Cities need to be at the heart of the chancellor’s productivity ambitions

23 Nov 16

The UK's infrastructure and skills gap needs to be addressed without further unbalancing the country's economy

Productivity was the key theme of the Autumn Statement. The chancellor was unrelenting in his speech on the need to improve the country’s poor productivity performance, remarking that the UK is “even less productive than France”. Recent work by the Centre for Cities looking at the productivity of the UK cities compared to European counterparts illustrates the size of the challenge – with only UK six cities more productive than the European urban average, compared to 19 in Germany and 15 in France. 

Philip Hammond’s responses to the productivity problem outlined in the Autumn Statement included increasing R&D expenditure, initiatives to improve poor management in firms, providing more patient capital for growth firms, and rolling out super-fast 5G broadband. In addition, he also introduced a ‘new’ £23bn Productivity Investment Fund, which I assume will do what its name suggests.

The chancellor also talked extensively about the need to make ‘high-value investments’ in infrastructure, and promised to spend 1-1.2% of GDP on infrastructure projects identified by the National Infrastructure Commission from 2020 onwards. Other announcements included a £2.3bn infrastructure fund focused on unlocking housing in high demand areas, and a pledge to take forward the NIC’s proposal for establishing a “knowledge-intensive cluster” based around the Oxford-Milton Keynes-Cambridge corridor. Finally, Hammond stressed the need to address the “damaging imbalance in economic growth and prosperity across our country, announcing new borrowing powers for mayor-led combined authorities, and investment in roads in the Northern Powerhouse region, as means of addressing this.   

How the government’s plans to ‘invest in infrastructure to unlock growth’ and ‘rebalance the economy’ will interact with each other will be interesting to watch over the next few weeks and months. On first reflections, there are two tensions that will need to be resolved. Firstly, while infrastructure is definitely needed in cities across the country – particularly those with severe transport congestion and spiralling house prices – the majority of these are in London and the southeast. Investing to reduce the costs of growth in these cities will make them more attractive to firms and people from elsewhere in the UK – and so while boosting national productivity, it could also exacerbate the imbalanced nature of the UK economy.  

The second issue to be dealt with is that for many cities particularly in the Midlands and the North, low-skills levels is the fundamental problem undermining their productivity, not infrastructure. Again, to provide a European perspective, 34% of the UK’s urban population has a low education level (less than 5 good GCSEs) – the third highest proportion across Europe, with only Spain and Poland having higher shares of low-skilled residents.  Only 6 UK cities (all in the southeast) have less low-skilled residents than the European city average. On this issue, the chancellor was unhelpfully silent.   

For the government to succeed in improving national productivity, it will need to resolve these issues. It will also need to ensure cities are at the heart of the strategies, policies and investment funds set out in today’s Statement, as well as in the forthcoming industrial strategy.

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