• On the eve of this week’s G7 Leaders’ Summit, new analysis reveals the role played by the largest cities in the UK’s yawning prosperity gap with other G7 economies.
• A key difference between the UK and G7 leaders the US, France and Germany is the poor performance of the UK’s biggest cities, which constrains the national economy.
• The next Government should bring forward a package of funding similar in ambition to the CHIPS Act with a mission to make the UK richer than Germany within decades.

The next Government should aim to make the UK the second-richest nation in the G7 – overtaking Germany – by implementing a CHIPS Act-style funding and reform package over several governments that would bring the UK’s largest cities to up to par with their G7 peers.

The recommendation comes from Climbing the Summit: Big cities in the UK and the G7, a report by Centre for Cities – published ahead of the 50^th G7 summit – which looks for the first time at the relative contribution big cities make within G7 economies.

It finds the UK is an outlier among leading G7 nations as its largest cities outside the capital act as a drag on the economy rather than leading it. Equivalent cities in leading G7 economies France, Germany and the US are more productive than the rest of their respective countries and this is key to explaining why their national economies outstrip the UK.

At a national level, the prosperity gap leaves the UK economy 8.8 per cent smaller than it would be if cities such as Birmingham and Manchester performed as well as equivalent places such as Lyon and Frankfurt.

Big cities outside London are currently so far behind their G7 peers they would need to contribute 57 per cent of the total increase in output required for the UK to catch up with France and Germany. Seven of the 10 largest cities in the UK are ranked in the bottom 20 for productivity out of a total of 112 large G7 cities.

Looking at strongly performing cities elsewhere in the G7 shows what needs to be done. UK cities the size of Nottingham and larger punch below their weight due to their low-density urban form, low concentration of knowledge jobs, and poor transport accessibility.

UK cities are further constrained by the low level of investment that is undertaken at the local level, and the high costs and uncertainty associated with the country’s discretionary planning system.

To start to tackle this, the next Government should set a mission to make the UK more prosperous than Germany. Taking inspiration from recent US place-based policies and the long-term approach taken to German reunification, it should start what will be a multidecade plan by doing the following:

• Replace the current discretionary, case-by-case planning system with a new rules-based flexible zoning system. The UK’s planning system is uniquely unpredictable and restrictive by the standards of the G7. New rules to densify urban areas close to transport links in and around cities would make public transport networks more effective by connecting more workers to city centres.
• Commit £15.9 billion (much of which comes from existing spending commitments) to a 10-year growth package that invests in Birmingham, Glasgow, Manchester and Leeds. A ‘British CHIPS Act for city innovation’ would focus on making these cities more attractive places to do business by boosting the availability of office space in city centres, improving local transport and encouraging the commercialisation of ideas from the leading universities of each city.
• Deepen devolution to existing metro mayors. The UK is exceptionally centralised for a G7 nation. A ‘triple deal’ with the mayors of Greater Manchester, the West Midlands and London, and rolled out to other mayors as appropriate, to enable them to collect a share of income taxes raised locally and take key planning decisions for the area would give them greater power and incentive to reshape their local economies for the long term.

Andrew Carter, Chief Executive of Centre for Cities, said:

“The message for policy makers is to take note of why the USA, France and Germany perform so much better than the UK. While not the exclusive reason, a major part of this is the success of their big cities.

“The size of cities like Manchester and Birmingham means they should have an advantage in attracting cutting-edge businesses. This is exactly what cities like Chicago, Munich and Lyon do, offering access to skilled workers, high-quality office space and ‘spillover’ benefits from neighbouring firms. British policy makers need to focus on addressing the reasons why our large cities don’t do this to the same extent.

“Doing this will require the next government to bring about serious reform to the planning system and implement a strategy with associated funding that goes way beyond previous attempts at regional re-balancing or levelling-up, if the goal of becoming more prosperous than Germany is to become a reality.”