decline over the subsequent century has cast a long shadow over some places. Manchester, for example, lost around 530,000 jobs in manufacturing over the last century, creating a vast employment challenge. The recovery from these losses has been a long and painful process for many places—only in the last couple of years has Manchester surpassed the number of jobs it had in 1911—while in some places like Burnley, Bradford and Liverpool, that recovery is still a work in progress. Globalisation and technological advancement have been the two major economic drivers of change over the last 100 years. But policy has also had an influence. There are two policy agendas that, without having an explicit geographical focus, have had a marked influence on the economic geography of job creation across the country. The first is the postwar new towns agenda which resulted in the creation and expansion of tens of cities and towns across the country. The southern new towns have been noticeably more successful than those established in the Midlands and the north. Crawley has many times the number of jobs today than it did a century ago, while Milton Keynes didn't even exist until the 1960s, but now has over 150,000 jobs within its boundaries, many of them highly skilled and highly paid. The second strategic policy direction has been the expansion of the state after the Second World War and the subsequent growth of public sector employment. Public sector jobs, particularly in health and education, account for an estimated 1 million of the 1.6 million extra jobs in London today compared to a century ago. In Liverpool, public sector jobs have cushioned the extent of the city's private sector employment decline, adding around 90,000 jobs over the last 100 years, as it has simultaneously lost over 130,000 private sector roles. Significantly, policies that have more explicitly attempted to reduce the north-south divide have been much less effective. We have had eighty years of policy attempting to boost growth in the regions, but the gap in performance has widened over this time. This is because the majority of interventions have tended to reinforce existing industrial structure—encouraging the replication of local economies by implementing policies designed to support low-knowledge, routine activities—as opposed to supporting reinvention by increasing their attractiveness to more knowledge focussed jobs. This approach was evident in former Chancellor George Osborne's call for a ‘march of the makers’ in 2011, and the overt focus of the Regional Growth Fund (launched by the coalition government in 2012) on manufacturers in the north and Midlands. Of the £720 million allocated in the first three rounds of the fund across England, 42 per cent was allocated directly to manufacturers in the north and Midlands. In the north-east, 73 per cent of the £114 million allocation to the local enterprise partnership was given to manufacturing.6 Enterprise zones have had a similar focus—of the new wave of zones set up in 2012, fifteen of the sixteen located in the north and Midlands explicitly cite manufacturing or engineering as their sector focus.7 This approach ignores the prevailing economic trends of the past few decades, during which overall manufacturing employment has been declining across Britain (today, it accounts for just 8 per cent of jobs across the country). Moreover, this approach to the north contrasts quite dramatically with the patterns of the government's innovation-focussed investment which has been heavily concentrated on the south's ‘Golden Triangle’. As the government's 2017 Industrial Strategy White Paper notes, 46 per cent of money from the UK's research councils goes to Oxford, Cambridge and London, where about a quarter of the UK's 163 higher education institutions are based.8 Several studies have been undertaken on the economic impact that different forms of Brexit will have on different parts of the country.9 Some suggest that a ‘Chequers’ style deal might provide some short to medium term shelter to the manufacturing-intensive parts of the country—mainly in the north and Midlands—whilst having more immediate negative economic impacts for those places—mainly in the south-east—that rely on service exports to the EU and have a greater share of EU migrants in their workforce. Others suggest that under any Leave scenario, because of the intricate ‘just-in-time’ supply chains that many manufacturing companies rely on, it is manufacturing-intensive regions that will be hit the hardest. What all of these studies agree on is that whichever Brexit deal is struck, even the most advantageous will have a negative impact on future economic growth for all places across the UK in the short to medium term. And they also agree that over the longer term its places that are already struggling that are likely to struggle the most, further exacerbating the country's unbalanced economic geography. This is because those places that are more productive and have highly-skilled workforces today will find it easier to adapt tomorrow. Cities such as London, Reading and Edinburgh are home to large highly-skilled workforces, significant numbers of innovative firms and strong business networks, all of which will greatly assist them in reinventing their economies to reflect changed circumstances. In or out of the EU, these fundamental drivers will remain unchanged. The importance of enabling the creation of, and access to, knowledge that benefits both businesses and workers will continue in the future.10 While the attractiveness of these successful cities relative to their counterparts on the continent is likely to shift somewhat as a result of Brexit, there is much less likely to be a change in the relative position of more and less successful places within the UK. Indeed, the situation for struggling local economies may well deteriorate. Brexit may not, therefore, change the nature of the challenges associated with the country's unbalanced economic geography. But it certainly should bring more urgency—political as well as economic—to the imperative to trying to address these long-standing problems. Addressing the country's imbalanced economic geography will require concerted efforts across a range of policy areas over the long term. The north-south divide has been with us for at least a century, so reducing it will obviously not be easy or immediate. Any attempts to address it must be mindful of this fact. If the government is to succeed in re-balancing growth, then ‘place’ should be the over-arching framework for reducing inequalities—not pan-UK wide, ‘one size fits all’ policies. Place-based policies can supplement those that are institutional or place-blind, such as those set out by the Industrial Strategy Commission in its November 2017 Final Report and the ‘mission-oriented’ policies of the government's Industrial Strategy White Paper. This will require additional investment and significant changes to the way that policy is designed and delivered: 1. Focus on cities as the hubs of the modern economy Economic activity in the UK is not evenly or randomly distributed across the country—it is clustered in cities. Britain's sixty-two largest urban areas accounted for 9 per cent of land but were home to 55 per cent of businesses, 60 per cent of jobs and 62 per cent of national output in 2016. Cities are particularly important for the ability of the national economy to continue to specialise in ever more knowledge-based economic activity. Over 70 per cent of knowledge-based jobs were based in cities, and the trend is towards more urban concentration. Cities also provide jobs for people well beyond their boundaries—around 22 per cent of workers living outside cities were employed in a city in 2011, accounting for 2.4 million jobs. Despite all this, the big cities in the north and Midlands all underperform the national average. Addressing this problem needs to be the organising mission for addressing the overall under-performance of the north and Midlands. It will be impossible to achieve a more balanced and prosperous national economy without the improvement of its big urban centres. 2. Recognise that growth can't be easily pushed around the country Policy has been attempting to push private sector activity around the country for at least eighty years, going back to the Special Areas Act of 1934, yet the persistent differences in economic performance across different places suggest that this has not been particularly successful. In order to help create growth across the country, policy needs to look at what influences business location decisions, and to address the barriers that prevent businesses from starting up and expanding in some parts of the country, such as low skills levels, poor transport infrastructure, or unaffordable housing. 3. Devolve more powers and responsibilities In an increasingly economically differentiated country, it is not possible for central government to get to grips with all the diverse economic challenges facing different parts of the country. For too long, the bizarre British response to the increasing economic variation seen across the country has been a top–down, ‘one size fits all’ approach to policy making. It has not worked and will not deliver the political economic settlement the country needs. Instead, government needs to instigate a power-sharing initiative which has the strategic aim of empowering places so they can make the strategic economic decisions that affect the prosperity of their places. This will be crucial in enabling places to adapt to Brexit, and to address other big ‘future of work’ challenges arising from globalisation and automation, which will become increasingly significant in the decades ahead. In part, this means building on the progress made on city-regional devolution in recent years, which among other things, led to the introduction of metro mayors in seven of England's biggest city regions. These metro-mayors should be given significantly more control of the total public sector funding spent in their areas, including education, skills, transport, health, aspects of welfare, planning, business support and innovation (which, in Greater Manchester's case, would amount to roughly £22 billion of funding) to create an ‘area-based block grant’. But given the scale of economic changes resulting from Brexit, as well as automation and demography, these changes are unlikely to be sufficient to deal with the existing and new challenges that many places face. So, devolution will need to go much further. The government should consider adopting a more ‘federal system’ for the UK. In the short term, this would give London and the other big English city-regions powers similar to those currently available to Scotland and Wales, including tax and borrowing powers. The model for this should be the ‘reserved powers’ approach used for the original Scotland Act which enshrined in legislation only those areas where the Scottish government does not have competence—such as foreign affairs and defence. Over the medium term, we should aspire to a more federal system and learn from the constitutional and fiscal settlements of countries such as Germany, Spain and Canada. 4. Raise the demand for, as well as the supply of, knowledge To support the ability of places to adapt, the long term strategic objective of economic development policy should be to improve the stock, flow and use of knowledge in cities and towns. This is the approach successful reinventor cities in the UK have adopted, as well as their global counterparts such as Seattle, San Diego and Pittsburgh in the US, or Munich, Amsterdam and Stockholm in Europe. Achieving this objective will mean not just focussing on the supply side. Many of our poorly performing places are trapped in a low skill, low investment and low wages equilibrium. This reflects a lack of demand for more skilled labour which generates wider problems of inequality and in-work poverty, and associated social and health problems. Demand-side policies will also be required to support struggling places to shift away from a low skills equilibrium position through the growth and attraction of more knowledge-intensive and higher-skilled exporting firms. This means a combination of top–down ‘mission-orientated’ strategies like those set out in the Industrial Strategy White Paper and bottom–up strategies that encourage and support entrepreneurship, export promotion, management capacity, and local living wages as well as encouraging greater worker organisation and participation in firm decision making. 5. Prioritise skills and education More than anything else, we need to focus on raising skills levels in places outside the greater south-east. Belfast, for example, has the highest share of residents with no formal qualifications of any UK city (16 per cent), and Birmingham and Bradford fare little better (14 per cent and 13 per cent respectively). That means improving school standards across the north and Midlands, and reforming the education system to give young people in these places the cognitive and interpersonal skills they will need to thrive in the changing world of work. We also need a much bigger focus on (and a significant increase in funding for) lifelong learning and technical education, to help adults adapt to the changing labour market, and to retrain those who lose their jobs. Sadly, current skills and education policy largely ignores these big issues. For example, 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 will do nothing for people who have few or no qualifications or no prospect of going to university. 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 places outside the greater south-east gain the skills they need to go into work—a crucial point raised by the Sainsbury Review into improving technical education.11 6. Extend and integrate public transport within city-regions Transport policy needs better to reflect the economic and structural changes that are shaping the UK's economic geography. Given that high-skilled jobs are likely to continue to in cities, and city centres in public transport will need to play a greater role in supporting the economic success of cities and their in the north and Midlands. on transport policy in recent years have been by a focus on the better of cities, through the of and Northern to improve between But to improve the performance of our largest and Midlands cities, policy must improving transport within these cities and to their surrounding towns. This means improving and expanding metro for Greater Manchester, the and for Greater rather than for the north or the Midlands as a transport better London, and to some extent Manchester and have from having a to its transport places, large and need to be able to the For example, the powers that London has to and integrate its system with other forms of public transport should be out to the of the country. city centres as a means to boost innovation and innovative businesses will be to the future performance of local economies across the country. We that high-skilled businesses have increasingly clustered in cities in recent years (and city centres in and that the of these businesses in one them to share and which in innovation and Policy should specifically encourage this and of businesses, by supporting the further expansion of successful city centres and addressing the barriers that make less successful city centres less attractive places to do city centres should be as of the UK's strategic infrastructure, and of the billion National Fund should be allocated to creating and diverse city centres that are attractive to innovative businesses. The geography of the Leave vote in the EU the outcomes of many decades of economic and political change in the UK. In or out of the EU, the fundamental some places have struggled to adapt will remain unchanged. To make that the decades do not bring a of what we have seen in decades there will need to be a concerted push to help places adapt to change, rather than attempting to If Brexit to central government further in the already difficult of national policies to the economic and political needs of increasingly diverse places will only get the other it the devolution of powers and local to much more control over the that affect the of the people they then the political and economic divides within the country might be inequality and the UK long the 2016 a Westminster a new problem to deal or no Brexit should the they they have the but not the that to places across the country will be crucial in the political and economic

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