A common benchmark for the UK economy is how it performs against other G7 countries. Despite this, very little is understood about how cities in the G7 measure up, and how this affects the performance of the seven national economies.
For the first time, this report does that. It shows how the prosperity gap that exists between the UK and the G7 top performers of the USA, France and Germany is the result of the underperformance of the UK’s secondary cities. They trail well behind their G7 peers, seven of the bottom 20 large cities for productivity in the G7 are British, which impacts on the UK’s overall performance.
Figure 1: In the countries with the highest productivity, larger cities are more productive
Larger cities should have an advantage because of the benefits that big cities offer, namely access to a deep pool of skilled workers and access to a network of other high-skilled businesses. UK cities don’t inherently offer these benefits to the extent they should do, and fixing this should be a central part of the next government’s economic policy.
Closing the gaps between the UK and other leading economies will be no small task. If the UK was to become more prosperous than Germany, a mission that the next government should set, the national economy would have to become £181 billion (in 2018 prices), or 8.8 per cent, larger. It is not plausible that this gap will close without cities such as Birmingham, Glasgow or Manchester playing a much bigger role. If they are to come up to the same level of performance of similar G7 cities then they would need to contribute 57 per cent of the overall £181 billion increase in GDP.
Achieving such a goal will require a long-term strategy, backed up with funding and reforms that are sufficient to meet the scale of the challenge. To kickstart this mission, the next government should (alongside a number of national policy changes that are space blind, such the UK’s trading relationship with Europe and polices to encourage business investment, which fall outside the scope of this report):
- Reform the planning system, moving the UK away from its uniquely discretionary system and the uncertainty this creates towards a rules-based one that is more common in other G7 countries.
- Pursue deeper devolution to bring large UK cities more in line with their G7 comparators: more control over spending, the ability to raise their own taxes and for all to have transport powers akin to what London has with Transport for London.
- A UK version of the US CHIPS Act designed to boost cutting edge activities in the UK’s largest cities, spending £15.9 billion over 10 years in Birmingham, Glasgow, Manchester and Leeds to encourage innovation through their leading universities, invest in their city centres and create or extend their transport funding. Much of this funding has already been earmarked by the last government but has not been spent.
