WWW.IPPR.ORG/NORTH TheImpactofthe RecessiononNorthern City-Regions ByTonyDolphin October2009 ©ippr2009 2 ipprnorth|TheImpactoftheRecessiononNorthernCity-Regions Aboutipprnorth ipprnorth,theNewcastle-basedofficeoftheInstituteforPublicPolicyResearch,produces far-reachingpolicyideas,stimulatingsolutionsthatworknationallyaswellaslocally.These areshapedfromourresearch,whichspanseconomicdevelopment,regeneration,public servicesanddevolutionaswellasastrongdemocraticengagementstrandwhichinvolvesa widerangeofaudiencesinpoliticaldebates. ipprnorth,2ndFloor,20CollingwoodStreet,NewcastleUponTyneNE11JF Tel+44(0)1912339050|www.ippr.org/north RegisteredCharityNo.800065 ThispaperwasfirstpublishedinOctober2009.©ipprnorth2009 Abouttheproject Thispaperwasoriginallypreparedaspartoftheevidencebaseforthe‘MakingCityRegions WorkforDeprivedCommunities’project,amajorprogrammeofworkbeingundertakenby ipprnorth,withtheJosephRowntreeFoundationandtheNorthernWay.Itaimsto understandwhy,earlierinthisdecade,someareaswithincity-regionsintheNorthof Englandremaineddeprivedevenwhenthesurroundingeconomywasperformingstrongly;to explorehowdeprivedareascanbebetterlinkedtoareasofeconomicopportunity;to considertherolesoflocal,city-regional,regionalandnationalbodiesandtoinformthenext generationofpoliciestargetedatdeprivedcommunities. Theviewsexpressedinthispaperarethoseoftheauthorandnotnecessarilythoseofippr north,theJosephRowntreeFoundationortheNorthernWay. 3 ipprnorth|TheImpactoftheRecessiononNorthernCity-Regions Executivesummary ThispaperlooksatthegeographicaleffectoftherecessionacrosstheUnitedKingdomand, inparticular,athowithasaffecteddeprivedcommunitiesinthecity-regionsintheNorthof Englandandthepeoplewholiveinthem.Italsoofferssomethoughtsaboutthechallenges thesecommunitieswillfaceinthenextfewyears. Unemploymentdatagivethemostup-to-datepictureoftheeffectoftherecessionandalso representareasonableshorthandmeasureofdeprivation.Analysisofthesedatasuggests thatasageneralruleunemploymenthasincreasedmostsinceMarch2008inthoseareas whereitwasalreadythehighest.ThisistrueforlocalauthoritiesacrosstheUKandalsofor wardswithintheeightnortherncity-regions. Althoughtherearespecialfactorsatplayinsomecases,itappearsthatthoseareaswhere therehasbeenthelargestincreaseinunemploymenthaveabove-averagerelianceon employmentinmanufacturing,inparticularinthoselowvalue-addedmanufacturing industriesthataremostvulnerabletocompetitionfromlow-costcompaniesinemerging economieselsewhereintheworld.Unemploymentwasalreadyhighintheseareasbecause companieswereclosingandcuttingcostsasaresultofthiscompetition.Therecessionhas acceleratedtheprocess. Otheranalysisshowsthathousing-ledregenerationeffortsinnortherncity-regionshave beenadverselyaffectedbytherecessionandthatsomecity-regionsarelikelytobebadlyhit whentheGovernmentstartstocutpublicspending. Fordeprivedcommunitiesinthenortherncity-regions,thiscould,therefore,representa ‘triplewhammy’.Itisimperativethateffortsaremadetoexplorehowdeprivedareascanbe betterlinkedtoareasofeconomicopportunity,toconsidertherolesoflocal,city-regional, regionalandnationalbodiesandtostarttodevelopthenextgenerationofpoliciestargeted atdeprivedcommunities. 4 ipprnorth|TheImpactoftheRecessiononNorthernCity-Regions TheImpactoftheRecessiononNorthernCity-Regions Introduction ThispaperlooksatthegeographicaleffectoftherecessionacrosstheUnitedKingdomand,in particular,athowithasaffecteddeprivedcommunitiesintheeightnortherncity-regions1 and thepeoplewholiveinthem.Italsoofferssomethoughtsaboutchallengesthesecommunities willfaceinthenextfewyears.Muchoftheanalysisisbasedonunemploymentdatabecause theyofferthemostup-to-datepictureoftheeffectsoftherecession.Worklessnessis,inany case,areasonableshort-handproxyforanarea’slevelofeconomicdeprivation. Thepaperwaswrittentoinformipprnorth’s‘MakingCityRegionsWorkforDeprived Communities’project,whichisexaminingwhy,earlierinthisdecade,someareaswithin northerncity-regionsremaineddeprivedevenwhenthesurroundingeconomywasperforming strongly.Theaimistodevelopthenextgenerationofpoliciestargetedatdeprived communities2.Itshould,however,beofinteresttoanyoneconcernedwithhowtherecessionis affectingdeprivedcommunitiesinthecitiesofnorthernEngland. Thepaperlooksathowthecurrentrecessionhasdevelopedandatearlyindicationsofits effectonthenortherncity-regions.Itshowsthat,asageneralrule,thegreatertheeconomic problemswereinanareawhentherecessioncommenced,thebiggertheeffectofthe recessionhasbeen.Thisisgoingtomakethetaskofthosechargedwithrevivingdeprived communitiesintheseregionsevenharderthanitalreadywas. Backgroundtothecurrentrecession Thecurrentrecessionwascaused,primarily,byaglobalcreditcrunch.Bankswereforcedto cutbacktheirlendingaftermakinghugelossesbettingonfinancialinstrumentsbackedby theUSmortgagemarket.Asaresult,credit-worthycompanieswereunabletoborrowthe fundstheyneededtomakeinvestmentsorremainsolvent;workerswerelaidoff;business andconsumerconfidencefell;spendingwascutbackandtheglobaleconomyplungedinto recession.3 IntheUK,outputbegantocontractinthesecondquarterof2008.Sofartherecessionhas lastedfivequartersandoutput(realGDP)isdown5.6percentfromitspeak.Thisisthe fastestfallinoutputintheUKsincethe1930s. Figure1.UKreal 6 GDPgrowth(% changeonyear) 4 Source:Officefor 2 NationalStatistics, % www.statistics.gov. 0 uk/instantfigures. asp -2 -4 -6 1984 1987 1990 1993 1996 1999 2002 2005 2008 Year 1.TheseareCentralLancashire,HullandHumberPorts,Leeds,Liverpool,GreaterManchester,Sheffield, TeesValleyandTyneandWear.ForthefullstructureofthecityregionsseeAppendix1,p19. 2.FormoredetailsonMakingCity-RegionsWorkforDeprivedCommunities,visitipprnorth’swebsite: www.ippr.org/ipprnorth 3.Appendix2containsamoredetaileddiscussionofthenatureofthisrecessionandhowtheeconomy mightrecover(p21). 5 ipprnorth|TheImpactoftheRecessiononNorthernCity-Regions Becausetherecessionwascausedbyacreditcrunch,ratherthanbyageneraltighteningof economicpolicyinordertoreduceinflation,manycommentatorssuggestedthatitwouldbe differentfromotherrecessionsexperiencedintheUKsincetheSecondWorldWar.In particular,theoriginsoftherecessioninthefinancialsector,andespeciallyintheCityof London,ledmanytopredictthatitwouldbea‘whitecollar’recessionandthatitsbiggest effectwouldbeintheSouthofthecountry. Thisisnotturningouttobethecase.Allpartsoftheeconomyhavebeenaffectedbythe downturn,withtheconstructionandmanufacturingsectorsexperiencingthebiggestfallsin output(14percent,comparedwithanalmost6percentdropinaggregateoutput). Figure2.Change inoutputby Agriculture, forestry & fishing sector,2008Q1 Mining & quarrying to2009Q2(%) Source:Officefor Manufacturing NationalStatistics Electricity, gas & water supply Construction Distribution, hotels & catering Transport storage & communication Business services & finance Government & other services Gross domestic product -16 -12 -8 -4 0 4 % Recentdatareleasesshowsomesignsofstabilisationinconsumerandbusinessconfidence andthevastmajorityofforecastersthinkthattheworstoftherecessionisbehindus. However,thepathofanyrecoveryisextremelydifficulttopredict.Historicalanalysis suggeststhatrecessionscausedbycreditcrunchestendtobefollowedbyrelativelyweak recoveriesandthiscouldwellturnouttobethecase.Householdbalancesheetshavebeen weakenedbyfallinghouseprices,sopeoplearesavingmoreandspendingless.Bank balancesheetsareinneedoffurtherrepair,solendingwillbeslowtoreturntoformerlevels. And,after2010,departmentalpublicspendingislikelytobecutinrealtermsasthe Governmentlookstoreduceitshugefiscaldeficit.Themostlikelyoutcomeforthenextfew years,therefore,appearstobeareturntoeconomicgrowth,butatadisappointingrate. Theimpactoftherecessiononthelabourmarket Atthisstage,thedatathatprovidethebestinformationabouttheimpactoftherecession arelabourmarketdata.Theseofferevidenceoftherecession’sscaleandeffect geographicallyandondifferentgroups,forexampleaccordingtooccupationorskilllevel. Andformostpeople,employmentiswhatreallymatters. Sofar,thefallinoutputseenoverthelastyearhasnotledtoasbigafallinemploymentas mighthavebeenfeared.TotalemploymentintheUKpeakedat29,541,000inthethree monthsMarchtoMay20084.Fifteenmonthslater,inJunetoAugust2009,ithaddropped 4.TheOfficeforNationalStatisticsreportsemploymentdatasourcedfromtheLabourForceSurveyas threemonthaveragesbecauseofvolatilityinthemonthlynumbers. 6 ipprnorth|TheImpactoftheRecessiononNorthernCity-Regions Figure3.UKreal 6 GDPand employment 4 growth(% changeonyear) 2 Source:Officefor % NationalStatistics 0 -2 Real GDP -4 Employment -6 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 Year by589,000,or2percent,to28,952,000.Whilethisisabigfall,outputcontractedbymore than5.5percentoverthesameperiod,soitcouldhavebeenmuchworse. Therearetwopossibleexplanationsfortherelativelymodestdeclineinemploymentoverthe lastyearorso: 1.TheoptimisticviewisthattheUK’slabourmarketisnowmoreflexiblethanitwas, enablingcompaniestocopewiththedownturninwaysthatdonotinvolvemaking redundancies.Thereisplentyofanecdotalevidencetosupportthisview.Accordingtoa surveyofover1,600workersfortheindependentKeepBritainWorkingcampaign,more thanhalfofallUKworkershaveexperiencedacutinpay,areductioninhoursoraloss ofbenefitssincetherecessionbegan(KeepBritainWorking2009). 2.Thepessimisticviewisthatthedownturnhasbeensoquickandsoseverethatithas takencompaniesbysurprise.Theyhavebeenslowtoreactsofarbutemploymentwill becutfurtherintherestof2009andin2010,evenifoutputbeginstostabilise.Thisis whathappenedduringtherecessionoftheearly1980s–theonlyoneexperiencedby theUKinthelast70yearsthatwasonacomparablescaletothecurrentrecession. Meanwhile,withinthelabourmarket,anumberoftrendsareapparent: • Therecessionishittingmenharderthanwomen.Maleemploymentwasdownby2.5per