Growth: the big issue

By Ben Lucas | 03 October 2023

Britain’s low growth, low productivity and low earnings doom loop is both the cause and consequence of the volatility we have lived through for the last 15 years.

We’ve never really recovered from the great financial crash in 2008. No amount of clutching at straws, in the form of revised ONS data on economic performance since Covid, can hide that fact.

That’s why, as we enter election season, the parties are using their autumn conferences to set out their growth pitches. After a succession of false dawns, what we need now is not just new objectives but a serious strategy for delivery. A national growth plan, with an industrial strategy that has net zero transition as its north star; delivered with and by places, working in partnership with national government, business, unions and local communities. President Biden’s Inflation Reduction Act may have been developed in the White House, and enacted in Congress, but its transformative effects have been delivered through investment in cities across the USA – places like Detroit, Pittsburgh and Baltimore.

If we want to achieve ‘good jobs, everywhere’ or ‘levelling up’ then we need a similar focus in Britain on what that means for the places that need to be at the heart of this. This is not about pitting towns and cities against each other, nor about the North versus the South. But it does require recognition that Britain is disfigured by economic inequality, whether in regional disparities or the concentrated deprivation facing some communities in London.

The social effects of low productivity are felt in stagnant wages and the growing cost of living crisis in towns and cities all over the UK. The crux of the problem is the growing divergence in productivity rates between London and the South East, and the rest of the country. National recovery depends on closing that gap, through a forensic focus on boosting productivity in local places, particularly cities, as they have the greatest potential to grow productivity faster.

We know much of what needs to be done to make our urban areas more productive. Better connectivity, both transport and digital; better alignment of skills with local business demand; more investment in R&D and innovation linked to high value industrial clusters; more housing, focusing on affordability and density; and a healthier working age population. Recent Metro Dynamics research shows that in Greater Manchester, where transport investment and economic collaboration has been working for the longest, productivity has also improved.

Of course, not everywhere is the same, the mix of assets, opportunities and challenges varies from place to place. But place is the level at which human capital and physical capital investments can best be aligned; that public services can best be integrated to focus on prevention at population level; and that businesses, universities and communities can be engaged in developing their own shared future.

Growth has always been important to local government. In the late 19th and early 20th century Joseph Chamberlain pioneered municipal entrepreneurship, and Derby successfully courted Rolls Royce with cheap and reliable electricity. In the 1980s, the Greater London Council, and the West Midlands set up Enterprise Boards, that were the models for regional development authorities in the 90s and 2000s. And in the 2020s Greater Manchester is developing Atom Valley, Birmingham and the West Midlands Combined Authority are establishing a Levelling up Investment Zone, the North of Tyne is promoting its arc of off shore energy innovation, Essex is working with London on the Thames Freeport, and Barking and Dagenham is developing major new housing and industrial development in Barking Riverside.

Nationally, growth is about GDP, Treasury spread sheets, OBR forecasts, and party political fortunes, but locally it is about what your town centre looks like, whether there are good local opportunities, whether your family can afford to pay the bills, and what kind of lives and livelihoods you can expect. There is a direct correlation between low productivity, low earnings and poor local social and economic outcomes.

Sir Michael Marmot has highlighted the anatomy of Britain’s health challenges, and how this is socially and economically determined. We can see this in regional inequality, but also in huge gaps in healthy life expectancy within the same cities. In Liverpool, for example there is a 13-year Healthy Life Expectancy gap between people from the Anfield Ward and people from the more prosperous area of Childwall.

That’s why many councils have been focusing on inclusive growth, with initiatives on employment support, the Real Living Wage, community wealth, and targeted mental health. The Centre for Progressive Policy hosted Inclusive Growth Network has been working with its member councils to develop and spread best practice on good employment charters, how to hard wire inclusive outcomes into regeneration and innovation, and how to make procurement work for local people and businesses.

Councils know only too well that low growth and low productivity, are linked to declining municipal revenues and increasingly stretched public services. A quick glance at the growing list of councils in dire financial straits (where this is not linked to borrowing decisions) highlights the stark correlation between local economies and local revenue. Public service demand in towns and cities with weaker economies is often higher, just as their ability to fund these services is more constrained.

Councils are doing the best they can to support local growth, but they are struggling with the legacy of austerity, and a system that now requires almost all of their resources to be spent on statutory services, especially care and children’s services. The great irony of all this is far from austerity shrinking the state, it has simply resulted in an unprecedented transfer of resources from local to central government, a process of nationalisation by stealth.

Some councils may be more hesitant about seeing growth as core business, but with local enterprise partnership funding being withdrawn next year, the responsibility for local economic leadership will lie squarely with elected local leaders. Whoever wins the next election will need to put in place a new national framework that can support that role. This should enable places to develop their own local growth plans, supported by long term funding stability, with new powers and capacity support. Councils can then collaborate across functional economic areas through Mayoral Combined Authorities and Economic Prosperity and Growth Boards to develop a strategic pipeline of investable projects that can really shift the dial on growth.

There are four major opportunities a new focus on local growth could catalyse, each of which plays to the core strengths of local and regional government. Industrial strategy can be underpinned by councils and combined authorities identifying the projects and investments that can catalyse the potential of their high value industrial clusters, along with the housing retrofit and local energy schemes that can support net zero transition. Increased housing numbers, including through affordable and social housing, can be delivered through partnership with local leaders on new delivery models, land purchase powers and investment mechanisms. Public service reform can be accelerated through local design and delivery of population and prevention-based service models. And more people can be supported into work through tailored and devolved local employment support, with devolved skills provision aligned to local employment demand.

Next year will be dominated by the heat and noise of the coming General Election. ‘It’s the economy stupid’, will be the central issue. The party with the strongest offer will be the one that can translate this into better jobs, healthier and happier lives and a more sustainable future in the towns and cities where voters live. To paraphrase the US politician Tip O’Neill, ‘all growth is local’.

Ben Lucas is a founding director of Metro Dynamics

X - @metrodynamics

Analysis: Growth Battlelines

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