Brexit aside, the biggest issue looming over last week’s Budget and the Government’s new Industrial strategy (published on Monday) was the UK’s productivity problem.
Indeed, before both events the Government had already been seriously hamstrung by the Office for Budget Responsibility’s warning that it had overestimated UK productivity in the past seven years—and that economic output is projected to be lower in the coming years as a result.
It was no surprise then that Hammond vowed that the Budget would “raise productivity and wages in all parts of our country.”
Similarly, the Government claims that the Industrial Strategy—its vision for post-Brexit Britain—will transform the UK economy by addressing the “foundations” of productivity.
But what’s missing from the Government’s plans is a clear sense of the different economic challenges that different parts of the country face—and in particular, the huge variations in productivity levels that exist across the UK.
The Greater South East/Everywhere-else productivity divide
As new Centre for Cities research shows, cities in the Greater South East—and not just London but also Reading, Milton Keynes, Aldershot and Slough—are among the most productive in Europe.They are also 44 per cent more productive than cities elsewhere in the country. In contrast, cities elsewhere in the UK are lagging badly behind—with major cities such as Manchester, Birmingham and Liverpool all below the national average.
To address the UK’s productivity problem, the priority therefore has to be getting big cities outside the Greater South East punching at their weight.
The Government is not oblivious to these issues, and the Budget did bring some announcements which will help to address them. A new Transforming Cities Fund worth £1.7bn, will be used to improve transport and infrastructure in cities across the country—a big factor in increasing productivity. There was also more investment for England’s metro mayors, which will help them tackle the economic challenges that places like Greater Manchester and West Midlands face.
The centre cannot hold
Crucially, these announcements all recognised that the best-placed people and institutions to deal with the UK’s economic disparities are not in central government, but in cities across the country. In particular, it is local leaders—rather than Whitehall civil servants—who have the knowledge and networks to ensure that decisions about skills, transport and housing are taken in a coherent and integrated way.Unfortunately, however, much of the Industrial Strategy flies in the face of this thinking.
Some of its ideas are excellent and worthwhile—for example, boosting research and development funding, giving adults a ‘second chance’ to learn new skills and improving young people’s maths skills. It also nods to the importance of ‘place’ and tackling regional disparities.
But the Strategy’s fundamental problem is that central government is trying to address all the myriad economic challenges that different parts of the UK face, and to give each of them equal standing. In its 255 pages, the Strategy sets out a dizzying array of micro-plans and initiatives to get productivity growing—from a new ‘bio-economy’ strategy to plans for a ‘digital health hub’ in Leeds and a ‘ceramics cluster’ in Stoke.
Only an overly-centralised state would set out an all-encompassing strategy to meet the disparate challenges that places as diverse as Blackpool, Birmingham, Bristol and Bournemouth.
Moreover, the Industrial Strategy is just the latest in a long line of top-down Westminster initiatives over the past two decades aimed at boosting productivity, innovation and growth. Gordon Brown in the early 2000s, Peter Mandelson in 2008 and Vince Cable in 2012 all launched similar efforts.
All fell by the wayside, in part because of their consistent inherent weakness: cabinet ministers trying to manage micro-economic problems everywhere across the country.
Learning from Europe
To really address the UK’s sluggish productivity, the Government needs to give local leaders and institutions in places across the country the powers and resources to meet the big challenges that they face.This is what happens in other countries such as Germany, the Netherlands and Belgium. In this context, the Industrial Strategy should set out broad aims, principles and funding—and then let places get on with tailoring them and putting them in place at the local level.
In particular, the Government must recognise that making the most of the UK’s emerging knowledge economy will give us the best hope of securing long-term prosperity.
Moreover, it is our cities which offer the platform for the knowledge economy to thrive, through the mixing and mingling of talent, consumers, entrepreneurs, and ideas.
To arrest the continuing slump in national productivity, we need to empower our cities to enhance their capacity for innovation and enterprise.
We’ve come a long way in recent years in taking power from the centre and giving it to our cities, thanks to the devolution agenda championed by the Conservatives since 2014. The Government must build on this progress—not roll it back—if the Industrial Strategy is to avoid suffering the same fate as its predecessors.
