City Conversations: Rebalancing UK Cities – is infrastructure enough?
Location: The Building Centre, London
Date: Thursday 11 October 2017
Andrew Carter, Chief Executive, Centre for Cities.
Victoria Hills, Chief Executive, Old Oak & Park Royal Development Corporation
Joanna Killian, Head of Local Government, KPMG
Bridget Rosewell, National Infrastructure Commission & Volterra Economics
Jim Coleman, Global Head of Economics Buro Happold Engineering, who chaired the Conversation, reports on this exploration of economic and infrastructure issues beyond London and the South East.
Post-Brexit, the UK’s economic and international competitiveness will depend on all cities being able to reach their full potential. Furthermore, our major cities need to be able to have the right relationship with each other in both economic and infrastructure terms, to aid the flow of people, ideas and capital. Cities such as Birmingham, Manchester and Leeds have, arguably, not enjoyed the same investment and growth as the capital. Can we correct our regional imbalances through infrastructure investment alone? How can London respond better to disparities between the regions? And how can UK cities become even more specialised in the creation of high-value, technology-based products and services?
Gross value added output per head (GVA) is higher in London than any other city in the UK and almost double that of cities such as Sheffield and Newcastle because London contains many economic functions such as financial services that these other cities do not. Over time this trend is growing and London appears to be pulling away from other cities – although these are still growing, albeit at a much smaller rate. This does not paint a complete picture, as London is a large city and the Central boroughs differ quite significantly from some of the outer boroughs in the East of the city, for example. Moreover, the variation between the best performing and the worst performing cities in the UK shows a much greater divergence than other countries. Does that make countries such as Germany and France more resilient than the UK?
GVA performance comes from many things – economic specialisation, labour market quality, the role of the universities – but it is also about Infrastructure, the physical platform that allows a city to generate wealth and opportunities. Looking at the regions it seems as if the majority of the infrastructure funding does go to London and the South East.
To set the context for our Conversation and promote the debate, Andrew Carter, Chief Executive of the Centre for Cities, made an introductory presentation about the role of infrastructure and its impact on city growth and rebalancing the UK economy.
His argument recognised that London is massive and incredibly dominant compared with any other UK city. It is a dominant economy at a European scale also. And that dominance is growing. All cities started to rebound in the early 1990s after a period of decline since the 1930s. The tax contribution of London is huge compared with other cities. Scale and significance must be taken into account. At a European level lots of UK cities do not do perform much better than cities in the former eastern bloc and apart from Edinburgh and Aberdeen, all the best performing UK cities are in the South.
“The unique story is that our big cities ‘underperform’ the national average in terms of GVA. This is not the case in France and Germany. Why is that? Often there is a direct correlation with the level of training and skills – the ‘supply side’. We often ignore the demand side problems and transport has an important role in connecting workers to firms and firms to workers. Can we introduce better transport as a spur to economic activity? We might want to look at some of the more local issues within cities such as Leeds and Manchester before looking at the big connections that organisations like the Northern Powerhouse is looking at. Why? Commuting is a cost. People don’t want to commute, they want to be close to where they work. The pattern of commuting is different London compared with Manchester, where the house prices give a bit more flexibility to where people can live.
If we are to shift the geography of jobs we need to make public transport more of a priority in other cities – on a par with London. Improving the link between Leeds and Manchester should also be a priority.
Is infrastructure enough? No – we need to think very carefully about the skills infrastructure of UK. Rebalancing UK cities is unlikely and the divergence with London will continue to grow. But all cities can do better and we should focus on improving big cities. City regional infrastructure is important but not necessarily the number one priority. Skills are perhaps more important. We need to stimulate demand as well as supply in many Northern and Midland cities there is a deficit of entrepreneurship, innovation, knowledge intensity and exporting.”
The same question about the importance of infrastructure was put to our panelists:
The Conversation panelists present a very positive view about infrastructure. Not surprisingly HS2 was the dominant project in the discussion with its aim to close the gap between the Midlands the North and London. However some felt that this gap would only get larger as a result. Should we be worried about the gap? Or is it inevitable? Does it matter if Birmingham becomes just another a suburb of London – a new Reading where ‘back office work activities’ take place, requiring occasional forays into the high-rental London spaces?
Bridget Rosewell OBE is an entrepreneur, company director, programme and project appraiser and developer of economic cases. She trained as an economist at Oxford University and taught there before working as a professional economist at various consultancies, two of which she founded and developed. She is now mainly a non-executive, with stints in public and private and the mutual sector. She is currently Chair of the Driver Vehicle Standards Agency, Senior Independent Director at Network Rail, Chair of Audit at Atom Bank, and a member of the With Profits Committee at Royal London as well as a Commissioner with the National Infrastructure Commission. She writes on infrastructure, project evaluation and modelling as well as acting as Senior Adviser for Volterra Partners.
Bridget Rosewell feels we should think about how we connect Northern cities to reach the virtuous circle of agglomeration that London has managed to achieve. Innovation – connecting need with solutions – drives GVA and innovation needs scale. In her view the problem with the Northern cities is that each of them is a little bit too small. We need to think about connecting them up so this ceases to be a problem. This brings more business to business movement, makes wealth-creating networks denser. We need other connections too: last mile first mile connections, intercity connections, and connections to the bigger market and the wider world. For this holistic approach we need to generate more ‘confident, able and investable’ local organisations that can drive that sort of change. We have to get away from the centralisation that has driven the UK economy for the last 50 years. If you fix the governance system a lot of the economic stuff will follow.
This last point is agreed by Victoria Hills. In her view Infrastructure matters but it doesn’t always follow that growth will come if infrastructure is provided. Leadership, coordinated planning, sufficient funding, aligned and ambassadorial stakeholders with a passion to succeed is what’s required for cities, regions, and the UK, to be successful.
Victoria Hills is Chief Executive Officer of Old Oak and Park Royal Development Corporation (OPDC) in this role Victoria oversees the transformation of Old Oak and Park Royal, London’s largest opportunity area and what will become the UK’s largest regeneration project. Her brief includes seeking to maximise the benefits of the significant rail investment at Old Oak, most notably the HS2, Great West Coast Main Line and Crossrail stations, to oversee development of an exemplary masterplan for a world-class place and to drive forward the preparation of a comprehensive and coordinated delivery and growth strategy for Old Oak and Park Royal.
HS2 provides an exceptional opportunity to change the economic geography of the UK. London needs to continue to work with the regions if it’s to retain its share of investment and remain competitive. At Old Oak, they are laying the foundations for a strong framework to ensure it becomes the obvious gateway to the Midlands Engine and Northern Powerhouse. With Heathrow just 8 minutes away, it will be the place where air passengers interchange onto HS2, the gateway to the UK’s economy and they plan to look north as much as look to London. “It’s an exciting time to be in the business of infrastructure, but we do need a guaranteed pipeline of projects so that the impressive skills and knowledge base that has amassed within the industry since major projects of Terminal 5, Crossrail and Thames Tideway for example, is nurtured and retained. We also need it to address the UK’s infrastructure deficit. As the UK prepares for life after the EU, UK cities don’t need to just rebalance, they need to get ready to make the most of opportunities. The global economy is becoming increasingly city centric, and our city competitors are ready and open for business. The UK’s great cities need to catch up, and quickly. HS2 is coming and we have nine years to get ready for it.”
How far is Old Oak an investment for the whole country? If Heathrow is going to meet its air quality targets it is going to need good rail connectivity. Birmingham will be 38 minutes away and Manchester just under an hour. It does have the potential to remake the economic geography of Britain. Internationally, it is now more about city to city relationships rather than country to country.
Joanna Killian is Head of Local government at KPMG and spends a lot of her time working on devolution related projects and public service reform, with experience in Greater Manchester, the West Midlands and the South West of England. Before this she was Chief Executive of Essex County Council and so she knows well how municipal authorities have to deal with these big infrastructure challenges.
She is concerned about the over-centralisation of the UK. What is her advice to the Metropolitan authorities? KPMG has looked at what causes them to be more prosperous and has found 7 or 8 principles which make successful cities in Europe, the US and increasingly developing nations such as India and Brazil. They have young wealth creators, they think about physical renewal as a thing that will drive growth; definable city identities with very strong political leadership; constantly looking at new ideas with excellent academic institutions – and thinking city to city with new cities both near and far; they are also fund-raising cities. They place great importance on the new mayors and their ability to drive growth of cities. New mayors in UK cities have not talked so much about infrastructure; more concerned about homelessness, social care and unless they can tackle these hard-core issues that bring down the potential for growth, then they feel they will have failed.
The other dominant thing is the power of cities as wealth raisers; new rules will insist that local authorities in the UK are self-sufficient – there will be no more grants – and so they are having to find ways to stimulate their economies so that business rates etc. can pay for programmes for growth. How does this match with the reality on the ground and existing growth strategies? “Unless we deal with skills and the inter-generational things such as long-term unemployment and look at a long-term programme, we won’t start creating the wealth needed in the cities of the future. The important things are social infrastructure and the power of mayors. I don’t believe big national programme can solve complex local issues.”
Within the panel there were differing views on the priorities for investment. You have to start somewhere and according to Andrew Carter, “there is the need to make choices around the marginal pound”. In the Northern Powerhouse there is an objective to make all the Northern links a maximum; at the same time the priority should be to improve the link between Leeds and Manchester as that is where the greatest gains are to be made.
The audience raised other concerns – housing being something that, controversially, was not part of the remit of the Infrastructure Commission, but which many felt needed to be considered in the question of rebalancing. Others felt that ‘connectivity’ was overrated as an infrastructure requirement whereas the creation of ‘proximity’ and ‘place’ provided much more value to cities looking for growth. What do we mean by place? And what value can be added by newer elements of infrastructure which are truly popular and provide things such as ‘social media buzz’.
The panel agreed on many issues but when it came to the question of centralised politics versus bottom–up local planning for growth, a divergence of views – or at least a degree of uncertainty – began to emerge. Could we move institutions away from London such as had been done with the BBC? ‘There’s nothing left to move’ came the response, ignoring the fact that the then Chairman of the Infrastructure Commission, Lord Adonis, had once suggested moving the House of Lords away from London. In France they had a certain degree of success identifying specialist areas for different cities to avoid them competing for the same new technology industries. Could we do that here to prevent the wasted resource of cities competing? Should we have a National Plan? Tried and failed seemed to be the prevailing wisdom, and we should try to remove politics from decisions about growth as much as possible.