UK Powerhouse City Growth Tracker April 2017 by IrwinMitchell

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City Growth Tracker April 2017

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Welcome to the latest Irwin Mitchell UK Powerhouse report. th

This is our 7 City Tracker report and like all previous studies, this edition provides a timely update on how the economy is performing.

City Growth Tracker April 2017

This is the first UK Powerhouse report to be published since Theresa May triggered Article 50 and as we now start the process of leaving the EU, it seems like an appropriate time to take stock and look more closely at the Government’s long term economic plan for the UK. Our latest City Tracker does exactly this and following the previous study which assessed the prospects of city economic growth during 2017. Here we examine how the Government’s recently published industrial strategy could shape our future. Launched in January, the Green Paper focuses on 10 pillars of growth and aims to deliver a high-skilled, competitive economy which will create prosperity for people throughout the UK. Ensuring that the wider economy grows in a fair way is something Irwin Mitchell is passionate about and is indeed one of the reasons we decided to produce these UK Powerhouse City Growth Trackers. It’s also why we chose last year to partner with the CBI and their ‘Unlocking Regional Growth’ campaign.

The aim to support growth across the whole of the UK is important, but we are also interested in how our clients will be affected by another of the strategy’s pillars - the cultivation of ‘world leading sectors’. Here, there is much to be welcomed. We look forward to seeing the results of fresh investment, and in some places newly elected local mayors, but it’s important that the focus isn’t just on those localities where certain sectors are already established and concentrated. The key lesson learnt from our league table of the fastest growing cities on page 8, is that the strongest city economies are those, such as Milton Keynes, where there is a wide range and good balance of industries. We should of course make the most of our strengths, but unless we encourage multifacetted city economies, the opportunities for growth will not be maximised and rebalancing will not be achieved.

Victoria Brackett

CEO of Business Legal Services E: victoria.brackett@irwinmitchell.com

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Irwin Mitchell’s Powerhouse Tracker Official economic data sources for the UK’s cities are often dated and fail to provide a reliable snapshot of the UK’s localised economies- the last set of regional economic accounts corresponds to the economy in 2015. To more accurately estimate current economic activity, Cebr has utilised a range of more timely indicators to create a ‘nowcast’ of GVA* and employment for a range of key cities across the UK. The latest outputs of this give us a picture of how the regional economies of the UK performed in 2016.

Contents UK Economy • GDP • Labour Market Cities in Q4 2016 • GVA* Growth • Employment The impact of the new industrial strategy on UK cities • New industrial strategy • Local growth funds & investment • Sources of growth in 2017

*GVA: Gross value added (the value of goods and services produced)

City Growth Tracker April 2017

Key Facts Quarterly GDP growth in the UK economy stood at 0.7% in Q4 2016, up from the 0.6% recorded in the second and third quarters. On an annual basis, output across the UK economy grew by 1.8% in real terms in 2016. Milton Keynes again topped the table in terms of GVA growth, closely followed by Cambridge and Manchester. Oxford and Brighton also performed well in Q4, driven by a strong service sector and professional workforces. In Q4 2016, service industries performed strongly growing by 0.8% on the previous quarter. Output in all three other main industrial groups made smaller contributions to overall growth. The contribution of net trade to GDP expansion in Q4 bodes well for the year ahead, a potentially important source of growth as consumer spending shows signs of fading.

The results of the latest interactive Powerhouse City Growth Tracker can be viewed at www.irwinmitchell.com/ukpowerhouse

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UK economy accelerates to finish the year on a high note Following a slow start to 2016, GDP growth gained in momentum over the year. Output grew by an upwardly revised 0.7% in the fourth quarter of 2016, above the 0.6% growth posted in both Q2 and Q3. On an annual basis, UK GDP grew by 1.8% in 2016. Many had predicted an immediate downturn following the Brexit vote in June, but the upward trajectory of the economy in the months since has dispelled such fears.

Quarter four saw a continuation of strong consumer spending, which consistently underpinned growth throughout 2016. Household expenditure grew by 0.7% from Q3 to Q4, and retail sales expanded by 1.2% on a quarterly basis, driven by high spending in October and November. Going forward, slowing real wage growth may weaken household spending in 2017, as rising inflation stretches budgets.

Net trade was the leading driver of growth in Q4, contributing 1.3 percentage points to the headline GDP figure. Strengthening global trade conditions and the depreciation of the pound appear to be boosting export prospects for UK firms, which have seen improving order books in recent months. Weaker sterling, however, is a double-edged sword, as it adds to businesses input costs.

It was not all good news in Q4 however. While net trade and consumer spending positively drove GDP growth, expenditure in other sectors was less impressive. In particular, business investment fell by 1.0% in the fourth quarter of 2016, indicating firms may be acting cautiously in the face of uncertainty and rising costs.

City Growth Tracker April 2017

Figure 1 GDP growth (RHS); UK expenditure components percentage contribution to GDP growth (LHS), quarter-on-quarter

Source: Office for National Statistics

On a sectoral basis, services maintained the role of chief growth driver. The service sector grew by 0.8% from Q3 to Q4, its 16th consecutive quarter of positive growth. In particular, consumer-facing industries fared well in the fourth quarter, underpinned by household demand. The three other industrial sectors – production, construction and agriculture – contributed negligibly to growth. Having said this, manufacturing (a sub-sector of production) was the leading factor behind

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the 0.1 percentage point upward revision of Q4 GDP growth, with output picking up in key manufacturing industries. The UK labour market also finished 2016 on a strong note. The unemployment rate remained at a low 4.8% for the fourth consecutive month in Q4, and the proportion of people aged 16 to 64 in work hit a record high at 74.6%. However, annual wage growth is still subdued, falling slightly to 2.6% (including bonuses) in the final quarter of 2016.

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UK Cities in Q4 2016 GVA

League table ranking

GVA Q4 2016, £millions

Growth

(Arrows indicate change in position since last quarter)

(Annualised, constant 2012 prices)

(YoY)

Milton Keynes

→

10,844

3.3%

Cambridge

→

9,258

3.1%

Manchester

↑1

16,858

2.8%

Oxford

↓1

8,445

2.7%

Brighton

↑7

7,035

2.6%

Greater Manchester

↑3

58,780

2.5%

Nottingham

↑10

8,692

2.5%

Peterborough

↓3

5,304

2.5%

Inner London

↓3

250,802

2.5%

Bristol

↑9

13,664

2.4%

London

↓3

373,500

2.4%

Birmingham

↓4

24,416

2.4%

Leeds

↓2

20,952

2.4%

Ipswich

→

4,511

2.4%

Outer London

↓1

122,698

2.4%

Derby

↑8

6,807

2.4%

Bournemouth

↓2

4,602

2.4%

Coventry

→

7,525

2.4%

Southampton

↓6

5,782

2.4%

City Growth Tracker April 2017

UK Cities in Q4 2016 GVA continued 20

Portsmouth

↑5

5,254

2.3%

Glasgow

↑7

19,311

2.3%

Liverpool

↑1

10,730

2.3%

Edinburgh

↓3

18,147

2.2%

Norwich

↑2

6,152

2.2%

Newcastle

↓15

9,231

2.2%

Sunderland

↑6

5,631

2.2%

Stoke-on-Trent

↓6

4,675

2.2%

Swansea

↓1

4,419

2.1%

Hull

↑5

5,027

2.1%

Bradford

↑1

9,321

2.1%

Sheffield

↓9

11,082

2.0%

Wolverhampton

↑2

4,533

2.0%

Leicester

↓3

7,320

2.0%

Cardiff

↓5

9,325

1.9%

Belfast

→

9,705

1.8%

Plymouth

↑2

5,068

1.7%

Middlesbrough

↓1

3,307

1.7%

Aberdeen

↓1

11,620

1.6%

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UK Cities in Q4 2016 Employment League table ranking (Arrows indicate change in position since last quarter)

Level, Q4 2016

Annual % Change

Milton Keynes

→

161,182

2.0%

Manchester

↑3

429,971

1.7%

Bournemouth

↑3

88,567

1.7%

Nottingham

↓1

228,352

1.6%

Inner London

→

3,105,274

1.6%

Birmingham

↓4

547,846

1.6%

Peterborough

↑4

112,026

1.5%

Brighton

↑8

135,777

1.5%

Liverpool

↓1

291,007

1.5%

Outer London

↑2

1,742,294

1.4%

Cambridge

↓1

126,465

1.4%

Greater Manchester

↑2

1,257,179

1.4%

London

→

4,847,567

1.4%

Coventry

↓7

177,902

1.3%

Belfast

↑1

126,383

1.3%

Stoke-on-Trent

↓6

115,082

1.3%

Newcastle

↑3

222,112

1.3%

Glasgow

↑4

449,027

1.2%

Swansea

↓1

114,893

1.2%

City Growth Tracker April 2017

UK Cities in Q4 2016 Employment continued 20

Derby

↓5

145,937

1.2%

Oxford

↑3

128,577

1.1%

Cardiff

↑4

213,044

1.1%

Leicester

↓6

203,249

1.1%

Leeds

→

446,931

1.1%

Sunderland

↑11

124,425

1.0%

Norwich

↑7

124,498

1.0%

Ipswich

↑2

79,004

1.0%

Wolverhampton

↓7

114,700

0.9%

Edinburgh

↑5

324,592

0.9%

Portsmouth

↑7

111,478

0.8%

Hull

↑1

145,071

0.8%

Bradford

↓5

214,296

0.8%

Southampton

↓3

151,451

0.8%

Bristol

↓3

338,831

0.7%

Aberdeen

↓7

193,972

0.6%

Plymouth

↓1

138,977

0.5%

Sheffield

↓7

277,320

0.5%

Middlesbrough

→

75,541

0.1%

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“Innovation is a key pillar of the Government’s new industrial strategy. Upcoming tech clusters are driving city economic growth from Bristol to Birmingham with Brighton now being the 5th fastest growing city thanks to its strong cultural draw and creativity.” Aurelia Butler-Ball Associate Solicitor, Gatwick

City Growth Tracker April 2017

Reflecting the upward trend of the UK economy in late 2016, most of the cities in the City Growth Tracker saw acceleration in GVA growth in Q4. Growth varied from lows of 1.6% in Aberdeen to highs of 3.3% in Milton Keynes. Once again, Milton Keynes topped the table for both GVA and employment growth. The South East city’s output expanded 3.3% in Q4 2016 compared to the same period a year earlier. The well-balanced city economy draws strength from a highly qualified workforce, helping fuel growing knowledgebased and design industries, with over a fifth employed in professional occupations. The city’s economic rise is reflected in its surging property market. With strong demand, real estate firms have grown in number by 45% over the past five years, making this the leading industry in the city, in terms of total firm count. Knowledge-based industries have been key drivers of growth in the university cities of Cambridge and Oxford, ranking 2nd and 4th respectively in the City Growth Tracker. Both cities have benefitted from high investment, with research and development spending helping foster world-leading technical industries. Cambridge is among the top 20 cities in Europe for foreign direct

investment (FDI)1 driving the city’s tech sector. Prominently, Cambridge has a strong financial industry, and as a growing digital hub, excels in data analytics and software development. Oxford also benefits from a dynamic tech industry, with strong links to markets in Asia and the EU – 40% of Oxford’s tech businesses have customers based outside of the UK1. In particular, Oxford specialises in cyber security and edtech. The health of the city’s start-up culture is epitomised by recent success stories like DeepMind, Natural Motion, and Sophos. In this quarter’s City Growth Tracker, Manchester has jumped one spot above Oxford to 3rd in the GVA growth rankings. The city has drawn from the strength in the retail sector, as activity on the high street has supported the city’s large retail business base, making up 12% of all businesses in Manchester. The city is also the largest northern tech hub, with 52,000 Mancunians employed in the industry. Furthermore, Manchester has a substantial financial sector, with many key firms like Barclays settled in the city. As well as this, the greater Manchester area has a foothold in the media industry, with the BBC’s move to Salford.

1 TheCityUK (2017)

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Retailers saw a positive end to 2016, as sales volumes in Q4 were up 5.6% year-onyear, putting the wind in the sails of many UK cities in the final quarter of 2016. This has been particularly positive for national retail hotspots like Birmingham and Nottingham. Furthermore, the weakness of the pound not only encourages tourism, likely to be beneficial for areas popular with international visitors such as London, but also boosts domestic tourism, or ‘staycations’, which may spur demand in popular British resorts such as Brighton and Edinburgh.

Brighton’s healthy business atmosphere is promoted by start-up accelerators, such as Brighton Fuse and the Brighton Eagle Lab, helping the city achieve the fourth highest business density in the country.3 Another important factor is the city’s thriving education system. The city’s two universities have forged specialised, knowledge-based industries, promoting strong business growth in industries such as architecture. Brighton has the eighth most-qualified workforce in the UK4 , almost half of which (46%) work in professional, associate professional & technical occupations.

Creativity is also spurring growth in many UK cities. This is particularly evident in Brighton, which rose to 5th in the City Growth Tracker GVA ranking this quarter. The city has harnessed a strong cultural draw and creativity to build high-growth industries. Creative England list Brighton as the 6th largest creative cluster in the country, by business count, driven by the art and design scene. Edinburgh, Bristol, Milton Keynes and Leeds also have high shares of creative businesses, helping drive innovation and employment.2 2 Creative England, 2016 3 Centre for Cities, 2017. Brighton also has the seventh highest start-up rate in the UK, at 69.5 per 10,000 residents. 4 ONS, 2016 - High-level qualifications are National Vocation Qualification (NVQ) level 4 and above.

City Growth Tracker April 2017

Figure 2 Five fastest and slowest expanding cities by year-on-year GVA growth in Q4 2016

Source: Office for National Statistics, Cebr analysis

The service sector continues to be a leading driver of growth across many of the UK’s cities. In Q4, total output in services rose 0.8% on the previous quarter, with all four sub-sectors expanding. The biggest contribution came from the transport, storage and communication sector, increasing by 1.8% quarterly. With this industry comprising a high share in the Midlands economy, many cities in the region have benefitted, such as Derby, which posted robust annual GVA growth of 2.4% in Q4, driven by the manufacturing and distribution sectors. Derby’s new Eagle Park, a site for storage, distribution and industrial

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units in the city, is set to create 500 new jobs in 2017. Posting annual growth of 2.6% in Q4, financial and business services are also a strong source of growth in many UK cities. The industry is central to growth in London, where financial services comprise 19% of the capital’s total GVA. There have been major concerns over the future of London’s leading financial industry after Brexit. However, alternatives to current passporting privileges, such as equivalence, mean the city is not likely to lose its banking appeal overnight. The decision by Wall Street giant

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Merrill Lynch to identify a site for a new London base by 2020 is a significant vote of confidence in the city’s financial sector5. Finance and business services are not limited to London. Both Norwich and Ipswich are key centres for the financial and insurance sector in the East of England, employing many in professional services. In the Midlands, Birmingham is the second largest accounting cluster in the UK, and Nottingham employs a large number of people in banking and management consultancy. In Scotland, Edinburgh is a leading international location for fund management, with around 34,000 financial service workers in the city, and a further 16,000 in professional services6. Production output also ended the year on a good note, expanding by an upwardly revised 0.3% from Q3 to Q4. Over the course of 2016, production output grew by 1.2%. Of the sub-sectors, manufacturing was the largest driver of growth, expanding 0.7% over the course of 2016, with impressive growth in several sub-sectors. Car manufacturing continues to go from strength to strength, boosting prospects in cities in the East and West Midlands, where a large proportion of the British car industry is based. Many large firms, such as Jaguar Land Rover continue to boost 5 www.telegraph.co.uk 6 TheCityUK

City Growth Tracker April 2017

growth in Coventry, Birmingham and Wolverhampton. Sunderland is also likely to profit from the success of the industry, with Nissan confirming its continuation of the operations in the North East city. Another well-performing manufacturing sub-sector in the last of quarter of 2016 was the pharmaceuticals industry. Although the sector is typically subject to volatile sales, the 9.8% quarterly growth in Q4 will be welcome news for cities such as Cambridge, home to industry giant AstraZeneca, and outer London, where many of GlaxoSmithKlein’s centres are based. A growing biotech industry is also a promising element of the Scottish economy. Particularly in Edinburgh, companies such as Censo, specialising in stem cell research, and TC BioPharm, a cancer cell therapy firm, are high sources of growth in the city’s economy. Other manufacturing sectors which grew in Q4 included computer and electric equipment and the wood, paper and printing industry, both key parts of the Birmingham economy. In contrast, the textiles industry, with strong bases in Leeds, Belfast, and Leicester, saw a 2.1% quarterly contraction. Going forward, the impact of the weaker pound may provide a significant export boost, which could be positive for growth in cities with a high share of goods exports. These include Derby, Hull, and in

particular Sunderland, which exports the largest amount of goods and services per job of any UK city7. However, the currency effect is also putting significant pressure on firms â&#x20AC;&#x201C; the costs for imported goods and materials rose 20.5% in the year to January,

the sharpest rise since 2008. Whether these cost pressures can be offset by increasing export competitiveness remains to be seen, but the positive contribution of net trade in Q4 bodes well.

Figure 3 Top and bottom five cities by annual employment growth, Q4 2016

Source: Office for National Statistics, Cebr analysis

The labour market in the UK continued to strengthen in late 2016. The unemployment rate remains at a healthy 4.8%, its lowest point for over a decade, having not shifted since the three months to September 2016. Even more promising is the proportion of people (aged 16 to 64) in work, which reached a record high of 74.6% in the fourth quarter of 2016.

Still, wage growth remains the Achilles heel of the labour market. Annual earnings growth stood at 2.6% in the three months to December 2016, down from 2.8% in the three months to November. Modest earnings growth means real incomes will come under increased pressure in the year ahead, eroding consumer spending power.

7 www.centreforcities.org

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â&#x20AC;&#x153;The impact of the new industrial policies is likely to be broadly equal upon most regions rather than providing a detectable redistribution. A possible exception is Manchester, which is likely to benefit from network and clustering boosts, skills and institutions and the high share of Government investment through metro mayors.â&#x20AC;? Roy Beckett Regional Managing Partner, Manchester

City Growth Tracker April 2017

Earnings growth is likely to see some upward pressure in 2017, with the National Living Wage to rise to £7.50 in April. This will affect the labour markets in varying ways across the country, as cities with typically lower incomes will feel the most widespread effects. In Sheffield, for example, 28% of the city’s workers can expect a pay rise in April, which is likely to stoke consumer demand, although it may put some pressure on the city’s firms. The strength of professional service sector jobs continues to support employment in many of the UK’s fastest growing cities. Standout growth has been seen in Milton Keynes, posting the strongest employment growth, of 2.0%, in Q4’s City Growth Tracker. Strong business growth has underpinned job creation in the city, with the total number of professional, scientific and technical firms rising by 45% from 2011 to 2016. The city’s workforce also benefits from a well-performing property and real estate sector. Further growth is expected, with construction begun on a £23 million housing and retail development in central Milton Keynes; the scheme is set to create between 150 and 200 new jobs in 2017. Similarly, Manchester enjoyed relatively robust employment growth of 1.7% year-

on-year in Q4. Strong consumer demand has supported the city’s high street retailers. Manchester’s broad industry base has spurred job growth in many industries, from digital technology to media and marketing, all of which have a strong presence in the city. In addition, in the financial industry, over 250 new jobs will be added through the expansion of the finance branch of construction firm Kier. Also providing a boost in the near future, Manchester-based Rentalcars announced it will soon open a third office in the city in April 2017, unlocking a further 250 jobs, mainly in analytics, technology and product management. Retail demand has also supported employment growth in a number of cities, such as Birmingham and Nottingham. Shoppers in Birmingham spend amongst the most of any UK city8, helping create job opportunities, which posted annual job growth of 1.6% in the fourth quarter of 2016. Nottingham’s vibrant city centre is helping fuel job creation. In the coming year, further employment opportunities in Nottingham will be created by Grosvenor Casino’s £3.4 million revamp and IT firm Octavian’s expansion. In 2017, many retailers may see weaker growth as consumer demand fades. Some

8 www.retailgazette.co.uk

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retailers are holding back hiring in response, or even shedding staff, such Boots and Greggs, set to cut hundreds of jobs in 2017 in an effort to lower costs. John Lewis also plans to reduce headcount by around 800 staff in the year ahead. In contrast, online retailer Amazon plans to expand in 2017, creating jobs in its head office in London, as well as in its customer service centre in Edinburgh; overall, the company aims to bring 5,000 jobs to UK cities in 2017. Many cities on England’s south coast also posted strong annual employment growth in Q4 2016. Most impressively, Bournemouth posted total job growth of 1.7% in the year to Q4 2016, the third largest rise on the City Tracker. The growth is a result of the varied successes of key sectors in the city. There were over 14,000 technology workers in Bournemouth in 2016, worth £350 million to the city economy. As well as this, the number of jobs in specialised design has grown by 50% and 83% in Bournemouth and Southampton respectively over the past five years. Finally, Bournemouth is an expanding regional financial centre, boosted by the presence of JP Morgan’s technology and operation centre, which employs 4,000 people in the city.

City Growth Tracker April 2017

Elsewhere on the south coast, Brighton saw robust job growth over 2016. With a highly skilled and creative workforce, strong education links, and a number of successful start-up accelerators, total employment rose to 136,000 in Q4 2016. From 2011 to 2016, Brighton’s total business base expanded by 26%. The city’s digital economy contributed substantially to this, with technology success stories such as Brandwatch, Brilliant Noise and Crunch Accountancy. In the North of England, job growth has notably accelerated in Liverpool and Newcastle. Newcastle benefits from healthy gaming and creative industries. In particular, game-maker Ubisoft has invested heavily in Newcastle, creating 100 jobs setting up a customer contact base in 2016. Overall, gaming and creative services employ more than 27,000 in the Tyneside city. Liverpool also enjoys a successful tech culture, specialising in gaming, software development and online marketing. Annual job growth in Liverpool and Newcastle stood at 1.5% and 1.3% respectively in 2016.

The communications industry is bringing jobs to Norwich. A new deal from Norwichbased Anovo will see the creation of more than 340 jobs in the city, taking their total workforce to 1,300. Furthermore, Aldi recently announced that it will be recruiting over 50 new positions in its citycentre stores, as the supermarket chain, now Britain’s fifth largest grocer, looks to capitalise upon its rising popularity. Many cities with strong manufacturing bases have seen improved employment prospects in recent months. Sunderland, boosted by Nissan’s decision to build their Qashqai and X-Trail models in the city, has seen an uptick in annual employment growth in Q4 to 1.0%, up from 0.6% in quarter three.

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Employment growth in many Midlands cities has also improved in Q4, partially thanks to the success of the car-making industry. With new car sales hitting a multi-year high in January, strong domestic demand appears to be boosting the industry. Prominently, Jaguar’s decision to use the West Midlands as the production base of it new electric car is likely to give the region’s cities a boost. In particular, Coventry is a hub for much of the UK automotive industry, and the London Taxi Company’s new Coventry plant, due to open in 2017, will create a further 1,000 jobs for the city. Also in the industry, McLaren Automotive recently announced they will open a £50 million manufacturing plant in Sheffield, creating over 200 jobs. This is likely to be a welcome boost to the city, which sat at second to last of the City GrowthTracker employment table, above Middlesbrough.

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â&#x20AC;&#x153;During 2016, production output grew by 1.2% and manufacturing was the biggest driver of growth with the automotive sector continuing to go from strength to strength. Other manufacturing success stories during 2016 were pharmaceuticals, computer and electrical equipment.â&#x20AC;? Dorrien Peters Partner and Manufacturing Sector Specialist

City Growth Tracker April 2017

The impact of the new industrial strategy on UK cities Unveiled in January this year, a Government Green Paper outlined a new industrial strategy; one which would help drive and ‘divide growth across the whole country’9. Based on ten key pillars of economic growth, the plan includes a number of methods to promote growth across the UK’s regional and city economies. The plans will be delivered through investment, bolstered by regional growth funds. Furthermore, with elections of metropolitan mayor scheduled for later this year, there are numerous opportunities for cities to pursue paths to further growth. This quarter, the impact of the Government’s new industrial strategy upon UK cities will be analysed.

Technology Manufacturing & Production Transport & Connectivity Mayoral Elections & Local Growth Funds

9 HM Government (2017)

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Technology The Government’s industrial plan puts innovation as pillar one, which is a key source of growth in many of the UK’s cities. In particular, technological and scientific investment has led to strong GVA growth in many of the cities at the head of the City Growth Tracker GVA table. Cities such as London and Manchester are noticeable tech industry hotspots, but other upcoming tech clusters are driving city economies from Bristol to Birmingham. In recent years, the so-called ‘golden triangle’ of Oxford, Cambridge, and London has seen the lion’s share of research and development (R&D) investment in tech industries. Indeed, these cities are worldleaders in sectors such as biotech. The Government’s plans must aim not only to build on this strength, but respond to overconcentrations of sectors in UK cities. In response, the Government pledges to spend £4.7 billion in R&D by 2021, alongside investing in local research talent by funding PhDs and boosting the UK’s levels of education in the ‘STEM’ subjects of science, technology, engineering and maths.

City Growth Tracker April 2017

Yet, how the Government will centre these policies in UK cities has not been fully clarified. There are more than six times as many digital jobs in London (over 320,000) than in Manchester, which has the second largest digital workforce, and the Government must address regional disparities to achieve balanced growth. Strategies such as creating Intellectual Property Offices in key UK cities, starting with pilots in the Northern Powerhouse and Midlands Engine, are a step in the right direction. Birmingham is a leading edtech hub, and such policies may give the city an economic boost. For the Government’s focus on innovation, tech and R&D to be effectively disseminated across regions and cities, the policies need to be linked with institutions and places (pillars 9 and 10 of the Government’s new industrial strategy). An example of this can be seen in Manchester, likely to feel the tangible effect of a £126 million investment into a world class research institute at the City’s university. Manchester’s tech and digital economy is worth around £1.7 billion

New Industrial Strategy - Technology continued

annually, and the city is well placed to make further progress. With the Government’s funding into the high-growth science sector, with a range of already well-performing sectors, we forecast Manchester’s GVA to grow by 1.1% by Q4 of 2017. Funding from Tech North, a Government agency set up in 2015, may help unlock the potential of the Northern Powerhouse’s tech sector. This could be particularly important to cities such as Leeds, Newcastle and

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Liverpool, where tech sectors are growing in prominence. The tech sector employs 6% of Liverpool’s workforce and further Government investment could be vital for the city’s economy going forward. Job growth has been impressive in Liverpool in 2016, at 1.5%, and we forecast employment to grow by a further 0.9% annually by Q4 2017.

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Manufacturing & Production Another pillar of the Government’s strategy is building world-leading sectors. The Government aims to utilise sector deals and investment to bolster key industries, recognising life sciences, creative industries, and ultra-low emissions vehicles as areas of opportunity. The Government is likely to help support already strong industries, such as the car manufacturing and aerospace sectors. In the North East, £49.7 million has been allocated for the International Advanced Manufacturing Park in Sunderland. The site is aimed at strengthening the region’s automotive sector. The park is set to create an estimated 5,200 jobs, and appears on first sight to be a positive move for the region, although the industry already dominates the city’s economy, and some have seen it as a missed opportunity to target growth in new sectors. The Government also aims to build on success in the aerospace industry, which has developed in various cities such

City Growth Tracker April 2017

as Portsmouth. There is also a strong aerospace cluster in the Midlands, which contributes over one quarter of the total UK output. This is driven by the presence of Rolls Royce in Derby and other companies such as Moog and UTC in Birmingham, Wolverhampton and Coventry. The Government’s collaboration in this industry has been successful in driving GVA and job growth, and further R&D spending could be productive in the sector. For example, local funding is expected to develop a global space technology hub in Leicester, funding local enterprise partnerships and academic institutions. The Government also suggested exploring other burgeoning industries, such as financial technology, or FinTech, which is strong in London. According to the Government’s new industrial strategy, sector deals in the creative industries are likely. This would be a boost to creative clusters in cities such as Liverpool, Edinburgh, Bristol and Norwich.

Transport & Connectivity As the Government notes, ‘weaknesses in infrastructure and connectivity can limit growth in areas with lower productivity.’ The fourth pillar of the Government’s new industrial strategy, infrastructure, places a heavy focus on connectivity. Traffic delays, both between and within cities, can be detrimental to growth.

In particular, congestion on the UK’s roads is a significant barrier to growth, costing commuters valuable time and limiting productivity. The TomTom Traffic Index shows Belfast is the most congested city in the UK, with 42% of time added to the typical car journey due to traffic. In London, 38% of time is added onto the average journey by car through delays, which cost the capital’s economy more than £6 billion in 2016.10

Figure 4 Top 10 most congested UK cities, 2016

Source: TomTom Traffic Index (2016) 10 INRIX (2017)

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Furthermore, pressure on the UK’s strategic road network (SRN), leading to congestion on motorways and at pinchpoints, means interconnectivity between cities is hampered. Cebr estimate that traffic delays on the SRN cost each person in the UK 4.9 days of lost time in 2016. Such issues can be targeted by both national and local funding into road networks. Chancellor Phillip Hammond committed an additional £90 million of funding for the North of England in his 2017 Spring Budget, with a further £23 million set aside for the Midlands, to address road pinchpoints. The Chancellor also announced a £690 million competition fund for local roads.

City Growth Tracker April 2017

Transport & Connectivity continued

Such funding will be important for cities which are blighted by traffic delays. In Manchester, the 25th most congested city in the world according to TomTom, effective policies for city growth need to target lost time through traffic delays. Local funding may be effective in tackling congestion in the Greater Manchester area. For example, the M62 and M60 incur frequent delays which impact the entire surrounding area. Proposals for new link roads offer high returns, and may be a possibility with new funding, potentially accelerating the local area, cutting commutes and saving workers valuable time.

Mayoral Elections & Local Growth Funds Fostering localised growth will be a key target for incoming metropolitan mayors in 2017. In May, a number of combined authorities will directly elect a ‘metro mayor’, who will take on a number of new powers in housing, transport and skills, derived from the Cities and Local Government Devolution Act enacted in 2016. The combined authorities which will be directly electing a mayor this year include Greater Manchester, Liverpool city region, West Midlands, and Cambridgeshire & Peterborough.

projects, and will also help fund projects from flood defences in Hull to Midlands advanced science institutes.

The incoming metro major for Cambridgeshire and Peterborough has an opportunity to extend successful strategies at a city level, linking up industries and supply chains. In the Liverpool city region, a key focus should be on skills. A range of proposed schemes, including a city-wide apprenticeship hub to match businesses and skills throughout the city, could support this.

The authorities also have another apparent advantage, in the form of funding. Cities under combined authorities, who are set to elect a mayor this year, have seen preferential treatment in terms of Government investment. Take Manchester, which will benefit from nearly twice as much funding as Leeds city region, despite having a significantly smaller population. Across the Northern Powerhouse, £556 million worth of funding has been allocated to promote growth. Of the major cities, Manchester is set to receive over £130 million, Liverpool £72 million, Leeds £67.5 million and Sheffield £37.2 million.

The Government has committed £1.8 billion in total to the Local Growth Funds, allowing numerous cash injections into 39 Local Enterprise Partnerships. These will include £475 million for large local transport

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The Local Growth Funds could help accelerate growth in Derby and Nottingham, which will share a growth fund of £190 million. The investment will see a £30 million BioCity institute in Nottingham for the life science industries, expected to create 700 jobs in the city over a 30 year span, alongside more than £10 million in transport funding in the cities.

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Mayoral Elections & Local Growth Funds continued

However, many have described the Northern Powerhouse funding as a missed opportunity. The multi-million pound business park in Sunderland uses up almost the region’s entire budget, leaving only £7.5 million left for Newcastle, Gateshead, Northumberland, Durham, and Tyneside. Furthermore, the singular focus on car manufacturing, the intended use for the business park, means other industries will be left picking up crumbs of investment. With the potential of other industries in the region growing, a successful Northern Powerhouse strategy should aim to promote multi-faceted city growth, rather than focus simply on established industries.

City Growth Tracker April 2017

Local Growth Funds and city-level investment may be effective in building industries and infrastructure from ground level, but the Government must be active in creating the conditions and providing the institutions to do this. Many of the UK’s most successful cities, as shown in this quarter’s City Growth Tracker, benefit from balanced economies, rather than depending on one industry. The Government’s regional investments are a good start, but addressing skills and infrastructure disparities is required for greater economic growth across the UK’s cities.

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UK Powerhouse City Growth Tracker

To download all previous City Growth Tracker reports and view data on how all 38 cities performed in Q4 2016, please visit our interactive map online at www.irwinmitchell.com/ukpowerhouse The maps also highlight city economic performance in Q4 2006 and look ahead to what is expected to happen in the next decade. All of the data has been produced by leading think tank, the Centre for Economic & Business Research (Cebr), and is based on modelling of a range of timely indicators including local labour market data to provide statistics of output and employment. For any media enquiries for UK Powerhouse, please contact david.shirt@irwinmitchell.com

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ÂŠ Centre for Economics and Business Research

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Working together to unlock regional growth Irwin Mitchell has joined forces with the CBI to launch a new high-profile campaign which aims to reduce regional productivity differences and add £208 billion to the UK economy over the next decade. The ‘Unlocking Regional Growth’ report has used special access to ONS data to determine the main drivers of regional productivity differences across the UK. For further information and to view the report, visit www.cbi.org.uk/insight-and-analysis/unlocking-regional-growth Disclaimer Whilst every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and Business Research Ltd (Cebr) nor the report’s authors will be liable for any loss or damages incurred through the use of the report. Authorship and acknowledgements This report has been produced by Cebr, an independent economics and business research consultancy established in 1992. The views expressed herein are those of the authors only and are based upon independent research by them. London, April 2017

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