Economic recovery will be spread unevenly

Last year, Centre for Cities reported that the recession had widened the gap between UK cities; today, they warn that the recovery might also play out unevenly.

Claire Maugham is the deputy chief executive of Centre for Cities

This morning, Centre for Cities publishes our fourth annual economic index, Cities Outlook 2011. Last year we reported that the recession had widened the gap between UK cities; today, we warn that the recovery might also play out unevenly. Some cities are in a good position to create private sector jobs, but there will be bumps in the road ahead as spending cuts take effect.

The cities to watch aren’t all in the south. Leeds and Aberdeen, along with Milton Keynes, Reading and Bristol, have high levels of skills, a healthy amount of business activity, and fewer of the public sector jobs which will be vulnerable over the next four years. And some of the places which were worst-hit during the recession are showing signs of improvement. In Hull, Doncaster and Northampton, which were badly hit by job losses during the recession, claimant counts have fallen by 1.2 percentage points – more than twice the average drop across the country.

But there are challenges ahead. We’ve analysed the disparities in how cuts to welfare payments will bite. Cities vary in how dependent they are on welfare – in Liverpool and Hull, up to 30 per cent of local income is via benefits payments, and the local economy will be affected by the loss of some of this income.

In the worst-hit place, Birkenhead, the cuts are equivalent to every resident having £200 less to spend every year by 2014/15 – more than twice the equivalent figure in York, where income levels will be reduced by £85 per head per year. In other cities, high numbers of public sector jobs in places like Hastings, Swansea and Sunderland create an additional vulnerability as these jobs are affected by wider spending cuts.

To deal with these serious challenges, cities need more powers. Most importantly, they should be able to raise, spend and borrow more of their own money. In other developed countries, local councils raise on average more than half of their income locally: in the UK, it’s only 17%, restricted mainly to council tax – which central government has the power to cap. The government will be reviewing this issue soon.

The left has traditionally been ambivalent about devolving power, fearing a ‘postcode lottery’ could leave some places behind.  But at the moment, councils have little incentive to grow their business base, given that business rate revenue goes straight back to the Treasury. Giving cities more financial freedom would mean they’d be more able to do what local businesses need to create jobs. If Leeds was able to stride further ahead, the economic impact of this could be felt across the more deprived wider region.

The previous government aimed to even out growth rates across the country via Regional Development Agencies and public sector job creation. Even under Labour, though, cities experienced the economic boom differently because they started from different places. To reduce the worst of the disparities, the coalition should have a radical rethink of the relationship between central and local government to put all cities, and the people who live in them, in the best position to thrive.

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