Driving Economic Recovery: the Core Cities – a New Partnership with Government 1

Driving economic recovery: The Core Cities – A new partnership with government 1. Introduction Contents This report explores the economic challenges 1. Introduction 2 facing the UK over the next decade. It assesses how the UK can respond to these challenges to 2. Why the Core Cities 3 generate economic growth and employment and it demonstrates how England’s eight Core Cities and their city regions can play a critical role in driving this 3. The four key challenges growth. However, for them to play this role, it will be facing the UK 4 necessary to devolve more powers and responsibilities to them. 3.1 Adapting to Long Term The report considers three possible futures for Structural Economic Change 4 jobs and economic output in the Core Cities and their city regions, examining worst case, medium 3.2 Addressing Low Skills and and best case scenarios for levels of investment, High Unemployment 6 infrastructure, sustainability and skills in local labour 3.3 Creating A Low markets. This gives three different outcomes for jobs and economic growth over the next decade. Analysis Carbon Society 7 of the difference between the lowest and highest 3.4 Driving efficiency and scenarios between 2009 and 2021 shows that, in a managing public best case scenario, England’s Core City Regions could expenditure constraints 8 support higher levels of economic growth and create: ■■752,500 more jobs. 4. Future scenarios: the ■■98,500 fewer unemployed; and next decade 10 ■■£33.5bn more GVA.1 The report sets out what is needed to ensure 5. Core Cities: Achieving the the UK, its Core Cities and their city regions best case scenario 11 achieve the high scenario and avoid a return to urban decline or jobless growth for a decade to come. It concludes by setting out the policy shifts that 6. Moving Forward: will generate higher levels of investment, skills and a new partnership sustainability, leading to more jobs and growth, greater with Government 12 economic inclusion and poverty reduction, and more effective use of public investment.

7. Delivering change: principles 1 Scenarios developed by Oxford Economics for this report for the new partnership 15

2 Core Cities – Driving Economic Recovery 2. Why the Core Cities? Yet, today, the Core City Regions face serious barriers to improving their economic performance. England’s Core Cities – Birmingham; Bristol; Leeds; In particular, low skill levels, widespread deprivation Liverpool; Manchester; Newcastle; Nottingham; and and weak transport infrastructure already inhibit Sheffield – and their city regions, underpin England’s performance and will, in due course, constrain growth. economy. The lack of freedoms and flexibilities to invest to The Core Cities’ own analysis highlights that mitigate these challenges creates further difficulties. England’s eight Core City Regions2: Core Cities only directly control about 5% of the ■■are home to 16 million people, almost a third of the total taxation raised within their boundaries5 but population. they are competing in a global marketplace against ■■generate 27% of England’s wealth, more than international cities with far greater control over finance London3. and investment. This leaves the Core Cities and their ■■have half of the country’s leading research city regions less able to enhance their competitiveness universities; and by addressing their distinctive challenges.6 ■■contain 28% of highly skilled workers (graduate With 27%7 of the nation’s wealth at stake, these level or above). constraints must be addressed to ensure that the In regions with Core Cities, economic performance Core City Regions make the maximum contribution to tends to rely heavily on the productivity of those cities driving the UK economy out of recession in a global and their city regions because of the concentrations marketplace. of infrastructure, assets, high-value business and jobs Over the past decade, the Core Cities have been they contain. For example, Birmingham City Region working together to demonstrate their importance and Tyne and Wear city region produce more than half to the UK economy – providing opportunities not of their entire region’s economic output, while Leeds problems – and this report proposes how best to and Sheffield City Regions combined account for more realise these opportunities. than two-thirds of Yorkshire’s economic output.4

2 As defined geographically by the Core Cities group in 2005.

3 GVA figures for the Core City Regions are approximated using NUTS 2 5 Core Cities (2008) Core Cities Annual Review 2007-08 geographies. Note that the Core Cities research cited includes the Three Cities definition of Nottingham City Region. 6 ODPM (2006) State of the English Cities 4 68.1 per cent of regional GVA 7 Using NUTS 2 geographies

Birmingham Professional and financial services firms located in Birmingham generate £3.7 billion a year.1 Birmingham is one of the UK’s foremost conference destinations: the National Exhibition Centre (NEC) Group attracts more than 4 million visitors a year: 42% of the UK’s total exhibition trade and major conferences.2 In the wider City Region there is significant employment in transport technologies.3

1 www.locatebirmingham.com 2 ibid 3 ibid

Core Cities – Driving Economic Recovery 3 3. The four key challenges added (see Figure A, below). Between 1995 and 2005, 12 new jobs were created in knowledge- facing the UK intensive services8 for every one new job created In struggling to return to sustainable economic growth, in other industries. By 2007, nearly half of all UK the UK faces four key challenges: employment was in knowledge-intensive industries9. 1. Adapting to long term structural economic ■■A blurring of the boundaries between change: managing the UK’s transition to a more manufacturing and services, with knowledge- diversified and innovative “knowledge economy”. intensive manufacturing companies increasingly 2. Addressing low skill levels and high generating value from its services as well as unemployment: avoiding the prospects of a decade innovative products10. of “jobless growth”. ■■Innovation becoming increasingly important to 3. Creating a low carbon society: making essential competitive advantage in all sectors, reflected by investments in infrastructure and the built environment business investment in intangible knowledge-based to adapt to climate change; and assets (assets and factors which support knowledge- 4. Driving efficiency and managing public intensive work)11 tripling between 1970 and 2004.12 expenditure constraints: devising new instruments 8 Based on the Eurostat definition and including financial services, to fund essential investments. professional services, high tech manufacturing, education and healthcare 9 Brinkley, I (2006) Defining the Knowledge Economy: knowledge economy 3.1 Adapting to Long Term programme report, The Work Foundation Structural Economic Change 10 Brinkley, I. (2009) Manufacturing and the Knowledge Economy: The Work Foundation The recession has accelerated the long term shift in the 11 Including Research & Development, software, design, brand equity, as UK towards a service-based, more knowledge-intensive well as human and organisational capital and skills-hungry economy. This move towards a 12 In 1970 firms invested just £4 on ‘intangible’ investments – research and development, software, marketing, training and design – for every “knowledge economy” has been characterised by: £10 on traditional investment in ‘tangible’ machines, tools, computers and ■ buildings. By 2004, for every £10 that firms invested in traditional tangibles, ■Knowledge-intensive services becoming they invested £13 on the intangible investments like R&D and workforce the major creators of new jobs and value skills to foster innovation and help create comparative advantage

15 Knowledge economy services 10 All other services Share of employee emploment (%) 5 Manufacturing 0 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Figure A: Knowledge-intensive services generated the most new jobs 1978 – 2007 Knowledge Economy services are based on WF estimates from Office for National Statistics figures based on OECD definitions and including communications, financial services, business services, education and health but excluding creative industries (part of Eurostat definition). All other services category includes retail, hospitality, transport, public administration and other community, social and personal services. Manufacturing includes both knowledge-based and other sectors.

4 Core Cities – Driving Economic Recovery ■■Cities becoming increasingly attractive business locations for knowledge businesses wishing to capitalise upon access to consumers, skills and infrastructure, as well as to work in environments that help to “hothouse” new thinking and exchange ideas. 89% of private sector knowledge-intensive jobs are in urban areas in England and Wales13 and growth in knowledge-intensive industries have made a significant contribution to increases in productivity in the Core City Regions over the last decade.14

■■ideas. 89% of private sector knowledge-intensive jobs are in urban areas in England and Wales15 and growth in knowledge-intensive industries have made a significant contribution to increases in productivity in the Core Cities over the last decade.16 In the recession, it is knowledge-intensive industries which have been affected least, with job losses primarily concentrated in places with high levels exporter of knowledge-intensive services.19 Universities, of employment in non-knowledge industries and businesses, government and entrepreneurs will need to amongst less skilled workers.17 work together to exploit ideas and develop innovative products, processes and services. Core City Regions – Forecasts suggest that, just as after the 1980s and home to half of England’s leading universities, nearly 1990s recessions, economic recovery will be driven by three out of every 10 skilled workers and offering the “knowledge economy”.18 This means that the UK’s attractive locations for knowledge-intensive businesses future economic success will rely upon its strengths – need to ensure that they are creating the conditions in growing knowledge-intensive industries, exploiting for investment, growth and innovation. the UK’s competitive advantage as the world’s largest Yet if the UK is to make this shift and capitalise upon 13 K Morris (forthcoming) Is the British Knowledge Economy becoming its competitive advantages, it needs to address its More Urbanised? The Work Foundation: London weaknesses. There remain gaps in the UK’s: 14 ibid ■ 15 ibid ■skills base – making it more difficult to exploit ideas 16 ibid and to attract investment. 17 I Brinkley (2009) From Recession to Recovery. The Work Foundation: ■■Infrastructure – broadband, transport, London accommodation etc. that knowledge businesses 18 ibid require in order to thrive. ■■Innovation system – with multiple policies Bristol achieving progress in isolation but not joining up to With 35% of working age residents qualified to at provide support at a national, regional and local level. least degree level in 20081, the highest proportion The Core Cities and their city regions, given their amongst the Core Cities, Bristol has a strong skills innovation assets such as research based universities, base and is well positioned to capitalise on the should be crucial cogs in this innovation system. continued growth of the knowledge economy. If these gaps are left unaddressed, they will act as Bristol also has a strong and growing reputation substantial barriers to the levels of innovation required for sustainability2. Strengths in creative industries, for a strong recovery. ICT, aerospace and advanced engineering within the city are reflected across the wider City 3.2 Addressing Low Skills and Region: nine out of the 12 largest aerospace High Unemployment companies in the UK are located in the region.3 In order to drive faster progress to an innovative 1 Nomis: Annual Population Survey (2008) knowledge-based economy and to enhance the UK’s 2 www.forumforthefuture.org/projects/sustainable-cities09 global competitiveness, improving the UK’s skills at 3 www.sciencecitybristol.com 19 Brinkley, I (2007) Trading in Ideas and Knowledge, The Work Foundation

Core Cities – Driving Economic Recovery 5 all levels is critical.20 The Core City Region partners in 23 higher education institutions23 and strong are addressing this challenge of boosting skill levels collaboration between colleges and universities. The and raising employment. Indeed, many of the Core concentration of many skills-hungry employers within City Regions are already leading the nation with their the Core Cities also supports employer partnerships efforts to address these challenges. Yet low skills and and means that targeted investment in skills in the high levels of people without work still represent the Core Cities is an important way to respond to market single biggest barrier to increased productivity in the demand. Core City Regions. Core City and city region efforts to enhance The Core City Regions are home to 32% of workforce skills start with boosting educational England’s labour force. In the Core Cities themselves, attainment at secondary school. While there have been a significantly higher proportion of residents (18.7%) significant improvements in recent years24, attainments have no qualifications compared to England as a are still lower than in many competing European city whole (14.1%). Indeed, the Core Cities have a lower regions. Now having responsibility for education for proportion of their workforce with qualifications all 14-19-year-olds, each Core City and city region is at GCSE or equivalent (Level 2 or below), and with considering how best to boost attainment. In addition, degrees or equivalent (Level 4 skills or above) than in the Core Cities and their city regions have been England as a whole, as is the proportion with Level working to reduce the number of young people aged 4 skills or above. Around 800,000 adults in the Core 16 to 18 that are not in education, employment or Cities have poor skill levels.21 training (NEET). All of the Core Cities have signed up to LAA targets to reduce levels of NEETs, working 22 By comparison with the targets set by Lord Leitch within local partnerships and intensifying efforts in for Level 2, 3 and 4, not enough Core City residents the context of a recession that is having a significant have the necessary skills. Raising skill levels will require impact on young people.25 new partnerships with universities, colleges and Providing opportunities for adults to acquire basic employers. The Core Cities and their city regions are skills to Level 2 through learning in the colleges, in the well placed to drive up skills quickly – with nearly one community and in the workplace is the foundation for quarter of the nation’s higher education opportunities Core City and city region efforts to boost skills. Often

23 EDP Associates, Core Cities, IDeA (2009) Core Cities: Delivering Employment and Skills 20 UK Commission for Employment and Skills, Ambition 2020 24 DCSF performance tables, comparing school performance in 2009 21 EDP Associates, Core Cities, IDeA (2009) Core Cities: Delivering against 2006 www.dcsf.gov.uk/performancetables/schools_09.shtml Employment and Skills 25 EDP Associates, Core Cities, IDeA (2009) Core Cities: Delivering 22 HM Treasury (2008) Leitch Review of Skills Employment and Skills

35 Core Cities

30 England 25 Leitch Targets 20

Proportion of residents 10

0 No Qualiﬁcations NVQ 1 NVQ 2 NVQ 3 NVQ 4+

Source: Office for National Statistics Figure B: Qualification Levels – Core City Residents 2008 Refers to the Core City local authority areas only. Note that figures have been rebased to exclude ‘other qualifications’ and ‘trade apprenticeship’ categories.

6 Core Cities – Driving Economic Recovery Figure C: Carbon Birmingham emissions in 2007 the Core Cities Bristol compared to the UK 2005 average Leeds Source: Work Liverpool Foundation analysis of Manchester data from Department of Energy and Climate Newcastle Change www.decc.gov.uk/en/content/ Nottingham cms/statistics/climate_change/ data/data.aspx Sheﬃeld

Core Cities average

0.00 2.00 4.00 6.00 8.00 10.00 Carbon emissions per capita

these are supported with Working Neighbourhoods 3.3 Creating A Low Carbon Society Funds and by the Learning and Skills Council. However, The UK not only needs to increase its innovation and the key to boosting the productivity of the Core City skills but also to move urgently towards becoming a and city region workforce is to work with private low carbon economy. The Core Cities and their city employers in different sectors to provide pathways to regions are making a significant contribution to this Level 3 and 4 skills. These efforts are often hampered shift; already they are sustainable places to live. Overall, by limits to the use of public funds. Greater alignment the per capita carbon footprint in the Core Cities is is needed between skills and employment investment 20% less than the UK average; their relatively higher that more closely reflects the sectors and skills needs densities enable more efficient use of infrastructure within the local labour market. and resources.27 The Core Cities’ commitment to focus Between 2000 and the onset of the recession in investments on moving towards a low carbon society early 2008, the number of Core City residents receiving were embodied in the 2006 Nottingham Declaration. 28 workless benefits declined by almost 160,000 people, The Core Cities and their city regions have around faster than the rate of decline in England as a whole. 50% of England’s tram and light railway journeys. However, well over 400,000 Core City residents still However, far too high a proportion of journeys within 26 receive workless benefits. As major employers Core – and between – the Core Cities and their city regions City local authorities are using all their powers to bring are still made by car. The resulting gridlock threatens more people into work. They achieve this through the environment and will limit economic growth. recruitment programmes targeted on staff shortage Businesses in the Core Cities and their city regions areas, innovative use of procurement polices, and face this challenge every day. In the nation as a whole, by including local recruitment policies in planning congestion costs businesses some £23.3 billion a year.29 agreements. This is reflected in ambitious Local Area Moreover, every journey moved from car to rail reduces and Multi-Area Agreement targets. However, as set carbon emissions by 71%.30 out in the Manchester and Leeds City Region pilots, The Core Cities and their city regions are a network the Core Cities – and their city region partners – need of economic hubs and, with the right investment in further freedoms and flexibilities to reduce the number transport, could play an even stronger role in economic of residents receiving workless benefits. In addition, performance might also be improved through welfare reform pilots which continue to be under discussion 27 Core Cities (2007) A Prosperous and Sustainable Future with Government and which should be trialled in the 28 See www.energysavingtrust.org.uk/nottingham Core Cities. 29 British Chambers of Commerce, Delivering for Britain: A Business Blueprint for Opportunity, Jobs and Growth 30 Energy Consumption and CO2 Impacts of High Speed Rail, ATOC 26 ibid analysis for Greengauge 21, April 2009

Core Cities – Driving Economic Recovery 7 growth. However, in recent years, some 37% of if Government (in exercising various regulatory duties) England’s transport investment has been in London works in partnership with the Core City Region local which has just 15% of the population.31 With the authorities, possibly by establishing Core City Region construction of Crossrail, the balance in future is even Resource Management Boards. more likely to favour London. Finally, the Core City Regions face severe challenges London makes the most significant contribution in their efforts to attract private investment in the to the UK economy, but we also need to realise the renewal, retro-fitting and growth of their housing full contribution the Core City Regions could make stock. Rebuilding the momentum of private house both to UK economic growth, and the move to a low building remains a significant challenge and, given carbon society. To achieve this it will be necessary to the nation-wide weaknesses in the private housing make significant changes in the balance of public and market, the Core Cities need to ensure that housing private sector investment in transport infrastructure in investment makes the most of opportunities across England. This means investing more within Core City the UK to generate investment. In addition, housing Regions and in rail transport links between the Core creates energy challenges. While Core Cities have City Regions themselves and with London. (A recent already committed to work together to energy retro-fit study32 shows that a full high speed rail network could public buildings, the challenge of improving the energy shift 30 million journeys from air to rail and 13 million efficiency of the housing stock extends far wider. from cars by the middle of the century. 33) Currently Core City Region efforts to kick-start private In addition, each of the Core Cities and their city house building, provide social housing, and to support region partners now face the challenge of attracting regeneration generally are being severely limited. more private investment in power, water/wastewater, telecommunications, digital infrastructure and electric 3.4 Driving efficiency and managing car charging infrastructure. Weaknesses in utilities public expenditure constraints infrastructure are starting to constrain housing Economic recovery and the shift to a more knowledge- and economic development. A new, more efficient intensive, sustainable economy will take place at a infrastructure is the key to continuing progress by time of low levels of private sector confidence and Core City Regions towards making their maximum investment. At the same time, there will be significant contribution to managing the conservation of global constraints on public expenditure. natural resources. An acceleration of the pace of Central government is likely to run a record deficit private investment in infrastructure will only take place in 2010/11, with falling tax receipts and rising benefit spending making this even more challenging. 31 PTEG (2009) The 2009 PTEG Funding Gap Report Politicians of all parties have committed to future 32 Energy Consumption and CO2 Impacts of High Speed Rail, ATOC spending reductions to reduce the deficit over the four analysis for Greengauge 21, April 2009 years from 2011/12 to 2013/14. Based on the Institute 33 Greengauge 21 (2009) Fast Forward: A High-Speed Rail Network for Britain for Fiscal Studies’ analysis of the Pre-Budget Report in 2009, tax increases and spending cuts will collectively amount to a fiscal tightening of 4.1% of national Leeds income (£57 billion) and could be as much as 5% Leeds was ranked joint first in value for money (£70 billion). � Figure D illustrates how government has for office space and sixth for staff costs in needed to manage fiscal deficits over the last 30 years Cushman and Wakefield’s European Cities Monitor by reducing “total managed expenditure” (current 1 2009 . Leeds has created 68,000 jobs over the past spending on goods, services and investments). decade2 with notable growth in regenerative Reduction of the deficit will require cuts in both health and biosciences, as well as the financial current and future spending, the scale of which will and related business services sector, which be affected by how well the economy is doing. If the employed more than 124,000 people in 2008 and economy is recovering and tax receipts are higher, cuts accounted for 31% of the city’s GDP.3 Home to will need to be lower; if the reverse happens, cuts will more than 2.9 million residents, the City Region need to be higher. And some cuts will be easier than contributed more than £48 billion to the UK others. Interest payments are increasing as a share economy in 2006. of spending and cannot be cut; social spending is 1 www.europeancitiesmonitor.eu/wp-content/uploads/2009/10/ challenging to cut, leaving capital and infrastructure ECM_2009_Final.pdf spending vulnerable. Some announcements suggest 2 www.leedsinitiative.org capital funds could reduce by up to 20%.� 3 www.leedsfinancialservices.org.uk Given the likelihood of a slow and tentative recovery,

8 Core Cities – Driving Economic Recovery 14 60

12 50 10 8 40 6 30 4

2 20 (%of GDP) 0 Fiscal decit 10 Fiscal deﬁcit (%of GDP) -2 Total managed expenditure Total managed expenditure -4 0 1964-65 1969-70 1974-75 1979-80 1984-85 1989-90 1994-95 1999-00 2004-05 2009-10 2014-15 Fiscal years

Source: Pre Budget Report 2009, HM Treasury Figure D: Central government spending and the fiscal deficit commentators have warned against significant further flexibilities to drive efficiency savings that help to tax increases and spending cuts in the short term, reduce public expenditure. And it means having the during 2010–11. But, while the scale and timing freedoms and flexibilities to invest at the level of the of cuts may vary, there will inevitably be a need to real economy, as well as with regional partners, to increase efficiency in the public sector, reduce capital continue to improve in the infrastructure, skills and spend (if other sources of funding cannot be accessed), conditions for doing business that help to attract reduce headcount and probably decrease the wage bill. and retain investment. And this means that new approaches to using existing finance and attracting The parallel decline in private investment and public investment are essential if the challenges outlined expenditure is significant for the UK and its Core City above are to be tackled effectively by the Core Cities Regions because of the importance of the public and their city regions. sector to creating the conditions for growth and private investment over the last decade, particularly through improved infrastructure and skills that enable businesses to thrive. The public sector has also been important for job creation, both directly (within the public sector) and indirectly (within the supply chain). In the Core Cities spending has generated additional demand and employment within industries such as retail, residential services, construction, leisure and financial services, all of which acted as major drivers of economic growth.� And the job creation, direct and indirect, has helped to attract highly skilled professionals to the Core Cities and their city regions. Cuts in public expenditure are likely to affect different Core Cities in varying ways, with some being more reliant on public sector employment than others. For these areas, it will be even more important to have the freedoms and flexibilities discussed in this report to respond effectively to the challenges they will face. But over the next decade every Core City will need to be as attractive a location as possible for private investment. This means having the freedoms and

Core Cities – Driving Economic Recovery 9 4. Future scenarios: the next decade Responding to these challenges will be vital if the UK is to thrive in the future – and this requires proactive steps to capitalise upon the UK’s assets. This is illustrated by two alternative scenarios developed by Oxford Economics, each considering how economic and employment growth in the Core Cities might vary under different economic circumstances. The outcomes of the “best case” and “worst case” scenarios are measured against the expected outcomes of the “baseline” scenario; the scenario which assumes that macro- and microeconomic conditions and UK policies will stay as they are now. In the “best case” scenario, Oxford Economics assumes that the UK will experience improved export ■■58,500 additional population (1.3% more than performance, increased consumer spending, increased the baseline) investment in UK universities (from individuals/ ■■380,000 additional jobs (15.1% more than the corporates), more modest public sector employment baseline) cuts and increased business investment. ■■A reduction in unemployment of 49,500 (29.2% To realise this scenario requires a combination of less than the baseline). global changes, which are not under the UK’s control, ■■£16.8bn of additional GVA (14.9% more than the and domestic action, which can be influenced by the baseline). UK. The UK will need to: In the “worst case” scenario, Oxford Economics ■■increase employment in knowledge-intensive assumes that the UK will experience an unfavourable industries and grow its knowledge-intensive exports. exchange rate for exporters, decreased consumer ■■increase individuals’ skills to enable them to access spending, aggressive public expenditure cuts and a fall higher wages and have more discretionary spend. in foreign direct investment. ■ ■manage public expenditure reductions innovatively. Again, this scenario is likely to be realised as a result and of global changes and domestic action. This would ■■ensure that businesses have sufficient confidence to mean that the UK was not capitalising effectively invest and to thrive. on the assets that will help to increase exports or The results of this best case scenario are that, by attracting private investment. 2021, compared to the baseline, the Core Cities The results of this worst case scenario are that, by will have: 2021, compared to the baseline, the Core Cities will have: Liverpool ■■53,800 fewer population (1.2% less than the baseline). Liverpool is home to 13,800 businesses, employing 226,000 people. It is the economic, ■■362,500 fewer jobs (14.4% less than the baseline). knowledge, transport and cultural centre of a ■■49,000 additional unemployed (29% more than wider City Region area of almost 2 million people, the baseline). 70,000 businesses and 1 million jobs. Liverpool ■■£16.5bn of lost GVA (14.6% less than the benefited from significant investment and visitor baseline). spending during the city’s Capital of Culture year Avoiding the worst and achieving the best case (£1.6 billion) and is expected to grow further scenarios requires the UK to capitalise more effectively during the next decade. Over the last decade, on its innovation, skills and infrastructure assets. employment in Liverpool increased more quickly Growing knowledge-intensive industries, increasing than the national average (by 12.4% (25,140 jobs), skills, managing resources more sustainably and compared to the national rate of 9.5% and the accessing further investment will be vital for the UK’s North West rate of 7.7%).1 success to 2021 – and this means making the most of the UK’s key assets: London, the Core Cities and their 1 Annual Business Inquiry city regions.

10 Core Cities – Driving Economic Recovery 5. Core Cities: Achieving Core City Regions working the best case scenario together: examples All Core City Regions are working together to address The Core Cities – and their city regions – will challenges and create opportunity. Examples include: be central to the UK’s efforts to address these challenges. The Core Cities are: Birmingham City Region has signed off an Employment and Skills Multi-Area Agreement ■ ■now at the heart of the UK’s knowledge intended to reduce worklessness and improve skills economy and will continue to be in future. levels and obtained £37,986,000 of funding from ■■well equipped to enable rapid improvements the Future Jobs Fund for the creation of 5,884 jobs. in the skills of the UK workforce and to reduce Sheffield City Region has partnered with its local unemployment. universities to develop a working model of how new ■■already leading the shift to a low carbon industry and new jobs can drive growth in the city society; further investments in existing region. The work provides powerful examples of infrastructure can accelerate the pace of how we can deliver accelerated economic growth change; and through positive action to promote innovation and ■■leading efforts to devise new public- growth in high value industries, such as Advanced private mechanisms to fund these essential Manufacturing, Digital and New Media, Healthcare investments. and Low Carbon Technologies.” Leeds City Region and Greater Manchester have A stronger, more sustainable UK economy moved even further as a result of being granted depends on exploiting the Core Cities’ unrealised city-region pilot status in the 2009 Budget. They capacity. Other European and North American have both signed up to a series of far-reaching and countries see their cities as high value, wealth- ambitious schemes designed to enhance conditions creating assets critical to securing increases in national for economic growth over the next decade and productivity. In England, investment in the Core Cities beyond. Both are expected to gain additional – and their city regions – has not been prioritised by powers over employment and skills, housing and Government and its agencies. As a result, most English regeneration and innovation. cities are less competitive locations than many others in Europe, North America and elsewhere. Failing to make the most of the high value, Core Cities – and their city region partners – are wealth-creating assets in the Core Cities and their already taking action to create the conditions city regions in the next ten years of recovery could for economic growth. They have been delivering lead to a “worst case” economic scenario. There is cross-boundary working for years, creating structures a real risk of a decade of jobless growth in Core Cities that work for each place. More recently, the majority – with significant impacts on the wider city regions. But of Core City Regions have been seeking to enhance by capitalising effectively on the Core Cities’ assets, the economic growth opportunities by formalising UK will move closer to the “best case” scenario than governance arrangements through mechanisms the “worst case” scenario, with a difference of 752,500 such as Multi-Area Agreements and public-private more jobs created; 98,500 fewer unemployed; and Employment and Skills Boards. £33.5bn more GVA in the Core Cities alone.

Manchester Manchester was sixth in the EU for inward investment in 2008.1 It has been ranked as the best UK city outside London for availability of retail, leisure and lively city environment for two years running2 The City Region accounts for 51% of the North West GVA and 5% of the UK GVA. 65% of FTSE100 companies have a base in the Manchester City Region and the city-region has one of the largest populations of students in the UK.

1 IBM Global Services Report December 2009 2 Cushman and Wakefield 2008 UK Cities Monitor

Core Cities – Driving Economic Recovery 11 6. Moving Forward: a new Zones and/or to emulate the successful network of Fraunhofer Institutes in Germany. partnership with Government It would also feature joint investment The Core Cities and their city regions constitute a programmes between each Core City Region network of economic hubs across England, well and their RDA as now being developed placed to drive the growth of the UK economy in the Leeds and Greater Manchester City over the next decade. Region pilots. As the Core Cities, we propose a new partnership with the Government to enable this Barrier 2: Addressing Low Skills Levels and growth to occur. High Unemployment At its core, we propose that this Partnership Response 2: Enhancing Skills at all Levels and should focus on overcoming four barriers to increasing Employment growth. What we already achieve: All of the Core Cities – and their City Region partners – are addressing the lack Barrier 1: Adapting to long term structural of intermediate and higher level skills. This is key to economic change increasing UK productivity. In addition, the Core Cities Response 1: Accelerating Innovation are focusing on bringing individuals currently excluded from the labour market back into work. What we already achieve: Five Science Cities Opportunity: The Core City Regions can boost (Birmingham, Bristol, Manchester, Newcastle and learner demand for higher skills training, increase Nottingham) are Core Cities and York is in the Leeds employer demand for skilled workers, and bring City Region. Universities in all of the Science Cities – people back into the labour market – but to do and in Leeds, Sheffield and Liverpool – are working this requires flexibilities in skills programmes closely with their respective Regional Development and initiatives to reduce unemployment. The Agencies to promote innovation in their Core City rigid guidelines governing the delivery of national Region. Moving forward, we must build on this programmes hinder efforts across the Core City experience. Regions. London’s Employment and Skills Board already Opportunity: The Core City Regions will drive has more freedom to set priorities for Government the transformation of the UK economy by expenditure on adult skills (“Section 4 Powers”). The accelerating innovation in large companies, small two Core City Regions pilots in Leeds and Greater and medium sized enterprises and in the public Manchester, and the Birmingham, Coventry and the sector. To enable this to occur, the Core City Regions Black Country (via their Multi-Area Agreement) expect will be the foundations of the nation’s “innovation to be granted similar powers. architecture.” Each Core City Region already offers significant concentrations of the components of Proposal Two: Devolve responsibility for innovation eco-systems – the research, institutions, all adult skills provision, to Core City, or networks, and skills and infrastructure; the Core Cities City Region, Employment and Skills Boards themselves are potential “innovation incubators” – (ESBs) and allow co-commissioning of providing all the necessary infrastructure to transform all employment support programmes. results from advanced research into commercially viable products and services. The second component of the new Core City-Government Partnership should be to determine how best to empower local Proposal One: Strengthen the authorities and the business community capacity of the Core City Regions to to ensure that investment in skills and accelerate innovation across the UK employment support meets the needs of The first component of the new Core City- employers and reduces worklessness. This Government partnership should be to will entail devolving responsibility (“Section determine how best to strengthen the nation’s 4 powers”) to set investment priorities for innovation architecture in the Core City all adult skills provision, to Core City, or City Regions. This would start with a review of the Region, Employment and Skills Boards (ESBs). Science Cities experience so far and the results ESBs will need to be established (where they would feed into the Hauser Review. It might do not already exist) for a Core City or City lead to proposals to establish City Region Region and each ESB invited to prepare an Innovation Panels and Innovation Procurement Employment and Skills Strategy. It will also

12 Core Cities – Driving Economic Recovery the UK – with the potential to reduce further. With the appropriate investment, the Core City Regions can become the most sustainable urban regions in Europe.

Proposal Three: Establish Ten Year Agreements on the essential infrastructure and housing investment programmes to accelerate the sustainable development of the Core City Regions. The third component of the new Core City-Government Partnership should be to determine how best to ensure that the Core City Regions have lower per capita carbon footprints than comparable urban regions elsewhere in Europe by, say, 2020. This would require reducing the carbon emissions from entail requiring each RDA to embed the each of the Core City Regions and agreeing the Core City Region proposals in any relevant necessary investment programmes. This would regional strategy. make a significant contribution to achieving The Employment and Skills Strategies for UK emission reduction targets. This would each Core City Region will normally include entail each Core City Region and Government higher level skills pilots with universities reaching a ten-year agreement on key public and specific programmes to improve 14-19 transport network improvements (heavy rail, attainment in partnership with sub-regional light rail, bus and rapid transport) and how commissioning groups. Each strategy could these would be financed. This would also also be accompanied by an agreement include a Government commitment to connect with the Department of Work and Pensions all the Core Cities to the High Speed Rail that the Core Cities or City Regions would network. co-commission all employment support The ten-year agreements would also include programmes, with detailed co-commissioning each Core City Region and Government, plans for employment programmes and together, working with energy and water/ welfare reform pilots. The latter could show wastewater utility providers to formulate how the anticipated savings resulting from investment programmes that meet growth reducing unemployment would be re-invested needs and resource conservation requirements. in skills training programmes.

Barrier 3: Creating a Low Carbon Society Newcastle Response 3: Developing Sustainable City Sustained public and private investment in Regions cultural and physical infrastructure has fostered What we already achieve: All of England’s Core the growth of tourism in Newcastle and led to Cities and their partners are promoting investments to the city being included in Lonely Planet’s list of make their city region more sustainable; this underpins the top 30 places to see in the world in 2007.1 all efforts to create the conditions for economic Newcastle ranked first in Forum for the Future’s growth. All the Core Cities see the need to take a Sustainable Cities Index 20092 and is taking the long-term approach to investing in infrastructure that lead in seeking to grow the green energy sector. reduces the demand for energy, water, and other In the wider City Region the manufacturing sector natural resources. continues to play a vital role, contributing around Opportunity: The Core City Regions, individually 20% of gross value added.3 and together, can create new markets for “low 1 http://business.timesonline.co.uk/tol/business/economics/ carbon goods and services” and the jobs that will article5947140.ece go with them. With their relatively higher density 2 www.forumforthefuture.org/projects/sustainable-cities09 of development, and location at the centre of public 3 The Work Foundation, Centre for Cities, SURF, CLG (2009) City transport networks, the Core Cities already have lower Relationships: economic linkages in Northern city regions, Tyne and per capita carbon footprints than most other parts of Wear City Region, The Northern Way

Core Cities – Driving Economic Recovery 13 regional Sustainability Appraisal duty would be devolved to those City Regions that sought to perform this function.

Barrier 4: Driving efficiency and managing public expenditure constraints Response 4: Financial flexibilities to drive efficiencies and future growth What we already achieve: The Core Cities and their City Regions are already identifying opportunities to increase efficiency, both through pilots such as Total Place which identify how to avoid duplication of funds, and through ongoing measures to reduce spending and realise the Gershon efficiency targets. Birmingham and Manchester City Region are already nominated Total Capital pilots. This could embrace the imposition of a duty Opportunity: The Core Cities and their City on utilities to participate in “city region Regions will make significant contributions to resource management boards” to coordinate the UK’s economic recovery and to driving public investment planning. The ten-year agreements sector efficiencies – but they will need flexibilities would feature next generation broadband to do both and to address their investment infrastructure and might also include a major requirements. There is a significant risk that the commitment to establish a network of electric Core City Regions’ contributions will be limited due vehicle charging points in each Core City Region. to the lack of investment in infrastructure to support A further element of the ten-year agreements innovation, enhance skills and increase employment, would be a comprehensive programme of and promote more sustainable development. Over home insulation retro-fitting, housing stock the next five years there will be severe limits on public replacement and growth for each Core City expenditure across the UK. The new partnership Region. Through the framework set by the between the Core Cities and Government must HCA’s “single conversation”, the ten-year feature how best to address the Core City investment agreements would guide HCA investment requirements in the context of these limits. Otherwise, priorities for each of the Core City Regions the growth potential from the Core City Regions will in the same way that the Joint Investment not be realised. Boards for London, Leeds and Manchester are intended to do. Proposal Four: Establish a new The Ten Year Agreements would be at the financial settlement with new financial heart of each Integrated City Region Spatial flexibilities between the Core City and Economic Strategy. These proposals would Regions and Government. be embedded in regional strategies. Also, the The Core Cities propose that a task force be established with membership drawn from Nottingham HM Treasury, the Audit Commission and One of the six designated Science Cities, the Communities and Local Government both city of Nottingham and its two universities have to assess the impact of constrained public strengths across a wide range of science and spending on the Core City Regions and to technology sectors including biomedical sciences, review alternative financial mechanisms ICT, environmental technologies and advanced to overcome these constraints. This would engineering. Greater Nottingham’s creative include reviewing how Core City Region local industries include around 1,600 companies, authorities could reduce their dependence on employing about 15,000 people.1 Around 20% of Treasury grant finance for key infrastructure jobs in the wider City Region are based in science- projects, assessing the potential benefits of related sectors.2 local bonds, enhanced use of asset-based delivery vehicles and single capital allocations. 1 www.nottinghamcity.gov.uk/CHttpHandler.ashx?id=14334&p=0 This task force would report before the 2 www.investinnottingham.com/sector1.asp?pageid=77 commencement of the next Spending Review.

14 Core Cities – Driving Economic Recovery 7. Delivering change: principles for the new partnership In this paper, we set out an ambitious vision for change. If we are to avoid the worst case economic scenario and come close to achieving the best, the Core Cities and Government must establish a new partnership to safeguard our future. All Core Cities see the need to build a new partnership with Government. They see a future where strategy for economic development is built by the Core City Regions and relevant funding moves directly from Government to partners in each Core City Region – The Core Cities are already working with working together whenever possible. The Core Cities Government to evaluate the feasibility of recognise that specialist intermediary functions may Accelerated Development Zones (ADZs), a form often sensibly be performed by regional agencies; of tax increment financing. The new financial arrangements will differ across the Core Cities and settlement would feature piloting these in regions. We propose, however, that the following each Core City Region. principles should inform the development of a new Proposals are now being formulated for Total partnership with Government: Capital pilots in two Core Cities. As part of the ■■Government investments in the Core Cities and new financial settlement between the Core City Regions should move towards a Total Place/ Cities and Government, it is proposed that Total Capital approach; single-pot, streamlined Total Capital pilots should be introduced in investment planning and appraisal processes should each of the Core City Regions. be introduced. The Core Cities would also like to work with ■■the Core Cities and their city region partners should Government to explore further financial be responsible for setting strategic investment mechanisms that allow for additional joint priorities and helping to define regional roles. procurement and raising of finance as the Core ■■the city region should be regarded as the most Cities. Working together to pool expertise relevant spatial level – including in two-tier areas – to and share financial risk in this way will help address the barriers to growth defined in this report; to foster private sector confidence and to and encourage key investments in areas such as ■■allow city regions the autonomy to establish energy efficiency and infrastructure. governance mechanisms appropriate to their local circumstances and to consider how best to engage Sheffield effectively with the wide range of public, private and Sheffield is fast becoming a centre for digital and third sector partners. new media, seeing the highest growth of all Core Thus, the new partnership between the Core Cities between 1998 and 2007, a 62% expansion City Regions and Government would recognise in the business base and 47% expansion of that governance arrangements will differ between employment. In the wider City Region advanced Core City Regions. We look forward to agreeing the manufacturing and metals continues to be a details of this approach with Government. This new critical sector, with output increasing by 8.5% in partnership will be the foundation for ensuring that Rotherham and Sheffield between 2000 and 2005.1 the Core Cities can best drive economic recovery. Sheffield is also an excellent city for creativity and tourism, with a thriving complex district and over a third of the local authority area located within the borders of the Peak District National Park.2

1 The Work Foundation, Centre for Cities, SURF, CLG (2009) City Relationships: economic linkages in Northern city regions, Sheffield City Region, The Northern Way 2 www.sheffield.gov.uk/out--about/tourist-information/visitor- attractions/green-spaces-gardens

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