www.psrc.pwc.com

Good growth for cities

A report on urban economic wellbeing from PwC and Demos

November 2013

Contents

Summary 2

Introduction 6

Key findings 10

Implications 20

Agenda for action 30

Appendices 32

About the authors 34

About PwC and Demos 36

1 Summary Key findings

The Demos-PwC Good Growth for Cities Index measures the current performance of a range of the largest UK cities against a basket of ten categories defined, through engagement with the public and business, as key to economic success and wellbeing. Employment, health, income and the new There have been encouraging measure of providing for the future – skills – are the most important of these signs recently that the UK factors, as judged by the public. economy is picking up, but there is some way to go yet Using these measures, Table A shows the highest and lowest ranking cities in our before the recovery becomes index based on the latest available data. fully sustainable. The highest ranking cities in our index tend to do relatively well on jobs, income Fiscal austerity will still need to and skills. There is, however, a price for continue well into the next Parliament. their success seen in relatively low scores Further growth, job creation and the for housing affordability. In contrast, with associated tax revenues will be critical the important exception of London as both to paying down our debts as well discussed below, cities which rank lower as funding our public services. down in our index score relatively less well for jobs and income as well as skills. And cities have a key role to play in this Their brighter spots tend to be housing drive to achieve sustainable long term affordability and work-life balance. growth and so reduce the structural deficit. But how do we define economic London is an exception in many ways. success at city level? It has the highest income levels in the country and scores well in international To address this question in the context of surveys of what makes for a great ‘world the government’s localism agenda and a city’,3 but has a relatively low ranking in wider drive to decentralise and rebalance our index. This is because success can the economy spatially, in 2012 PwC and have its own costs: the issues associated Demos refined our original Good Growth with living in a large urban area (such as Index1 to focus on cities.2 Our aim was to the lack of affordable or suitable housing, shift the debate on local economic congestion and long working hours) are development from a narrow focus on sufficiently prevalent in London to more 1 ‘Good Growth: a Demos and PwC report on ‘Gross Value Added’ (GVA) to a more than offset many of the benefits of high economic wellbeing’, Demos, 2011. holistic measure, understanding the income levels in the overall index. www.pwc.co.uk/government-public-sector/ publications/good-growth-index-how-gov-can-kick- wider impacts that are associated with start.jhtml economic success in a city. Looking at the cities in the devolved 2 ‘Good growth for cities: A report on urban economic administrations, it is notable that wellbeing from PwC and Demos’, November 2012. www.pwc.co.uk/government-public-sector/ Our 2013 report takes this agenda two Scottish cities – Aberdeen and good-growth/index.jhtml. forward with an updated methodology Edinburgh – are in the top 5 highest 3 For example, ‘Cities of Opportunity’, New York City that for the first time includes skills. ranking cities in Table A. Partnership/PwC, October, 2012.

2

Table A: Highest and lowest ranking cities (by TTWA) on Demos-PwC Good Growth Index4

No LEP No LEP Highest Ranking Cities Index Score, Lowest Ranking Cities Index Score, 1 North Eastern 20 Greater Cambridge & above average below average 2 Cumbria Greater Peterborough 3 Tees Valley 21 New Anglia Reading & Bracknell 0.63 Middlesbrough & Stockton -0.52 4 York, North Yorkshire 22 Coventry and 5 Lancashire Warwickshire Aberdeen 0.59 Wakefield & Castleford -0.52 6 Leeds City Region 23 Worcestershire 7 Liverpool City Region 24 South East Midlands Edinburgh 0.57 London -0.36 8 Greater Manchester 25 Gloucestershire 9 Humber & East Riding 26 Hertfordshire Southampton 0.44 Newcastle & Durham -0.34 10 Sheffield City Region 27 Buckinghamshire 11 Cheshire & Warrington Thames Valley Cambridge 0.38 Swansea Bay -0.32 12 Derby, Derbyshire, 28 Oxfordshire Nottingham & 29 London Nottinghamshire 30 Thames Valley Berkshire Source: PwC analysis. Scores are relative to a UK average score set to zero. City definitions are based on Travel To Work Areas (TTWAs). 13 Greater Lincolnshire 31 West of England 14 Stoke-on-Trent & 32 Swindon & Wiltshire Staffordshire 33 Enterprise M3 15 Leicester & Leicestershire 34 South East 16 The Marches 35 Coast to Capital 18 Greater Birmingham & 36 Solent Solihull 37 Dorset 17 Black Country 38 Heart of the South West In fact, we find that the majority of the Figure A: Distribution 19 Northamptonshire 39 Cornwall & the Isles devolved administration cities perform of Demos-PwC Good of Scilly above average in work-life balance, Growth Index scores in transport, sector balance (e.g. the England by LEP size of the manufacturing sector) ●1 and income distribution, although their performance tends to be less ●2 3 strong on average in relation to health ● in particular. Key: ●4 l Below average relative to In 2013, we have also analysed our the index for all LEPs (<– -0.5) ●6 Around average (-0.49 – +0.49) index by Local Enterprise Partnership ●5 ●9 l l Above average (>– +0.5) (LEP) area in England. We found that ●8 7 most of the significantly above average ● ●10 scoring LEP areas (coloured green in ●11 Figure A) are located in a continuous ●13 ●12 bloc, ranging from Leicestershire ●14

18 across to the Welsh border and down ● ●15 21 to Solent, Dorset and Heart of the 17 19 ● 16 ● ● ● 20 South West on the South Coast. ● ●22 23 ● ●24 On the other hand, regions located in the North and East of England are much less likely ●25 26 ●28 ● to achieve significantly above average scores, ●27 ●29 ●34 with only the Cheshire and Warrington 30 ●31 ● and Cumbria LEPs bucking this trend. ●32 ●33

●36 ●35 ●38 4 The Office for National Statistics defines Travel To ●37 Work Areas (TTWAs) as labour market areas where the bulk (75% or more) of the resident 39 economically active population work in the area ● Just over 10% of local authorities in England (38 of 326) are and also, of everyone working in the area, at least covered by multiple LEPs. To avoid having substantial areas of the map which are not assigned a colour, where LEPs do 75% actually live in the area. We recognise that overlap the relevant authority has been randomly assigned to TTWAs vary considerably depending on city one of the LEPs which it sits within. The precise index score characteristics and for different segments of the for each LEP, which accounts for all local authorities within it, population (e.g. wealthier commuters who may be can be seen in Figure 7 able to live outside standard TTWAs).

3 Implications Table B: Agenda for action

Our 2013 findings indicate that for many Stakeholders Agenda for action cities there are important trade-offs to be made in achieving good growth. City leaders • Continue to balance between a necessary internal focus on efficiency, Congestion, pollution and high house and other local cost-cutting and reform with an external focus on good growth. prices are just some of the indicators of a public bodies • Create a platform for growth through a collaborative approach to rising price for success, as measured by including LEPs leadership across political/administrative boundaries (including conventional economic indicators such as Combined Authorities) and sectors of the local economy. incomes and jobs. And many of our large • Work together, and with businesses, universities, the third sector and urban centres are having to cope with the public to define the city’s vision – what city stakeholders want it these problems at a time when the to be famous for – based on analysis of the city’s strengths, using data funding needed to make the necessary analytics and documented in Growth Plans. investments to adapt and improve • Re-brand cities based on a clear vision for success linked to infrastructure is in short supply. good growth outcomes. • Use good growth outcomes to guide decisions when allocating This does, however, present opportunities resources, prioritising investments and re-investing the dividend of for those cities well placed in our index, public sector reforms. often mid-sized or with a mix of urban- rural topography, to increase their share • Develop an integrated programme of infrastructure investments to enhance quality of life and city competitiveness. of economic activity. But these cities need to have a clear vision of their assets and • Prioritise public spending on the levers important for good growth, identities and sell themselves better to the particularly skills and infrastructure (housing and transport). investor community, presenting ‘investor • Monitor and evaluate progress, building the evidence base to link ready’ opportunities. decisions and outcomes and using a placed-based approach to measuring and managing total impact (TIMM). The lesson arising from the big movers in our 2013 index, notwithstanding changes Central • As Growth Deals unfold, focus cities on unlocking their individual in methodology, is that jobs have a key government growth challenges in their Growth Plans linked to their distinctive local assets, rather than the standard menu of priorities e.g. green impact on position in the index, with jobs and digital hubs. increases or decreases in unemployment being a key driver of short term positional • Accelerate decentralisation where the costs, benefits and solutions changes. This emphasises the importance are localised e.g. local transport, planning. of innovation to drive productivity and • Revisit the funding options for local government (including the new job creation. Better skills are also Barnett formula) to support wealth creation. needed so that individuals can take up the • Drive the development of demand-led skills provision and opportunities available, particularly 16-24 empower individuals to make well-informed job and career choices year olds – the cohort with the highest by improving the availability of good quality information and unemployment rate – with improved transforming the role of Jobcentre Plus as a broker of people to infrastructure needed to connect and jobs, particularly the young. house people in the right places.

Table B summarises the key areas for action discussed in the body of the report.

4 Conclusion

The challenge for many of our cities is to Stakeholders Agenda for action Stakeholders Agenda for action unlock their potential as engines of City leaders • Continue to balance between a necessary internal focus on efficiency, Devolved • Recognise cities/city government as having an important role sustainable growth by investing in the and other local cost-cutting and reform with an external focus on good growth. administrations complementing the devolved administrations themselves. enablers that businesses require to public bodies • Create a platform for growth through a collaborative approach to • Consider the impact at city level of any proposals with respect succeed, grow and create wealth for the including LEPs leadership across political/administrative boundaries (including to fiscal powers e.g. Stamp Duty, Air Passenger Duty and UK public. Combined Authorities) and sectors of the local economy. Landfill Tax. • Work together, and with businesses, universities, the third sector and Public sector organisations at all levels, the public to define the city’s vision – what city stakeholders want it Education • Improve the dialogue with businesses on their training and but particularly in our cities, have an to be famous for – based on analysis of the city’s strengths, using data and training skills needs. important role to play in creating a analytics and documented in Growth Plans. providers • Promote and welcome business engagement in schools, platform for growth through a focus on • Re-brand cities based on a clear vision for success linked to colleges and universities to inspire students in their future the key levers of skills, infrastructure 5 good growth outcomes. career choices. and innovation. • Use good growth outcomes to guide decisions when allocating • Be responsive and agile to the needs of both business and In addition, the ability to re-invest resources, prioritising investments and re-investing the dividend of students and so maximise the chances of matching people public sector reforms. to the opportunities available. revenues and savings locally so as to achieve better long term outcomes • Develop an integrated programme of infrastructure investments to Businesses • Agree a clear, consistent set of public-private priorities, means that a new approach is needed enhance quality of life and city competitiveness. via the LEPs and their Growth Plans, and then collaborate where all local stakeholders collaborate • Prioritise public spending on the levers important for good growth, to deliver on them. and share in both the risks but also particularly skills and infrastructure (housing and transport). • Measure and manage the total social, fiscal, environmental the dividends of public service reform • Monitor and evaluate progress, building the evidence base to link and economic impact of business activities in order to and growth. decisions and outcomes and using a placed-based approach to deliver good growth. measuring and managing total impact (TIMM). • Improve the articulation of education and training needs A demand-driven skills system, in discussion with education and training providers. value-adding infrastructure and a Central • As Growth Deals unfold, focus cities on unlocking their individual self-sustaining innovation ecosystem government growth challenges in their Growth Plans linked to their distinctive are needed, with good growth at the local assets, rather than the standard menu of priorities e.g. green heart of the purpose and mission of jobs and digital hubs. our public bodies. • Accelerate decentralisation where the costs, benefits and solutions are localised e.g. local transport, planning. • Revisit the funding options for local government (including the Barnett formula) to support wealth creation. • Drive the development of demand-led skills provision and empower individuals to make well-informed job and career choices by improving the availability of good quality information and transforming the role of Jobcentre Plus as a broker of people to jobs, particularly the young.

5 ‘Investing for Prosperity: Skills, Infrastructure and Innovation’ Report of the LSE Growth Commission in partnership with Institute for Government and Centre for Economic Performance P. Aghion et al. 2013.

5 Introduction

“It is not enough just to have a recovery in London “Itand is notthe enoughSouth East” just to

Mhaveark Carney, a recovery Governor of the in Bank London of England and the South East”

Mark Carney, Governor of the Bank of England

The Titanic Belfast, Belfast

6 Cities have a significant role to play Beyond Gross Value Added as the engines of sustainable growth. But the development of competitive If the pursuit of growth is essentially cities requires an integrated strategic about improving the prosperity, life approach, with greater collaboration, chances and wellbeing of citizens, is as set out in the Heseltine Review.6 there more to the equation than a And the UK needs stronger growth narrow focus on ‘Gross Domestic regionally for a lasting recovery: Product’ (GDP) and GVA? as Mark Carney, Governor of the Bank of England, notes, ‘It is not enough Our research with think tank Demos, just to have a recovery in London launched in 2012,9 created a good and the South East.’7 growth for cities index, based on the views of the public on what economic In turn, this requires city leaders to success means to them. Within the develop a clear vision for growth which index, good growth encompasses encapsulates their ambitions and which broader measures of economic is underpinned by the capital investment wellbeing including jobs, income, health, strategies and delivery plans needed to work-life balance, housing, transport foster sustainable, long term prosperity. infrastructure and the environment – the factors that the public have told us Developing this sort of vision and are most important to the work and direction has many facets, but one money side of their lives. central action we believe would help policy-makers is to look beyond ‘Gross Local economic development and policy Value Added’ (GVA) as a measure of local is ultimately about choices and priorities economic success. GVA has its uses but is – where to take action and invest just one measure of success and a narrow scarce resources to promote growth. one at that. The Demos-PwC Good Growth for Cities index provides a framework for allocating In the context of the government’s resources and investment, driving localism agenda and a wider drive to decisions based on what people want. decentralise and rebalance the economy This is an opportunity to move beyond spatially, in 2012 PwC and Demos the narrow confines of GVA and for city therefore refined our original Good leadership to start with the outcomes Growth Index8 to focus on cities and that people – the voters – value and so enable the debate on local economic providing a more democratic dimension development to shift from a narrow to the decisions made. focus on GVA to a more holistic measure of city success. This report sets out the second edition of the Demos-PwC Good Growth for Cities Index.

6 ‘No Stone Unturned in the Pursuit of Growth’, Lord Heseltine , 2012. 7 Interview with ITV News Anglia, 2nd October 2013. 8 ‘Good Growth: a Demos and PwC report on economic wellbeing’, Demos, 2011. www.pwc.co.uk/government-public-sector/ publications/good-growth-index-how-gov-can-kick- start.jhtml 9 ‘Good growth for cities: A report on urban economic wellbeing from PwC and Demos’, November 2012. The Titanic Belfast, Belfast www.pwc.co.uk/government-public-sector/ good-growth/index.jhtml

7 Methodology • Sectoral balance of the economy (e.g. As a result, provision for future the size of the manufacturing sector). generations is now defined through a The broad methodology which we have measure of skills level, which was seen applied in this report is similar to that • Affordable and good quality transport as an appropriate proxy for future used in our previous Good Growth systems (road and rail in particular). earnings and employment potential. reports in 2011 and 2012, but has been This also links well with the agenda of adjusted to reflect feedback on these • Providing for the future through the both businesses and the newly created earlier reports at roundtables discussing potential to be in employment and Local Enterprise Partnerships (LEPs) the findings as well as newly available earn a living. in England, whose remit includes among data and the results of additional polling. other things a focus on improving local Our approach to developing the 2013 • Protecting the environment (carbon skills levels. index is summarised in Figure 1. emission reduction, preserving forests). The aim of this methodology was to Defining the index weights • Fair distribution of income and create a composite ‘good growth’ index. The weights given to each element of the wealth. This index looks to capture and weight index have been defined in each report the characteristics of a city which the UK by reference to a series of polls for These are the same elements as those public believes are important for judging representative samples of the UK used in the previous version of the economic success in the medium to long working age population. In order to report, aside from a change to the term. The elements used within the capture any changes in public opinion, ‘providing for the future’ variable. index are: we repeated the poll from the last two Previous versions of the report had years covering an additional defined provision for future generations • Secure jobs. representative sample of over 2,000 through the savings rate. While this had adults. The results of this poll were been appropriate in the first Good • Adequate income levels. combined with the previous two to Growth report comparing countries, create three-year average weights taking into account feedback received on • Good health (so as to be able to work that now encompass a total sample of our first Good growth for cities report in and earn a living). around 7,000 people. 2012, it appears less appropriate at local level than looking at an individual’s • Time with family/work-life balance. The skills variable was given a weight of ability to provide for their future. 12% based solely on the results of the • Affordable housing. most recent poll, as it was not previously included. The other weights were adjusted accordingly in light of this. Figure 1: Approach The impact of updating the weights can be seen in Table 1. 1 2 3 4 5 6 Review Scoping Consultation Polling Index Conclusions As can be seen from this table, the of data updated polling has had a limited impact on most of the weights, aside from the increase in the weight placed on the • Review • Informal • Review and • Poll of 2,010 • Determine • Develop methodology discussion update of UK citizens weights from conclusions new measure of providing for the future for cities with a range latest available of working supplementary for city leaders – skills. The considerably higher weight index and of local data for index age to test polling and and officials, agree authorities variables for continuing previous businesses, placed by the public on skills, relative to changes and others on (including new validity of analysis and education savings, further supports its inclusion • Agree how to further skills variable) weightings • Calculate and training within the index. expanded list develop the • Assemble from earlier indices providers of cities and index, taking database studies account of • Robustness city regions checks for the index feedback on previous reports

8 Table 1: Latest index weights compared to 2012 study

Jobs Health Income Skills Work-life Housing Sectoral Income Transport Environment balance balance distribution

2013 16% 13% 12% 12% 9% 9% 8% 8% 7% 6% weights

2012 18% 13% 13% 7% 11% 9% 7% 8% 7% 7% weights

Jobs, health and income have remained The final list of 39 cities can be seen The scores for these cities could then the highest priorities for the UK public, in Table 2. be compared relative to each other. with the environment and transport still receiving relatively lower weights. The In addition to comparing this list of • London local authorities – given the broad conclusions of previous polling on cities, we also produced the following high variation in economic and social the relative importance of different versions of the index: conditions within London, this factors in the index were therefore comparison provides more confirmed. • All 39 LEPs in England – this expands information on the distribution of upon the analysis conducted in the index results across the London previous report which looked at just boroughs. Defining the list of cities the eight ‘core’ English cities outside London using LEP definitions. The previous list of 37 cities, based on Travel To Work Areas (TTWAs),10 was • Eleven cities within the devolved expanded to include Swindon and administrations – data was collected Milton Keynes. These areas had only just for five new cities (Inverness, missed out on inclusion from the Stirling, Dundee, Perth and previous list on the basis of population Londonderry) and combined with size. We have used a working definition the six cities that were included throughout for defining appropriate UK previously (Aberdeen, Glasgow, cities as those with a population of Edinburgh, Belfast, Cardiff and 250,000 or more, although minor Swansea). adjustments to this list have been made.

Table 2: List of cities included within the 2013 Demos-PwC Good Growth Index

Aberdeen Leicester Portsmouth Belfast London Preston Birmingham London (Boroughs Only) Reading & Bracknell Bradford Liverpool Sheffield & Rotherham Brighton Maidstone & North Kent Southampton Bristol Manchester Southend & Brentwood Cambridge Milton Keynes & Aylesbury Stoke-on-Trent Cardiff Middlesbrough & Stockton Sunderland Coventry Newcastle & Durham Swansea Bay 10 The Office for National Statistics defines Travel To Work Areas (TTWAs) as labour market areas where Edinburgh Norwich Swindon the bulk (75% or more) of the resident Glasgow Nottingham Wakefield & Castleford economically active population work in the area Hull Oxford Warrington & Wigan and also, of everyone working in the area, at least Leeds Plymouth Wirral & Ellesmere Port 75% actually live in the area. We recognise that TTWAs vary considerably depending on city characteristics and for different segments of the population (e.g. wealthier commuters who may be able to live outside standard TTWAs).

9 Key findings

10 Distribution of scores In order to create the index, each of the average score on the ten indicators that is, variables was normalised through scoring on average, half a standard deviation across Travel to Work each data point in terms of the number of below the UK national average. Areas (TTWAs) standard deviations it is away from the sample mean. This ensures that the score Figure 2 shows that the cities with lower The overall distribution of cities’ scores, for each variable is directly comparable, scores are often located in less affluent defined by TTWAs (plus Greater London and thus allows for collation of variables regions, such as the North East. On the on an aggregated borough basis) can be with a range of means and distributions other hand, more affluent areas, such as seen in Figure 2. These scores represent into a single index. the South of England and the wealthiest the weighted-average value of the cities in Scotland (Edinburgh and elements which make up the overall index. This approach is consistent with that Aberdeen) typically score more highly. Each area is scored relative to the rest of taken in our 2011 and 2012 reports, These cities tend to score higher on the areas with a sample average across and is standard industry practice when skills, jobs and income as opposed to the all of the cities of zero. Negative values constructing such indices. As a result, if a cities at the other end of the index, therefore represent below average scores city has an index value of, say, -0.5 then this which typically do better in areas such and positive values above average ones. can be interpreted as having a weighted as housing affordability.

Figure 2: Demos-PwC Good Growth for Cities Index (UK average = 0)

Middlesbrough & Stockton Wakefield & Castleford London (Boroughs Only) London Below UK Newcastle & Durham average Swansea Bay Liverpool Birmingham Sunderland Hull Southend & Brentwood Bradford Sheffield & Rotherham Maidstone & North Kent Glasgow Warrington & Wigan Manchester Nottingham Leeds Cardiff Plymouth Stoke-on-Trent Wirral & Ellesmere Port Swindon Portsmouth Milton Keynes & Aylesbury Brighton Coventry Leicester Norwich Belfast Above UK Bristol average Preston Oxford Cambridge Southampton Edinburgh Aberdeen Reading & Bracknell

-0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8

11 Changes to city However, Figure 3 below shows the While some cities did see larger changes estimated changes in rankings if our (most notably Hull and Southampton), rankings since 2013 methodology had been used with these were due to short term data last year 2012 data to create a comparable set of fluctuations that should not necessarily be results for last year.11 In the chart, a taken to represent permanent shifts given These findings are similar to those we negative change represents a worsening the propensity of data at this geographic found in the 2012 report. Due to the of a city’s ranking between 2012 and level to fluctuate quite widely year-to year. range of methodological, source and 2013, and vice versa. sample changes between the two years, Further years of data will be needed to it is not possible to compare our 2013 As can be seen from Figure 3, the majority assess trends in city rankings with index scores directly with those of cities did not see significant changes in greater confidence. A more detailed published in the 2012 report. their rankings, broadly confirming the analysis of the reasons for significant findings of the 2012 report. ranking changes between 2012 and 2013 is provided in Appendix 2.

Figure 3: Estimated ranking changes between 2012 and 2013 indices using consistent methodology

Hull Coventry Wakefield & Castleford London Nottingham Oxford Liverpool Birmingham Plymouth Leicester Swansea Bay Southend & Brentwood Leeds Aberdeen Middlesbrough & Stockton London (Boroughs only) Newcastle & Durham Glasgow Maidstone & North Kent Manchester Stoke-on-Trent Portsmouth Edinburgh Sheffield & Rotherham Warrington & Wigan Cardiff Brighton Norwich Belfast Cambridge Reading & Bracknell Preston Bristol Wirral & Ellesmere Port Sunderland Bradford Southampton

-10 -5 -0 5 10 15

11 Data from a year previous were available for all variables, aside from owner occupation data which were sourced from the 10-yearly census and so did not change from last year.

12 London – a special Figure 4: Relationship between Demos-PwC Good Growth case? Index scores and average income levels 25,000 One notable outlier in the analysis is London, which once again comes towards the bottom of the index, despite y = 3084.3x + London having the highest average income. 20,000 15086 2 Further analysis of the wide variations R = 0.32744 between London boroughs is discussed below, but generally it appears that the issues associated with living in large 15,000 urban areas (such as the lack of affordable housing, congestion and long working hours) are sufficiently prevalent 10,000 in London to more than offset the benefits of high income levels. Household Income Average

The degree to which London 5,000 underperforms in the index, relative to its average income level, can be seen most clearly in Figure 4.

-0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 Good Growth Index Score

13 This shows a consistently positive London Local Authorities relationship between index score and income; a one point increase in the In London, however, it is important to index is approximately associated with bear in mind its considerably larger a £3,000 increase in annual income, scale and diversity compared to the on average. other UK cities.

However, some cities perform better or Figure 5 below demonstrates this by worse on the wider index than income showing the wide distribution of index levels alone would suggest. This is most scores across the London local dramatic for London, whose score on the authorities (measured relative to the Good Growth Index might be expected in overall London average). a city with 25% lower average income levels based on the measured Perhaps unsurprisingly, it appears that the relationship for all UK cities. more affluent areas of the city tend to score more positively than less affluent areas.

Figure 5: Demos-PwC Good Growth Index for London local authorities

Newham Barking and Dagenham Tower Hamlets Lambeth Lewisham Islington Brent Below Greenwich London Ealing average Southwark Croydon Hackney Westminster Merton Hammersmith and Fulham Haringey Sutton Barnet Waltham Forest Enfield Hillingdon Above London Bromley average Hounslow Havering Kensington and Chelsea Richmond upon Thames Camden Kingston upon Thames Bexley Harrow Redbridge Wandsworth

-0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8

14 This result leads to the geographical Figure 6: Distribution of Demos-PwC Good Growth Index scores distribution of scores shown in across London boroughs Figure 6, where green colours indicate significantly above average index scores and red colours significantly below average index scores. ●4

This clearly demonstrates that while the ●3 2 majority of below-average scoring ● 5 6 ● ● 7 boroughs are located near the centre of ● ●8 1 ● 10 13 London, the above average scorers are ● 11 12 ● ● ● ●15 generally located further out in more 14 20 ● 9 ● suburban commuter-heavy boroughs. ● ●19 These systematic differences within ●18 London have important policy 17 ●24 ●26 16 ● ● 27 implications which need to be 23 ● 22 ● 25 considered when assessing the ●21 ● ● overall index score for London. ●29 28 It should also be noted that some London ● ●32 ●31 boroughs such as Wandsworth, Harrow ●30 and Redbridge would be well above the average for cities in our overall index.12 However, London boroughs have a range of scores for each variable which is well beyond the case for other cities e.g. Key: No. Local authority No. Local authority Wandsworth ranges from a score of -6.24 1 Hillingdon 17 Hammersmith & Fulham l Below average relative to 2 Harrow 18 Kensington & Chelsea in work-life balance to +9.18 for income. < the index for all LEPs (– -0.5) 3 Barnet 19 City of Westminster

The wide range also reflects the fact that, l Around average (-0.49 – +0.49) 4 Enfield 20 Tower Hamlets 5 Haringey 21 Richmond upon Thames at local authority level, you can get some > l Above average (– +0.5) 6 Waltham Forest 22 Wandsworth extreme variances, which is one reason 7 Redbridge 23 Lambeth 8 Havering 24 Southwark for caution about these results. 9 Ealing 25 Lewisham 10 Brent 26 Greenwich 11 Camden 27 Bexley 12 Islington 28 Kingston upon Thames 13 Hackney 29 Merton 14 Newham 30 Sutton 15 Barking & Dagenham 31 Croydon 16 Hounslow 32 Bromley

12 We have not undertaken a full analysis as we have measured London boroughs on a local authority basis which is not directly comparable with other cities which are measured on a TTWA basis.

15 Analysis of LEPs which increases commuting times, On the other hand, regions located in the relatively unequal income distribution North and East of England are much less As noted above, one of the innovations and other ‘quality of life’ issues. likely to achieve significantly above for 2013 is that we have extended the average scores, with only the Cheshire good growth index analysis to all LEPs The geographic distribution of scores and Warrington and Cumbria LEPs in England. Figure 7 shows the results can be seen more clearly in Figure 8, bucking this trend. of this analysis, with areas in the South which uses the same ‘traffic light colour’ and West typically scoring highly. system as the analysis of London Once again it can be seen that London boroughs in Figure 6. Most evident from appears to act as an outlier, as It is noticeable that many of the large Figure 8 is that most of the above average demonstrated also by the analysis in cities tend to score somewhat below the scoring (green) regions are located in a Figure 9. This shows that, as with the average. As with London in the main continuous bloc, ranging from main cities analysis above, an increase index, this could reflect issues typical of Leicestershire, across to the Welsh border in income within the LEP is typically such large urban areas related to lack of and down to Solent, Dorset and Heart of associated with a significant rise in affordable housing, transport congestion the South West on the South Coast. the index score, with the notable exception of London.

Figure 7: Demos-PwC Good Growth Index scores for LEPs

Tees Valley Humber North Eastern Greater Lincolnshire Sheffield City Region Below avarage London for all LEPs Liverpool City Region Black Country Greater Birmingham and Solihull Greater Manchester South East Leeds City Region The Marches Derby, Derbyshire, Nottingham and Nottinghamshire Coast to Capital Greater Cambridge & Greater Peterborough Northamptonshire Cornwall and Isles of Scilly Swindon and Wiltshire Lancashire New Anglia Stoke-on-Trent and Staffordshire South East Midlands York, North Yorkshire and East Riding Cheshire and Warrington Cumbria Coventry and Warwickshire Leicester and Leicestershire Above avarage Heart of the South West for all LEPs Hertfordshire West of England Enterprise M3 Solent Worcestershire Oxfordshire Dorset Buckinghamshire Thames Valley Glouchestershire Thames Valley Berkshire

-0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8

16 ●1

●2 ●3

●4 Figure 8: No LEP No LEP ●6 1 North Eastern 20 Greater Cambridge & Distribution of ●5 ●9 2 Cumbria Greater Peterborough Demos-PwC Good 3 Tees Valley 21 New Anglia 4 York, North Yorkshire 22 Coventry and ●8 5 Lancashire Warwickshire Growth Index scores 7 ● ●10 6 Leeds City Region 23 Worcestershire in England by LEP 7 Liverpool City Region 24 South East Midlands 11 ● 8 Greater Manchester 25 Gloucestershire 13 ● 9 Humber & East Riding 26 Hertfordshire ●12 14 10 Sheffield City Region 27 Buckinghamshire ● 11 Cheshire & Warrington Thames Valley 18 12 Derby, Derbyshire, 28 Oxfordshire Key: ● 15 ● Nottingham & 29 London 21 17 19 ● Nottinghamshire 30 Thames Valley Berkshire Below average relative to 16 ● ● l ● 20 the index for all LEPs (<– -0.5) ● 13 Greater Lincolnshire 31 West of England 22 14 Stoke-on-Trent & 32 Swindon & Wiltshire Around average (-0.49 – +0.49) ● l 23 ● 24 Staffordshire 33 Enterprise M3 ● 34 South East l Above average (>– +0.5) 15 Leicester & Leicestershire 16 The Marches 35 Coast to Capital 18 Greater Birmingham & 36 Solent ●25 26 28 ● Solihull 37 Dorset ● 27 ● 17 Black Country 38 Heart of the South West 29 ● ●34 19 Northamptonshire 39 Cornwall & the Isles 30 ●31 ● of Scilly ●32 ●33

●36 ●35 Just over 10% of local authorities in England (38 of 326) are 38 ● ●37 covered by multiple LEPs. To avoid having substantial areas of the map which are not assigned a colour, where LEPs do overlap the relevant authority has been randomly assigned to one of the LEPs which it sits within. The precise index score ●39 for each LEP, which accounts for all local authorities within it, can be seen in Figure 7.

Figure 9: Relationship between Demos-PwC Good Growth The analysis of all 39 LEPs expands on indices and average incomes for LEPs the analysis in the 2012 report, which focused on the eight ‘core’ English cities

25,000 outside London, using LEP definitions. The dashboard in Table 3 repeats the y = 3947.8x + London 15919 analysis for the eight core cities. 20,000 R2 = 0.33136 The most striking feature is that virtually every city has both ‘red’ and 15,000 ‘green’ areas. In other words, each city has areas of significant relative strength, but also potential development areas 10,000 which impact on their good growth scores. For practical purposes, and

Average Household Income Average particularly when developing LEP 5,000 Growth Plans, this more nuanced analysis is more valuable than the overall index scores.13

-0.8 -0.6 -0.4 -0.2 0 0.2 0.4 0.6 0.8 Good Growth Index Score

13 Analysis of other LEP areas available on request.

17 Table 3: Breakdown of good growth index scores for English core cities

Cities (LEPs) Jobs Income Health Work-life Sectoral House price Owner Transport Providing Income Environment balance balance to earnings occupation for future distribution generations

Manchester l l l l l l l l l l l

Liverpool l l l l l l l l l l l

Leeds l l l l l l l l l l l

Sheffield l l l l l l l l l l l

Nottingham l l l l l l l l l l l

Birmingham l l l l l l l l l l l

Bristol l l l l l l l l l l l

Newcastle l l l l l l l l l l l

Key: l Below average relative to the index for all cities (<– -0.5) l Around average (-0.49 – +0.49) l Above average (>– +0.5)

Additional analysis for Figure 10: Demos-PwC Good Growth Index for devolved cities Scotland, Wales and Northern Ireland Swansea Bay Derry

A further extension to the 2012 report is Stirling & Alloa the addition of five new cities (Stirling, Glasgow Dundee, Perth, Inverness and Derry) to Below UK the devolved administrations analysis. average Cardiff These cities are significantly smaller Dundee than the rest of the sample, making it Perth & Blairgowrie inappropriate to include them within Belfast Above UK the main index. However, they can be average Inverness & Dingwall combined with the six existing cities Edinburgh from Scotland, Wales and Northern Aberdeen Ireland to create a separate index, as shown in Figure 10. Here the scores are -0.40 -0.20 0.00 0.20 0.40 0.60 0.80 calculated relative to the overall UK cities index average, and therefore the average score within this sample is not necessarily zero, unlike previous charts.

18 The scores are generally more strongly Despite this wide range of scores, the positive than negative, showing that dashboard in Table 4 shows that almost these cities, on average, perform all of the cities have significant strengths slightly better than the typical city and weaknesses. In particular, the within the overall UK index. Also majority perform above average in evident is a wide disparity within the work-life balance, transport, sector cities, and that the lower scores are not balance and income distribution, but focused in one location; the three cities performance tends to be less strong on with the lowest scores are evenly average in relation to health in particular. distributed across the three devolved administrations. In the next section of the report we draw out some of the implications of these findings for both public policy and business.

Table 4: Breakdown of good growth index scores for devolved cities

Cities (TTWAs) Jobs Income Health Work-life Sectoral House price Owner Transport Skills Income Environment balance balance to earnings occupation distribution

Belfast l l l l l l l l l l l

Derry l l l l l l l l l l l

Swansea Bay l l l l l l l l l l l

Cardiff l l l l l l l l l l l

Edinburgh l l l l l l l l l l l

Aberdeen l l l l l l l l l l l

Dundee l l l l l l l l l l l

Perth & Blairgowrie l l l l l l l l l l l

Stirling & Alloa l l l l l l l l l l l

Glasgow l l l l l l l l l l l

Inverness & Dingwall l l l l l l l l l l l

Key: l Below average relative to the index for all cities (<– -0.5) l Around average (-0.49 – +0.49) l Above average (>– +0.5)

19 Implications

20 Our 2013 findings indicate that for A demand-driven skills system, value- Yet businesses continue to feel that our many cities there are important trade-offs adding infrastructure and a self- skills system does not meet their needs, to be made in achieving good growth. sustaining innovation ecosystem are despite the government’s measures to Congestion, pollution and high house needed, with good growth at the heart of improve the employability of our prices are just some of the indicators the purpose and mission of our public workforce. Youth unemployment of a rising price for success based on bodies as we discuss in turn below. remains unacceptably high, while an conventional economic measures such as ageing population creates new demands income and jobs. And many of our large to refresh the skills of older workers. urban centres have to cope with these Right skills in the In our book Stepping stones to growth,16 problems at a time when the funding right places we discuss in detail what a new skills needed to make the necessary system, integrating the needs of business investments to adapt and improve Cities are motivated now more than and individuals, could look like and the infrastructure is in short supply. perhaps ever before by their need to size of the prize (see Box). drive growth, increase investment and This does, however, present jobs and raise standards of living. opportunities for those cities well placed In part, this reflects the added incentive Refuelling the labour market in our index, often mid-sized or with of an increase in local revenue as a is vital, with a business-led a mix of urban-rural topography, to result of higher growth, which can skills system which better increase their share of economic activity. help offset declining grants from matches prospective recruits But these cities need to have a clear central government. with opportunities available vision of their assets and identities and sell themselves better to the investor Our research with think tanks, the public Practical action is required to better community, by presenting ‘investor and other organisations shows that if connect people with opportunities. ready’ opportunities. growth is a pre-condition for jobs then Businesses need to be in the driving seat, good growth needs to go alongside the creating more good jobs. This needs to The lessons arising from the big movers creation of good jobs. These include ones be supported by a demand-driven skills in our 2013 index, notwithstanding that give satisfaction, pride in doing system – and a more outcome-focused changes in methodology, is that jobs good work, meaning (such as Jobcentre Plus. These principles are the have a key impact on position in the contribution to the community), an cornerstone to the future health of our index, with increases or decreases in opportunity for career progression, labour market. unemployment being a key driver of flexibility (work-life balance) and short term positional changes (see income sufficient to live on, ideally Acquiring the right skills is an essential Appendix A2). This emphasises the with a little left over! pre-requisite to achieve the public’s importance of innovation to drive desired outcomes of jobs and income, productivity and create new jobs, as well Moreover, a growing body of research is a top priority for businesses and is as skills to match individuals better to confirms the link between work and also requisite for societal outcomes the opportunities available, particularly other aspects of good growth – for e.g. improved social mobility and 16-24 year olds – the cohort with the example between job quality and reduced poverty. highest unemployment rate. physical and mental wellbeing.15 This is consistent with research on what The challenge therefore is to unlock the impacts on ‘happiness’. Having paid potential of our cities which are the employment is the cornerstone of an engines of sustainable growth by individual’s economic success and investing in the enablers that businesses wellbeing. And acquiring skills, require to succeed and grow. Public the new measure in our 2013 index, 14 ‘Investing for Prosperity: Skills, Infrastructure and sector organisations at all levels, but Innovation’ Report of the LSE Growth Commission is the necessary foundation for both in partnership with Institute for Government and particularly in our cities, have an individuals and also for businesses Centre for Economic Performance P. Aghion et al. important role to play in creating a seeking to expand. 2013. platform for growth through a focus on 15 See ‘Stepping stones to growth’, PwC, 2013. www.pwc.co.uk/government-public-sector/ three key levers: skills, infrastructure stepping-stones/stepping-stones-for-growth-our- and innovation.14 new-book.jhtml 16 Views on a demand driven skills system drawn from ‘Stepping stones to growth’, PwC, 2013.

21 There are five conclusions for those The stakes are high – reducing or Essex Employment and Skills who want to maximise the potential of eliminating the productivity gap our workforce: between the UK and its competitor Board (ESB) nations is potentially worth about In 2012, Essex submitted ambitious • Employers must take greater £140bn of extra GDP every year to Community Budget (CB) proposals to responsibility for helping young people our economy.17 Whitehall, reshaping skills provision for understand the world of work and its Source: Stepping stones to growth, 16-24 year olds to deliver inclusive opportunities. This responsibility does PwC, 2013 economic growth. The simplified local not fall solely on the shoulders of big employer-led system requires: an business; small and medium sized Employment & Skills Board (ESB); enterprises (SMEs) have an important Fundamentally, connecting people a single portal/point of contact for role to play. Employers must also see with job opportunities and facilitating business; real-time industry intelligence; the return on investment for being an effective school to work transition and greater local determination of involved in schools and higher/further requires better communication and rewards for skills provision to meet education: capturing talent early. information exchange between all of economic and social needs. those involved. Businesses, through • The quality of the information being LEPs, and local authorities have a key Essex is now creating an ESB to give a communicated is crucial: education role in this process. voice to employers, help ‘bridge the gap’ providers and businesses must develop between education and industry and a shared language and collaborate to This was recognised in the Spending shape and challenge the system locally. ensure courses are demand-led. Round 2013 when government put £500 The ESB aims to oversee: million of skills funding at the disposal • There should be an early evaluation of LEPs through the Single Local Growth • An online mechanism through which of demand-led programmes to Fund ‘to allow local employers to drive all employers and providers can ensure they are really delivering the the provision that they need to maximise interact and employers can start to outcomes expected by employers. growth in their areas’. This includes drive provision offered locally called matched funding to support skills ‘MarketPlace’. • Providers need to respond and take projects funded through European advantage of business engagement, Social Funding and Further Education • A Fund that can utilise limited public maximising the opportunity for capital funding. skills funding to leverage significant businesses and pupils/students to investment from employers in skills interact and smooth the transition Local authorities are also rediscovering a development locally and equitably, from education to the world of work, zest for their role in post-schools skills particularly in support of growth ensuring that individuals receive high development, acting as a broker between sectors and SMEs – the Essex Skills quality, objective advice on potential public provision and private sector Investment Fund. career paths. demand. Essex is just one of a number of authorities which is taking an active • Robust intelligence and mechanisms to • Individuals need to be empowered approach to facilitating the connection inform and deliver Information Advice to make well-informed choices, between businesses and providers and so and Guidance to young people and and government must step in to helping the system of skills provision to shape training provision across Essex. improve the brokering process where be more demand driven (see Box). there is most risk of a deficit of good quality information.

17 In 2011 the average GDP per hour worked was 16% higher on average in the rest of the G7 economies than in the UK, and 122%-127% of the UK level in Germany, France and the US. If we were to say simplistically that success with respect to good jobs implied closing about half of this gap, say through 10% higher hourly productivity, this would be equivalent to about £140bn of extra GDP every year in the UK.

22 Infrastructure – This is the key question that has formed Cities can no longer take 20 years to the basis of an ongoing research deliver major infrastructure competing for mobile collaboration with Siemens and Berwin developments. Our research with finance Leighton Paisner (BLP) on ‘Investor Siemens and BLP shows that planning Ready Cities’20. This work is showing that needs to be swift and cities need to be Delivering effective, efficient and first and foremost cities need a clear, agile in response to changing business, sustainable urban infrastructure is well formulated vision of growth and resident and investor needs. essential to provide the city backbone economic prosperity, underpinned by a from which economic success and set of well-defined strategic objectives Cites also operate in a complex prosperity can grow. With many cities in (the what) and initiatives (the how). environment. Political jurisdictions and our index showing red flashing lights for This vision must be owned by key overlapping administrative boundaries indicators such as housing and transport, stakeholders – politicians locally (and across city regions result in challenges, and with the UK at 24th place on the nationally, where appropriate), officials, particularly where LEP boundaries are World Economic Forum’s league table for businesses and residents – with strong not co-terminus with those of single infrastructure,18 it is clear that more leadership needed to develop and sell councils or Combined Authorities. Cities needs to be done to deliver and meet the their city vision. need to master these to ensure progress needs of our citizens and businesses. is not hindered by bureaucratic hurdles This in turn provides confidence to and develop a common platform for Not only do cities in the UK need to investors that the emerging challenges growth (see Box). upgrade failing and ageing are understood and will be managed. infrastructure, but as technology drives Cities also need to demonstrate visibly mobility and connectivity, cities are also how infrastructure will deliver value to Creating a platform for seeking to upgrade what they can offer both users and investors. In a globally growth residents and businesses and establish connected marketplace, where cities smart city systems that will position compete with each other for scarce There are many stakeholders critical to them as global leaders. investment funds, success will be making growth happen on the ground reflected in the ability to attract (see Figure 11). Through our work Managing this scale of change is a internationally mobile capital. around the world, we have seen the complex undertaking, particularly if benefits of bringing together the key communities are to have a standard of Ultimately cities must create a quality stakeholders needed to collaborate and living which meets modern day of life proposition which exceeds provide a common platform for growth expectations. Yet cities have limited that of their closest competitors and – universities, the not-for-profit sector, access to funds and ways of financing provide an attractive offering to citizens and the private sector with the their plans, particularly as fiscal austerity investors and prospective residents. local, regional or national government. extends deep into the next Parliament.19 City competitiveness therefore comes So what is the best way for their cities to down to how to attract the financial To be effective, these stakeholders need attract investors and enable the financing investment and human capital that to work together and be clear on their and delivery of the critical urban will sustain a city into the future. roles and how they are jointly and infrastructure needed to become a collectively responsible for good growth, city of the future? Changing times also mean that city including creating the business cases for authorities can no longer plan for what is others – in central government and in known today. They must plan to meet other countries – to invest in their places. the needs of future generations too and provide, rather than consume, a legacy for successive generations.

18 The Global Competitiveness Report 2013–2014’, World Economic Forum, 2013. 19 ‘Living with austerity’, PwC, 2013. www.pwc.co.uk/government-public-sector/ spending-review/index.jhtml 20 ‘Investor Ready Cities’ an ongoing PwC research project in collaboration with Siemens and BLP.

23 Figure 11: Collaborating for growth Community Infrastructure Levy (CIL) and the Milton Keynes Tariff22 Dialogue University Private sector Enabling One model for cities to fund new infrastructure is to capture a share of Local, the uplift in land values attached to Regional an offer of planning permission for a Creation of prototypes & National Supporting Leadership development. This involves setting and then applying a tariff/levy on new green field developments. An example is a Renewal Not-for-profit Enthusiastic Open attitude associations citizens community infrastructure levy (CIL) which is fixed on a per square metre basis according to a schedule of rates published by the city.

In the UK, while local authorities cannot The effectiveness of this collaboration Grants from central government can finance against expected future CIL requires effective partnerships and, only meet a small part of total needs for receipts a not dissimilar arrangement among other things, an honest and infrastructure and services in an area. where CIL type receipts are used to shared understanding and articulation of Cities must become more innovative prefund local infrastructure is the Milton their joint assets, sources of funding and and adventurous with respect to how Keynes Tariff. A “roof tax” is levied on finance and their ‘offer’, based upon a they raise finance. Investment can new developments to contribute to the shared view of the future. It can also come not only from domestic banks, costs of local enabling infrastructure involve formal organisational institutions and capital markets, but also such as expanding transport, education, arrangements, such as combining from overseas sovereign wealth funds, health and other social infrastructure authorities and pooling management pension funds, bilateral and multilateral networks to service new communities in and resources. institutions and public-private expansion areas of the city. partnerships. Sources: Stepping stones to growth; With the approval of HM Treasury, Future of Government But major investors are increasingly English Partnerships prefunded the conservative in their decision making. infrastructure works in advance of Cities must therefore demonstrate clearly receiving the CIL. The CIL programme Despite limited government resources to how investors will capture the value is administered by the Milton Keynes fund the delivery of major infrastructure from infrastructure investments through Partnership Committee (MKPC), projects, often some upfront public a variety of mechanisms including user a formally constituted subcommittee 21 sector investment is needed to create charging, tax incremental financing as of English Partnerships (EP). investor confidence in the commitment well as community infrastructure levies to an infrastructure development, and (see Box). Importantly, as our research The scheme was developed in (if applicable) to subsidise the tariff with Siemens and BLP demonstrates, collaboration with Milton Keynes charged to users. Cities therefore need capturing value for the investor requires Council, the Highways Agency, local to tap into all existing sources of funding that value is also created for the user health officials and Milton Keynes available to them and create the right and for which they are prepared to pay Forward, representing developers and conditions to harness new sources of e.g. through a tariff or user charge. landowners. MKPC acts as the local funding to deliver projects ranging from planning authority for major applications housing through to local transport. within a designated Urban Development

21 Further information on charging and TIF can be found in ‘Out in the open’, PwC, 2011. www.pwc.co.uk/en_UK/uk/assets/pdf/ out-in-the-open.pdf 22 www.miltonkeynespartnership.info/about_MKP/ business_plans_infrastructure_tariff.php

24 Area (UDA) where c34,000 new homes Developing an agenda which builds on, and are expected to be built through 2016. innovatively combines, existing strengths The tariff applies to all major innovation ecosystem in new ways. This means identifying developments (sites in excess of 10 a place’s competitive advantages and dwellings per hectare) granted planning Innovation is a competitive necessity for mobilising regional stakeholders consent by MKPC in the UDA. business and for government. Along with (including business, universities, the skills and infrastructure, innovation is third sector and the public) around an The developers’ tariff contributions are fundamental to achieving good growth. inspirational vision for the future. (before adjusting for inflation) £18,500 Indeed, research by PwC reveals that, over per residential dwelling and £260,000 the last three years, leading innovators We are also seeing the rise of public per hectare of employment space. Some have grown at an impressive rate which entrepreneurs – individuals and 23 of these tariff requirements can be is 16% higher than the least innovative. organisations within the public sector paid via in-kind contributions such as which create new ventures and ultimately provision of open public space. The CIL So how can government play its part in increase local, regional and national payments are phased, and the first phase creating an innovation ecosystem that innovation absorption capacity (Figure is triggered by the grant of planning supports good growth? Particularly in 12). Their efforts are in turn championed permission with the phasing differing light of the most striking finding for by political entrepreneurs, who are key between commercial and residential government from the research that in channelling political will and vision to developments. All payments must be just under half of the 1,757 companies support innovative strategies. received by a long stop date 10-15 years surveyed internationally take advantage from the grant of an implementable of any form of government funding Innovation is therefore just as important planning consent. As such, if the for innovation (48%) or tax incentives for the public sector as for the private development has not been completed in (45%). In the UK, only 31% of companies sector. Public bodies need to be capable the agreed timeframe, the remaining CIL surveyed made use of tax incentives. of incubating ideas and delivery payments are due from the developer. This raises the question of whether models and accelerating their impact government funds devoted to innovation (scaling up via rapid prototyping). This are being directed to best effect. means having the right (new) service Of course, there is no universal delivery models for the right results, blueprint that can be applied to urban Strategically, public bodies need to with an eye on measurable outcomes development and the adoption of consider their role in local and national and real impact. Especially today, with infrastructure solutions, particularly innovation strategies, based on areas of money becoming ever tighter, it is with the onset of new and rapidly competitive advantage. One approach about reconfiguring existing models or 24 evolving technology. Each city will have – smart specialisation – involves developing new ones to do more with to plot its own path based on an analysis formulating an economic transformation less and increase productivity. of its own particular strengths and weaknesses and a definition of what it Figure 12: The rise of the public entrepreneur wants to be famous for.

• Create new activities Individual Very small What is clear though from our work with • Role model for young generations entrepreneurs companies Siemens and BLP, is that infrastructure • Iconic person in and outside the country delivery will not be achieved without being joined up at the critical points, • Absorb innovation in companies Large without being intelligently phased and Intrapreneurs • Create new activities and jobs companies sequenced and without addressing the underlying governance, legal and financing requirements. • Match the needs of the private entrepreneurs Public Government • Create new ventures entrepreneurs & Administration • Increase country innovation absorption capacity

23 ‘Breakthrough innovation and growth’, PwC, 2013. • Reshape citizen wellbeing www.pwc.com/gx/en/innovationsurvey/index.jhtml Political Political • Smart specialisation strategies 24 ‘Future of Government’, PwC, 2013. entrepreneurs Leadership www.pwc.com/gx/en/psrc/publications/ • Channel political will and vision to support innovative strategies future-of-government.jhtml Source – Future of Government: Tomorrow’s Leading Public Body

25 A good growth dividend Figure 13: The dividend from integrating growth and reform for the public sector? Economic output: Cost of public Contribution Beyond demand-driven skills, value service delivery adding infrastructure and an innovation to public sector ecosystem, how else can good growth be Human put at the heart of our public bodies? Capital The ability to re-invest revenues and savings locally, to achieve better long Financial term outcomes, means a new approach Capital Produced is needed where all stakeholders Capital collaborate and share in both the risks places Grow Sustainable Natural Manage but also the dividends of public service Capital reform and growth (see Figure 13). Social Capital There is a direct interaction between growth, more jobs and reduced demand Investment The Dividend Public Service Reform for council services while increasing council revenue. Councils do not create Housing GrossGross value value added add Whole area governance Skills Foreign Direct Investment Place based budgets growth, businesses do. So in order to Transport Fiscal balance Integrated health maximise a city’s growth potential, Enterprise & Trade and social care User charging councils must prioritise and enable Low Carbon Reduced dependency Greater local control over investment to develop the infrastructure Finance & Investment Increased productivity spending and link to results and other enablers such as skills that Innovation Better use of resources business needs. By its nature, this process must be collaborative, as discussed earlier. A common understanding is required of the barriers and opportunities to grow. Figure 14: Growth planning

City Deals have demonstrated the opportunity for those authorities who Develop have a clearly evidenced investment plan Develop a growth Agree Monitor a shared for growth to negotiate the return of strategy and and submit and evaluate vision and supporting the bid for to deliver increased national revenues for identity for infrastructure finance sucess further investment in their cities. a place plan This should also underpin LEP Growth Plans (see Figure 14) and help the drive Building the evidence base by councils to become more fiscally sustainable (see Box). Structuring the bid

Sharing of best practice and lessons across the network of LEPs

Source: Stepping stones to growth

26 Sustainable budgets Figure 15: Reinforcing mechanisms With the continuing drive to balance the nation’s public finances, cities have a key Growth: role to play. Since 2010, councils have Investment seen reductions in their budgets of dividend between one third and a half as the Coalition’s austerity drive has bitten. Growth: Increased But can cities integrate better their revenue (council tax) efforts on reform and grow their local economies to bring the public sector cost of a local area into balance with Sustainable budget the value generated? This would need a change of approach from the centre so that local bodies gain a greater share in the proceeds of growth and reform.

But the prize is a virtuous cycle with the Growth: dividend of growth, through increased Reduced services economic activity and local revenues, demand helping to balance the books alongside Reform: Reduced continuing efforts to reform public targeted services and manage demand (see spend Figure 15).

On growth, this involves: As far as public service reform is The impact on business concerned, attention needs to go • Identification of prioritised projects beyond cost cutting to: Finally, what does this all mean for the which will deliver growth. role of business, the primary source of • Review of business and jobs and wealth creation? There’s no • Innovative funding and financing operating models. doubt that customers, suppliers, models, such as CIL, TIF and employees, governments and society user charging. • A focus on the integration agenda have changed their expectations from both within a place, as well as the business. Many are looking beyond • Fund creation with clear investment collaboration agenda across today’s narrow notions of input, output criteria promoting good growth administrative boundaries. and profit, to something that is more outcomes. inclusive, responsible and lasting. • Developing a much more granular • Monitoring success, setting the and evidence based assessment of a Over the past three years, PwC has been economic baseline to capture the place through data analytics. working with businesses to help them and uplift of value from investments as their stakeholders to measure and well as wider outcomes. manage these wider goals and track performance against set objectives. PwC’s Total Impact Measurement and Management (TIMM) approach (see Figure 16) creates a unifying framework.

27 In the same way that we developed the FigureTotal 16: I mA newpact approach Measu torement total impact and Management Demos-PwC Good Growth Index to define economic success in the eyes of A holistic view of social, the public at the economy and city wide Total environmental, fiscal and economic level, TIMM provides a model to deliver dimensions – the big picture good growth at the individual business level. Impact Look beyond inputs and outputs to TIMM enables businesses to develop a outcomes and impacts – better understanding of the social, fiscal, understand your footprint environmental and economic impacts of their activities (see Figure 17). Measurement Quantify and monetise the All businesses must make a profit and impacts – value in a language business create value. But their stakeholders understands increasingly have a wider view of growth and influence a business’s ability to make Management Evaluate options and optimise profits. For instance, the impact of a trade-os – make better decisions business on the economy – through its payroll, profits and taxes – as well as on the environment – such as water Source: Measuring and managing total impact: a new language for business decisions pollution and waste – and on society, for example on health, education and people’s livelihoods. Figure 17: Look at all the impacts! TIMM quantifies the social value or cost Education of these impacts. While this helps Health Empowerment Community support a business’ licence to operate, Livelihoods cohesion the real benefit to business is in decision making. It enables management to develop a better understanding of their ciall iimppa GHGs and other Payroll Soci acctt potential impact and what that means to air emissions rs EEmm their stakeholders. TIMM gives lier pplolo p yye EE up eee management the ability to compare S ss nn Profits tt v v Water pollution cc a i i ss acctt r r strategies and make business decisions aa e iivv o o in i C C pp i itt n n s ii o o ss ee m m m m such as investment choices using m r r u m u s i s i e e m e m B e

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28 Of course, TIMM can also be applied to Scottish Hydro Electric (SHE) public bodies and a place-based TIMM Transmission would be another aid to cities trying to SHE Transmission is currently building a measure their impact which has always new 400-kilovolt transmission line been characterised in terms which are between Beauly and Denny in Scotland. broader than purely financial. Being able At present there is no approach to help to measure, understand and compare the assess the value of the full range of trade-offs between different options impacts, including consent conditions, of means decisions can be made with more a new transmission line. Through the use complete knowledge of the overall of our TIMM framework, we’ve worked impact and a better understanding of with SHE Transmission to develop a which stakeholders will be affected by range of methods to measure and value decisions, whether an organisation is in all material social, economic, the public, private or not-for-profit environmental and fiscal impacts in the sectors. UK resulting from the construction of the Beauly-Denny transmission line. For businesses, however, this is a novel approach: TIMM enables a business The project is now in the process of to continue to operate with its usual estimating the value of the line’s impact (or, hopefully even better) levels of on areas such as visual amenity, cultural profitability, while at the same time heritage, traffic, land use and waste, as creating the optimal outcomes and well as considering taxes paid and the impacts for the communities and the contributions to local and national GDP. environment in which it operates. This approach will help SHE Transmission to communicate more When taken together, businesses’ effectively to stakeholders how planning decisions and the associated impacts choices and consent conditions affect the can collectively either help (or hinder) impact of the transmission line, the achievement of good growth in including any trade-offs generated. our cities too.

And by building jointly with SHE Transmission a transparent and quantitative framework, they will be able to revolutionise the way that social, economic and environmental impacts are considered when planning and implementing future projects. This will not only add value to the business, but also value for society.

29 Agenda for action

In Stepping stones to growth,46 we set out the broad agenda for public leaders (Figure 18). Specifically, there is a continuing agenda for action across a range of stakeholders if we are to achieve good growth in our cities.

Good growth is in Figure 18: Steps to growth everyone’s interest. and public leaders Successful growth is not just about GDP or GVA, Co-create a clear, ambitious, widely shared vision defining anidentity (or brand) for a place which is but broader measures of attractive both to businesses and the public, built on economic wellbeing robust evidence such as out good growth indicators. including jobs, income, Connect the identity of a place, with its assets health, skills, work-life and heritage, in a way which energises and inspires stakeholders, encourages businesses to invest and balance, affordable attracts people to work and live. housing, transport and Raise visibility by putting good growth at the heart of the the environment. purpose and mission of public bodies, energising staff who are seen to be taking action and reducing the uncertainty that hinders business confidence to invest and create jobs.

Create a strategy that provides the enablers any business needs to succeed and grow – skills, infrastructure and innovation – and plans which will implement the vision.

46 ‘Stepping stones to growth’, PwC, 2013. www.pwc.co.uk/government-public-sector/ stepping-stones/stepping-stones-for-growth-our- new-book.jhtml

30 City leaders and other Central government Education and training local public bodies providers • As Growth Deals unfold, focus cities including LEPs on unlocking their individual growth • Improve the dialogue with businesses challenges in their Growth Plans on their training and skills needs. • Continue to balance between a linked to their distinctive local assets, necessary internal focus on efficiency, rather than the standard menu of • Promote and welcome business cost-cutting and reform with an priorities e.g. green jobs and digital external focus on good growth. engagement in schools, colleges and hubs. universities to inspire students in their future career choices. • Create a platform for growth through • Accelerate devolution where the costs, a collaborative approach to leadership benefits and solutions are localised • Be responsive and agile to the needs of across political/administrative e.g. local transport, planning. boundaries (including Combined both business and students and so Authorities) and sectors of the local maximise the chances of matching • Revisit the funding options for local people to the opportunities available. economy. government (including Barnett) to support wealth creation. • Work together, and with businesses, Businesses universities, the third sector and the • Drive the development of demand-led public to define the city’s vision – skills provision and empower • Agree a clear, consistent set of what city stakeholders want it to be individuals to make well-informed job public-private priorities, via the LEPs famous for – based on analysis of the and career choices by improving the and their Growth Plans, and then city’s strengths, using data analytics availability of good quality collaborate to deliver on them. and documented in Growth Plans. information and transforming the role of Jobcentre Plus as a broker of people • Measure and manage the total social, • Re-brand cities based on a clear vision to jobs, particularly the young. fiscal, environmental and economic for success linked to good growth impact of business activities in order outcomes. to deliver good growth. Devolved • Use good growth outcomes to guide • Improve the articulation of education decisions when allocating resources, administrations and training needs in discussion with prioritising investments and re- • Recognise cities/city government as education and training providers. investing the dividend of public sector having an important role reforms. complementing the devolved administrations themselves. • Develop an integrated programme of infrastructure investments to enhance • Consider the impact at city level of quality of life and city any proposals with respect to fiscal competitiveness. powers e.g. Stamp Duty, Air Passenger Duty and Landfill Tax. • Prioritise public spending on the levers important for good growth, particularly skills and infrastructure (housing and transport).

• Monitor and evaluate progress, building the evidence base to link decisions and outcomes and using a placed-based TIMM approach.

31 Appendix 1: Methodological details

This report has taken a similar • Mix: one of the most important Both Swindon and Milton Keynes only methodological approach to the 2011 and factors in any city list is to ensure that narrowly missed inclusion previously 2012 Good Growth reports, with the most there is a mix of economies from the based on these criteria, and their significant change being the inclusion of struggling to the mid-sized to the growing populations over time made it skills in the index for the first time buoyant, which provides interesting appropriate to add them to the 2013 (replacing the savings rate, which we good growth comparisons. index. Similar criteria were used when concluded was less appropriate at city selecting additional cities for inclusion level than in our original international • Spread: A good geographical spread, within the devolved administrations comparisons index in 2011). including the devolved nations. analysis, albeit with lower population thresholds. The availability of census data also allowed for local authority-specific owner occupation data to be used. As a result of Table A1: Measures used for the ten variables in the Index these changes, all elements of the index are now based on data available at the Category Measure Geography Weight NUTS3 level or lower. Table A1 shows the data source, geography, and weighting of Jobs Unemployment rate LA/TTWA 16% each variable. % of economically inactive long Health LA 13% term sick Occasionally, individual data points are Income GDHI per head NUTS3 12% missing at local authority level. Where Share of population, aged 18-24 this is the case, the missing data point Skills LA 12% has been benchmarked to an appropriate & 25-64, with NVQ 3+ local or regional alternative. This % in employment working more Work-life balance LA 9% occurred only rarely, however, and so did than 45 hrs per week not have a material impact on the results. Housing price to earnings ratio Housing LA 9% and owner occupation rate The list of cities in the index consists of Sectoral balance % of GVA from production NUTS3 8% the 37 used in the 2012 report, with the addition of Swindon and Milton Keynes. Income distribution Ratio of median to mean income LA 8% The original cities for the index were Transport Average commuting time to work LA 7% selected with the following criteria in Carbon emissions: gCO2/£ mind: Environment LA 6% earnings • Population size: the official

definition of a city is 125,000 or above Sources: ONS, DWP, DECC and DCLG (CLG Primary Urban Areas). This would result in a list of 60 cities. To make our analysis manageable, we restricted the list to ensure that we included, as a minimum, cities with populations around 250,000 or more.

32 Appendix 2: Major city ranking changes since last year

Repeating our 2013 analysis using data Where changes are seen, these are due to unemployment rate were a key reason for from last year and a consistent short term data fluctuations that may or rankings changes in almost all situations. methodology allows a comparison to be may not prove to be permanent trends. Given the variability of labour market data made between the 2012 and 2013 results. Further years of data are therefore needed in the short run, particularly at local As noted in the main text, while some before we can draw strong conclusions authority level, this highlights the degree changes in rankings are seen, the majority from this kind of trend analysis. to which these changes should be of cities remain in broadly similar considered with some caution at this positions. This is to be expected given Noting these caveats, Table A2 below stage. In no instance was a change in the that twelve months is a short time-frame looks at the reasons behind the largest rankings driven by a similar shift in all in the context of city development. movers in the index. Changes in the variables, and in some cases the change was entirely due to one variable.

Table A2: Explanations for major changes in city rankings since last year

UP DOWN

City Position Score Explanation City Position Score Explanation change change change change

9 of 12 measures increased, and none decreased significantly. Majority of change due Large movers include to unemployment increase Southampton 10 0.260 unemployment Hull -9 -0.179 (9.5% to 10.9%), as well (6.4% to 5.3%), long-term as worsening health (23% sick (20% to 17%) and to 25%). commuting times (26.4 – 24.8 minutes).

Biggest change was in Unemployment fell (12.4% work-life balance (22% to 10.3%). Also to 24% working Bradford 8 0.239 improvements in health, Coventry -7 -0.143 >45 hours), inequality also commuting times and worsened (0.87 to 0.85) income inequality. and commuting times increased (23.8 to 24.7)

Unemployment rose Unemployment fell (12.1% (from previous sample to 9.4%), as well as falling low of 3.3% to 6.3%), commuting times Sunderland 7 0.190 Oxford -4 -0.289 share of long-term sick (25.9-23.8) and reduced rose (from previous inequality (median/mean sample low of 11% to 0.87 to 0.88). second-lowest 15%)

Unemployment rose Change entirely due to fall (7.6% to 9.7%), as well in unemployment (8.6% to Wirral & Wakefield & as notable falls in the 6 0.141 6.5%) – otherwise the -4 -0.168 Ellesmere Port Warrington scores for health, score would be commuting times and unchanged. income distribution.

33 About the authors

John Hawksworth +44 (0) 20 7213 1650 [email protected]

John Hawksworth is Chief Economist at PwC. He was closely involved in developing our original Demos-PwC Good Growth Index and co-author of our previous reports on this topic. He is the editor of our regular UK Economic Outlook publication and many other reports and articles on macroeconomic and fiscal policy issues. He has extensive experience in analysing and commenting upon Budgets and Spending Reviews since the early 1990s. He also has over 20 years of experience as an economics consultant to leading public and private sector organisations, both in the UK and overseas.

Nick C Jones +44 (0) 20 7213 1593 [email protected]

Nick is Director of PwC’s Public Sector Research Centre. He co-authored (with John Hawksworth and Kitty Ussher, Demos) the original Good Growth report and with John the first report Good Growth for Cities. He also co-authored PwC’s recently published Stepping stones to growth.

As well as growth, Nick has contributed to reports on a wide range of public services issues. In particular, he led the development of our international report on the Future of Government which sets out PwC’s views on the characteristics and behaviours needed in tomorrow’s leading public body and the implications for leadership and implementation. He has also authored or co-written a range of other publications on public service reform, including co-authoring our influential Dealing with Debt series and Under Pressure, based on a series of roundtables hosted by Reform.

In addition, Nick is a member of the Core Editorial Team for PwC’s Annual Global CEO Survey, and produces an annual sister publication, Government and the Global CEO, commenting on the relationship between business and government internationally.

34 Research

Jonathan Bruce +44 (0) 20 7213 4220 [email protected]

Jonathan Bruce is an Economist within the Economics & Policy practice at PwC. Since joining the firm, he has contributed to reports and articles on a range of topics, including the UK Economic Outlook and the Global Economy Watch. He has also worked with organisations in a number of industries, including healthcare and aviation, as an economics consultant.

35 About PwC

At PwC we focus on three things for The PwC Economics and Policy Practice helps government and the public sector: assurance, our clients understand how big economic, tax and advisory services. Working together demographic, social, and environmental with our clients across local government, changes affect their organisations by setting health, education, transport, home affairs, out scenarios that identify growth housing, social care, defence and opportunities and risks on a global, regional, international development, we look for national and local level. We help make practical, workable solutions that make a strategic and tactical, operational, pricing and difference in solving the pressing challenges investment decisions to support business that are being faced every day. value creation. We help clients achieve sustainable growth which meets the As well as bringing our insight and expertise objectives of their business partners, to this sector, we contribute our thinking and influencers and broader stakeholder groups. experience to the public policy debate For more details please see our website at: through our Public Sector Research Centre. www.pwc.co.uk/economics To join this free online community, go to www.psrc.pwc.com and register today for our research and analysis.

About Demos

Demos is Britain’s leading cross-party Our worldview is reflected in the methods we think-tank. We produce original research, employ: we recognise that the public often publish innovative thinkers and host have insights that the experts do not. thought-provoking events. We have spent We pride ourselves in working together with 20 years at the centre of the policy debate, the people who are the focus of our research. with an overarching mission to bring politics Alongside quantitative research, Demos closer to people. pioneers new forms of deliberative work, from citizens’ juries and ethnography to Demos is now exploring some of the most social media analysis. persistent frictions within modern politics, especially in those areas where there is a Demos is an independent, educational significant gap between the intuitions of the charity. In keeping with our mission, all our ordinary voter and political leaders. Can a work is available to download for free under liberal politics also be a popular politics? an open access licence and all our funders How can policy address widespread anxieties are listed in our yearly accounts. over social issues such as welfare, diversity and family life? How can a dynamic and open Find out more at www.demos.co.uk economy also produce good jobs, empower consumers and connect companies to the communities in which they operate?

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36 Join the debate. www.psrc.pwc.com

The Public Sector Research Centre is PwC’s online community for insight and research into the most pressing issues and challenges facing government and public sector organisations, today and in the future. The PSRC enables the collaborative exchange of ideas between policy makers, opinion formers, market experts, academics and practitioners internationally. To access this free resource, and register for publications please visit www.psrc.pwc.com

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