Cities Outlook: Three lessons we can learn to create a more prosperous UK

City leaders must use their powers to create a high-wage, low-welfare economy, says Josh Stott.

The Centre for Cities’ Cities Outlook 2016, published yesterday, runs the Chancellor’s ‘high-wage, low-welfare’ rule across UK cities. Its analysis raises three structural challenges to the long term viability of achieving the Government’s desired economic rebalancing, as part of the Government’s Northern Powerhouse agenda.

But what does it mean for attempts to tackle poverty, and ensure prosperity is shared by places previously left behind?

Three main factors stand out that should concern both local and national policy-makers -

  1. North-South divide: of the 14 cities already hitting the ‘high-wage, low-welfare’ mark, 11 are in the South, two in Scotland and only one, Warrington, in the north. In contrast, only four of the 29 ‘low-wage, high-welfare’ cities are in the South. These findings align with our own forthcoming research into the unequal patterns of growth across UK cities: we have found that 10 of the 12 worst-performing local economies are located in the North of England.
  2. Skills gaps: the report also highlights the divergence in educational attainment between local areas. Within ‘low-wage, high-welfare’ cities, less than a third of residents hold a degree (or equivalent) and 12 per cent have no qualifications at all. As the report states: “Low skills will both hinder the opportunities available for people to move off welfare and into work and will hinder attempts by cities to attract investment from businesses.”. This vicious circle risks undermining the capacity of cities to achieve increases in productivity and pay, and reduce dependency on welfare.
  3. Housing supply: perhaps most surprisingly, it is the ‘high-wage, low-welfare’ cities whose welfare bills have grown the most in recent years. Milton Keynes saw the largest increase of all cities – its total welfare bill increased by 45 per cent in between the years of 2004/5-10/11. Two factors have driven this trend i) population growth, and ii) housing costs. The rise in housing benefit payments in ‘high-wage, low-welfare’ cities is 50 per cent higher than elsewhere, with weekly housing benefit payments costing £134 compared to £81 in low wage cities. Our research suggests this trend of a burgeoning Housing Benefit bill is set to continue with private rents forecast to rise by 90 per cent, twice as fast as incomes by 2040.

The contributions different cities make towards a high-wage, low-welfare national economy are vital. Closing the gap in education and skills attainment must become a priority for the Northern Powerhouse and devolution agenda. Likewise, the report’s call for an increase in the supply of genuinely affordable homes in high demand areas echoes our own.

But we also need to take action locally. Cities need to be incentivised and empowered to integrate employment, skills and welfare to work provision within their local labour markets. But devolution must not be for devolving’s sake: city leaders and the devolved administrations must harness their increased economic powers to ensure everyone has the opportunity to contribute.

By working in tandem with businesses, landlords and the national Government, we can then see the tide turn in creating a high-wage, low-welfare economy.