Once more into the breach …
No-one should be in any doubt about how challenging ‘levelling up’ the UK economy will be. Despite the launch of at least 40 geographic policy initiatives over the last five decades, the UK remains one of the most regionally unbalanced developed economies. There are no easy solutions.
Our analysis of growth in GVA in England between 1997 and 2019, covering 13 years of Labour government and a decade of Conservative-led administrations, illustrates the scale of the task. Change of government had no discernible impact on outcomes — the share of the UK economy accounted for by the four most southerly regions increased from 60% to 63% in this period and every region except London experienced a fall in its share of total English GVA. In those 22 years, London’s economy grew by 3.2% each year on average compared to the growth of 2.1% each year on average achieved by the English cities in our leading cities group. The growth in the towns and communities in England of 1.8% was significantly lower than the rate achieved in the leading cities and 56% of the rate of growth in London. Even this figure hides further disparities. Growth during the period was 1.4% on average in the towns of the North East and Yorkshire and the Humber, less than half the level achieved by London.
… swimming against the tide
And things are not going to become easier. Our latest forecast shows that the trend for the leading cities to grow faster than towns and for the South to outpace the North is set to continue with the current policy programmes. Applying the EY ITEM Club forecast to England’s regions, we expect that the gap between the North and South will widen over the next three years with London, the South East and the East of England being the three fastest-growing regions, while the North East, Yorkshire and the Humber and the South West will be the slowest-growing locations.
The leading cities will outperform their regions in economic growth terms right across England and in no region will towns grow faster in aggregate than the region as a whole. GVA in the leading cities in England will grow at 2.2% annually on average up to 2023 compared to growth of 1.6% for towns. We expect the gap in growth between the leading cities and towns will be most marked in the East Midlands, North East, Yorkshire and the Humber and the North West.
The story on forecast employment growth is very similar. Employment will grow in our leading cities at 1% annually, 50% faster than the 0.5% growth forecast in towns. In every region the growth in employment will be highest in the largest cities and lower than the regional average in the towns. The West Midlands, North East and Yorkshire and the Humber, the areas expected to be the focus for ‘levelling up’, will be the regions with the slowest-growing labour markets. The risk for ‘levelling up’ is clear - if there are more opportunities in cities and the temptation for people to either move or commute to pursue these opportunities will be strong, potentially weakening town economies.