Cities Unlimited

Making urban regeneration work

Tim Leunig and James Swaffield Edited by Oliver Marc Hartwich

Policy Exchange is an independent think tank whose mission is to develop and promote new policy ideas which will foster a free society based on strong communities, personal freedom, limited government, national self-confidence and an enterprise culture. Registered charity no: 1096300.

Policy Exchange is committed to an evidence-based approach to policy development. We work in partnership with aca - demics and other experts and commission major studies involving thorough empirical research of alternative policy out - comes. We believe that the policy experience of other countries offers important lessons for government in the UK. We also believe that government has much to learn from business and the voluntary sector.

Trustees Charles Moore (Chairman of the Board), Theodore Agnew, Richard Briance, Camilla Cavendish, Richard Ehrman, Robin Edwards, George Robinson, Tim Steel, Alice Thomson, Rachel Whetstone. About the authors

Dr Tim Leunig is lecturer in economic Dr Oliver Marc Hartwich is Chief history at the London School of Economist at Policy Exchange with respon - Economics. His research looks at Britain sibility for economic competitive- ness. He since 1870, including a number of papers was born in 1975 and studied Business that look at different aspects of city life Administration and Economics at Bochum over the ages. His work has won a number University (Germany). After graduating of international awards, and was recently with a Master¹s Degree, he completed a judged to be ‘outstanding’ by the PhD in Law at the universities of Bochum Economic and Social Research Council. and Sydney (Australia) while working as a He has advised Parliament, the Treasury Researcher at the Institute of Commercial and the Department for Transport. Law of Bonn University (Germany). Having published his award winning thesis with James Swaffield is a Research Fellow at Herbert Utz Verlag (Munich) in March Policy Exchange carrying out research on 2004, he moved to London to support Lord cities and urban policy. He studied Matthew Oakeshott of Seagrove Bay during Geography at Oxford University. After the process of the Pensions Bill. graduating in 2004 he spent a brief period working in the public sector before com - The authors have previously worked pleting an MSc in Cities, Space, and together for Policy Exchange on Cities lim - Society at the London School of ited , a report on urban policy in the UK Economics in September 2006. and Success and the City .

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2 Contents

Acknowledgements 4 Executive Summary 5

1 Introduction 6 2 Cities Limited 8 3 Success and the city 11 4 Reactions to our work 14 5 Things will only get worse 17 6 We cannot accept this 21 7 What can we do? 22 8 Expanding London 30 9 It will not just be London 37 10 Economic geography outside of the South East 41 11 Setting cities free 45 12 What would cities do? 48 13 Coping with population decline 53 14 Improving governance 57 15 Conclusion 60

www.policyexchange.org.uk • 3 Acknowledgements

Policy Exchange would like to thank Natalie Evans, Sam Freedman, Philippa Ingram, Max Nathan and Nick Tiratsoo.

ir

4 Executive Summary

Cities limited , the first of three reports, in an era when exporting manufactured demonstrated that attempts to regenerate goods by sea was a vital source of prosper - British cities over the past ten, twenty or ity; today the sea is a barrier to their poten - even fifty years have failed. The gap tial for expansion and they are cut off from between struggling and average cities, let the main road transport routes. More gen - alone between struggling and affluent erally, the economic pull of Europe has cities, has continued to grow. Geographical boosted the South East at the expense of inequality is growing. Our second report, the North, Wales and Scotland. Luck has Success and the City , examined experience also played its part: in 1900 London had abroad and the lessons other countries can finance and Manchester had cotton. teach British policymakers. This final Finance has since prospered and cotton report, Cities unlimited , uses the evidence collapsed, reinforcing geographical that we have gathered so far about what is changes. possible and what is not, about what works There is no realistic prospect that our and what does not, to offer new policy pro - regeneration towns and cities can converge posals for regenerating Britain’s cities. with London and the South East. There is, Many of the forces that make life tough however, a very real prospect of encourag - for struggling cities will continue. As ing significant numbers of people to move demand for more highly qualified workers from those towns to London and the grows, the lower skill levels associated with South East. We know that the capital and regeneration towns will make it even hard - its region are economic powerhouses that er for them to catch up – not least because can grow and create new high-skilled, their brightest and best educated leave for high-wage service sector hubs. At the same London after graduation. Nor is a change time market mechanisms can be used to of government likely to continue support - induce some firms to move out of the ing regeneration policy. Ministers in the South East. current Labour Cabinet overwhelmingly We propose a significant liberalisation represent inner city areas. A future of land use in London and the South Cabinet, perhaps more representative of East. At present local councils ignore mar - suburbs and the wealthy South East, may ket signals and zone land for industrial not have the same commitment to high rather than residential use. There are over levels of regeneration funding, particularly 2,500 hectares of industrial land in if economic circumstances demand a London alone, and 10,000 hectares in squeeze on public spending. London and the South East together. If But if we are honest about the con - only half of it were used for housing, it straints and realistic about the opportuni - would create £25 billion in value and ties then we can make progress. We need to allow half a million people to move to an accept above all that we cannot guarantee area that offers much better prospects to regenerate every town and every city in than where they live now. Such a market- Britain that has fallen behind. Just as we led policy would prompt many industrial can't buck the market, so we can’t buck firms that are based in London to relocate economic geography either. Places that to where land is cheaper. So some people enjoyed the conditions for creating wealth will leave regeneration cities; some jobs in the coal-powered 19th-century often do will move to regeneration cities. Both are not do so today. Port cities had an advan tage desirable outcomes.

www.policyexchange.org.uk • 5 Cities unlimited

We should go further. No one likes cities of the industrial revolution are geo - urban sprawl per se, but suburbs offer a graphically more peripheral than theirs. high quality of life to those who live in The relative weakness of local government them and create the economic “bulk” that here has compounded this disadvantage; makes cities both prosperous and vibrant. our studies of cities around the world – in Increasing the size of London so that it Germany and the Netherlands, in Poland, takes an extra minute’s journey to reach the Canada and Hong Kong – demonstrate edge of town would make room for anoth - that local communities manage their er million people, increasing their oppor - affairs better than a distant central govern - tunities. ment can ever do. We know that the South East offers the Devolution has many advantages. It greatest agglomeration potential, so it leads to diversity, and diversity creates evi - makes sense to think seriously about hav - dence as to what works and what does not. ing more than one large city in the South Anyone who believes in evidence-based East, where London has dominated for so policymaking should support large-scale long. We also know that cities based on devolution. We propose that the highly skilled workers are the most dynam - Government should roll up current regen - ic. Oxford and Cambridge are unambigu - eration funding streams and allocate the ously Britain’s leading research universities money to local authorities according to a outside London and both are well located simple formula based on the inverse of economically. We should consider expand - their average income levels. Central fund - ing both dramatically, just as Liverpool and ing would be available for a handful of Manchester expanded in the 19th century. exceptional circumstances, such as decont - Dynamic economies require dynamic eco - aminating highly polluted land. nomic geography. It would be for local authorities to assess Of course there are successful high-tech the opportunities, devise a plan for their clusters outside the South East and it is area and implement it. They would be right that they should build on their answerable not to central government, but strengths. But in many cases that does not to local people. They could spend the imply huge expansion. Manchester, Leeds money on traditional regeneration ideas, and Newcastle, for example, all have decid - such as supporting local firms or attracting ed strengths, but they are not successful inward investment. They could use the enough to deliver prosperity to neighbour - money to revitalise town centres or provide ing towns, such as Rochdale, Bradford and infrastructure links. Or they could pursue Sunderland, in the way that London is able a more people-oriented strategy and to support relatively poor communities in finance job clubs or skills training courses. North Kent and South Essex. If a local authority believes that attract - It is important to recognise the con - ing entrepreneurs is the right approach, straints that face many communities. Their then it would be perfectly legitimate to residents are certainly aware of them: our spend money providing facilities to do so. regeneration towns’ share of the popula - All local authorities would have the right tion continues to fall as people get on their to use the money to create a unique selling bikes and move to places that offer better point – the best parks in Britain, the most prospects. Liverpool’s population is little trees – to get away from being an identikit over half its peak level. town. A council could decide to attract There is no doubt that Britain starts at a parents who care about education by disadvantage compared with, say, spending its money on schools. It may well Germany or the Netherlands because its be the case that doubling teachers’ pay and

6 Executive summary

cutting class sizes substantially would to be relatively small, so a scheme that transform schools and attract new people. cuts costs for government – it would not Affluent Manchester workers, for example, have to bear the costs of demolition or might be attracted to buy homes in the pay for compulsory purchase – and catchment areas of such schools in increases the average size of a house has Rochdale. Their demand for local goods obvious appeal. and services would create jobs. Finally, an Finally, if we are to devolve funding to area that decided that there was no realistic local authorities we need to ensure that chance of regeneration could use the they are accountable to local people. That money to help local people to find work means much better scrutiny by the Audit elsewhere and to cut taxes for those who Commission and local media and greater remained. rights for local people to investigate what Many of our regeneration towns are the town hall is doing. It also means ensur - shrinking. Demolition policy is not work - ing that the voting system makes elections ing: it is expensive and is failing to trans - truly contestable, so that all politicians, form local housing markets. We propose whether in office or opposition, know that that, wherever possible, we should stop voters can – and will – hold them to demolishing properties. Instead, the account at the ballot box. Government should buy up the cheapest Realism, mobility and diversity. houses on the open market and give them Freedom, responsibility and accountability. to the next door neighbour in exchange These are the keys to unlocking the for an equity stake in the expanded prop - potential that exists in our towns and erty. Houses in regeneration towns tend cities.

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Introduction

Cities limited set out a critique of urban Britain. We looked at Poland, facing up to regeneration policy over the last ten a complete change in the nature and orien - years. It did not look at individual pro - tation of the economy. We looked at grammes, but rather asked the most fun - Amsterdam, and the Randstad more gener - damental question of all: have the places ally, an area coping with change and that were the focus of regeneration policy renewal in the context of a successful econ - been regenerated? We did not claim, and omy. And we looked at two classic regener - do not claim, that these towns and cities ation cities, Vancouver and Hong Kong, have not improved since 1997. A decade where strong local government leadership of strong economic growth means that it is taken for granted, and where the locali - is almost impossible to find any place ty, not the nation state, determines the pri - that has not improved. Nor did we claim orities, makes the decisions and takes that the regeneration money that has responsibility. These cities showed us that been spent has achieved nothing. It is incentives, power and ability matter. Cities almost impossible to spend billions and are more likely to be successful when city billions, year in and year out, and achieve leaders are given responsibility, but respon - nothing at all. But we did claim – and no sibility alone is not sufficient. As ever, the one has disputed this – that, far from foundation of successful policymaking and catching up, the places we focused on, implementation requires ability, as well as towns and cities that experienced wave responsibility. after wave of regeneration initiatives, Cities Unlimited sets out our vision of have fallen further behind the national how Britain should approach regeneration. average. In contrast, towns that were suc - It takes seriously the lessons of economic cessful in 1997, and not the subject of geography, of Britain’s experience and of regeneration policies, have pulled further experience elsewhere. It accepts that no ahead. The gap between successful and one-size-fits-all policy can ever hope to unsuccessful towns and cities has come to terms with the myriad of different widened despite a decade of ambitious circumstances faced by different commu - regeneration policies. We argued, there - nities in Britain, particularly if it has been fore, that regeneration policy over the last formulated at the centre and imposed on decade has failed. our towns and cities. The radical policies Success and the city: Learning from inter - that we set out here – including accepting national urban policies examined cities and significant population movements within city regions in five countries. All have dealt Britain and a substantial reduction in the with challenges that were in some ways power of Whitehall and Westminster, cou - similar to those faced by British cities and pled with corresponding increases in power city regions. We looked at the Ruhr area, for local councils and, therefore, local which faces very similar challenges to those accountability – may not make for com - of many former industrial regions in fortable reading.

8 Introduction

Many of Britain’s towns and cities have the price of this failure are those born in failed – and been failed by policymakers towns that offer fewer opportunities than – for too long. It is better to tell uncom - those enjoyed by people lucky enough to fortable truths than to continue to claim be born elsewhere. That cannot be that if we carry on as we are then things acceptable: we need to change our will turn out well. The people who pay approach.

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Cities Limited

Cities limited , the first in this series of three Tydfil in the West to Hull in the East. publications on urban policy, examined Some of the towns were small – Hastings the combined performance of 18 towns, and Merthyr have fewer than 100,000 peo - each of which had received significant lev - ple, while others, such as Sheffield and els of regeneration funding. By aggregating Glasgow, have more than five times that performance for a group of places we number. avoided exogenous effects, such as the clos - It would have been possible to have used ing of a local military base, from dominat - a different sample of towns. We could have ing our results. The places that we studied included Grimsby and Middlesbrough, 1 These towns are respectively ranged from Glasgow in the North to Accrington and Bacup (or just about any 23, 53, 83 and 81 miles from London Southampton in the South, from Merthyr of the 19th-century Lancashire mill

Figure 1: Geographical location of sample

Glasgow

Su nderland St ockton

Bra dford Bl ackpool Bl ackburn Liverpool Hull

Wigan Sh effield Warr ington St oke Walsall Leicester Coventry

Merthyr Tydfil

Hastings So uthampton

10 Cities Limited

towns), Portsmouth and Margate. We do remains 40 per cent higher in our regener - not believe that the results would have ation sample. Since unemployment levels been materially different. Nor do we have remained fairly stable over the last five accept the criticism made by some that we years, this suggests that they are structural - picked failing towns and showed that they ly higher in our regeneration towns than have failed. All our towns received signifi - elsewhere in the country. Some, but not cant levels of regeneration funding and, as all, of this variation in unemployment can such, are legitimate cases to include in a be attributed to skill levels: Leunig and study of the effects of regeneration policy. Overman report that individuals without Those who argue that we simply picked on GCSE level skills have a one in five chance failing towns at very least need to explain of being unemployed if they live in why there are 18 cities for which regenera - Windsor, but a one in three chance if they tion funding was so ineffective. live in Blackburn. 2 In addition, we constructed a smaller sample of successful towns. We were care - ful not to include the runaway successes: “ People on the ground know the reality of success and not everywhere can be the City of London, failure better than any policymaker or analyst can ever Chelsea, Oxford or Cambridge. Instead we hope to do picked one affluent London commuter ” town, Windsor, three more distant towns that are at least semi-independent of London’s orbit, Milton Keynes, Our fourth indicator is perhaps the Peterborough and Swindon 2 and two inde - most important: where do people want to pendent, thriving cities, Bristol and live? This surely is the bottom line. It is the Edinburgh. least technocratic, the least academic, the We judged success by a range of criteria. most outcome focused, because it asks First, we looked at gross value added what are individuals choosing to do with (GVA), the local equivalent of gross their lives. Remember that housing in domestic income (GDP). Data from the these regeneration towns is generally Office of National Statistics shows that much, much cheaper than housing in aggregate GVA scores for the 18 cities Britain as a whole. If they really were being which were subject to regeneration initia - regenerated we would expect people to be tives fell from 90 per cent of the national moving to them to take advantage of this average to 86 per cent between 1997 and opportunity. Equally, it is costly for those 2005, continuing an established trend. In who live there already to move out. If they contrast our successful cities’ GVA rose are owner occupiers they will have to trade over the same time from 131 per cent of down or increase their mortgage outgo - the national average to 143 per cent. ings; if they are renters then they will pay 2 Leunig T and Overman H, “Spatial Patterns of Secondly, we used Revenue & Customs more rent. If regeneration were really hap - Development and the British data to look at personal incomes. The story pening, these people would not leave. 3 Housing Market”, Oxford Review of Economic Policy , Spring 2008 was fairly similar to that for GVA, but not Far from people moving to these areas, 3 In contrast social housing ten - as pronounced. The personal incomes of we find that the proportion of the popula - ants are, as is well known, our regeneration group continued to slip tion living in our regeneration cities has almost unable to move between regions and very few do. We can relative to the country as a whole, and par - fallen by about 5 per cent over the last learn little from looking at the ticularly relative to our sample of success - decade. These are not places in the process mobility of social housing ten - ants. Hills J, Ends and Means – ful cities. of regeneration and which offer bright The future roles of social hous - ing in England , CASE report 34, We looked at unemployment, which has futures to would-be migrants. On the con - Centre for the Analysis of Social fallen across Britain in the last decade, but trary, these are towns which people are Exclusion, 2007

www.policyexchange.org.uk • 11 Cities unlimited

leaving, notwithstanding the higher cost of Nor can the Government claim igno - living elsewhere. People on the ground rance, for its own commissioned work know the reality of success and failure bet - shows the same thing, time and again. An ter than any policymaker or analyst can Oxford University and London School of ever hope to do, and they are voting with Economics report in 2001 for the Social their feet. We do not know how many peo - Exclusion Unit showed that many urban ple would leave these regeneration towns areas had consistent and persistent prob - were they not constrained by differential lems that showed no evidence of declining housing costs or the geographical restric - over time. 6 They found that every initially tions imposed by social housing tenancies. deprived place outside London recorded Our results should not have come as a below average performance between 1995 surprise to politicians or the policy com - and 1998, the period covered in the report. munity. Although our research was More recently the Department for methodologically different to other stud - Communities and Local Government ies, the results were very similar. The (DCLG) commissioned Oxford Brookes Joseph Rowntree Foundation commis - University to assess English cities. The sioned the University of Sheffield to study team looked at gross value added (GVA) the economic geography of Britain. Their between 1995 and 2002 and found that focus was on a longer period, 1968 to rises in GVA in some towns – including 2005, but their results were similar: those Stoke and Blackburn from our sample – areas that were poor in 1968 were poor in were under half the English average. 7 The 2005. Regeneration has not happened. report also questioned the effectiveness of Like us, they found that more successful regeneration funding, arguing that it was areas were drawing further ahead: “Areas “open to question whether such policies as already wealthy have tended to become physical urban renaissance and physical 4 Dorling D, Rigby J, Wheeler B, disproportionately wealthier, and we are regeneration will pay large dividends in Ballas D, Thomas B, Fahmy E, 8 Gordon D and Lupton R, seeing some evidence of increasing polari - terms of improved competitiveness.” Poverty, Wealth and Place in sation. In particular there are now areas in These results paint a gloomy picture, in Britain, 1968 to 2005 , p xiv, Joseph Rowntree Foundation, some of our cities where over half of all which regeneration for many cities exists 2007 households are breadline poor.” 4 only in the eyes and speeches of politicians. 5 Athey G, Lucci P and Webber The Centre for Cities, then at the As we made clear, there is no doubt that C, Two-Track Cities: The chal - lenge of sustaining growth and Institute for Public Policy Research Labour was genuinely committed to regen - building opportunity , Discussion Paper no 11, Centre for (IPPR), looked at the last ten years, and eration – these are Labour heartlands after Cities/IPPR, London, July 2007 came up with much the same conclusions: all, the constituencies of many Labour 6 Changing Fortunes: many of Britain’s cities are not successes, Cabinet ministers. Nor is it the case that Geographic patterns of income deprivation in the late 1990s , and are not offering their residents the Labour has failed where the Conservatives Renewal Research Summary 41, opportunities that they might legitimately had succeeded: the trends that we found Social Exclusion Unit / Department for Transport, Local expect after ten years of solid economic began before 1997. We did not identify a Government and the Regions, growth. 5 Analysis by Policy Exchange and well-intentioned but ultimately unsuccess - London, 2001

7 Department for Communities IPPR comes to the same conclusion ful policy change in 1997 that simply and Local Government, State of because the conclusion that regeneration needs to be reversed. Instead the challenge the English Cities: The competi - tive economic performance of policy has failed stems not from ideology, is harder, and that is why we next looked English Cities , London, 2006 but rather is inescapable to anyone who around the world to see how things 8 Ibid, p 224 looks at the evidence. worked there.

12 3

Success and the city

Because politicians and civil servants gen - cities do not fail too badly. Whatever the erally work only in their own country, legal or constitutional position, a city’s size knowledge from other nations does not gives it political clout, locally and national - cross borders at either the political or ly. The mayor or council of a large city will administrative level as a matter of course. have a large budget. They can afford to hire Domestic policymakers need to make real better advisers – both on regeneration and efforts to learn from other countries’ suc - on fighting their corner. The city will have cesses and failures. International compar - more representatives in the national parlia - isons are a core part of Policy Exchange’s ment than smaller places. With quantity, evidence-based approach to policy. comes quality: the more members of par - Success and the city was the result of 50 liament a city has, the greater the chance interviews conducted across three conti - that one of them is a minister or a heavy nents and five nations. We investigated the hitter of another type. Perhaps it should success, or otherwise, of Vancouver; the not be so, but that is the reality. Dutch Randstad, particularly Amsterdam; But we found more to regeneration than the German Ruhr region; the Polish cities of size, or importance: Warsaw is Poland’s Warsaw and Łódź; and finally Hong Kong. largest city yet not obviously successful. The two most successful cities that we What we have found, time and again, is visited, Vancouver and Hong Kong, were that the degree of flexibility accorded to also the largest. We do not believe that this local areas matters. When areas have to do is a coincidence. Large cities frequently what they are told by bureaucrats hundreds serve as a magnet for high-skilled workers, or even thousands of miles away, regenera - people capable of driving an economy for - tion is stifled. When they are given more ward, creating and sustaining firms that autonomy, regeneration appears easier. The offer good quality, long lasting jobs. We extreme case of this is Hong Kong, where need to understand that for cities, econom - the “one country, two systems” constitu - ically at least, big is beautiful, an issue we tional position guarantees Hong Kong a return to in the next chapter. degree of autonomy that we believe to be Big can also be politically advantageous. unique. Hong Kong has faced many chal - A city such as Vancouver is simply too lenges over the past two decades, including large to fail. Governments can get away uncertainty and fear of change, economic with neglecting smaller places if they so turmoil in the region, and the rise of local choose, but they cannot get away with economic rivals such as Shanghai. Yet ignoring the largest places. Throughout through all of that Hong Kong’s history riots and rebellions have over - Government was able to act with consider - whelmingly occurred in the largest cities. able autonomy, to be entrepreneurial. The concentration of poverty and derelic - If nowhere else has the same degree of tion are politically volatile, and that is why autonomy or independence as Hong governments take care to ensure that big Kong, nowhere is as centralised as Britain.

www.policyexchange.org.uk • 13 Cities unlimited

Germany gives considerable freedoms not required, expected, or encouraged to think only to the states – protected under the for themselves. In contrast Germany’s fed - nation’s federal constitution – but also to eral system expects and almost requires its cities. Places in the Ruhr, such as Essen local areas to be different to each other, to and Bochum have the freedom to experi - look for fresh ideas, to think. They have ment and to adapt to local conditions. the experience and the expertise that Essen, for example, has used that freedom Warsaw and Łódź lack. to devise incentives to attract firms such as The interplay between freedom and abil - ThyssenKrupp. A tradition of decen - ity is important. While freedom can release tralised power structures is also strikingly but not create ability, ability can create free - evident in the Netherlands and Canada. dom because it makes it easier for those in Thus, Amsterdam can design its own control to let go. Sir Michael Barber, the development and fund it, and Vancouver founding head of the Prime Minister’s can break with national policy on issues Delivery Unit, recently wrote: “Power is not such as the Olympics. a zero-sum – enhancing crucial relationships But freedom does not guarantee success. builds the capacity to get things done.” 9 The Polish cities of Warsaw and Łódź have Here Amsterdam stands out. It co-operated considerable freedom, perhaps as much with other Randstad cities, such as The freedom as Essen and Bochum in Hague and Rotterdam, to create a regional Germany. Yet they have had much less suc - force that could tackle issues such as region - cess in regeneration. Ability, as well as al transport that no individual city could do responsibility, is necessary for success. That on its own. Amsterdam is also notable for in turn requires a depth of knowledge engaging with important community about regeneration and development that actors, such as housing associations, in order is not easy to create. Freedom, as ever, is to ensure that all parties involved in regen - not sufficient: the national state must step eration are pursuing compatible policies. out of the way, but the local area also needs Both strategies have given Amsterdam more a high level of human capital to be able to decision-making and financial power in take advantage of the freedoms that are reality than it appears to have on paper and offered. Here Warsaw and Łódź suffer very both have aided regeneration. badly. Since the Second World War these We therefore have two dimensions by 9 Barber M, “Delivery is all about ‘how?’ not ‘what?’”, Parliamentary cities were part of a highly centralised sys - which to judge a city’s ability to regenerate: Brief , 11(9) pp18-20, 2008 tem, in which local authorities were not whether it has the ability, and whether it

Figure 1: Urban Policy Typologies – A Poultry Attempt

Ability LOW HIGH

Headless Chicken Free-range chicken W O L m Warsaw, Łód ź Ruhr, Hong Kong

o

d

e

e

r H F Cages Hens Cockerel G I

H UK Vancouver, Amsterdam

14 Success and the city

has the freedom to use those abilities. These harshly, as the headless chicken quadrant, in are set out in Figure 1, which constructs a which an area tries its hardest, but without four-part matrix, each of which is charac - sufficient expertise it can seem to run terised as a type of poultry. Cities and around in circles, with achievements com - regions with both freedom and ability are ing about by chance. We place the Polish represented as free-range chickens . They cities of Warsaw and Łódź in this quad - have a good quality of life, and can cope rant. with changes in their conditions as well as Finally, there are those towns without is possible, as both Hong Kong and the ability or freedom, the caged hens of the Ruhr areas show. In contrast, ability with - regeneration world. These towns are entire - out freedoms makes for cockerel cities. Such ly at the mercy of others. They do not have places have good ideas and innovative poli - the right to make their own policy, nor it is cy solutions, but lack the right to imple - clear that they would be successful were ment them. Nevertheless, their ability to they to be given those rights. Knowledge of crow loudly, repeatedly and at length can their own limitations leads to dependency, create freedoms, and those with power find so that rather than calling for more deci - it hard to resist. Cockerel cities such as sion-making powers, rather than setting out Amsterdam and Vancouver, therefore, have their own agenda in the way of Amsterdam more freedoms in reality than they appear and Vancouver, they are content to be the to have on paper, although those freedoms handmaidens of central government, wait - are conditional and can be reduced or cur - ing to be told what policies they should tailed by the centre. implement. All too often Britain’s local Freedom without ability is a frustrating councils fit into this category, although it is scenario, because that freedom cannot be certainly possible to argue that London is used effectively. We characterise this, perhaps growing into cockerel status.

www.policyexchange.org.uk • 15 4

Reactions to our work

Two ministers, Ian McCartney, MP for Peterborough. Our claim is not that the Makerfield and until September 2007 Government has not spent enough, but Minister of State for Trade, Investment and rather that its spending has not delivered Foreign Affairs 10 and John Healey, MP for the outcomes we hoped for: good jobs, and Wentworth and Minister of State for plenty of them, so that the people of Department for Communities and Local Wigan are able to enjoy the standard of liv - Government since June 2007, responded ing of the average person in Britain. to Cities limited . We mention their reac - The second interesting aspect of tions here because we think they illustrate McCartney’s intervention is the response the sort of thinking that lies behind much of people in Wigan. This story was posted of current urban regeneration policy. on the website of his local paper, allowing Ian McCartney made his position very local people the chance to respond. Seven clear in an interview with Wigan Today on people did so, and not one supported 9th November 2007. 11 He made the bold McCartney’s position. A former firefighter claim that “This Government and the wrote: “Perhaps Ian McCartney should council have rebuilt Wigan brick by brick read the report and then and only then over the past decade,” before going on to explain why the report is wrong instead of add that “we certainly don’t need people doing the usual politician’s trick of making based 300 miles away running down the off-the-cuff statements and expecting peo - town in this fashion.” He stated that the ple to believe him because he is an MP.” Government had invested £130 million in Mark Conroy described McCartney’s reac - refurbishing “every one” of Wigan’s coun - tion as “Typical of New Labour” while R. cil houses, that schools were being rebuilt Johnson wrote: “The report is right,” and and that local town centres were being an anonymous writer noted that “a lot of refurbished. the younger generation in Wigan have no Two aspects of this story stand out. hope for the future.” First, McCartney did not challenge either The most detailed comments came from the arguments or the data put forward in C. Rowley, “a Wiganer born and bred” Cities limited . We did not claim that the who has lived in Hindley for the last 38 Government had failed to invest in years, and who wrote: “I was disappointed Wigan’s council housing or that town cen - and concerned having read Ian 10 Since Sept 2007 Commissioner General for the tres had not been refurbished – although McCartney’s comments.” Rowley offered Shanghai World Expo 2010 and we suspect his claim that Wigan has been to take McCartney to Hindley’s Market the Prime Minister’s personal representative on the Socialist rebuilt “brick by brick” to be an exaggera - Street, “with its charming charismatic graf - International Committee tion. What we claimed was that despite fiti, daubed and derelict high street build - 11 Bean R, “MP fury at ‘poorer very high levels of investment towns such ings, an area that has been in decline for Wigan’ report”, Wigan Today , 11th November 2007, see as Wigan were falling behind both the the past thirty years”. Then, he said, www.wigantoday.net/wigannews /MP-fury-at-39poorer- national average and the fortunes of suc - McCartney could “explain exactly where it Wigan39.3460842.jp cessful towns such as Swindon and has been rebuilt brick by brick”. Rowley

16 Reactions to our work

concludes that were McCartney to visit us that the coalfields regeneration pro - Hindley, “and take a good hard honest gramme – hailed by the minister as evi - look, on reflection he may then under - dence of the success of regeneration – cre - stand why Wigan as a whole cannot climb ated 16 jobs per community per year. 12 If out of the doldrums and attract economic one job every three weeks is success, we growth.” cannot imagine the minister’s definition of John Healey, the Minister for Local failure. Government, responded to Cities limited immediately on its publication. Although acknowledging that “deep-rooted pockets “ Even when we look at regeneration on a programme by of deprivation exist”, he said: “We totally programme basis, the success of initiatives like the coalfields reject these claims.” Again, he did not regeneration programme is difficult to establish engage with our findings, but instead ” defended the economic effects of regenera - tion policy by noting that the coalfields programme had created 16,000 jobs since There are signs that the Government’s 1996. We do not believe, however, that the thinking about urban regeneration has best way to analyse the success or otherwise become more thoughtful recently. Stephen of urban regeneration programmes is to Timms, then the Minister of State for look at outcomes, programme by pro - Competitiveness at the Department for gramme. We stand by our approach of Business, Enterprise and Regulatory looking at the effects of regeneration poli - Reform set out a new way of looking at cy on areas as a whole. After all, for people these issues in a recent speech to the Fabian living in those areas, it is the aggregate Society’s city, business and politics network position that matters. seminar. 13 He argued that we “need to Even when we look at regeneration on a move on from this sterile ‘North/South programme by programme basis, the suc - divide’ debate”, and look instead at cess of initiatives like the coalfields regen - London’s exceptionalism. He noted: eration programme is difficult to establish. “London stands out”, it “has been an Mr Healey stated that it has generated extraordinarily successful world city over 16,000 jobs since 1996. Clearly for those the past decade”. His conception of 16,000 people the programme was a suc - London is spot on: “London’s success cess. It would be wrong to deny that the accentuates the differences with the UK’s programme had had some successful out - regional economies – but it provides a comes, although it is surely the case that powerful driver for them too. London isn’t some of those people, perhaps a substantial a rival; it’s an ally for regional growth. The proportion, would have got work without success of London spills over to neighbour - the programme, and likely that some who ing regions, which benefit from easy access got work did so at the expense of other to a large market, from diffusion of knowl - local people. But even if we take the edge and best practice.” 12 We take into account the 16,000 figure as a fair reflection of the pol - The analysis is correct and the speech time period for which each place icy’s outcome, we need to ask whether announced significant and welcome fund - was covered by the programme 16,000 is a large number. This policy cost ing for research into spatial economics. But 13 Timms S, (former Minister of State for Competitiveness), £379 million, covered 107 different places the speech can be read two ways. The min - Strengthening Regional and ran for more than ten years. Simply ister was right that “It makes no sense to Economies , Fabian City, Business and Politics Network dividing the number of jobs created by the judge the success of the English regions seminar, Fabian Society, London, 14th January 2008, see number of places covered and the number simply by comparing them with London”. www.berr.gov.uk/pressroom/Spe of years for which the programme ran tells Instead he argued for regional compar - eches/page43638.html

www.policyexchange.org.uk • 17 Cities unlimited

isons: “So, for example, from 1995 to not mean that the British town has per - 2004, growth in South Yorkshire was formed well, still less that policy has been almost double that of Düsseldorf in successful. The minister’s phraseology Germany or Lorraine in France. That is the allows almost any outcome to be defined as kind of comparison we need to draw, to a success, and that cannot be a good foun - understand properly the effectiveness of dation for evidence-based policymaking. If regional policy.” We strongly support the we are to use the performance of others as idea of learning about what works and a yardstick of our own performance, we what does not work by looking at experi - need to specify the comparator towns and ence outside the UK. The belief that we regions ex ante not ex post , otherwise we could learn from others underpinned the can simply move the goalposts to wherever second in this series of publications, Success our ball happens to end up. and the city: learning from international Nevertheless, the analysis in the speech urban policies . is powerful, and, as we argue in more detail But there is a big difference between below, it is right to see London as unique, arguing on the one hand as we do that we and it is right to argue that London’s suc - can draw qualitative lessons, ex post, from cess spills over into neighbouring regions. foreign experience and believing on the But for people in regions that do not other that the ex post construction of a for - neighbour London this has an obvious and eign sample represents a legitimate method unavoidable implication: if you want to by which to assess British town and share in London’s success, you may have to regions, or British policymaking. Unless move to London, or at least to one of its Britain is bottom of the league table it will neighbouring regions. As the old phrase always be possible ex post to find places goes, if you can’t beat ’em, join ’em. We that have done worse than any particular shall argue that this is the correct conclu - British town or region. Finding a town or sion, and we hope that the minister’s region elsewhere in the world that has per - speech indicates that this is the way that formed worse than a place in Britain does government thinking is developing.

18 5

Things will only get worse

The trajectory that we have outlined so far unlikely these days and will prove to be is not a hopeful one for the many people even less likely in the future. 15 This is a real living in those towns and cities targeted by problem for our regeneration towns Britain’s urban regeneration programmes. because they suffer from a much less There are four reasons to think that things attractive skills mix than London. That is are likely to get worse, and not better, in not an entirely new phenomenon: London the future. has always attracted a large proportion of the highly skilled. What is new is the scale of the income differentials that this Economic geography induces. There was a time when the educa - We have already set out in Cities limited tional qualifications associated with a town how economic geography has changed did not matter that much for its income since many of these towns were created in levels, but that time has past. the 19th century. There is no reason to think that the changes we have identified have finished, much less been reversed. Figure 2: Educational attainment London’s international status as a premier The proportion of working age financial centre is unlikely to be usurped population qualification levels 2006 by any other place in Britain. 14 The increas - less than NVQ2 ing role of the service sector will favour NVQ4 or above 50 those towns that are already oriented 40 towards services. Agglomeration effects 30 will continue to grow, boosting firms locat - % 20 ed in big cities, wherever they may be. 10 Firms outside those areas then have a 0 Regeneration GB average Successful choice: to remain where they are, thus sample sample missing out and risking bankruptcy, or to Notes: NVQ2 is five GCSE grades A*-C or equivalent, move to the thriving cities. NVQ4 is undergraduate degree or equivalent 14 World’s Top 10 Economic Centers, The 2007 List , Standard & Poor’s, December 2007, New York The changing skills mix People in our urban policy town sample 15 Beaven R, Bosworth D, Lewney R and Wilson R, The last 50 years have been a period in were less likely to be highly qualified, and, Alternative Skills Scenarios to which the value of skills, particularly white as we reported in Cities limited , school 2020 for the UK Economy: A report for the Sector Skills collar as opposed to manual skills, has results were markedly worse in our regener - Development Agency, as a con - increased enormously. It used to be the ation town sample. Students from these tribution to the Leitch Review of Skills, HM Treasury, 2005 see case that people could leave school at 16 places were 8 per cent less likely to gain five www.hm-treas - and get a job that would give them a good GCSEs than their equivalents from ury.gov.uk/media/8/8/alternative_ skills_scenarios_execsummary.p decent wage for life. That is increasingly our prosperous towns. So each town does df

www.policyexchange.org.uk • 19 Cities unlimited

not start out with an equally well-qualified Straw represents Blackburn; David Miliband set of 16 year olds every year. We therefore South Shields, Tyne and Wear; Jacqui Smith have a problem: our less successful towns Redditch; Harriet Harman Camberwell and have a lower skills base among the existing Peckham; Hazel Blears Salford; Andrew workforce, their students are achieving Burnham Leigh; Hilary Benn Leeds Central; lower grades in schools, and many of their Alan Johnson Hull West and Hessle; Ed best students leave for London after getting Balls Normanton, West Yorkshire; and a degree. In contrast, successful areas start Yvette Cooper Pontefract and Castleford. 17 with a higher skills base among their exist - Inevitably they are committed to urban ing workforce, their students are achieving regeneration and it should come as no sur - higher grades at school, and London in par - prise that spending on urban renewal has ticular attracts many of the best students increased in the last few years. from other parts of the country, and indeed, Figure 3 shows, there has recently been 16 Juhn C, Murphy K and Pierce B, “Wage inequality and the rise from other parts of the world, after gradua - a step change in funding, after a decade of in returns to skill”, Journal of tion. Given this divergence in human capi - stability. The rise in spending under the Political Economy , 101(3): 410- 42, 1993; and Autor D, Katz L tal it is almost impossible to imagine any Labour Government is comparable with and Kearney S, “Trends in US 16 Wage Inequality: Revising the kind of overall economic convergence. the rise under the Tories in the late 1980s. Revisionists”, Review of But while the Tories were responding to an Economics and Statistics , 90(2): 300-323, 2008 obvious rise in urban problems caused by a

17 Full list of Cabinet members Politics sharply changing industrial structure, as of 24th January 2008, Labour For the last decade British politics has been Labour spent more simply because it chose Party , 30th April 2008 see www.labour.org.uk/members_of_ dominated by ministers who represent poor - to. Spending from choice rather than the_cabinet er urban areas. Of the current Cabinet – Jack necessity is much easier to reverse.

Figure 3 - Annual Urban Regeneration Funding, 1977-2005

) 7 s e c i r p

l 6 a e r

5

0 5 0 2

, n

o 4 i l l i b £ ( 3 g n i d n u

f 2

m u n

n 1 a

r e P 0

1977 1978 1979 1980 1981 1982 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 7 7 7 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2

Note: Data based on government spending with explicit urban regeneration objectives and excludes transport, housing and industrial policies unless part of a regeneration programme. Data include: Urban Programme, Urban Development Corporations (including Docklands Light Railway and Jubilee Line Extension), Enterprise Zones, Urban Development Grant, Urban Regeneration Grant, Derelict Land Grant, City Grant, Estate Action, Inner City Task Force, City Action Teams, English Partnerships, Housing Action Trusts, City Challenge, Coalfields Areas Fund, Objective 1 and URBAN II European Funding, Single Regeneration Budget Challenge Fund, Manchester Olympic/Commonwealth Bids, Coalfields Regeneration Trust, Coalfields Enterprise Fund, Regional Development Agencies, New Deal for Communities, Neighbourhood Support Fund, Neighbourhood Renewal Fund, Housing Market Renewal Pathfinder, Sustainable Communities Plan (without housing costs), Local Environment/Liveability Fund, Community Empowerment Fund, Thames Gateway, London 2012 Olympics. We gratefully acknowledge the support of Dr Mark Pennington, Richard Wellings, Prof Peter Roberts Jim Gill and Prof Michael Parkinson in compiling and reviewing these statistics. The responsibility for any errors and omissions are the authors alone however.

20 Things will only get worse

Britain will not always have a Cabinet nurses, doctors and teachers. And as for drawn from poorer inner city areas. It is of trying to cut the number of police, nurses, course possible that a Cabinet who repre - doctors or teachers, well, that way lies cer - sent leafy shire towns in Britain’s more tain electoral disaster. affluent counties will prove to be as gener - Regeneration funding, in contrast, is ous towards inner cities, but such an out - project and programme based. Individual come cannot be assumed. To some extent projects and programmes come and go, old politicians will always, and perhaps should ones are phased out, and new ones come always, be in line with their constituencies. along. Sometimes the new ones are better It seems most unlikely that levels of urban funded than the old ones, sometimes they regeneration funding are hot topics in are not. Importantly, the political cost of Witney or Tatton. funding replacement programmes less gen - All opposition parties need to distin - erously is not that high. Did anyone out - guish themselves from incumbent govern - side the specialist press notice whether the ments. They need to offer a different set of Housing Market Renewal Pathfinders were priorities if they are to win over the elec - better or worse funded than the Housing torate because offering more of the same Investment Programme they replaced? Or does not create a unique selling point. A whether the Crime Reduction Programme different set of priorities offered by an cost the government more or less money opposition party may well involve lower than the Safer Communities Initiative? levels of spending on urban regeneration Did anyone notice when the Capital funding, with inevitable consequences for Modernisation Fund (Small Retailers) the fortunes of these towns. ended? Whether or not these schemes work is not the point here. The point is instead the more brutal one of political Money reality: when you run out of money you The Government’s finances are in a parlous want to cut things that the public will not state. Asked in a Financial Times survey in notice, or at least you can disguise by January whether the public finances are in announcing a similar programme that reasonable shape 95 per cent of the econo - proves on closer inspection to be (much) mists polled who gave unambiguous less well-funded. If the number of nurses answers said No. 18 Their comments includ - employed goes down by even one that will 18 Weale M, NIESR, “Are the public finances in reasonable ed: “The public finances are in very poor be noticed. If the Capital Modernisation shape? If not, what needs to be shape”; “in an increasingly dire state”; “a Fund (Small Retailers) is not replaced, no done in 2008?”, Q5, shocking state”; “a parlous state”; and an one notices. That makes the Capital Economists’ Survey: the results, Financial Times , January 1st 19 “awful shape”. When governments run Modernisation Fund (Small Retailers) and 2008, see www.ft.com/cms/s/0/ out of money, something has to give. The many, many other schemes – including 6d80bacc-b894-11dc-893b- Government tried to save money recently much larger schemes – very vulnerable to 0000779fd2ac.html by phasing in the annual pay award given any downturn in government finance, even 19 Ibid, Comments from Coynes to the police. This will have no long-term when the Government is genuinely com - J, Capital Economics; Spencer P, Ernst & Young Item Club; effect on government spending, since the mitted to urban regeneration, and even if it McCafferty I, CBI Chief police will receive their full pay rise by the believes that schemes like this work. Economic Adviser; Lewis S, end of the year, but it provides a one-off For these four reasons, 1997 to 2008 are Insinger Beaufort, respectively saving of £40m this year. 20 likely to be seen as the high watermark in 20 Parker G, “Brown charts colli - As the government found out, saving British urban renewal spending. No matter sion course”, Financial Times , April 3rd 2008, see money by staging pay awards is politically which party (or parties) wins the next elec - www.ft.com/cms/s/0/7fe6fb66- costly: the story dominated the headlines. tion, the nation’s fiscal position means that 0107-11dd-a0c5- The same would be true for the salaries of there is little room for manoeuvre, little 000077b07658.html

www.policyexchange.org.uk • 21 Cities unlimited

room for funding innovative ideas and cer - This is exactly what happened in the tainly little room for funding projects that mid-1990s, the last time that government do not have obvious, immediate resonance finances were heavily constrained by a with large swathes of voters. tough fiscal environment. In that period This is turn is very bad news for our GVA in our regeneration towns fell relative urban regeneration towns. We have been to the national average twice as fast as in quite clear that urban regeneration spend - the fiscally relaxed late 1990s. The same ing has not worked, in the sense that these was true of personal incomes. When towns are not regenerated. But we have money is readily available, and regenera - been equally clear that those policies have tion funding is high, our regeneration raised the standards of living in these towns towns slip gradually backwards. But when compared with what they would have been money is tight and regeneration funding is without them. It is, after all, hard to spend under pressure, they fall much further billions of pounds without achieving any - behind more quickly. Even when the good thing. So when those billions dry up – as times return, the last ten years demonstrate some of them will – towns that are already that the period of rapid decline is not slipping gradually further behind the UK reversed or even halted. When these towns average will not simply continue to slip decline relative to the national average, behind at their current rate, but will start to government is powerless to reverse that slip behind more rapidly. decline later.

22 6

We cannot accept this

Current policies mean that poorer towns We are not talking about divergence will continue to get poorer relative to the from a handful of super-rich places – that rest of the country. When the national has always existed, and always will. We are economy is doing well, and money for talking about growing divergence from regeneration is plentiful, they will get grad - places in Britain that are simply average. ually poorer. When the national economy Adults looking for work will not have the is doing badly, and money for regeneration same opportunities as those who, with the is hard to come by, they will get poorer same skills and determination, are simply much more quickly. lucky enough to be in a different part of That is not to say, of course, that they our country. Geographical circumstance will get poorer in absolute terms, for they means that life on benefits, whether in will not: economic growth reaches all parts work, or out of work, will be more com - of the national economy to some extent. mon. But they will inexorably diverge from the That cannot be right, and we should not rest of the country. Children growing up in accept it. Nor is there any need to accept it, these towns will not have the same experi - for while there are no easy answers, there ences – and perhaps not even the same are answers grounded in theory and empir - expectations and aspirations – as those ical evidence from Britain and abroad growing up in places that are more typical which point us to solutions that will work. of Britain. That must be our agenda.

www.policyexchange.org.uk • 23 7

What can be done?

Accept the reality of economic other firms in the same industry. Partly this geography is so that they can attract staff from their A successful regeneration policy has to start rivals, but partly it is because knowledge by accepting the realities of economic spillovers within a cluster of firms make geography, for it is at least as hard to buck them all more competitive. For all these geography as it is to buck the market. reasons many firms prefer to be in or near Spatial economics, the study of the eco - major centres of population, and to be well nomics of geographical dispersion and connected to other centres of population. agglomeration, advances strong theoretical That gives them access both to staff, to arguments, and empirical evidence for the customers and to knowledge. existence of optimal locations for econom - Today Britain trades with Europe more ic activity and optimal sizes for cities, both than ever before. This gives the South East of which vary in time and place. It also an advantage. Aviation has become more demonstrates how planners can use price important over time, for both goods trans - signals to guide their decisions so that a port and passenger travel, so locations near country ends up in a position closer to the airports, particularly airports that offer a optimal level. A country that uses such wide range of destinations, have become information effectively will be richer than more attractive, again favouring the South one that does not. We look first at what East. Finally, Britain has become a road- economic geography can teach us about based economy, favouring places in the optimal locations, before turning to opti - middle of Britain that are well connected mal city sizes. to motorway networks. Some disadvan - The existence of optimal locations for tages of geography would be prohibitively economic activity is at one level very obvi - expensive to overcome. It would be possi - ous: it is easy to sell sandwiches in a busy ble, for example, for the Government to area with lots of workers or tourists look - build an airport next to Hull, and subsidise ing for something to eat, just as it is easy to flights to and from Hull to ensure that it is sell beach mats at the beach. What is per - as well-connected as London. But such a haps less obvious is that there are optimal policy would be economic as well as envi - locations for firms that at first sight might ronmental folly. We have to accept that not be expected to have an optimal loca - some locations make more sense than oth - tion. In fact all firms have an optimal loca - ers and that, although infrastructure can be tion. They might want to be near workers improved, there are places that geographi - with the relevant skills and aptitudes. cal reality dictates will never be well-con - Many want to be near their customers, nected. either directly or via good transport links. That does not mean such places are Others need to be able to export the prod - doomed or that they should be abolished. uct that they make or to import compo - But it does mean that the only way they nents. Finally, firms prefer to locate next to will attract jobs is by offering a lower cost

24 What can be done?

of doing business in compensation for This matters because it tells us that their lower connectability. This happens to those who are worst affected by poor eco - some extent already: rents are lower, for nomic locations are those with low-skill example. But rents make up only a small levels. Those with higher skills have a proportion of total costs and differences in greater ability to move because their wages regional employment rates and regional are sufficient to allow them to move to wages show us that lower rents in less well- more prosperous regions. Those with high - connected places are insufficient to ensure er skills are compensated for their lower high levels of employment. In reality, the wages by a lower cost of living: housing, in only cost of production that accounts for a particular, is much cheaper in our regener - sufficiently large share of total costs, and ation cities than either in Britain as a which can vary place by place, is labour whole, or in our most successful towns. If costs. As a result, the only way towns and those with skills can find a reasonable job, cities that are less well connected, and their standard of living will be only a little which the realities of physical geography lower. If it were much lower, then they dictate will remain less well-connected, can would move. But for the low skilled the compete to attract firms is to accept lower story is not the same because unemploy - wages. ment is much more likely in areas that are That is a brutal message, but it is an not well connected, and those with low honest one. When something is true, noth - skills find it hardest to move. ing can be gained by hiding it. The mes - Unemployment is not only a source of sage for people living in cities that are less poverty; it is also a source of unhappiness well-connected is simple and apparently over and above the unhappiness that comes bleak: if you remain where you are, then from poverty. The evidence shows that your chances of being unemployed are those who want to work do not get used to higher and your wages will be lower than if unemployment, on the contrary, the pain you move to a place that is better located of unemployment remains real over time. 21 for the modern economy. It is worth being That some areas are innately hard to clear about the different impact of these connect is not contentious. The difficulty two effects. Skilled workers are not unem - of connecting the middle of the Lake ployed in large numbers anywhere in District, or the Highlands of Scotland Britain, for them the issue is one of wages. explains why so few people live there: these In places that are economically less well- places, which are outstandingly beautiful, located they may find that the opportuni - are not good locations for business and ties are not as well-matched to their skills never have been. Those who choose to live as they would be in a more successful there do so because they offer other attrac - region, and that wages are generally lower. tions. As economists would say, the skilled labour What may be contentious is to state that market clears, but it does so at a lower some of Britain’s existing towns and cities wage. For unskilled workers the issue is are poorly located for modern business. one of unemployment, because unemploy - This stems from two interlocking factors: ment benefits and minimum wages place a that Britain urbanised first and that the floor on wages. As a result we find that optimal location for business has changed unemployment of those with low or no more in Britain than elsewhere. This com - skills is substantially higher in less-well- bination means that our economic geogra - connected cities. This is a market that does phy is now uniquely poor. 21 Layard R, Happiness: not clear and some people who would gen - As we noted in Cities limited Britain is Lessons from a New Science, uinely like to work remain unemployed. exceptional in the extent to which it Penguin, London, 2005, p 67

www.policyexchange.org.uk • 25 Cities unlimited

urbanised in the 19th century. As early as Nor is sea-shipping as important now as 1841 about half the British population it once was, and even within sea-ports the lived in towns, rising to around four-fifths European-oriented ports of Felixstowe and by 1914, making Britain by far and away Dover have risen in importance relative to the most urbanised country in Europe. 22 those of say Liverpool, particularly after Britain is therefore unique in the world in Britain joined the EU. In 1972 Liverpool having the location of so much of its hous - was responsible for more of Britain’s mer - ing stock determined more than a century chandise exports than Dover and ago. This would not matter if the determi - Felixstowe combined. Twenty years later nants of optimal city locations had the positions had been dramatically remained the same, but they have not. The reversed, and Dover and Felixstowe 19th-century British economy was based accounted for around ten times as many of on manufacturing, sea-borne exports and Britain’s exports as Liverpool. Liverpool coal, and so the free market built our cities was once the closest place in Britain to the on coalfields near ports. Liverpool was the United States, today Heathrow has that main port of entry from America, the per - position. It offers more flights, to more fect place for literally billions of pounds of places, at more times than all of the raw cotton to arrive from the American Northern airports combined, and competi - South every year, ready to feed the mills of tion pressures mean that fares are usually Manchester and its environs, which were cheaper as well. in turn fed by coal, brought in by canal. More generally, the replacement of sea- Both Liverpool and Manchester grew dra - borne trade with truck-born trade means matically in the 19th century, rising from that coastal towns have suffered relative to significant towns of around 100,000 to those on the main motorway network. great urban metropolises of 600,000 each. Places such as Corby and Daventry would They were in the right place, at the right have made little sense as employment cen - time, and they grew accordingly. tres in the 19th century, yet today they make excellent economic sense. In con - trast, while places like Hull and Liverpool When transport costs fall, cities work better, since it were great economic locations in an era of “ sea-based transport, they are much less is easier to bring both people and the things that they economically attractive locations from need together ” which to do business today. Finally the North has been unlucky. Liverpool was once a booming city, made The factors that meant that they were in rich on the cotton trade. The same was the right place then no longer hold true, true for place like Oldham and Bolton, the because the 21st century does not look like cotton capitals of the world. They rivalled the 19th century. Firms do not burn their London, the financial capital of the world. own coal anymore, and in any case the cost But although London remains one of the of transporting coal has fallen dramatically great financial centres, Liverpool, Oldham relative to the value of output. Electricity and Bolton are not booming, because the and gas are moved easily and cheaply across cotton industry proved to have no future the country. With the exception of a hand - in Britain. It is no fault of Lancashire that ful of extremely energy-intensive industries cotton proved to be a less secure basis for such as aluminium production, the location long-term prosperity than finance. The 22 Leunig T and Swaffield J, Cities limited , p 14, Policy of energy sources is no longer an important North was simply less lucky than the South Exchange, London, 2007 determinant of the location of firms. in that its source of economic power disap -

26 What can be done?

peared for exogenous reasons – competi - things to do and new ways to do things tion from much lower wage countries – they already do. Being closer to their cus - about which it could do nothing. And it tomers, they have a stronger sense of the was doubly unlucky because when the time market and what customers want. Schools came to replace these industries, the North and universities, and their students, are was no longer the desirable economic loca - aware of what local employers are after, tion it had once been. and can think about matching their own There are thus geographical reasons why skills and potential interests to those people in the South are generally richer demands. In short, employability increas - than people in the North. Southern pro - es, productivity rises and innovation is ductivity is inherently higher than north - more common. ern productivity not because southerners Of course, larger cities have their down - are more quick witted, harder working or sides: they are more expensive and congest - intrinsically smarter, but because southern - ed. Initially, as a city grows, congestion ers have the advantage of being well-con - does not increase and the cost of living nected. Connectivity matters and it raises does not rise very much; the gain from a wages. This means that the North-South larger city outweighs the costs. But later divide is not a transient problem that these agglomeration economies may cease reflects a short-lived hiatus as manufactur - to grow, particularly if a single-industry ing declines and service sector economies firm is dominant. Additional people will take its place. Nor does it reflect a failure of not offer much benefit in knowledge government policy to do what is needed. spillovers, but the cost of congestion con - Rather, it is evidence that the North, the tinues to rise and, if gridlock becomes power house of the industrial revolution, is more common, to rise rapidly. At that now a less desirable location for business point the city stops growing: people no for reasons that are geographical and longer want to move there because the entirely outside its control or that of cen - gains from higher wages are outweighed by tral and local government. higher costs and greater congestion. There The phrase “North and South” is a con - is thus an optimal city size: big enough to venient shorthand, but of course there are benefit from the economies of scale, small places in the North of England that are enough that congestion and commuting large enough to have reasonable levels of costs are not too high. market potential. Here the successful cities There are five reasons to believe that of Manchester and Leeds stand out, and optimal city sizes have grown in recent we discuss them in greater depth later. years. First, domestic and international Equally, there are places such as Hastings transport costs have fallen. Secondly, serv - in the South that are not at all well con - ices have become more important. Thirdly, nected, even though they appear to be the economy has become more skill inten - close to London and European markets. sive. Fourthly, information communica - Again, we look at places like these in more tions technology (ICT) has allowed the detail later. production process to be split more easily. The second main finding of spatial eco - Fifthly, there has been a big rise in dual- nomics is that city size matters. This has career couples. always been true, right back through the When transport costs fall, cities work industrial revolution, through medieval better, since it is easier to bring both peo - times to the Romans and no doubt before. ple and the things that they need together. When people meet each other they learn We can see this with a simple example: from each other, they get ideas of new central London, like central business dis -

www.policyexchange.org.uk • 27 Cities unlimited

tricts everywhere, would collapse if people jobs rises with the numbers employed had to walk to work since there would not locally, the university will benefit from be room for all those who work there to locating near the financial firm and vice live within walking distance, nor could versa. These are termed “urbanisation” they readily be supplied with foodstuffs. economies, and are larger than single- Big cities need effective transport. industry “localisation” economies. 24 That the service sector has grown in the The improvement in skill levels leads last 50 years is well known. What is per - to a change in the nature of work which haps less well known is that service sector raises the level of potential agglomeration firms gain more from agglomeration economies. Once a large proportion of economies than manufacturing firms. This the workforce was engaged in work is because manufacturing firms do not whose nature was precisely set down by seem to benefit from an increase in the size management – such as Fordist produc - of the manufacturing sector per se, but tion lines – and for which discretion, only from a rise in the number of firms in knowledge and learning were very limit - their own industry. 23 Such benefits are ed. Today such work is less common and known as “localisation” economies. A cot - workers have more opportunities to show ton manufacturer will see productivity rise initiative. Managers and workers can act when other cotton manufacturers move to on workplace discussions and so it makes the town, but not when a firm producing more sense than ever to work near other railway carriages arrives. This leads to sin - people. gle-industry towns – indeed, cotton towns The role of ICT in agglomeration were even specialised by market segment, economies is much misunderstood. There with weaving towns in Lancashire’s north was a time in which people thought that a and spinning towns in Lancashire’s south, combination of cheap telephones and and even within this, fine spinning con - broadband would mean that we could and

23 Henderson J, “The Sizes and centrated in Bolton, and the spinning of would all work from home. Today the cost Types of Cities”, The American coarser yarns in Oldham. There was no of working from home is far, far cheaper Economic Review , 64(4): 640-56, 1974; Henderson J, Urban gain to fine yarn spinners from being near than the cost of commuting for many peo - Development: Theory, Fact and Illusion , Oxford University Press, either coarse yarn spinners or weavers, ple and yet few people do it. The reason is 1988 indeed since locating in the same place that in many jobs agglomeration 24 Rosenthal S and Strange W, would have increased congestion, it would economies are too large to resist. Workers “Evidence on the Nature and Sources of Agglomeration have been harmful. As a result, each spe - know, and their firms know, that they are Economies”, in Henderson J and cialism located in separate, medium-size more productive when at work. 25 This is Thisse J-F (Eds) Handbook of Urban and Regional Economics, towns. The largest Lancashire towns – not because they slack at home, but rather volume 4: Cities and Geography , Liverpool and Manchester – were as much that when in work they talk to their col - Elsevier Science, 2004

25 Boden D and Molotch H, merchant service towns as manufacturing leagues, formally and informally; they “The Compulsion of Proximity”, centres, again suggesting that a concentra - sense the way their firm and industry is in Friedland R and Boden D (Eds), NowHere: Space, Time tion on service sector firms leads to larger moving, in a way that is simply not possi - and Modernity , University of cities. ble from home. California Press, 1994; Ormerod P, Cook W and Rosewell B, Why In contrast there is much evidence that In fact, far from leading to dispersion, Distance Doesn’t Die – service sector firms do gain from the pres - ICT leads to larger service sector cities. In Agglomeration and its benefits , GLA Economics, Working Paper ence of other unrelated service sector firms the pre-ICT era firms de facto had to 17, June 2006 in the same area. This seems to reflect in locate all elements of production togeth - 26 Linden G et al, “Who part a greater reliance on transferable skills. er. 26 A car firm, for example, would design, Captures Value in a Global Innovation System? The case of Universities and financial firms both engineer and build the car in the same Apple’s ipod”, Personal Computing Industry Center, June employ IT specialists, HR managers, and place, and that place would also have head 2007 so on, and insofar as productivity in these office functions such as accounting, per -

28 What can be done?

sonnel, etc. Since car manufacturing was fessions. Large cities are particularly attrac - the dominant part of the process, the tive to dual-career couples. Notice that design, engineering, accounting parts were Britain is still at a very early stage in this located in the place that was optimal for process, since the rise in the number of manufacturing. Today ICT means that people attending university is a relatively these different elements can be located in recent phenomenon and will take 40 years different places. We find that the non- to reach its full effect. manufacturing elements are no longer There are therefore a very large range of located with the manufacturing elements, factors – some of them ongoing – that but are rather located in the same place as mean that the optimal size of cities has others doing the same type of work. The increased over time, perhaps considerably. newly launched Nissan Qashqai, for exam - It is worth commenting a little on luck ple, was designed at Nissan’s own design and what economists call “path-dependen - studios near Paddington, engineered in cy” (what everyone else calls the chicken- Nissan’s own technical laboratories in and-egg syndrome). There was a time Cranfield, and then built in Nissan’s when Hollywood was just another place. assembly plant in Sunderland. The But then it became for a host of reasons the accounts are done in Budapest. Nissan global centre for film-making. It is now chooses to locate its design studio in easier to make films in Hollywood than London because London is the centre of elsewhere because it offers all the ingredi - the British car design industry. Ford has a ents necessary to make films. There is design studio there as well. It is a place nothing intrinsically favourable about where it is easy to hire talented car design - Hollywood, but once established as the ers, and where they can rub shoulders with film capital of the world, it is hard for other talented car designers, and become other areas to compete with it in film-mak - great car designers. The same is true for car ing. The same was true a century ago for engineering in Cranfield, Britain’s centre the Lancashire cotton industry, then a for car engineering. The result is that the highly skilled sector. Lancashire spinners manufacturing cities are smaller than they could spin cotton like no others. For a cen - would otherwise have been because they tury no one else could compete. But ulti - no longer contain their associated non- mately cotton is a sector in which costs are manufacturing activities. And the service paramount; film-making is a sector in sector cities have grown further because which quality is paramount. Cotton could they attracted not only independent firms, not survive in high-wage Lancashire, film- but also the service sector parts of manu - making can and does survive in high-wage facturing firms that no longer have to California. locate alongside their manufacturing It would be hard today for another area wings. The optimal size of service cities to become the film capital of the Western will grow and manufacturing cities will world, just as it would have been hard a shrink. Furthermore, many of the jobs lost century ago for another area in Britain to by the manufacturing cities are the higher- challenge the cotton capital of the world. A skilled, better paid, positions. well-meaning politician could not have Finally, the growth of the dual-career moved part of the Lancashire cotton indus - household, the product of a rising propor - try to Suffolk, because that would have tion of people going to university, means destroyed the agglomeration economies on that more households than ever seek to live which Lancashire’s success was founded. in a city that offers career opportunities to The only way in which a Suffolk cotton partners who may be in very different pro - mill could have competed against those in

www.policyexchange.org.uk • 29 Cities unlimited

Lancashire would have been to pay wages have governments stifled the City to the so low that they compensated for the loss point of forcing firms to flee. The industry of agglomeration economies, in short, has had the conditions to succeed and it wages so low that no one would have want - has worked hard to do so, helped along the ed to work there. That is why it did not way by growing agglomeration economies. happen. Stephen Timms, the former Minister of What was true for the Lancashire cotton State for Competitiveness, is right: London industry a century ago is true for the City is one of a group of successful global cities of London today. That London is Europe’s that can be compared to each other, but financial centre is partly luck. The original which stand above other places in the British financiers lived in London rather domestic economy. We cannot, with the than Bristol or Liverpool, and the agglom - best will in the world, move JP Morgan to eration economies grew out of that. They Blackburn, or Deutsche Bank to have been lucky that Britain has never been Sunderland. We may wish it otherwise, but on the losing side of a major war, nor has we know that it will not happen. London our economy or currency collapsed, nor is London.

Box 1: Sunderland – a case study of the limits of regeneration

Sunderland lies at the mouth of the River Wear in North East England, 13 miles southeast of Newcastle. Between 1850 and 1950, Sunderland was the “largest shipbuilding town in the world”. 27 In 1900 ship - building employed over 12,000 men, a third of the town’s adult population, and the city built more than a quarter of Britain’s ships during the Second World War. But shipbuilding, especially non-mili - tary vessels, proved to have little future anywhere in Britain after 1945, and the last Sunderland ship - yard closed in 1988. Sunderland is also part of the wider Durham coalfield, which declined at a simi - lar time. Vaux Breweries closed in 1999 after more than 100 years of brewing, and commercial glass 27 “The History of Shipbuilding 28 in the North East”, BBC, 2nd making has recently ceased in Sunderland, after more than a century as a major producer. April 2008, see Sunderland has received much regeneration funding, but the most interesting aspect of the city www.bbc.co.uk/nationonfilm/topi from the point of view of regeneration is the arrival of the Nissan car plant in 1986. cs/ship-build - ing/background.shtml The plant was created on a 300-hectare, greenfield site on the outskirts of Sunderland, sold to Nissan at agricultural prices. Opened in 1986, it has grown steadily adding engine assembly in 1990, 28 Clark K, “Final Blow for Glass Factory”, Sunderland Echo , 28th moving to two-model assembly in 1992, three-model in 2000 and four-model in 2006. Nissan September 2007, see recently announced that it would move to three-shift production, meaning that the plant would run www.sunderlandecho.com/news 24 hours a day, seven days a week. /Final-blow-for-glass-facto - ry.3242477.jp After an investment of £2 billion in the last two decades, it is now Britain’s biggest car plant by

29 1,000 go for Nissan jobs, both output and exports, and on any measure is a major success. Once the move to three-shift work - Sunderland Echo , 4th February ing is completed, it will directly employ about 5,000 people. 29 Application levels are high when 2008, see vacancies occur. 30 www.sunderlandecho.com/news /1000-go-for-Nissan- Not only does Nissan provide jobs, but it has also attracted other firms to the area. Sunderland jobs.3740559.jp City Council reports that there are 240 Nissan suppliers in the area, including major automotive 30 Strike threat at Nissan over firms such as the French company Valeo and the US firm TRW Automotive. A total of 12,000 peo - pay row, Sunderland Echo , 22nd ple work in the automotive sector. 31 December 2006, see www.sunderlandecho.com/news And yet for all this, Sunderland remains poor. With gross value added per person at 16 per cent /Strike-threat-at-Nissan- below the UK average, it is in the poorer half of our regeneration towns sample. A recent Joseph over.1943503.jp Rowntree Foundation study found that the majority of the population was poor, and numbers had 31 “Invest in Sunderland”, increased over time. 32 Sunderland City Council The sheer scale of the problems that Sunderland confronts despite a success such as Nissan should Business Invest, 2006, see www.investinsunderland.co.uk/in give us pause for thought. If direct investment of £2 billion, a plant employing 5,000 directly and a ward-sector-auto.asp further 7,000 indirectly, cannot revitalise the city, we need to ask whether it can reach the national 32 Dorling D et al , op cit average level of GVA, wages and living standards while remaining its current size.

30 What can be done?

Sunderland suffers from very poor economic geography. It is a long way from most places. It is not somewhere that outsiders consider a desirable place to live. Roy Keane, Sunderland Football Club’s manager, commented on the difficulty of attracting good players to the Premiership club despite offering equivalent wages to clubs in the South: “I find it surprising that geography seems to play such a big part … Retire at 35 or 36, you can live wherever you bloody well like – London, Monaco, wherever – and any half-decent footballer will be a multimillionaire anyway. Why is there such a big attraction with London? It would be different if it was Chelsea, Arsenal or maybe Tottenham, but when they go to a smaller club just because it’s in London, then it’s clearly because of the shops.” 33 In terms of market potential, we have already noted that being on the coast is disadvantageous. Nearby Newcastle is a mixed blessing: it does increase the market potential, but it is also a rival. Indeed, rather like Bradford to Leeds, Sunderland sits in Newcastle’s shadow. Although Sunderland is the larger city, Newcastle is the better connected. Newcastle has the M1/A1, the mainline rail route, and the airport. The Tyne and Wear metro is also much more extensive in Newcastle than in Sunderland, and although the metro connects Sunderland directly to the airport, it takes an hour to cover the 16 miles. And Newcastle is more affluent, with GVA 11 per cent above that of Sunderland. Those who want to paint a more optimistic future will point to recent innovations. For example, Sunderland now has direct trains from London. But there are only three a day, a tenth of the num - ber to nearby Newcastle. And they are much slower. There are not that many people who wish to travel to Sunderland from London, and therefore the train stops at many intermediate stations to pick up additional passengers. The result is that the 08:04 train from London to Sunderland takes three quarters of an hour longer than the equivalent train to nearby Newcastle. It is slower to take the direct train to Sunderland than to take the train to Newcastle, walk to the metro stop, and take the metro to Sunderland. By that time the Newcastle train will have reached Scotland. In terms of connectivity to London, Sunderland is not so much south of Newcastle, as north of Berwick. But in terms of reaching Edinburgh, Sunderland is as far south as Darlington. In short, the city is isolated. Sunderland has a severe problem with its skills base, particularly compared to nearby Newcastle. This is not a problem with the schools: Sunderland and Newcastle schools perform equally at GCSE level. But local people with skills are more likely to leave Sunderland than Newcastle, and outsiders with skills are more likely to move to Newcastle than to Sunderland. The result is that Newcastle has 75 per cent more people with degree level skills than Sunderland, but Sunderland has 15 per cent more people without any qualifications at all. 34 33 Caulkin G, “Keane turns fire on Sunderland sits in Newcastle’s shadow, and Newcastle’s better connectivity and path dependency the WAGs”, The Times , August 15 20087 see www.timesonline.co.uk makes it hard to imagine any way for Sunderland to escape. Indeed, if anything Sunderland has been /tol/sport/football/premier_league/a losing high-skilled private sector employment, as we can see even in Nissan’s case. Initially, Nissan rticle2260422.ece Technical Centre Europe was located in Sunderland, but this moved to Cranfield, Bedfordshire, in 34 Key Figures for Education, the 1990s, to the heart of the British motor industry research zone. Nissan’s design studios are in Skills and Training, Sunderland (Local Authority) and Newcastle London, again, close to those of other manufacturers, such as Ford. Some of the middle-skilled white upon Tyne (Local Authority) , collar jobs have left Sunderland as well: in 2003, much of the purchasing department relocated again Neighbourhood Statistics, Office of to Cranfield, and in 2005 parts of finance moved to Budapest. This separation of production from National Statistics higher value added jobs is very much in line with global economic geography trends, and means that 35 Thus the recently launched 35 Qashqai, arguably the most British a large manufacturing plant may not generate highly paid jobs in its vicinity. Nissan ever, was designed at The evidence strongly suggests that there is next to no chance of people in Sunderland having the Nissan Design Europe in same opportunities as the people of Birmingham or Portsmouth, let alone the same chances as those Paddington, London, with techni - cal development undertaken at in London or Oxford. It is time to stop pretending that there is a bright future for Sunderland and Cranfield, before being built in ask ourselves instead what we need to do to offer people in Sunderland better prospects. Sunderland

www.policyexchange.org.uk • 31 8

Expanding London

As we, and others, have noted, London is is underway. 37 Between 1980 and 1998, an economic super-city and, within Britain the lifespan of the London Docklands at least, it stands in a league of its own. Development Corporation, over 24,000 This is both a constraint and an opportu - homes were built. 38 These houses have not nity: a constraint in that the presence of stayed empty, nor have they led to empty London in the South means that the houses elsewhere. On the contrary, North-South (or, for that matter, the London’s population has grown. The new Wales-South) gap is here to stay. As we Docklands flats are not occupied by those have noted, you cannot move JP Morgan without work, nor have its residents to Blackburn, or Deutsche Bank to “stolen jobs” causing decay elsewhere with - Sunderland. 36 If you try to do that, they in London. The growth of the financial will contract, and may leave Britain alto - services sector in London has been rapid gether. As a result Blackburn, Sunderland, enough to supply these people with work, Merthyr Tydfil and so on will never be as without harming other parts of London, or rich as London. the rest of the country. But London also offers Britain a great What has happened since 1980 can hap -

36 Ormerod P, Cook W and opportunity and one that is almost unique pen again. We know that there is excess Rosewell B, Why Distance in Europe: the opportunity to expand a demand for housing in London, in that Doesn’t Die: Agglomeration and its Benefits , GLA Economics, global city capable of generating large house prices in every part of London are Working Paper 17, 2006, see www.london.gov.uk/gla/publicati numbers of high quality jobs. There is higher than the national average. Indeed, ons/economy.jsp every reason to think that London is cur - so great is London’s economic potential 37 Thomas D, “George rently below its optimal size and if the cap - that land values in the lowest value area in Iacobescu: Transport will drive growth”, Financial Times , 7th ital expanded by attracting people from London – Redbridge – are higher than April 2008, see our regeneration cities, then it could trans - everywhere else outside the South East. 39 http://us.ft.com/ftgateway/super page.ft?news_id=fto0407200811 form their lives. That is true only because people from the 13057551&page=2 We do not know London’s optimal size rest of the country (and elsewhere) want to 38 Regeneration Statement, and it is impossible to work it out ex ante. move to London because it is a job-cre - LDDC, March 1998, see www.lddc-histo - We showed in the last chapter, however, ation city. That is not to deny that London ry.org.uk/regenstat/index.html that there are many reasons to believe that has some severe employment problems of 39 Property Market Report July 2007 , Valuation Office Agency, the optimal size of service-sector cities has its own. Its worklessness rate is surprising - 2007, see www.voa.gov.uk/ pub - grown, perhaps considerably in the last 50 ly high. But those problems predate the lications/property_market_report /pmr-jul-07/index.htm years. London itself has grown in that Docklands expansion, are not caused by

40 Willoughby M, “All Hail to time, both in terms of the number of peo - the arrival of migrants from within Britain Tottenham”, On Office , 1st May ple who live there and the number who or elsewhere, and will not be solved by pre - 2008 see http://onofficemagazine.com/ind work there. Since 1980, when Docklands venting their arrival. London’s unemploy - ex.php?option=com_content&vie w=article&id=124:all_hail_to_tott began, 14 million sq ft of office space have ment problems are generally localised and enham&catid=104:property; been built in the Canary Wharf Estate, the require tailored local solutions to recon - Martin R and Morrison P (Eds), Geographies of Labour Market vacancy rate stands at 0.4 per cent and nect certain groups with the labour mar - Inequality , Routledge, 2003 work on building another 12 million sq ft ket. 40 In general the demand for labour

32 Expanding London

expands with the supply of labour, and lines in the postwar era, London com - allowing London’s population to grow will muters have been neglected. Despite lead to an increase of jobs. advances in technology in every sector of We believe therefore that part of the the economy, it is no faster to commute to solution to urban regeneration in areas far London now than it was after the Second from London is to allow London to grow, World War, and it is actually slower to so that some of the people living in those commute now than it was in 1971. 42 The areas are able to migrate to London. This reason is simple: traditional cost-benefit will directly improve the lives of those who analysis has included only the gains to the chose to move – they would not move if it traveller without considering the wider did not – but as we will see later, it also has economic benefits. That is changing: the potential to improve the lives of those Department of Transport cost-benefit who do not choose to move. analysis now includes a significant element We noted that it is impossible to predict of agglomeration economies. But what is how large London should grow. Even not changing is the level of investment. Michael Heseltine could not have foreseen Evidence-based policy requires the the scale and extent to which Docklands Government not only to perform the cost- would be a success. But even if we do not benefit analysis correctly, but also to act on know London’s optimal size, land prices the results of that analysis. indicate that London’s optimal size is larg - People do not have to live in London to er, probably far larger, than its current size. work in London; they can commute from Given that London is and will remain rich - the dormitory towns that ring the city. er and more productive than anywhere else From an agglomeration point of view it in Britain, the Government should be matters little which option is taken since in striving to increase the number of people both cases the person works in London. who have the opportunity to live there. From a practical point of view, both are After all, doing so will raise average living eminently possible. standards, perhaps substantially. There is, in fact, a great deal of land As we have seen, a city’s optimal size is within London and surrounding areas that reached when the additional agglomera - could be released for housing. By this we tion gains from a rise in population are do not mean building over back gardens, fully offset by a rise in congestion costs. As although there will be cases where that is such, we can increase the optimal size of appropriate. Instead we refer to land cur - London by making it easier for knowledge rently restricted for warehousing and other spillovers to occur and by reducing conges - low value uses. The current planning sys - tion. Both of these require improvements tem requires local councils, to state that a in transport and that means investments in particular piece of land can be used only public transport. In the last ten years the for housing, or retail, or industrial use. number of people using the London Local authorities are not required, expect - Underground has increased by 31 per cent, ed or encouraged to use price signals to far faster than the increase in the size of the determine to which use land should be network. 41 In short, not only has the sup - assigned. Local authorities appear proud of 41 Since 1992 passenger trips by bus and LU increased by 36 ply of transport failed to help London to the fact that they prevent land uses chang - per cent. LU = 1 billion trips per grow to its optimal size, it has failed even ing in response to price signals. The coun - annum, see www.london.gov.uk/ mayor/transport/facts-and-fig - to keep pace with the city’s current needs. cil for the London Borough of Richmond ures.jsp The same is true for overground rail. upon Thames, for example, reports: “With 42 Beattie J, “Train Journeys Slower than in the Age of Although there have been substantial high residential values, there is pressure to Steam”, Evening Standard, 3rd improvements to many long distance train change employment sites to residential, September, 2007

www.policyexchange.org.uk • 33 Cities unlimited

which the Council has generally resisted.” 43 is, in effect, a hidden subsidy to industrial Despite the fact that “Richmond’s unem - employment in affluent areas, since ployment rate (by claimant count) is one employers are not required to pay anything of the lowest in London”, despite the fact like the market value of the land that they that “48% of local jobs were taken by in- use. commuters” many of whom arrive by car, The scale of the subsidy to industrial, resulting in “problems of traffic intrusion warehouse and other commercial uses is and congestion”, and despite the clear and large. In Greenwich, for example, industri - accepted shortage of housing in the area, al land is typically valued at £2.1 million a only 0.3 per cent of Richmond’s “employ - hectare, whereas land for houses is worth ment land” is rezoned for housing each £6.5 million, and land for flats or year. 44 Indeed, the council is not even keen maisonettes £8 million. 46 This is a hidden to rezone industrial land that causes a nui - subsidy of around £5 million a hectare, or sance. A reasonable person might expect £500 a sq m. With 224 hectares of such that “Where an existing employment use land in Greenwich, the planning system of a site within a predominantly residential has reduced the value of land in Greenwich area is causing detriment to the amenity of alone by over £1 billion. 47 that area by reason of noise, vibration, The subsidy is greater still in inner smell, fumes, dust etc” the council would London, reaching £700 a sq m in 43 “Local Development Scheme”, London Borough of be keen to see it replaced by housing in Hackney, and £1,300 a sq m in Richmond upon Thames, p 20, April 2007, see keeping with the residential area. But no – Southwark. We find high levels of plan - www.richmond.gov.uk/07revised the sentence continues that “the Council ning subsidy in Britain’s other property finallbrldsfinalversion-2.pdf will seek improvements, in order to over - hotspots: around £575 a sq m in 44 “Unitary Development Plan”, Chapter 9: Employment and come the nuisance caused to residential Guildford, £730 in Oxford, £400 in Economic Activity, London neighbours”. The list of criteria that need Bournemouth and £950 in Cambridge. Borough of Richmond upon Thames, Section 9.6, March to be satisfied before the council will allow The subsidy is much lower in areas that are 2005, see the land to be used for housing is exten - in receipt of regeneration funding: £150 in www.cartoplus.co.uk/richmond/t 45 ext/09_emp_employment.htm sive. Nor are we talking about trivial Stoke, £157 in Merthyr Tydfil, and £168 45 Ibid, section 9.41 amounts of land being used for low-value in Middlesbrough. It is truly bizarre that a 46 “Residential Building Land added activities. Richmond council notes country wanting at least some jobs migrate Figures, Property Market Report”, July 2007, Valuation that it has around 250,000 sq m of ware - to less prosperous areas has devised a plan - Office Agency, 2007, see house space alone. Even excluding the ning system that subsidises land-hungry www.voa.gov.uk/publications/pr operty_market_report/pmr-jul- associated car parking and access, this is 25 firms to remain in more prosperous areas. 07/residen - hectares of land that could be used for We therefore make an explicit policy tial.htm#outer_london1 housing but which is being used for low proposal. We should move to a system 47 Jobs and the Local Economy , Greenwich Council, 2007, see value, low employment warehousing whereby landowners have a prima facie www.greenwich.gov.uk/NR/rdonl instead. right to convert industrial land into resi - yres/4ABCB213-F0DD-43E1- 9999-3942B275C318/0/4PT2 Richmond is not alone by any means, dential land at least in areas of above aver - jobslocaleconomy.pdf and such policies have been encouraged by age employment. It is hard to imagine local 48 URS Corporation Limited, central government through its Planning people objecting to warehousing and facto - London Industrial Land Release Benchmark, Greater London Policy Guidance notes. The result is that ries being replaced by houses. This would Authority, Table A1 Industrial land of different classifications is priced increase the amount of housing in London Floorspace Stock in London, 2007, see very differently. Although the exact prices and the South East. We estimate that www.london.gov.uk/mayor/plann of different types of land vary by place, it is industrial land currently accounts for ing/industrial-land/ 48 49 “ NLUD-Previously almost always the case that land for hous - 2,643 hectares in London, and 7,451 Developed Land Results”, ing is valued more highly than land for hectares in the South East. 49 Assuming that National Land Use Database, 2006, see www.nlud.org.uk/ industrial use, particularly in South East half of that land was used for housing at a document/gose.xls England, and particularly in London. This standard suburban housing density of 40

34 Expanding London

houses per hectare, this policy should gen - It is likely that Britain faces three choic - erate more than 200,000 houses in es. We can constrain development in London and the South East without build - London and the South East, leading to ing on any greenfield sites or on any gar - much higher house prices in these areas, dens. It would also lead to an increase in and to Britain being poorer overall. We do the value of land of the order of £25 bil - not support that vision of Britain. lion. Alternatively, we can build more densely We said earlier that more housing in the on the land that we have set aside for devel - South East would have beneficial effects opment, so that many people live in for our regeneration towns. It would lead London in very small flats. Again we do some firms currently located in London not find that vision appealing. That leaves and the South East to move to areas where the third option: a significant expansion in land was cheaper, that is, to areas that are the amount of land allocated to housing. in need of regeneration. This will be a sus - tainable market-led approach to regenera - tion. One example might be the Post “ Allowing land currently used for commercial businesses Office, which continues to sort consider - to be converted into residential housing in London and able volumes of mail in London and the surrounding areas will yield a considerable number of South East. Once it was able to sell its new homes land for housing at a considerable profit, ” the Post Office would have a greater incentive than ever before to sell its London sorting offices for housing. Mail No one likes urban sprawl. Residents of would then be collected in London, taken Wimbledon may well wish that Surbiton to (say) Leicester by train, sorted in had never been built. To them Surbiton is Leicester, and returned to London on the simply a place they have to pass through to first train the following morning for get to the countryside. No doubt the peo - onward delivery. This change would mean ple of Wandsworth feel the same about fewer Royal Mail jobs in London and Wimbledon; no doubt the people living in more in Leicester. But since employment zone one wish that zones two to six had opportunities are more plentiful in never been built. After all, without subur - London than Leicester, those who lose bia the people of Chelsea would find it their Royal Mail jobs in London would be much easier to get out of London on a more likely to find other work than that Friday evening and return on a Sunday those who gained the Royal Mail jobs in evening. And yet we know that they do not Leicester. As a result, overall employment mind urban sprawl that much. If they did increases, with the increase occurring they would not have chosen to live in the entirely in Leicester. middle of a major city. In fact, London Allowing land currently used for com - would not be London without its suburbs, mercial businesses to be converted into res - and the quality of jobs that are generated idential housing in London and surround - by the agglomeration economies that can ing areas will yield a considerable number only come from a city of a substantial size. of new homes. There can be no guarantee, There is a benefit to the people of however, that this will be sufficient to Wimbledon from having Surbiton nearby: exhaust the possibilities of London as the Surbiton adds more workers who in turn generator of high-quality jobs, and thus as increase the agglomeration economies which somewhere that can offer real opportuni - in turn increase the equilibrium wage rate ties for people from across the country. enjoyed by everyone including those from

www.policyexchange.org.uk • 35 Cities unlimited

Wimbledon. The number of people in they are certainly more bio diverse than London is also an important reason, in fact British agriculture. The number of birds the important reason, why London is such a living in a hectare of gardens far exceeds vibrant city. The sheer range of activities – the number living in the equivalent art galleries, opera, and so on – could not amount of countryside. 50 Of course new take place if it was smaller. Urban sprawl suburbs and new towns have to be devised may not be desirable in itself, but it generates in sympathy with their surrounding areas. outcomes that are valued by many: good No one wants acres and acres of matchbox - jobs and a wide variety of activities available es devoid of schools and shops. It is right to residents and visitors alike. and proper that we design new housing, A very small increase in London’s urban whether in new towns or in new suburbs, sprawl would generate a great deal of hous - to provide a high quality of living and low ing. Someone travelling from central externalities. But that can be done just as London to the countryside will be travel - well by expanding London or any of its ling at about 70 miles an hour by the time surrounding towns as it can by building they reach the outskirts of town, whether elsewhere. by train or on the motorway or trunk A The same arguments apply to expand - road. Let us imagine for the sake of argu - ing existing towns and to building new ment that we increase the journey time by towns. The only areas to which these argu - one minute. One minute at 70 miles an ments do not apply are small villages. hour is just over a mile. If we expand the Those who have chosen to live in small vil - size of London suburbia by one mile, and lages have chosen to live in small villages use that additional land for housing then, for a reason: they like small villages. assuming a density equal to an outer Adding thousands of new homes to a small London borough such as Kingston, we will village changes the nature of the place dra - have added approximately 400,000 houses, matically, and although no one has the that is, homes for more than one million right to ensure that their area never people. changes planners should be particularly Would it really be the end of the world if careful about changing the nature of a those leaving London travel through subur - place so fundamentally. bia for an extra minute? Indeed, would it It is widely known that development is really be the end of the world if those leav - very unpopular with local people as we can ing London travelled through suburbia for see from the reaction to the Government’s an extra five minutes? It is hard to believe proposed eco-towns. But it need not be so. that this would greatly reduce the standard When land is released from agriculture and of living of those who currently live in assigned to housing its value soars, often by London, but if it allowed a million people a factor of 1,000. If that value can be cap - to move from some of Britain’s least suc - tured by the community it can be used to cessful places to London, then it would persuade people that development is in their transform their lives. Are those of us who interests. In the immortal, and somewhat live in London really so selfish as to refuse capitalist, words of Aneurin Bevan when 50 Gaston K and Thompson K, to travel for an extra minute to reach the explaining how he overcame consultants’ “Evidence for significance of biodiversity in gardens”, pre - countryside, knowing that our selfishness objections to the National Health Service: sented to the Royal Horticultural was destroying the prospects of prosperity we can stuff their mouths with gold. Society Conference, “Gardens: heaven or hell for wildlife”, 2002 for a million people? Various methods have been suggested as

51 Barker K, Barker Review of Nor is house building an environmental to how we can do this. Kate Barker has Land Use Planning, Final Report problem. We know that gardens are some proposed a planning gain supplement; 51 – Recommendations , HM Treasury, London, 2006 of the most bio diverse habitats in Britain: Alan Evans and Oliver Marc Hartwich

36 Expanding London

have suggested a tariff-based system, as For these reasons we believe it is more used in Milton Keynes. 52 More ambitious - than realistic to imagine that communi - ly, Tim Leunig has suggested an auction ties in the South of England, including style system, learning from our successful but not limited to London, will welcome experience of the 3G mobile telephone additional housing as long as they are gain auction. 53 All of these schemes have advan - sufficiently from the process. Nobody tages and disadvantages, and in reality all likes urban sprawl per se, but as house should be piloted before they are rolled out prices in Wimbledon show, the disutility nationwide. But all share a common fea - of having Surbiton next door is really very ture: they give local councils and local small indeed. Wimbledon remains a communities greater financial incentives to desirable place to live even though it is support development. now surrounded by a couple of miles of Let us take the case of Guildford to give suburbia. a sense of scale of the incentives that could The exact extent to which additional be offered to local people to support devel - London workers should live in London or opment. Imagine that we were to add other parts of the South East is not a sub - 10,000 houses to Guildford. This is clearly ject for this paper: both have the potential a substantial number and under the current to generate agglomeration economies and system would lead to extensive protests. the exact ratio should be dictated primari - But each house that is built adds approxi - ly by market signals. Nevertheless, we note mately £140,000 in value to the land on that if they are to live outside London then which it sits. Let us imagine that the com - the quality of transport into the capital has munity captured £100,000 of that value, to improve. People will not commute for with the remainder going on buying the three hours a day. Faster trains increase the land and providing the infrastructure. That range of places that are within commuting means that Guildford Borough Council distance of London. This in turn increases would be sitting on a total profit of £1 bil - the number of places that can be expanded lion, or around £15,000 per resident. Thus while still gaining the agglomeration the council could ask local people whether economies that London offers. We need to they preferred to be given £15,000 a head think seriously about how the railways can and accept 10,000 additional houses, or be improved. 54 In the postwar era long-dis - whether they preferred to keep Guildford at tance trains have been improved no end: the same size and make no windfall gain. the train from London to York or As MPs and local councillors across Manchester is now much faster than it was Britain know, local residents do not like 60 years ago, but commuter trains typical - development but nor do they like council ly are not faster. That needs addressing tax. Guildford would only have to allow because faster trains increase the accessibil - 500 new houses a year to abolish council ity of the London labour market. tax altogether. It seems likely that the peo - Commuter trains are also too expensive for 52 Evans A and Hartwich O, Better Homes, Greener Cities, ple of Guildford would trade a 1 per cent many. It is quite wrong for government Policy Exchange, London, 2006 increase in housing for a 100 per cent policy to levy franchise payments that 53 Leunig T, In my Back Yard: reduction in council tax. As Bevan showed translate into higher fares for London unlocking the planning syste m, CentreForum, London, 2007 60 years ago, stuffing people’s mouths with commuters. The South West trains fran - 54 The Billion Passenger gold is a very effective way of securing chise, for example, requires Stagecoach to Railway, Lessons from the Past: agreement. The difference here is that the pay over £1 billion to the Government for Prospects for the future , Association of Train Operating gold is created by the process, it does not the rights to run commuter trains to Companies, 2008, see www.atoc-comms.org/admin/ require any rise in taxes elsewhere because Waterloo. That £1 billion is a hidden tax userfiles/Billion%20Passenger% the process is self-financed. on commuters, and amounts to approxi - 20Railway%20090408.pdf

www.policyexchange.org.uk • 37 Cities unlimited

mately £2 per return journey. In other We need to change that. If London is to words, if this tax were removed, the price expand, then a proportion of the new hous - of an annual season ticket would fall by es have to be reserved not simply for social approximately £450. If we are serious housing, but for social housing for people about making London the engine of the who do not currently live in the area. If we wider UK economy, it is bizarre to be tax - imagine that people from Blackpool move ing train journeys into London. to an expanding Bromley, then if It is important, however, that London Blackpool’s skills mix is not to change it does not suck in all of Britain’s skilled must lose the skilled and the unskilled in workers, leaving declining towns only with equal measure. That in turn requires that those who do not have the skills to move. Bromley offers social housing to people To some extent this is what is happening at from Blackpool in sufficient quantities. the moment. House prices are such that Social housing makes up around 1 in 5 of the only people who find it easy to move to Britain’s housing stock. As a rule of thumb, London are those with high enough earn - therefore, 1 in 5 net new houses in growing ing potential to allow them to live in areas needs to be reserved for social housing London. The capital attracts a dispropor - tenants from areas whose populations are tionate number of graduates. not increasing. 56 In addition, local authori - We need to ensure some degree of bal - ties may want to provide additional social ance in migration to London. The group housing for local residents. who are least likely to migrate to London Requiring an expanding Wandsworth, are those in social housing, which is highly Woking or Witney to offer significant lev - localised. A Wigan resident cannot ask to els of social housing for people from be put on the housing waiting list in Walsall, Warrington and Wigan will not be Wandsworth, nor can a Warrington resi - popular, and it will not happen unless local dent ask for social housing in Woking. councils are required to do so. If we do not Social housing is very much for local peo - require expanding areas to offer social ple. Given that people in social housing housing to people from economically tend to be lower skilled, this means that declining areas then we will create a spiral 55 Hills J, Ends and Means – The future roles of social hous - those with low skills find it much harder to of decline in those places. As now, the ing in England , CASE report 34, move areas. As John Hills reported, virtu - skilled will leave, leaving the unskilled Centre for the Analysis of Social Exclusion, 2007 ally no one in social housing moves for job trapped in a town that remains poorly 56 Ibid, p 43 related reasons. 55 located, and has an ever lower skills base.

38 9

It will not just be London

At first sight the existence of agglomera - capable of creating very large numbers of tion economies seems to imply that we will very good jobs. 57 But as we have just seen, all end up living in London. That is not London cannot grow to accommodate the case. Agglomeration economies will everyone who might like to live there. The continue to increase as London – or any question then is whether Britain can create other city – grows, but the congestion costs another London, a city or group of cities will also rise. There comes a point, there - capable of being globally competitive in fore, when London’s congestion costs are high value-added sectors. pushing up the cost of living as fast as There can be no certain answer to this agglomeration economies are raising question, but there are two ways of work - wages. At that point it will have reached its ing out which cities have the greatest economically optimal size. potential to thrive at the global level. The We know that London has not yet first is the planner’s way. It is to identify the reached that size because high land values criteria necessary to be a global city and indicate that people wish to move to then to see which cities are closest to those London. The same is true for the com - criteria. The second is the economist’s way, muter towns surrounding the capital. As which is to see what land prices are telling we have said, there is a strong economic us. As we shall see, both methods give the rationale for expanding both areas. same results. Nevertheless, at some point, which is Intelligent planners know that the impossible to predict, congestion costs will strongest foundation for cities with global rise to a level such that people will no reach is that they are based on exceptional longer want to move to London. Although skill levels that cannot easily be replicated land in all of Inner London, from Chelsea elsewhere. When we look to places such as to Tower Hamlets, will always be high, at Boston, Massachusetts, and Silicon Valley, that point the value of land for housing at in California, we find that they are associ - the edges and around London will no ated with some of the world’s best univer - longer exceed the UK average, since people sities: Harvard and MIT in Boston, and will not, on average, want to move to Stanford in the heart of Silicon Valley. It is London. The city will have reached its therefore sensible to ask ourselves which optimal size and we should stop expanding are Britain’s best universities outside it. The same will be true of the London London. commuter towns, which may reach their That Oxford and Cambridge are world optimal sizes before or after the capital, class universities is well known. But it is and certainly at different times to each worth setting out the research gap between other. Oxford and Cambridge on the one hand 57 Sassen S, The Global City: As we, and others, have noted, London and other (non-London) universities in New York, Tokyo, London , stands out as a globally successful city, some detail. All university league tables are Princeton University Press, 2001

www.policyexchange.org.uk • 39 Cities unlimited

crude measures and ours is no exception. Cambridge, while universities such as The measure that we use here captures the Nottingham and Leeds are on a third of research intensity of Britain’s universities Oxbridge levels. There is, in other words, a by looking at the ratio of government huge gulf between Oxford, Cambridge and funding given for research to that given for London on the one hand, and the remain - teaching. In essence, research funding is ing UK universities on the other. That is awarded according to the quantity of high not to say that universities like quality research, while teaching funding is Southampton, Nottingham and Leeds are given on a student per capita basis. As such poor universities in any sense, rather it is to the ratio of one to the other gives the rela - state that in Oxford and Cambridge Britain tive research strength of a university. 58 has two of the world’s finest universities, Only six institutions receive more for and it is likely that these can form the basis research than for teaching: these are our of strong, successful, substantial cities. strongest research universities. They consist The alternative way of deducing which of four London University colleges – the cities should be expanded is that of the London School of Economics and Political economist, which involves looking at land Science (LSE), Imperial, University College values. These give a measure of the relative and the School of Oriental and African extent to which people are trying to move Studies (SOAS) – Oxford and Cambridge. to a place. Outside of London and immedi - Excluding Oxford, Cambridge and the ate commuter towns such as St Albans the University of London, the average UK highest land values are found in Oxford institution receives only 23 per cent as and Cambridge. Again, this tells us that much funding for research as for teaching, these cities could grow very effectively. 58 We exclude institutions about an eighth as much as Oxbridge. The It is not possible to predict the optimal admitting fewer than 100 under - graduates a year. London median institution receives only 4 per cent size of these cities. The only way to discov - Business School, the Institute of as much funding for research as for teach - er that is to expand their size and see what Cancer Research, the London School of Hygiene and Tropical ing. Even the next highest ranked universi - happens to land values. If they remain high, Medicine, the Courtauld Institute of Art, and the Institute of ty, Southampton, receives only a fraction then it is economically rational to expand Education all have research to over half as much funding for research rel - the city further. If they do not, then the city teaching funding ratios exceed - ing 100 per cent. All are in ative to teaching as do Oxford and should not be expanded further. London, so their exclusion does not change the results

59 Ratio is HEFCE research to HEFCE teaching funding, 2008- Figure 4: University to teaching ratio 59 9. Excludes research council funding, which is awarded by individual application. Universities also receive funding Research-intensive undergraduate-accepting universities as judged from other sources, such as by the ratio of HEFCE research to teaching funding, 2008-9 200% charitable foundations, the EU and business, which are not 175% included in these figures. 150% Excludes institutions with fewer 125% than 100 undergraduate accept - ances in 2007-8, Higher 100% Education Funding 2008-09, 75% BBC 6th March, 2008 see 50% http://news.bbc.co.uk/1/hi/in_de pth/629/629/7279454.stm. The 25% average figure given here 0% excludes Oxford, Cambridge London University Imperial Univeristy of Univeristy School of UK Median UK and University of London col - School of of College Oxford College Oriental University university leges. University sizes from Economics Cambridge London London and African average UCAS , 2007 see and Political Studies, www.ucas.com/about_us/stat_s Science University ervices/stats_online/data_tables/ of London abushei/abushei2007/

40 It will not just be London

It is likely that the optimal size could be The Government wants three million quite large indeed. At the start of the 19th houses to be built in Britain by 2020. 60 The century Liverpool and Manchester were best approach to determining the right around the size of Oxford and Cambridge locations is to follow land price signals that today. Over the course of the century can and will change over time, but it is Liverpool and Manchester both grew five - plausible that the optimal economic loca - fold. It is plausible that since 1945 Oxford tion for these houses is a million in and and Cambridge would have grown on a around London, a million in Oxford and a similar scale were it not for very restrictive million in Cambridge. planning policies. Indeed, given that eco - nomic geography tells us that optimal city sizes have probably increased in the 20th “ Oxford and Cambridge are not cities with particularly century, and that optimal sizes are largest large regeneration problems, but expanding them can for high-skill, service-sector based cities, it create opportunities for people who live in towns and is more than possible that the optimal size cities that do of each town exceeds one million people, ” perhaps by a considerable margin. In many ways both cities are in good loca - tions for expansion. Both are near major air - Oxford and Cambridge are not cities ports, with Oxford’s proximity to Heathrow with particularly large regeneration prob - edging out Cambridge’s proximity to lems, but expanding them can create oppor - Stansted. Against that, a population of one tunities for people who live in towns and million or more affluent people in globally cities that do. As we noted earlier, this does connected businesses in Cambridge would be require greater levels of internal migration likely to lead to a rise in the number of long- than Britain has been used to in recent haul flights from Stansted. Both are also near years, but the levels of migration envisaged London, which again adds to the agglomera - are far smaller than those of 19th century tion economies available to all three cities col - Britain. Given all the improvements in lectively, although the journey between transport and communications in the last Oxford and Cambridge is somewhat tedious. century and a half, that cannot be infeasible.

Box 2: Hastings – connecting the connectables

Britain can effectively be split into two parts, which we term “connectable” and “unconnectable” Britain. By connectable we mean primarily but not exclusively connectable to London. We know that London is not only the richest place in Britain but that it has a proven track record of raising up the communities that surround it. Places such as Guildford and Windsor have high skilled populations of their own: they would be affluent wherever they were. But there are many areas, particularly east of London, which do not have particularly highly skilled populations and yet are reasonably successful. We think, for example, of the Medway towns. In the 1980s Medway lost two major employers: the Royal Naval dockyard and Metal Box. In the 1980s, therefore, Medway had much in common with many industrial towns in the North of England, which were losing their manufacturing bases. But Medway today is a reasonably successful place. It is not the most affluent place in Britain by any 60 Homes for the Future: more means but nor is it struggling. The reason for Medway’s revival has little to do with Medway, and affordable, more sustainable , everything to do with London. As anyone who has stood on Chatham station in the morning will Housing Green Paper, know, commuting is a fact of life for many Medway residents. Proximity to London has kept Department for Communities and Local Government, 2007, Medway afloat, and prevents it from entering into a spiral of decline. see www.communities.gov.uk/ housing/housingsupply/

www.policyexchange.org.uk • 41 Cities unlimited

Medway, then, is an area whose connectedness to London has ensured that it remains economi - cally viable despite severe shocks in the 1980s. There are other places that are poor in southeast England that could be connected. In our original sample of urban regeneration towns we would point to Hastings as an example. But it is not the only one: Thanet towns such as Margate are anoth - er example. These are places that can be regenerated. The way to do so is simple: increase their con - nectedness to London. Given that commuters into London overwhelmingly travel by train, the obvi - ous way to increase the connectedness of places in the South East is to improve the quality of train links between them and London. At the moment the direct train from Hastings to London takes an hour and 51 minutes and stops at between 11 and 13 stations. Given that the distance between Hastings and London is only 62 miles this means that the train is running at an average speed of 34 mph. Were trains to Hastings to run at the same speed as trains to Swindon, the train journey would be cut to 47 minutes, similar to the tube ride from Shepherd’s Bush to Canary Wharf. But Swindon is lucky in two senses. First, the train line out of Paddington was exceptionally well engineered. Very few trains out of London manage the speeds of trains to Swindon. Second, trains to Swindon are fast because Swindon is on the mainline to Bristol, Exeter and Cardiff. No matter how well we reconfigured the railway system, Hastings will never be on the way to anywhere: it is the end of the line. This means that the quality of the railway that is viable between London and Swindon is not viable between London and Hastings, and never will be. Being on the coast is a major disadvantage today. Realistically therefore, Hastings will never be as well-connected to London as is Swindon. In all probability, Hastings will never be as rich as Swindon. The challenge is to cascade wealth from London to places that are well-connected around London and then on from those places to Hastings. There are two obvious candidate intermediate places: Brighton and Dover. Brighton is in many ways a successful city. It is well connected to London, and to Gatwick airport. But it is surprisingly badly connected to the other towns along the South Coast, in either direction. Not only is there no motorway link there is no continuous dual carriageway either. In fact, fewer than 7 of the 36 miles between Brighton and Hastings are dual carriageway, and even that comes in two parts, and is punc - tuated by roundabouts. It is even worse going east from Hastings: there is no dual carriageway on the route between Hastings and Dover until you reach the A20 in Folkestone. Given the poor quality of the roads, it is not surprising that the RAC predict that it will take an hour to get from Hastings to Brighton, and over an hour and a quarter to get from Hastings to Dover, despite the fact that these journeys are only 36 and 46 miles respectively. The rail connections are even worse: it typically takes one hour and five minutes from Brighton and one hour, 40 minutes from Dover, with a change at Ashford. Nor are the connections going north from Hastings any better: there are no dual carriageways between Hastings and Ashford or between Hastings and Maidstone and only three miles of dual car - riageway between Hastings and Tunbridge Wells; the train lines on these routes, where they exist, are also slow. Hastings, then, is not connected, but it could be. It is perfectly possible to imagine the dual carriageway between Dover and Portsmouth, which would connect towns such as Hastings to the Channel Tunnel and the ferries to Europe on the one hand, and begin to create agglomeration economies between the otherwise rather isolated towns of the English South Coast on the other. It would be particularly beneficial for Hastings if Brighton were to grow. Perhaps surprisingly, 61 We thank the Association of Brighton already has trains that are fast enough to make the journey from Brighton to London the Train Operating Companies for 61 supplying us with this data. third busiest in Britain. That line is sufficiently well used (even more so between Gatwick, East Croydon and London) that increasing the speed of trains on that line is likely to pass cost-benefit 62 East Croydon to London is 62 the most popular journey in analysis. This in turn would allow Brighton to grow and create a South Coast agglomeration area, Britain, Gatwick to London is the to the benefit of Hastings and other relatively poor coastal towns, which could then orient themselves seventh. There are more than 14 towards Brighton. For Brighton the problems associated with being on the coast are trumped by its million journeys a year on these three routes alone, plus millions connectability to London, and it has the potential to create regional spillovers to other towns in the more from intermediate stations. area.

42 10

Economic geography outside of the South East

The implications of economic geography East England, Newcastle is a large place. for the South and particularly the South But Northern Rock dominates Newcastle’s East are clear. Britain will be unambigu - financial services sector, to the extent that ously richer if we allow more people to live were Northern Rock to fail, Newcastle’s in London and its hinterland. In addition, financial services would be all but Oxford and Cambridge should be the destroyed. In contrast, were a similar size prime cities to see significant but not, by London financial institution to run into historical standards, unprecedented expan - trouble, it would make little difference to sion. London’s status as a financial centre, and The lessons for other parts of Britain are the people working in that bank would be more ambiguous. Nowhere will be as rich likely to find other banking jobs easily. as London within the foreseeable future. It Newcastle, in short, is small enough to be is also likely that an expanded Oxford and vulnerable to the collapse of a single firm; Cambridge would be richer than every - its economy is not as robust as a much where else in Britain. But that does not larger centre such as London. mean that everywhere else would be equal. Manchester is the third largest metro - On the contrary, the two important factors politan area in the UK after London and that we have pinpointed – location and Birmingham . Although income varies scale – remain powerful indicators of their widely in different parts of the city, possibilities. Manchester as a whole is much richer than We noted that places with strong market nearby towns such as Blackburn, Oldham potential are likely to be richer than other and Rochdale – although there are affluent areas. Market potential derives from the commuter towns nearby, such as characteristics of the place itself and the Macclesfield, which cannot be considered places to which it is well connected. Scale separate from the Manchester economy. 63 is part of a good location. Manchester is Manchester is successful in part because it stronger for being larger. So is Leeds. is large. It is also relatively well connected, Conversely, towns such as Burnley or with 407 trains during the working day, Merthyr Tydfil suffer from being relatively including a relatively fast and frequent small. service to London and Glasgow. The air - The evidence suggests that the optimal port also offers a reasonable range of desti - size of cities which concentrate on the serv - nations and flights. The same is true of ice sector is larger than for those which Leeds. It too has good train links, particu - concentrate on manufacturing. We can see larly to the South, with over 445 trains 63 See, for example, Inland Revenue statistics: this at the moment by looking at the bank, during the working day, an airport and rea - www.hmrc.gov.uk/stats/income_ Northern Rock. By the standards of North sonable connections to Manchester. It is distribution/table3-15-feb08.xls

www.policyexchange.org.uk • 43 Cities unlimited

richer than its neighbours, large (Bradford) muter towns – complementary to London, and small (Batley), although as with not rivals to it. Sadly for Liverpool, Manchester there are affluent commuter Bradford and Sunderland their larger towns nearby (Shipley). 64 neighbours, Manchester, Leeds and If we look at the land price data there Newcastle, are not as powerful economi - seems a strong argument, akin to the case cally as London, which is also much larger we made for expanding London, Oxford relative to its commuter towns. and Cambridge, for expanding Manchester The three regional hubs will not lift the and, to a lesser extent, Leeds. Land for res - surrounding towns in the way that London idential use in Manchester is currently lifts what would otherwise be relatively less worth around £5.75 million per hectare. prosperous areas such as North Kent and Given that industrial land in Manchester is South Essex. The northern regional hubs are valued at only a tenth of that amount per not as large as London and so have much hectare, there must be a very good case for less economic muscle. But there are other reallocating at least some of that land for reasons as well. Londoners on good wages housing. But the case for expanding move out of London to the surrounding Manchester as a whole is dramatically towns because they cannot afford the space weakened by the value of land in towns that they would like in the city itself. around Manchester. Land in Rochdale, for Housing in London is expensive, whether example, just ten miles from central we are talking about flats in the centre or the Manchester, is worth only £1.9 million per inner suburbs such as Islington and hectare, less than the national average. 65 It Fulham, or houses in outer suburbs such as is hard to see the wider Manchester area as Wimbledon and Hampstead. Even people short of housing. It would be odd to with high incomes are forced to leave expand the city dramatically when there is London and so take their prosperity with so little demand for housing in nearby them. They move out along the train lines, towns. to Woking, Reigate and Hemel Hempstead. But size cannot explain everything: Those with more modest salaries often Liverpool, Bradford and Sunderland are all move out along the slower train lines, large; indeed Sunderland is larger than accepting a worse quality service in nearby Newcastle. But none of them is rich exchange for cheaper housing. Although – quite the reverse. These are cities with a not as affluent as those commuting from the particular problem: although large, they three towns just mentioned, those travelling are not the hub cities for their areas. in each day from North Kent and South Liverpool sits to an extent in Manchester’s Essex earn more than they would be able to shadow, and Bradford and Sunderland are do locally and as such they increase the unambiguously in the shadows of Leeds prosperity of these areas. and Newcastle. Manchester, Leeds and The financial pressure to leave the north - Newcastle are clearly the premier cities of ern regional hubs is much lower. Moving their areas. They are the wealthiest, best from the borough of Camden to Romford connected, and have the highest skills base. reduces the purchase price of a pre-1919 It is very hard for nearby rivals to compete. terraced house by £331,000, and moving The same is true in the South East. from Camden to Gillingham, in North Places such as Guildford and Romford, Kent’s commuter belt, reduces the price by

64 See, for example Inland Hertford and Watford cannot compete £386,000. But moving from Manchester to Revenue statistics: with London. But they do not have to Rochdale saves only £178,000, even www.hmrc.gov.uk/stats/income_ distribution/table3-15-feb08.xls because London is a strong enough econo - though Rochdale is significantly cheaper 65 Valuation Office Agency, op cit my to allow them a new role – that of com - than anywhere else in the region. The gain

44 Economic geography outside of the South East

from leaving Leeds or Newcastle is smaller “Path dependency” or “chicken-and- still. Furthermore, the difference in price egg” syndrome is at work: without skilled between, say, Rochdale and Macclesfield, at workers, firms offering well paid skilled £85,000, is much lower than between jobs will not move to these towns. But Gillingham and Guildford, at £140,000. without the jobs, skilled people will not As a result, people with reasonable jobs in move there either, resulting in the mainte - Manchester are more likely to be able to nance of the low skilled, low wage, high afford to live in Manchester or unemployment status quo. Macclesfield, whereas their counterparts The Government is committed to dis - might well be priced out of London and persing the Civil Service, as recommended Guildford and therefore take their incomes in the Gershon review, 67 and the Liberal to Gillingham. Gillingham benefits from Democrats have even argued for the the high price of property elsewhere: it Treasury to be moved to Liverpool. 68 makes the town attractive to people who Sometimes dispersion works – the might not otherwise consider it. 66 Teachers’ Pension Agency moved to In addition, the transport connections Darlington in 1967. But the Government to the centre of Manchester, Leeds and has been much less successful in relocating Newcastle from surrounding smaller towns highly skilled, and in particular, more spe - are not as good as those into London. cialised jobs out of London. We can see Although Londoners grumble about their this at the moment with the plans of the trains, tubes and buses, they are, by UK Office of National Statistics (ONS) to standards, incomparable. London is a city transfer the production of statistics from designed around commuters in a way that its London office to Newport in Wales. is true of no other city in Britain. The National Statistician, Karen Dunnell Rather than high skill, high pay workers expects only 15 per cent of staff to move to leaving these regional hubs to live but not Newport. 69 One ONS statistician told us 66 Ibid work in their surrounding lower cost areas, that 15 per cent was an ambitious target, 67 Gershon P, Releasing Resources to the Front Line , the regional hub cities attract the high and predicted that the actual figure would Independent Review of Public Sector Efficiency, HM Treasury, skilled workers out of the surrounding be 2 to 3 per. One ONS worker told The July 2004, see www.hm-treas - lower cost areas. Rather than gaining afflu - Guardian : “No one wants to go to ury.gov.uk/spending_review/spe 70 nd_sr04/associated_documents/ ent commuters, Liverpool, Bradford and Newport.” spending_sr04_efficiency.cfm

Sunderland are more likely to lose their The Bank of England has warned MPs 68 The Lib Dem Plan for own local talent, attracted by the quality of that: “The relocation programme poses Slimming Government , Liberal Democrats, 2008, see life in the nearby hub. It is very hard to see serious risks to the maintenance of the www.libdems.org.uk/government conditions in Liverpool and particularly quality of macroeconomic data.” It said: “If /issues/ Bradford and Sunderland improving rela - substantial numbers of ONS staff are 69 Padgham J, “City Divided over Prospect for Summer Rate tive to their local rivals, or the national unwilling to relocate, the loss of skilled Rises 5.5% - but what then?”, The Independent , 10th May average, in any conceivable time frame. individuals could have a severe impact on a 2007, see The problem for many of our regenera - range of statistics.” 71 The plan also demon - www.independent.co.uk/news/b usiness/news/city-divided-over- tion cities is twofold: they are too small to strates why relying on the relocation of prospect-for-summer-rate-rises- be an attractive destination in their own skilled workers is not a sensible way to 55--but-what-then-448211.html right and they are relatively poorly con - regenerate depressed areas: they do not 70 Seager A, “ONS London Staff Seek New Jobs rather than go nected to other places that are attractive move. to Newport”, The Guardian , 2th destinations. None of these cities is going For private sector companies such relo - January 2007, see www.guardian.co.uk/business/2 to grow dramatically of its own accord, and cation is simply not an option – if they try 007/jan/26/interestrates it is unlikely that any of them are going to it their rivals will poach their staff. The 71 “Stats staff 'quitting' over move”, BBC News, 14/05/07, attract substantial numbers of highly public sector can do it – the ONS cannot see http://news.bbc.co.uk/ skilled workers any time soon. go bankrupt because it has no rivals. But 1/hi/wales/south_east/6653771.stm

www.policyexchange.org.uk • 45 Cities unlimited

there is a cost – so worried is the Bank of This example shows that even fairly England about the quality of ONS statis - remote places in Britain can sustain high- tics in the next few years that it has skill sectors. But we need to be careful: it increased the range of non-ONS data that is one thing to sustain an already existing it uses in its modelling. 72 That is a direct, if sector, quite another to create it from hidden, cost to the decision to move the scratch. Existing firms in existing loca - ONS. Data from other sources cannot be a tions have only to attract a handful of new perfect substitute for ONS data. The Bank staff each year, often younger people with of England, and all other decision-makers, fewer ties. Relocating firms, in contrast, public and private, may well be using lower have to persuade existing staff to move. quality data in the future. To move the That is much harder – their partners have ONS offices to Newport without manag - jobs, their children are happy at school, ing to move the staff is a tremendous risk and so on. Had the ONS always been in to the economy; it may yet prove to be the Newport, the Welsh town would probably most expensive and least successful piece of work as a location for ONS, just as urban regeneration ever seen. Cheltenham works for GCHQ. It is the This does not mean that there is no act of moving, not the location itself, that future for high skilled work outside major is problematic. 73 cities: we know that there are many firms More generally, although London, offering high skilled, highly paid, work in Oxford and Cambridge are by far the all sorts of places. In many cases the loca - most research-intensive universities, there tions are essentially serendipitous. For are a number of high quality research uni - example, the town of St Asaph in North versities across Britain. In some cases, Wales is home to a cluster of 35 firms pro - such as Southampton, these play an 72 Giles C, “Welsh transfer a ducing military and high-technology important role in the local economy 'risk' to statistics, says Bank”, Financial Times , 10th May 2007, optics. This grew originally from the already. In others, such as York, there is see www.ft.com/cms/s/0/ Pilkington glassworks, but in recent years the potential for the university to drive a f40355bc-fe92-11db-bdc7- 000b5df10621.html both Pilkington and other firms in the area significant expansion of the town, in the 73 Even so, locating in an area have moved much further up the value way that we have suggested could happen where partners have difficulty following their careers creates chain. Pilkington Space technology, for in Oxford and Cambridge. It is likely to two problems. First, the firm or example, produces around half the glass prove easier to create significant new areas government department in ques - tion may have difficulties in used by the global satellite industry. It is of high skilled work associated with attracting staff to a place that also an area in which new firms and new Britain’s top research universities than it is offers limited opportunities for their partner, and secondly, if talent are nurtured. Technium OpTIC, a in areas that are currently most in need of they do manage to attract the research incubation centre, has recently such jobs. Migration within a region, as staff, the skills of the partner may not be fully used, to the won the European Commission’s RegioStars well as towards the South East, has to be detriment of the person con - cerned, and the economy as a Award for 2008 for the quality of its part of the answer to the challenge of whole research and development. regeneration.

46 11

Setting cities free

Our international research, set out in This is wrong. Of course there is a role Success and the city , has demonstrated the for experts, but they are there to inform power of localism. Places such as not to decide. When people feel disem - Vancouver, the Randstad cities of the powered they stop thinking for themselves. Netherlands, Hong Kong and the Ruhr In fact they tend to become reactionary cities of western Germany, have all used and antagonised by imposed change. They their autonomy to good effect. That is not reduce their levels of engagement with civil to say that by unshackling British cities we society, and this is worrying on both an will release a huge tide of civic entrepre - economic and societal level. 74 As we shall neurship: as the cases of Warsaw and Łódź see, there is every reason to think that this demonstrate, freedom is not enough, it makes regeneration less likely. takes expertise as well. We believe that there are four reasons There is much expertise in the British why localism is likely to improve regenera - regeneration industry, whether in local gov - tion outcomes. First, it will lead to diversi - ernment, regional agencies, central govern - ty, and diversity generates evidence, which ment or the private sector. But much of it is is the cornerstone of good policymaking. misdirected. When talking to people Secondly, it will lead to solutions being involved in regeneration at the grassroots, we more closely tailored to the wishes and were struck by how often they told us of the requirements of local areas. Thirdly, it will time and effort that they put not into regen - allow the generation of new ideas from eration, but into keeping central govern - within the community. Fourthly, there is ment happy. Central government controls good evidence that when people are the money, and so it is to central government involved in setting their own priorities and that they look, it is central government that feel that they have a genuine input into the is their judge, their jury and their hangman. way their area is run, they are happier. This is not how it should be. It matters Since people’s happiness is the ultimate little whether central government thinks a goal of any society, this is of itself a success - scheme has been a success; what matters is ful outcome. whether local people in the place con - We concentrate on the first of these fac - cerned think the scheme has been a suc - tors here, before returning to the others. 74 Rodríguez-Pose A and cess. There is something of an unholy That devolving power leads to diversity is Storper M, “Better Rules or Stronger Communities? On the alliance between centralisers and tech - self-evident, and we can already see that Social Foundations of nocrats in Britain. The centralisers believe happening as devolution takes hold and is Institutional Change and Its Economic Effects”, Journal of that only they have the expertise to devise extended. Labour won the first elections in Economic Geography , 82(1): plans and only they can evaluate what has all three devolved regions – Scotland, 1–25, 2006 75 Northern Ireland has a very worked. The technocrats believe that local Wales (both in coalition with the Liberal different system, in which British people cannot distinguish whether a Democrats) and London, where the initial - mainland parties do not mean - ingfully contest elections. For scheme is successful because of its own ly independent mayor, Ken Livingstone, that reason we do not consider merits or has just been lucky. was Labour in all but name. 75 The extent to Northern Ireland here

www.policyexchange.org.uk • 47 Cities unlimited

which decision-making was different from From a social science point of view, priorities set nationally was limited by the devolution is like a pilot scheme with con - same party being in power everywhere but, sent. The poll tax was first tried out in even so, variations could be seen: those in Scotland, but that pilot was of little use. It power in all three areas were to the Left of was too short in duration for central gov - Labour at Westminster. Since then we have ernment to be able to work out the effects, seen Labour lose ground in all devolved and it was unpopular because it was areas, and lose control of Scotland and imposed, irrespective of any merits that it London altogether. may have had. In contrast, while local income tax is unpopular with two of Scotland’s main parties, it is supported by “ Our proposal is simple. Every single national regeneration two others. If it is implemented it will not programme would be wound down and the money have been imposed from outside and com - pliance is likely to be high. It will be per - distributed according to need ” fectly possible for others to assess its advan - tages and disadvantages and to learn from Scotland’s experience. Scotland’s decision All those who believe in devolution to do something differently benefits every - should celebrate the election of non- where else. Labour governments in different parts of We saw this at work in the Ruhr and in the UK, not because they are anti-Labour the Netherlands. Amsterdam concentrates but because they are pro-diversity. Having on diversifying housing tenure and recruit - different parties in charge in different ing service-based foreign investment while places increases the likelihood of different Rotterdam prefers to nurture its cultural policies being put into effect. Different sector and maintain manufacturing and policies generate evidence about what logistics jobs associated with the port. In works and what does not, which leads to part these choices reflect the fact that they more effective government in the long run. have different strengths and weaknesses, We can see this most clearly in Scotland, but both cities have similarities and can both because Labour is no longer part of and do learn from each other. the executive there at all and because All areas should want every other area to Scotland has greater constitutional powers be given power over regeneration strategy to change policy than other devolved areas. because the natural variation in policy will An example is the plan of the minority generate evidence about what works and Scottish National Party Government to what does not work. That is to the benefit replace council tax with a local income tax. of all. This has been strongly opposed by the Our proposal is simple. Every single opposition Labour and Conservative par - national regeneration programme would ties. Wendy Alexander, the Scottish be wound down and the money distrib - Labour leader, has described it as an uted according to need. Nor would we “unworkable Scottish jobs tax”. 76 restrict ourselves to targeted regeneration

76 Gardham M, “SNP's Local Supporters argue that local income taxes funding. There would be a strong case for Income Tax Plans Are exist in many places in the world, includ - including government spending designed Unworkable, Blasts Wendy Alexander”, The Daily Record , ing some American states. It is not for us to to get people back to work, such as the 12th April 2008, see: say who is right and who is wrong, because New Deal funding streams. The Govern- www.dailyrecord.co.uk/news/sco ttish-news/2008/03/12/snp-s- we do not, and cannot, know. The only ment should identify items of local expen - local-income-tax-plans-are- way to find out is to try it. If Scotland tries diture that are currently financed from the unworkable-blasts-wendy- alexander-86908-20348136/ it we will all find out whether it works. centre and return them to the lowest level

48 Setting cities free

of government that is possible. Thus many should lose. In any case, all firms will pay the local train lines would be handed to local true costs that they impose on society. authorities. Where they are loss-making, Continued funding to remove danger - transitional funding relief would be given. ous mine workings should be seen as a spe - The formula would be straightforward, cial case. All areas will have some contam - relying almost exclusively on the average inated land, and all will have at least a lit - income of people in the area, taking into tle bit of very contaminated land. An area account their ages. 77 There would need to would only be eligible for direct govern - be transitional spending to avoid huge ment funding if it had an especially large winners and losers, but the aim would be amount of such land. Former coalmining to limit its duration. It would also be districts would be the obvious beneficiar - important to identify the reasons why ies, though everywhere would have the some areas have traditionally received right to put forward a case. higher levels of funding than their appar - Areas would not be eligible for additional ent needs warrant in order to adjust future funding simply because they are remote. spending. People are free to choose where they live, and Thus, it is inevitable that central govern - it is almost invariably better for individuals ment funding to restore former mining to meet the costs of their own decisions areas will continue because disused mines rather than society as a whole. Remote areas are extremely expensive to remove. generally have more limited access to broad - Similarly, were Britain to abolish nuclear band, for example, but those living in power, the cost of decontaminating the Brixton have to pay more for their house land on which Sellafield is built could not insurance. It is not the job of governments to reasonably be restricted to the relatively equalise the cost of every item across the small number of people living close by. In country. As countries like Ghana found such cases the company concerned should when they tried this, it is a disaster. 78 to pay to restore the land when they have This new funding stream would not finished using it. It is, of course, hard for have strings attached. Local councils would councils to persuade firms, particularly not be answerable to central government bankrupt firms, to do this when they leave for how they spent it; instead they would 77 This will take into account the an area. In future they should instead be be accountable to local voters through the fact that a 7 year old having no given the right to require that firms post a ballot box. It is called democracy, and as income is different to a 37 year old having no income, and dif - bond with them at the outset to cover the Churchill said, it is the worst system except ferent again to a 77 year old with costs of restoration when they leave. for every other one that has been tried. 79 no income This payment would be part of the Funding regeneration in this manner 78 Rimmer D, Staying Poor: Ghana’s Political Economy, replacement for payments made during would require the abolition of all grants to 1950-1990 , Pergamon Press, planning permission under section 106 of organisations such as regional development 1992 79 “Many forms of Government the Town and Country Planning Act 1990, agencies (RDAs). This does not mean, have been tried and will be tried and would give councils a greater incentive however, that RDAs would be abolished. in this world of sin and woe. No one pretends that democracy is to permit development, knowing that the They have the potential to act as advisers perfect or all-wise. Indeed, it has costs of decontaminating land would be cov - to local councils and to implement poli - been said that democracy is the worst form of government ered in the long run. Without the need to cies on their behalf. Local councils rather except all those other forms that pay to clean up derelict land, central govern - than central government would become have been tried from time to time.” Speech in the House of ment could reduce the rate of corporation their customer. They will survive and pros - Commons, The Official Report, tax. Firms that inflict less damage should per if – and only if – local councils believe House of Commons (5th Series), 11th November 1947, vol 444, gain, while those that contaminate land that they offer value for money. cc 206–07

www.policyexchange.org.uk • 49 12

What would cities do?

We have been very clear that it is not the eration objectives that bear little resem - role of London-based consultants to tell blance to any possible reality. It would be individual towns and cities what to do. invidious of us to name particular towns, This chapter does not seek to offer a blue - but we have been left in no doubt that print, and certainly does not claim to offer council leaderships believe that it is unac - solutions that will work in every city in the ceptable for them to paint anything other country. Instead it seeks to report back on than a bright, indeed often absurdly what has worked elsewhere, and on inter - bright, picture of the future. Equally, con - esting ideas that people around Britain sultants have told us tales of writing regen - have told us that they would like to try if eration visions that they know cannot be only the rules allowed. We do not propose, delivered. As one remarked, the council is therefore, that local councils should do all the customer, and we all know that the or any of the following, only that these are customer is always right, don’t we? ideas that they should be able to consider. We believe that giving councils greater In all cases, local councils would be spend - responsibilities will make them more ing their own money, which they would responsible. We can see this already in the have complete freedom to use as they saw case of the devolved assemblies. The Welsh fit. And they would be completely respon - Assembly Government has, for example, sible to their electors, who would judge created a genuinely high-quality economic them on what they have achieved. research advisory panel. It includes not just The first thing that all councils should the great and good of Wales, such as Garel do is to make a realistic and hard-headed Rhys and Andrew Henley, but also draws assessment of their area’s position and its on expertise from further afield through potential – its strengths, weaknesses, people such as the former director of the

80 A good example of this is the opportunities and threats faced. At the Institute of Public Policy Research, Gerry introduction of UK-wide free bus moment, local councils like to portray Holtham, and ex-monetary policy com - travel for pensioners. The Government has assessed how themselves as being in a pitiful state, but mittee member Stephen Nickell – people much it thinks the policy will one that would be transformed if only cen - who will say what they think needs saying, cost councils, but councils have said it will cost more. They may tral government were to fund a business rather than what an audience wants to be right or wrong, but the sys - tem creates an incentive for park, high-speed train, new town centre or hear. Thus Holtham’s 2002 paper for the councils to claim this however cultural quarter. Institute of Welsh Affairs “finds a glimmer generous the settlement is. “Help hard pressed council tax - And whatever settlement is received, of hope for Wales amid generally grim tid - payers, town halls urge local authorities have every incentive to tell ings”. 81 Chancellor”, Local Government Association, press release, 12th residents that it is so inadequate that noth - The panel have produced interesting April 2008, see www.lga.gov.uk/ ing can be expected of them. Councils reports, and offer realistic advice. Most lga/core/page.do?pageId=329018 behave like this not because they are dis - recently, they have asked whether it is real - 81 Holtham G, “Debate: Global Trends”, Institute of Welsh honest, but because they are almost entire - istic for Wales to try to capture any of the Affairs , 2002, see www.iwa.org.uk/publications/pdf ly dependent on central government high value-added industries currently s/DebateGH1.pdf grants. 80 Today many councils have regen - being attracted to the South East, or

50 What would cities do?

“whether it would be more productive to as a whole. The most obvious way to do try to identify other activities priced out of this would be by providing business parks. the South East of England and try to Part of the reason for the North Wales mil - attract them to Wales”. 82 These are sensible itary optics cluster at St Asaph was the pro - questions, and the willingness of the Welsh vision of a business park suited to the sec - Assembly Government to ask them tor. Similarly, councils could offer advice demonstrates that devolving power creates services to existing small and medium-size greater responsibility among policymakers. firms. Again, there are laws to prevent such Having come up with a realistic assess - activities being too heavily loss making, ment, councils then need to think about but councils could still decide that this was how to spend their money. Some of the a sensible way to spend their money. potential policies that we set out here will Decontaminating and restoring land also be very familiar to those in the regenera - falls into this category, as does assembling tion industry, but others will be more large sites in areas of fragmented land own - novel. We do not claim that the following ership. All these policies have been imple - list is comprehensive. mented successfully elsewhere – the Ruhr’s Triple-Z and Hong Kong’s record of suc - cessful land assembly stand out as prime Traditional regeneration policies examples. Support local industry A large proportion of local regeneration Improve infrastructure funding has traditionally been given to firms Many areas of Britain have relatively poor located in areas of high unemployment. infrastructure connections – Hastings is so That could continue. It would be perfectly near to many places and yet so far from all legitimate, for example, for Sunderland of them. Distance is not the problem, council to decide to spend £8 million of its accessibility is. It is not alone in being in regeneration money subsidising Nissan to this position, and there are many other build a paint shop. Equally, it would be legit - places that might wish to improve local imate to use that money for other purposes infrastructure. If Worksop wanted a dual if the council believes that, without the carriageway connection to the M1 and A1, 82 Panel Ymgynghorol ar grant, Nissan’s cost level would still be suffi - it should have the right to upgrade the Ymchwil Economaidd/Economic Research Advisory Panel, Report ciently favourable to ensure that it stayed A619 or A57. Hull might decide that a fast to the Welsh Assembly in the area. The Nissan plant means more road or rail route to York offered a good Government , 2007, see http://new.wales.gov.uk/firstmini to Sunderland than to anywhere else. return for its money. Both cases would ster/publications/economicresea Sunder land knows more about the plant require co-operation between the councils rch/advisory/1971767/ERAPnov0 7?lang=en, p2, para 2.3 than anywhere else. Sunderland can make affected. Vancouver is using the forthcom - 83 It would, however, be illegal the decision better than anyone else. More ing 2010 Winter Olympics to gain fund - under EU law for anywhere else generally, towns and cities could decide to ing from national and provincial govern - in the UK to try to attract Nissan away from Sunderland by offer - seek out inward investors, as Łódź did with ments for transport improvements such as ing a larger grant. This is very useful in this context because it Siemens and Essen with ThyssenKrupp. a high-speed rail link from downtown to ensures that Nissan cannot There are useful European Union rules the airport. 84 expropriate large amounts of regeneration money by persuad - designed to prevent wasteful counter-bids ing towns to enter a bidding war 83 between areas for regeneration funds. Improving town centres 84 Leunig T and Swaffield J, There is a long history of physical regener - Success and the city, Policy Exchange, London, 2007 Improve business conditions more generally ation in urban economic regeneration, 85 Urban Task Force, Towards As well as funding specific businesses, it which as we noted in Cities limited reached an Urban Renaissance: The final would be legitimate for councils to spend its apogee in the Rogers Report, Towards an report of the Urban Task Force, Chaired by Lord Rogers of 85 more on improving conditions for business Urban Renaissance. It would be perfectly Riverside , DETR, 1999

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legitimate for councils to decide that an they should be allowed to assist in nation - attractive town centre would be an effec tive al job searches. They could identify areas contribution to regeneration. Again, we see that are either short of labour in general, or evidence of this elsewhere – Vancouver has of particular types of labour, and invite used its zoning plan to ensure that the firms from those areas to visit them for job downtown area survives intact as a mixed- fairs. They could fund visits to other use area, with heritage areas preserved places, so that local people could get a bet - using density trading credits. 86 ter sense of what opportunities are avail - able elsewhere. Such places could be with - Organise local job clubs in easy commuting distance, or further A city should also be allowed to put its afield, that would imply migration. regeneration money into placement servic - Sunderland could offer free metro passes to es to get people into work. There is evi - people taking up work or looking for work dence that the New Deal has had some in Newcastle. Easington could offer people effect and councils should have the right to help in relocating to Eastleigh. None of fund schemes along the same lines. They these options would be allowable today, should have the right to hire state, volun - but if these are what local councils believe tary or private companies to do this: they to be the best answers to the problems that are answerable to their electorates and not they face, then the only constraint on their to any particular government’s ideology. actions should be their electorates.

Provide the services and environment that Less traditional regeneration policies appeal to high skill workers We stated that councils would have carte It is already seen as legitimate to spend blanche in deciding what to do with the regeneration money on high profile arts regeneration money that they are given. spending. The Baltic Centre for There are any number of policies that a Contemporary Art in Gateshead, for exam - council might feel appropriate that would ple, was designed to make Newcastle and be unlikely to be allowed under the current Gateshead vibrant places, attractive to those system. We set out a number of them here. with high disposable incomes. But however We do not claim either to have listed them much the urban intelligentsia may wish it all – one of the points of devolving power, otherwise, high art is a minority pursuit after all, is to allow new ideas to be gener - even among the affluent. It should be equal - ated – and nor do we claim that all of these ly acceptable to spend money on other ideas should be tried. We simply put them activities that will attract them – such as forward as ideas. In each case, these poli - golf. There is no good reason why it should cies are likely to be more attractive in a be legitimate to spend regeneration money town that believes that its biggest problem on an opera house, but not on a golf course. is retaining and attracting a skilled work - Both can attract tourists. Both can make a force. city a more appealing place to live. Whether to do either, neither or both should be up to Organise national job searches the council, but it should have the right to We have already said that local councils make that decision for itself. should be allowed to spend their money trying to match local workers with local Provide better education vacancies. But we go further. If councils We selected golf as an example because it is 86 Leunig T and Swaffield J Success and the city , Policy believe that many of the people in their widely perceived to be a popular activity Exchange, London 2007 area will have better life chances elsewhere, among the sort of affluent business people

52 What would cities do?

that many of our regeneration towns des - about where to locate. And if that doesn’t perately need to attract. But there are many work, if the best schools in the country do other services that they could offer. not attract skilled workers, and if the best Perhaps the most interesting one is high educated school-leavers do not attract quality education. We have noted that firms to an area, then the only conclusion many regeneration cities have lower than will be stark: this is an area whose other average exam results and their schools do problems – most likely intrinsic geography not act as magnets to outsiders. It would be – are so deep-seated as to make it a poor perfectly legitimate for a council to decide location for economic activity. At very least to spend regeneration money on local that town will have equipped its young schools. Canadian cities have successfully people with the skills and qualifications used quality education to attract families they need to get jobs elsewhere. The town to relatively remote places, and Manchester may not have been regenerated, but lives Council has recently underwritten six new would have been transformed for the bet - academies even though it will not have ter – by any sensible measure a successful control over the schools. 87 outcome. The aim would be twofold. First, it would serve to attract those who care most Give your city a unique selling point about education – often the well-educated Stoke-on-Trent City Council was recently who have benefited from it themselves – to praised in a Communities and Local the city. Such a policy could be quite pow - Government report for the quality of its erful in a town near a more successful city civic trees. 88 All across Britain parks and like Manchester, for example. Many of street trees are under threat. Local authority Manchester’s most affluent workers live to budgets are constrained by limited central 87 See Lim C and Davies C, Helping Schools Succeed: the South of the city, in Altrincham, government grants and apparently unlimit - Lessons from abroad , Policy Didsbury, Sale and Macclesfield. They do ed central government requirements on the Exchange, 2007, Chapter 3, Meikle, J, “Manchester under - not live in Middleton, Oldham or one hand and people’s under standable aver - writes six city academies”, The Guardian , 9th January 2008, see Rochdale, even though these towns are sion to council tax rises on the other. http://www.guardian.co.uk/uk/200 well within commuting distance. The Discretionary items such as the upkeep of 7/jan/09/politics.localgovernment question these areas might want to ask parks have frequently been victims of harsh 88 Stoke-on-Trent Council suc - cessfully attracted external themselves is not how can we attract firms cuts. Under the policies that we advocate, sponsorship worth over to our area, but how can we attract high- cities would have a much greater ability to £100,000 for its tree programme www.communities.gov.uk/news/ skill, high-wage people who work in create a stronger image for themselves. corporate/698826

Manchester to live in our area? Stoke might want to build on its reputa - 89 Vancouver has put in place Doubling the number of teachers and tion for tree care to make itself literally the its EcoDensity green city strate - gy. Freiburg in Germany is build - paying them significantly more would be greenest city in the region. City parks ing itself up around green tech - nology (see http://vorort.bund.net/ expensive. But it could make an area very could be well funded, and imaginatively suedlicher-oberrhein/freiburg- attractive to young families wishing to landscaped, city streets could be festooned environment-ecology.html). Boulder in Colorado and New move out of city-centre flats. Such people with hanging baskets. We are not saying York’s PlaNYC are both attempts bring money with them and at least some that Stoke – or any other city – should do to make cities more liveable and green of that money stays in the area, where it is this. But we are saying that they should be 90 Mid 1990s New York was los - 89 spent on local services and supports local allowed to do this. ing substantial retail activity to jobs. Such a policy would also have a sec - out-of-town developments in New Jersey, to counteract this ond effect: improving local education stan - Cut taxes decline and bring retail back to the city, the city removed VAT on dards. Some of those students will remain Finally, local councils should always have all clothing under $100. This has in the area longer term and, better quali - the right to use their money to cut council been seen as a very successful 90 way to keep retail in place and fied, they will represent a more attractive taxes. This would emphatically not be played a part in the rebirth of the workforce for potential employers thinking allowed under current rules. There are two city

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reasons why councils might want to do tax cuts to spending that achieves little. If this. First, it is possible that lower taxes will an area is located in a place that makes so attract more people and so raise the eco - little sense under current economic condi - nomic potential of an area. Note that since tions that decline is inevitable, a council those on benefits have council tax paid for may well wish to spend some of the money them, this policy would be a way to try to helping people to leave and some on mak - attract those in reasonably well paid ing the transition more palatable for those employment or with reasonable retirement who remain. Reducing their bills by incomes, the sort of people who bring £1,000 a year may well be an effective part money to an area and who may go on to of the palliative care for those who are start businesses and regenerate a place. unlucky enough to live in towns that are in But there is a second reason why coun - inexorable population and economic cils might want to use the money to cut decline. This will not be a popular option council taxes. Some areas are likely to for those in the regeneration industry, but accept the reality, sooner or later, that it may prove to be very popular with those much regeneration funding does not pass who have seen regeneration vision after cost-benefit analysis. In those circum - regeneration vision in their area, and won - stances, voters will, sooner or later, prefer dered, at the end, what has been achieved.

54 13

Coping with population decline

If the coal-powered, sea-transport based munities in which the low skilled are Industrial Revolution led to populations already overrepresented, with adverse being located in areas that are not ideal for implications for employment. Clearly no a modern, service sector, road and air- one should be forced to relocate, but we based economy, then allowing significant need to allow those in social housing to levels of migration makes economic sense. move from areas of population decline to Since the British population is not growing areas of population growth just as those in dramatically – certainly not by 19th centu - private housing can. If we do that, we will ry standards – this implies that some areas have gone some way to preventing popula - will experience population decline. In fact tion decline in an area becoming synony - this is already happening. Liverpool, for mous with a deterioration in its skills base. example, has lost almost half its population Migration may lead to uneven age struc - since its 1931 peak of 856,000. It is not tures because young people are more likely alone in shrinking: half our regeneration to leave declining areas than the old. This towns have shrunk in absolute terms in the is certainly the case for international last ten years; Merthyr Tydfil, Blackpool, migration: those coming to Britain from Hull and Middlesbrough have lost more the accession states of Eastern Europe tend than 5 per cent of their populations. to be young, just as those emigrating to the Population decline is not necessarily United States, Canada and Australia a cen - desirable. Migration can break up commu - tury ago were generally young. But it is, nities and it is often the case that the most perhaps surprisingly, not true for internal enterprising migrate, leaving behind a migration. We can see this by looking at community that lacks skills and entrepre - the age profiles for different towns. neurs. We can see that by looking at varia - Merthyr Tydfil is losing population faster tions in skill levels by area. That there are than any other town in our sample, but its more people with high levels of skills in population distribution is little different to our successful towns than our regeneration that of, say, Windsor. Twenty per cent of towns is not primarily a reflection of the Merthyr residents are under 15, compared quality of schooling, but a combination of with 19 per cent in Windsor. Similarly, 16 the greater attractiveness of some places to per cent of Merthyr’s residents are 60 or skilled workers and house prices sufficient - over, compared with 15 per cent of those ly high in those places to prevent those in Windsor. Merthyr is not a place from with fewer skills from moving there. which all the young leave, rather the Many of those with the least skills live in decline in population is spread reasonably social housing. The local allocation of evenly over the age distribution. social housing makes it very hard for them Population decline should also been to move area. That has to change, or those seen as an opportunity. There is no partic - in social housing will be trapped in com - ular reason why a city should become less

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desirable if its population shrinks. If an area has structurally low econom - Sometimes a regeneration city enjoys a ic potential then the housing stock needs legacy of past investment in infrastructure. to fall. But in general that should not Liverpool, for example, has more railway mean demolition, which has at least four stations relative to its population than any drawbacks. First, it involves spending sig - other place in Britain. The amount of open nificant sums of money on destroying space per person will increase if population assets that have potential value. Secondly, falls, even if no additional green space is the prospect of demolition can and does created. blight a neighbourhood: people planning More generally, a declining population for the long-term will not move to the gives opportunities to improve the average area. As such, the threat of demolition size and quality of the housing stock for will increase the transient nature of that those who remain or, for that matter, to community, as well as leading to more increase the amount and quality of public empty homes. Thirdly, when owner-occu - space and parkland, as seen in the Ruhr pied property is demolished in a period of area in recent years. 91 At the moment the rising house prices, the lag between a Government’s standard approach for areas price being agreed and the owner buying that have falling populations is to demol - a new property leaves the owner out of ish housing and rebuild it. Thus the pocket, by an average of £35,000. That National Audit Office found that the cannot be right. Finally, speculators often Housing Market Renewal Programme’s move in to areas in which demolition is Pathfinders areas planned to demolish predicted, bidding up prices and making 57,100 properties and build 67,600 new demolition more expensive. Using free - ones. 92 Only three of the nine Pathfinder dom of information legislation The Times areas will see a net decline in their housing found that the Government had paid an stock. We believe that this approach is investor £450,000 for an end of terrace fundamentally misguided. First, the prin - house in Manchester, more than twice the cipal reason why house prices are low in price paid for any other property in that each of the micro-areas is indeed likely to road. 94 be that they are less desirable than other There will be occasions in which dem - areas. But the underlying cause of low olition is the right way forward, but house prices is not poor quality housing, where property is structurally sound but an inability to generate jobs. If a par - these will be exceptions rather than the ticular area is transformed from undesir - rule. In general, when a house is valued at able to desirable, but nothing is done to more than the cost of construction, there increase the economic sustainability of the are too few homes in the area. In such 91 Leunig T and Swaffield J, town as a whole, then any gains in popu - circumstances, builders want to build Success and the city , Policy Exchange, London, 2007 lation are likely to come at the expense of more homes, since they can make a prof - 92 Department for Communities other parts of the town. A great deal of it. In contrast, when a house is valued at and Local Government: Housing Market Renewal , National Audit money, in other words, can be spent sim - less than the cost of construction, there Office, HC 20 Session 2007- ply shifting the problem from one neigh - are too many homes in the area. The first 2008, 9th November 2007 see www.nao.org.uk/publications/na bourhood to another nearby. The 2007 lesson, therefore, is that the number of o_reports/07-08/070820.pdf National Audit Office report on housing properties should not be reduced in any 93 Ibid, p 7 renewal commented: “There is no guaran - area where the price of a house exceeds 94 Ungoed-Thomas J and Waite tee that intervening in the housing market the building cost. Thus recent rises in R, “Ministers pay £450,000 to flatten terraced home”, The in this way will address the causes rather house prices should lead to a reduction in Times , 30th August 2007, see www.timesonline.co.uk/tol/news/ than the symptoms of the problems expe - the number of houses demolished at state politics/article2558168.ece rienced in these neighbourhoods.” 93 expense.

56 Coping with population decline

When property prices fall below the cost plicity that one says yes, and one says no. of construction there is a case for reducing At that point the Government will buy the the number of homes. If this does not hap - property, and sell it to the neighbour. pen, property can become worthless very Given that regeneration communities are quickly because there is no incentive for generally poorer than others, it is unlikely any individual to demolish his own house that the neighbour will have the capital to in order to make those of his neighbours pay for any proportion of the house out - more valuable. This is a classic externality right. Instead the state would own a pro - and warrants government intervention. portion of the new, larger house, rather like The plan-led system of identifying a mortgage charge. No rent or interest houses for demolition risks giving specula - would be payable, but when the new larg - tors a free lunch. They can buy up run er house is sold, government would gain at down properties safe in the knowledge that least some of its money back. The new res - the Government will buy them out at very ident would be responsible for all the alter - least for full market value, and usually ations necessary to merge the two houses. more. The prospect of demolition also Of course, many of the new, larger proper - blights a neighbourhood. We need to move ties would be rather odd in layout and away from a plan-led system towards a design. At least initially, many would retain market-led system for working out which two staircases, two electricity and gas sup - houses are least wanted. Here the price sig - plies, and so on. But for many poor fami - nals are remarkably easy to understand: the lies, living in relatively cramped condi - cheapest houses (taking size into account) tions, being given a larger if oddly designed are the least desirable, and those are the property for the cost of creating an internal ones that Government should be taking doorway or two would be a very attractive out of supply. prospect. Over time, when the electrics It would be possible for the needed renewing, the gas boiler replacing Government simply to demolish the hous - or the kitchen refurbishing, the house es (although not the flats) that it buys in would gain a new, more unified structure. this way, creating small green spaces scat - tered across the city as happens in the 95 Ruhr. But in general demolition is not We need to move away from a plan-led system the right way forward because demolishing “ towards a market-led system for working out which a house destroys something of value. We houses are least wanted need to find a way of reducing the number ” of houses without destroying the houses themselves. The obvious answer is to merge houses laterally so that the people Apart from a payment in the form of a who remain in the city that is witnessing a share of ownership, there would be only fall in population end up living in bigger one condition for taking over a neighbour - houses, at no cost to society. ing property in this way: that the formerly Let us imagine a row of terraced houses, separate house must be merged with the of the sort that are widespread in many new house. It must not be let separately or regeneration towns. One comes up for sale, sold as a separate dwelling. The Land at a low price. At this point the state Registry deeds would be changed to reflect should step in, and consider buying it. It this. The planning system requires that a would approach the two people who live houseowner gets planning permission to on either side of it, and ask them whether subdivide a property and that would not Leunig T and Swaffield J, Success in the city , Policy they would like it. Let us assume for sim - usually be given unless local economic Exchange, London, 2007

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cir cumstances had changed dramatically. offered, and would decline to buy houses In those cases the State would have the when neighbours offered lower propor - right to all of its investment back. tions, as well as when the neighbours In general the Government should not declined to buy the property altogether. It be selling property acquired in this way to is impossible to know ex ante the propor - landlords. In those circumstances we tion of the larger house that the would expect the new (larger) property to Government would be offered in general, be re-let to a larger number of people, or how much the value of the house would which would defeat the purpose of reduc - increase as a result of being larger. We can - ing the supply of housing. If landlords not say, therefore, how financially effective wanted to buy the house next door, then the scheme would be. That said, we would they could do so simply by outbidding the not expect it to be profitable: if it were Government. profitable, it would be happening already There will be times when neither neigh - on its own, without government interven - bour is interested in having a larger prop - tion. erty. In those cases the State would not buy Although not profitable, the scheme is the house concerned, but instead allow it attractive at many levels. First, it avoids the to be sold in the normal way for a market costs of demolition and, when the house is price. The State would wait for the next sold, the Government gains a proportion house to become available and again of its value. Secondly, it avoids compulsory approach the neighbours to see whether purchase and all the upset it causes to those they would be interested in a larger prop - people who, for perfectly legitimate rea - erty. So long as a reasonable number can be sons, do not wish to move. Thirdly, it acquired like this, the downward spiral of avoids all the problems of blight that occur house prices can be avoided. when an area is marked for wholesale dem - Sometimes both neighbours would be olition. Finally, some people will get to live interested in a larger house. In that case in bigger houses at no cost to society and either the house being bought by the State only trivial costs to themselves. can be shared between them or it can be Regeneration cities are not known for large auctioned. As time went on the houses, so an increase in the size of some Government would learn the usual propor - houses is likely to be welcome and will tion of the new house that it would be improve local living standards.

58 14

Improving governance

We have proposed giving large sums of taxes by blaming central government money to local authorities, with no strings because it is so dominant. Very often – attached. The risk is that it will not be though not always – they are right, but the spent effectively. The fact that central con - important point is that voters cannot tell trol over regeneration funding has failed when they are right and when they are does not guarantee that local control will passing the buck. Giving them more power succeed. In short, there is a danger that means that the excuses will no longer wash, Britain’s “caged hens” will become “head - and voters can better judge the quality of less chickens”, unable or unwilling to local leadership. implement policies that work. We need to Secondly, many councillors are aware ensure that local authorities have the that electoral success depends on claiming incentive and the expertise to use the responsibility for good things that would money wisely. have happened anyway, and blaming cen - Currently, central government tends to tral government for anything that goes provide the incentives to follow particular wrong. Once they know that they will be policies. It sets targets, and measures the judged according to their genuine per - extent to which local authorities meet formance, they will have a greater incentive them, whether they are for school perform - to get the fundamentals right instead of ance or recycling. That is not the model wasting time on spin. that we are advocating, indeed we think it Thirdly, giving local authorities more stifles local initiative and local choice. power increases the attractiveness of a Instead we want local authorities to be career in local government either as a responsible to local people. That is easy to councillor or as a council officer. No longer say, but self-evidently not so easy to will your primary responsibility be to cope achieve. It is outside the scope of this paper with a deluge of instructions from to offer proposals for radically restructur - Whitehall, but rather you will have the ing councils but nevertheless there are power, and the resources, to shape your some obvious areas that can be improved. community. It is likely that this will Local authorities are elected bodies and increase the range and quality of people are ultimately responsible to local people willing to serve in local government at all through the ballot box. But outside the levels. That in turn will improve perform - devolved areas, accountability is limited by ance. their lack of power. Giving more power to Fourthly, giving local authorities more local government will improve the quality power will increase the range of policies of local governance in four ways. First, it that are tried, generating evidence about will increase local accountability because what does and does not work. This evi - people will know who to praise and who to dence can be used both by social scientists blame. At the moment local authorities and those interested in evaluating policy, can always excuse poor services or high and by voters. If the voters of Blackburn

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see that Burnley is doing manifestly better Let us imagine then, that local govern - than their town, they can ask why this is. It ment has considerable powers that they may be that Burnley is lucky enough to be can use to better or worse effect. Let us also home to the next James Dyson, but it suppose that the voting system presents the might be that its policies are better, and ruling party with a realistic chance of los - that the party in power – or in opposition ing office, and offers at least one other – in Blackburn can and will learn from party a realistic chance of gaining office. Burnley. What we now need is a system that allows Two of the greatest incentives for elected local people to make well-informed deci - politicians are the prospect of gaining office sions whether to re-elect an incumbent or and the fear of losing it. For that reason it not. is hard to believe that a city in which a Here Britain starts with two tremendous party – any party – will never realistically advantages: the Audit Commission, and lose control is good for politicians’ incen - the local press. The Audit Commission tives. Although there are examples of “one- already reports on the performance of party states” at local level that are effective, almost every aspect of local government. It in general being guaranteed power come does so thoroughly, objectively and apolit - what may is not good for effective gover - ically. And yet virtually no one knows how nance. This is as true in Britain as in one- the Audit Commission ranks the council party states in sub-Saharan Africa. And on any measure. one-party councils are all too common in There are two reasons for this. First, areas needing regeneration. there is a perception that it is pointless to It is not the purpose of this paper to sug - know. Many local councils are one-party gest wholesale reforms to the structure of states, so knowing that they are badly run local governance, but we do think that does not allow you to change anything. We Britain should be open to significant levels need a voting system that enhances con - of experimentation. Here we note with testability. Secondly, the Audit approval the Scottish Assembly’s decision Commission is not currently set up to to adopt the single transferable vote system explain their findings to a wide audience. of proportional representation for local This can and should be changed. We government. It is not that we believe that want to see the Audit Commission this system is better than others, but rather enhance the democratic process by spend - we believe that trying this system will allow ing much more time explaining its find - us to see whether it is more effective. It is ings. It should do so in public, with formal possible – and indeed likely – that it will committee hearings in every council in curtail one-party rule in many places. If so, Britain, in which councillors of all parties it has the potential to improve the quality can grill those who wrote the report. What of governance. But it is equally possible is the evidence for this conclusion? What is that it will lead to permanent coalitions the basis of that conclusion? What is it that between the same parties, election after others, who you say have done better than election, which would do little to increase us, have done? the discipline placed on politicians by the But this should not be limited to formal ballot box. It is too early to tell whether the hearings in council chambers. The Audit new voting system will increase the Commission should also make itself avail - accountability of councils to their voters, able to explain its findings, in person, to but it is an experiment that should be sup - each and every political party represented ported and whose effects should be studied on the council. Councillors will not all be hard. experts on regeneration, and they need the

60 Improving governance

opportunity to ask for things to be to disseminate well-presented information explained to them in private, in the way from the Audit Commission and other that ministers are briefed by civil servants. sources to their readers. The same is true for council officers, for The same is true of BBC local radio and whom neutral Audit Commission briefin - of both local BBC and independent televi - gs that compare their performance with sion news programmes. In all cases these their peers can be a very effective way of programmes are protected to some extent disseminating best practice. from competition and have formal man - We should not stop there. Britain has a dates to cover local news. They have the remarkably vibrant local press, capable of staff and the budgets to make a good job of engaging with serious local issues. The understanding the issues and explaining Audit Commission needs to brief the local them to people in the area. press, again in private and in person, on what their findings mean. We need semi - Finally we should also make it easier for nars in which local journalists can explore individuals to find out more about what is exactly what the Audit Commission is say - going on and whether regeneration ing, for better and for worse. schemes are delivering good value for Even then, there are more groups for the money, and achieving their aims. To that Audit Commission to engage with. They end, the power of freedom of information should be willing to discuss their findings legislation needs to be bolstered so that with any community group that wants to interested individuals can find out, in a find out more. There are a myriad of local straightforward and timely manner, why a groups: the local rotary club, the church, council decided on a particular approach synagogue and mosque, a school PTA, a or policy, why they awarded a contract to a tenants’ association, a local residents’ particular company or organisation, and group, the WI. It doesn’t matter who they the results achieved as a result of the are, the Audit Commission needs to money spent. Although both the Audit engage with any part of civil society that Commission and the local media have wants to hold local government to important roles to play, sometimes there is account. And not only that, the Audit no substitute for someone local and deter - Commission must actively seek out civil mined, who knows what is going on and society across Britain and engage with can sense that a project is poorly conceived them, presenting information in a way that or poorly delivered. allows them in turn to hold local govern - Of course, none of this will prevent ment to account. politicians of every hue trying to spin Here the local media have an important every finding in the way that suits them. role. Britain is lucky to have exceptionally But the more people who know more of high quality local media. Most local news - the truth, the less politicians can get away papers in Britain make real efforts to cover with partial representations of the truth, local stories properly and to understand or worse. If we are to hold local govern - the issues at stake. Unlike national newspa - ment to account, we need citizens to be pers, they rarely have strong a priori polit - well-informed, and able to act on that ical affiliations. They are thus well placed information.

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Conclusion

We have set out a new agenda for regenera - ing acceptable to people in the South East, tion policy. We do not claim that, if acted all of which revolve around providing local on, every town or every region can be authorities with greater self-funding finan - regenerated. Instead we argue for a much cial incentives to support development. more hard-headed analysis of the potential Not every struggling town has a bleak of towns that are struggling and an accept - future. The critical issue is market poten - ance that at least some of them have little tial. Some areas that are struggling could prospect of offering their residents the stan - be well connected to successful areas. Such dard of living to which they aspire. Towns places have much greater economic poten - that were once in the right place at the right tial than those places that are intrinsically time, may now well be in the wrong place more isolated. Coastal cities, whether large at the wrong time, severely restricting their like Liverpool and Hull, or small like ability to attract jobs. No one is suggesting Scunthorpe and Blackpool are most vul - that residents should be forced to move, nerable. All have accessibility problems in a but we do argue that they should be told road-based era, because they are almost the reality of the position: regeneration, in always at the end of the line. Our largest the sense of convergence, will not happen, coastal cities are generally large for a reason because it is not possible. 96 that has disappeared: ocean-going ship - ping, and ship building. They have lost much of their raison d’etre, and it is hard “ We believe that the Government should roll up to imagine them prospering at their cur - almost all current regeneration funding, and allocate rent sizes. Sunderland demonstrates just how hard it is to regenerate such a city. it according to need ” We argue that all towns and cities, whether we believe them connectable or not, should have the right to determine Furthermore, we do not believe that it is their own policies. We believe that the acceptable for planning policies to con - Government should roll up almost all cur - strain internal migration as tightly as they rent regeneration funding, and allocate it do. At the moment restrictions on house according to need. Areas would then be building in the South East mean that it is able to spend the money on traditional very difficult for those without very well regeneration schemes if they believe that

96 Given the geographical com - paid jobs to move to the area. Those with those regeneration schemes will deliver position of trade in the global lower levels of skills are trapped outside value for money. Or they would be allowed economy which is determined by embedded spatial and skill Britain’s most prosperous region, particu - to spend the money on less conventional based wage inequality, see larly if they live in council housing. That regeneration schemes, including deliberate - Krugman’s conundrum: “The elusive link between trade and cannot be right and we should not accept ly setting out to attract highly skilled work - wage inequality”, The Economist , Economic Focus, it. We have argued that there are many ers from elsewhere, and facilitating local p92, 19th April 2008 ways to make greater levels of house build - people’s search for work in other, bet ter

62 Conclusion

placed, locations. And, if they really believe Crucially, we need local people to be that there are few prospects for their area, able to act on what they find. We need whatever policies are followed, they should local government to be important be able to spend the money on palliative enough that people bother to find out measures, improving the quality of life for who runs the council, and how well they those people who, for whatever reason, are doing. And we need an electoral sys - cannot or will not move. Such peo ple must tem that makes each and every council not be forgotten. genuinely contestable between at least That increase in freedom needs to come two parties, or groups of parties. No with a big increase in accountability. Local party should ever be able to take the elec - people must be able to judge the success or torate for granted. When local govern - otherwise of their council, and must be ment has power, and when elections can able to act on their judgement. That means change how an area is run, then we can that councils must be assessed regularly expect local people to vote and to hold and accurately, and that the results of such politicians to account. assessment must be explained to local peo - A genuine and honest assessment of ple in a way that simply does not happen connectability and potential; the freedom at the moment. It is no good an assessor to make and implement policy; and the knowing whether a council is doing well or discipline of real accountability to real peo - badly, we need local people to know the ple: these are the basis for regeneration answer as well. policies that will work.

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