02How places have fared since 2010

The UK’s economic stagnation has been felt in every part of the country. Changing this presents a huge problem for the next occupant of 10 Downing Street.

The requirement for economic growth will be a key part of the debate in the run up to the next general election. While the economy is usually central in any election campaign, the UK’s poor performance since the global financial crisis makes the requirement for growth a particularly pressing one.⁷

And so it is no surprise that Keir Starmer has said that raising productivity growth will be Labour’s ‘obsession’,⁸ while Jeremy Hunt made growth the core theme of the last Autumn Statement.

Cities are a key part of the UK economy – the 63 largest cities and towns are centres of production, accounting for 9 per cent of land but 63 per cent of output and 72 per cent of high-skilled jobs. So their performance has been, and will be, an important factor in how well the UK economy fares through the rest of the 2020s and beyond.

This chapter looks at the economic performance of cities since 2010, showing how they have fared and what this means for the party that forms the next government. It does this by looking at job creation, productivity, income and housing affordability. Where data is available, it contrasts this performance to the 1998 to 2010 period to put this performance in context (see Box 2).

The starting point: large differences in disposable incomes across the country

The coalition government came to power in 2010 with the aim of rebalancing the economy, both spatially and sectorally. The need to do this spatially was clear – as Figure 1 shows, disposable incomes in cities in the Greater South East in particular were much higher than they were further north. Disposable incomes in London were close to double what they were in Blackburn and Hull, for example. And all large cities lagged behind the national average, a particular issue given the number of people who lived in them.

Most cities have experienced a jobs boom since 2010

In 2010 the requirement to create jobs was clear. As the UK economy was recovering from the global financial crisis, the unemployment rate was at its highest point since the mid-1990s. Few would have predicted what was about to happen. The economy has gone through a jobs miracle since 2010, and most cities and large towns have benefited. By 2022, there were 4.6 million extra jobs in the UK than there were in 2010, considerably more than the 2.5 million created between 1998 and 2010.

All but two of Britain’s 62 largest cities and towns had more jobs too. London led in relative terms. Its total number of jobs grew by almost 30 per cent, adding a further 1.4 million positions to the Capital’s economy – the equivalent of adding the whole of Wales to the UK jobs market. It was joined by Luton, Reading, Cambridge and Milton Keynes in the top five. And half of cities had jobs growth that was higher than the national average between 1998 and 2010. In contrast, Aberdeen and Worthing were the only two places that had fewer jobs – the fall of around 9 per cent in Aberdeen being in stark contrast to most other parts of the country.

While there is a reasonable geographic spread of the top performers, the sheer scale of London’s performance means that the total share of British jobs has continued to cluster in the Greater South East. In 2010, 38.8 per cent of all roles were located there; by 2022 it had risen to 40.8 per cent.⁹ And for every one job created elsewhere in Britain, 1.2 were generated in the Greater South East. While rebalancing and levelling up have been themes in policy since 2010, the divides between south and north have continued to widen.

But productivity growth has been weak across the country

Things look decidedly less positive from a growth perspective when looking at productivity. At the national level, it increased by an annual average of 0.6 per cent in real terms between 2010 and 2021, much more sluggish than the average annual growth of 1.5 per cent between 1998 and 2010.

And this was seen across most of the country. Comparing city performance post-2010 to the national average between 1998 and 2010 underlines how poorly almost everywhere has performed. Just five cities had productivity growth rates that were higher than the national average between 1998 and 2010, all of which were in the Greater South East (see Figure 3). More alarmingly, 18 had become less productive according to ONS figures over the period, with Derby seeing the largest fall in output per hour of any city or large town.

Despite the seven fastest-growing cities all being in the Greater South East, there was little difference in productivity growth between this part of the country and the rest of the UK. This is because, conversely to the story for jobs, London’s productivity slowdown more than countered the growth of places like Slough and Brighton. The Capital led UK productivity growth before the financial crisis,¹⁰ but it has close to flatlined since, increasing by an average of just 0.3 per cent per year between 2010 and 2021. This ranked it 38^th out of 63 cities and was a key cause of the wider UK slowdown seen over the period.

This combination of strong job growth but poor productivity growth suggests that many of the roles created were in lower productivity activities. At a national level, around two-thirds were taken by households in the bottom half of the income distribution between 2009/10 and 2019/20,⁷ and while the data isn’t available at the sub-national level, the analysis above suggests this played out across most cities. The UK hasn’t struggled to create jobs, which is very welcome. It does, however, appear to have struggled to generate ‘good jobs,’ to use a phrase used by both Rishi Sunak and Keir Starmer.¹²

Poor productivity improvements have squeezed disposable income growth

The result of this poor productivity growth meant that while more people were employed, this did not translate into strong income growth. At the national level, gross disposable household income grew in real terms by 0.7 per cent on an annual average basis, or £1,800 over the period. This compared with a yearly average growth rate of 1.4 per cent between 1998 and 2010, an increase of £3,300 (in 2022 prices).

Despite its poor productivity growth, London was the only city that saw its disposable income per head rise faster than the national increase between 1998 and 2010. On average, incomes of Londoners were almost £4,300 higher than in 2010 (in 2022 prices), and Box 3 discusses what drove this. It was followed by Brighton, Worthing and Aldershot. Meanwhile, Burnley and Aberdeen had lower incomes than in 2010 and, on average, people in Glasgow were just £34 better off (see Figure 5). And this is before housing costs are accounted for, which as Box 4 shows worsened in most places.

 

Once again, the scale of London combined with its performance had an impact on how incomes grew in different parts for the country. For every £1 increase per head outside of the Greater South East¹³ between 2010 and 2022, they rose by £2.36 within the area.

These combined trends have impacted on the level and nature of poverty in the UK

Despite their disproportionate benefit from the job creation that has happened since 2010, those at the bottom end of the income distribution appear to have been most affected by this poor disposable income growth. Using children in poverty as a proxy shows that relative poverty has become a bigger problem since 2014 (the earliest the data is available).

The good news is that absolute child poverty has decreased slightly overall between 2014 and 2021. This measure is based on a fixed baseline of 2010 median income, so this slight decline is consistent with the rise in incomes, however sluggish, over this period.

But this wasn’t the case in many cities. While more than half saw declining absolute child poverty rates, those in the Midlands (led by Nottingham, Derby and Leicester) saw the largest increases (see Figure 6). In all Scottish cities absolute child poverty rates rose, while all Welsh cities saw significant decreases.

In contrast, the proportion of children in relative poverty has risen in every UK city except Belfast (see Figure 7). Relative poverty is measured as having less than 60 per cent of median income in the same year. This indicates that while incomes in most cities have grown among the poorest households, it has been at a slower rate than average earners, meaning their relative position has worsened. As a consequence, in 2021 there were six UK cities, all of which are in the Midlands and the North of England (Bradford, Blackburn, Birmingham, Burnley, Derby and Leicester) where over a third of children were in households in relative poverty. There were none in 2014.

Alongside this, there has been a change in the nature of poverty – in-work poverty has been increasing in almost all areas of the UK. Figure 8 shows that the share of children living in relative poverty who are from working families has risen in all cities except those in the East of England. The upshot is that while in-work poverty was primarily a Greater South East phenomenon in 2014, it is increasingly spreading across the rest of the country. In 2014, the Greater South East accounted for 17 of the 20 cities with the highest share of children in relative poverty. In 2021, it was 13 of the top 20 (noting the top 11 were all still in the Greater South East).

Taken together, these trends imply the following:

• Strong jobs growth has lifted many households out of absolute poverty between 2014 and 2021, although this is not the case in many cities in the Midlands and the North.
• In contrast, increases in relative child poverty suggest low-income households have still fared worse compared with average-earning households over the period.
• Combining this with the evidence of increasing in-work poverty suggests that job growth without productivity growth has merely shifted poor households into work, rather than alleviating poverty altogether.

The result is that most places are worse off than if pre-2010 trends had continued

While almost all places are better off than they were in 2010 (with Aberdeen being a clear exception), the poor performance in terms of productivity and income raises the question of how much better off places would have been if they had kept growing at the pace seen between 1998 and 2010. Comparing income growth since 2010 to the rates between 1998 and 2010 for every city and large town gives an indication of this.

At the national level, on average people were cumulatively £10,200 worse off than they would otherwise have been if growth had continued at pre-2010 rates.

At the city level, just seven places – Aldershot, Bristol, Derby, Northampton, Slough, Telford and York – had cumulative disposable incomes that were higher than what 1998 to 2010 growth rates would have achieved (see Figure 9). The reason for this, however, is not because of an especially strong performance in any of these seven places since 2010, but because their pre-2010 performance was underwhelming.

In every other city, people were worse off than if incomes had grown at the rate they did in their area between 1998 and 2010 – people in 47 places were £5,000 worse off over the period, and in 27 of these places people were more than £10,000 worse off. Aberdeen had the biggest shortfall – if incomes had grown at pre-2010 rates, the city’s residents would have had an extra £45,000 in their pockets (equivalent to two extra years of disposable income). While the city is a clear outlier (and is discussed in more detail in Box 4), the residents of Burnley, Cambridge, Glasgow and Milton Keynes were all over £20,000 worse off than if their incomes had grown at the rates they had pre-2010. shows how this played out in Aberdeen and London since 2010.

Policy churn has continued since 2010

There certainly hasn’t been a lack of action in terms of sub-national economic policy over the past 14 years, with a plethora of initiatives introduced. There have been four main narratives to the policy approach.

• In 2010, the theme was ‘rebalancing the economy’ when the coalition government was formed.
• This was replaced by the Northern Powerhouse initiative, led by George Osborne.
• This concept was largely abandoned by the May government, which focused more on industrial strategies, which included the creation of local industrial strategies.
• And with the Johnson government came levelling up, which has continued into the Sunak government, even if it has had less focus.

Sitting under this have been a range of funds, deals, new structures, area-based policies and task forces designed to improve growth across the country (see Figure 11). Much of it hasn’t had a great deal of impact, and some has come in for sharp criticism.¹⁴

Policy churn isn’t just a hallmark of the past 14 years though. Figure 11 also shows that the 1997 to 2010 period was similar in its approach, which in turn was seen in the decades before it.

As the Levelling Up White Paper highlighted, this is a problem that limits any attempts to seriously grapple with the geographically imbalanced nature of the UK economy.

Introducing a degree of consistency and stability in sub-national economic policy will be an important prerequisite for the next government to be able to show progress when it goes to the electorate.  Two recent policy initiatives offer increased hope that this consistency can be achieved.

The first is the creation of combined authorities with directly elected mayors, introduced by George Osborne in 2014 and since expanded. While these institutions will take time to impact the performance of their economies, they have already been able to tailor policy to their areas with the limited control they currently have.

The second is the Levelling Up White Paper itself. While not perfect, one of its most welcome aspects is a setting out of government strategy for improving the performance of different parts of the country that includes identifying trade-offs and areas where policy should be focused.

What this means for the next government

A major economic headache for the coalition government in 2010 was how to get the economy creating jobs again to offset the impact of the global financial crisis. Given what has happened over the past 14 years, this will be less of a concern for the next government.

Clearly, what will be an issue is productivity growth. Not only has the UK performed poorly relative to international peers (despite their own struggles), most of its cities have struggled too. And even London, which led UK productivity growth up until the global financial crisis, has hit the buffers. This has had implications for how incomes have grown and the number of people who find themselves in relative poverty.

Despite the slowdown in the Greater South East, growth in jobs means its share of the country’s employment, output and income have increased further. On these measures, not only does the North-South divide still exist, it has widened.

And housing, especially in the Greater South East, is a larger issue. It’s even more unaffordable than it was in 2010.

This is quite some in-tray for the next government. The factor that ties these issues together is growth, specifically a lack of it. Many of the country’s economic problems – high taxes, high national debt, poor income growth and rising relative poverty – have come about because of poor productivity growth.

Improving productivity must be the focus of the next parliament if economic performance since 2010 isn’t to be repeated over the remainder of the 2020s. Both main parties have committed to focusing on growth and taking a long-term approach to this. But how serious they are will be shown by the policies they put in place.

National-level policies, such as business investment tax reliefs, immigration and the UK’s trading relationships with the rest of the world, will have a big influence on improving productivity across the country. Getting these policies right will be a central part of achieving a stronger UK economy irrespective of anything that falls under the banner of levelling up.

But these national policies will have different impacts in different places. To make the most of any opportunities, they will need to be complemented by a set of place-based policies that follow best practice over the past 14 years. Specifically, the next government should:

• Stick with the levelling up agenda and its focus on improving the performance of the largest cities outside London. Given the ongoing underperformance of large UK cities relative to their international peers, it’s difficult to see how there can be a more prosperous UK economy without these cities playing the same role that their equivalents in other developed countries play. This focus needs to be backed with a multi-decade programme of policies, as has been seen in Germany.¹⁵ Strategies without action don’t bring about change.
• Continue with devolution. Passing appropriate powers down to the geography the economy operates over gives places a greater ability to deal with economic underperformance and change. The trailblazer deals with Greater Manchester and the West Midlands mark significant progress in devolution, relative to 2010. The next stage should be to pass fiscal powers to London and other large city regions, while addressing the clear funding challenges faced by local government following decisions taken under the banner of austerity.¹⁶
• Reform the planning system. The discretionary case-by-case nature of the existing planning system creates uncertainty and has resulted in decades-long deficits in housebuilding, squeezing London and the Greater South East in particular. If this is to change, the next government should build on steps taken in the 2023 Levelling Up and Regeneration Act to move to a rules-based approach for planning, which exists in other countries.¹⁷