1. Government
January 25, 2016

Here's why George Osborne’s plans depend on the success of Britain’s cities

By Paul Swinney

In last summer’s budget, chancellor George Osborne set out his long-term vision of building a “higher-wage, lower tax, lower welfare economy” in the UK. He promised to give Britain “a pay-rise”, while also announcing major cuts to welfare spending.

The UK’s cities will have a crucial impact on whether the chancellor succeeds in realising his vision: they account for around 60 percent of the country’s jobs, as well as 60 percent of working age benefits. Cities Outlook 2016 – the Centre for Cities’ annual health-check on UK city economies, published today – examines how Osborne’s ambition of building a “high-wage, low-welfare” economy is currently playing out across the UK’s 63 largest cities:

Click to expand. Image: Centre for Cities.

A number of the report’s findings will be of particular importance to the chancellor as he seeks to build a high-wage, low-welfare economy over the next four years.

First, as the map above demonstrates, there is a clear geographical divide across the country. Nearly all of the “high-wage, low-welfare” cities are located in the Greater South East; while most of the places with low wages and high welfare spending can be found in the North and in the Midlands.

The government has taken important steps to address the North/South divide, through initiatives like the Northern Powerhouse, and by devolving more powers to cities like Manchester, Sheffield and Birmingham. But as Cities Outlook highlights, there is still a long way to go to address this issue.

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Secondly, while there has been welcome jobs growth across the UK in recent years, cities with high wages have seen faster jobs growth than other places. The number of jobs in high-wage places has risen by 10 per cent since 2010; in low-wage cities they’re up by just 3 per cent.

Helping struggling places to support more high-skilled jobs in knowledge intensive sectors – such as the digital, professional and creative industries – will be crucial in bringing down welfare spending and boost wages.

Click to expand. Image: Centre for Cities.

However, Cities Outlook also shows that some cities are feeling the pressure of their own success. Welfare spending is rising at a much higher rate in high-wage cities than elsewhere – largely due to the high demand for housing in these cities pushing up housing benefit payments. For example, welfare spending in high-wage places like Milton Keynes and Cambridge has risen by 4 per cent since 2010, but has decreased in low-wage cities like Liverpool and Glasgow.

These findings suggest two broad approaches that the government must take to make its economic vision a reality. In cities with low wages, the focus should be on addressing skills-gaps and improving schools attainment – to help these places attract more of the high-skilled businesses and jobs that offer the best prospects of boosting wages and growth. This should be a key part of the government’s Northern Powerhouse initiative.

For places with higher than average wages, the government and local authorities need to address the housing crisis, by supporting more homes to be built and making better use of existing stock, as well as improving local transport.

Finally, the government should continue to extend its devolution agenda by giving cities more control over skills and welfare budgets. Allowing places to keep any savings from reducing the welfare bill would give local leaders incentives to invest in employment programmes that could reduce the need for benefits payments in their local community.

It’s clear, then, that for the government to realise its ambition, it needs to focus on supporting and empowering UK cities to overcome the economic challenges they face in the years to come.

All this week on CityMetric, we’ll be exploring the report’s main findings in more detail. We’ll focus in particular on the implications for UK cities in terms of welfare spending, housing, productivity and skills – so watch this space for more Cities Outlook blogs over the next few days.

Paul Swinney is principal economist at the Centre for Cities.

To find out more about the Cities Outlook 2016 report, click here.

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