INTRODUCTION

  1.  The Committee is undertaking an inquiry into "how the Office of the Deputy Prime Minister is going to achieve its target to reduce the persistent gap in growth rates between regions" and has invited witnesses to submit Memoranda on a number of specific issues relevant to this challenge.

THE CORE CITIES GROUP

  2.  We are a strategic alliance of the largest cities in England outside London who came together voluntarily in the mid 1990s to develop the distinctive role which big cities must play in national and regional life if Britain's overarching goals for sustainable economic growth and greater social equity are to be achieved. We are convinced that our collective experiences and assets can make a positive contribution to national policies and strategies and can highlight both the challenges and opportunities facing cities more generally. Our current membership comprises Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham, and Sheffield.

  3.  A quarter of England's population—some 13 million people—live in the Core Cities and their immediate administrative Counties. The Core Cities provide the principal economic drivers for administrative Regions containing 58% of England's population—some 29 million people. This compares with 42% (21 million) living in London and the Regions (South East and Eastern) where London is the principal economic driver.

  4.  The Core City regions—South West, West Midlands, East Midlands, Yorkshire and the Humber, North West, and North East—produce just over half England's GDP (£333 billion—50.5%). In comparison London's regions produce £327 billion—49.5%.

  5.  But in the context of the Committee's inquiry it is notable that the GDP per head in the Core City regions is £11,483—representing only 73% of the £15,721 GDP per head being achieved in London's regions. (All population and GDP figures are for 1999 and are taken from Office of National Statistics).

  6.  Our Group has put high priority on drawing policy lessons from available research about the roles major cities play world wide in the creation of competitive and prosperous regions. We commissioned specific research on these issues from the Centre for Urban and Regional Development Studies at Newcastle University—and their report "Core Cities: Key Centres for Regeneration" was the centrepiece of our 1999 annual conference.

  7.  In March 2002 we were particularly pleased to join the three Government Departments responsible for the Regional Disparities Target (ODPM, Treasury, and DTI), other Departments with strong links to the regional agenda, the London Development Agency and the Regional Development Agencies in a high level Working Group on "Cities, Regions and Competitiveness" (chaired by the ODPM) with terms of reference "To make recommendations for policy changes and practical actions to enable the major regional cities to fulfil their potential as drivers of the urban renaissance and the economic competitiveness of their regions—and thereby strengthen the national economy's capacity for growth". We are strongly committed to the success of this initiative, which we believe holds the key for achieving the target for reducing the persistent gap in growth rates between regions.

  8.  Our own analysis highlights the pivotal role major cities have played in regions which are noted for their competitiveness and prosperity. Researchers call this the city-region effect. But in the UK at present London is only city with the economic strength to raise the competitiveness of the surrounding regions above the EU average. We believe that unlocking the potential of the major regional cities is the key to creating more competitive regions away from the south east. We therefore welcome this opportunity to contribute to the Committee's inquiry.

THE IMPORTANCE OF ACHIEVING THIS TARGET

  9.  We share the Committee's concern in highlighting the importance of the target as the first issue for attention. Our own analysis has underlined a significant paradox at the heart of economic policy. On the one hand the present Government's macro-economic policies have created stable conditions which are now enabling the UK economy overall to weather recent global uncertainties more robustly than the other major economic blocs. This provides a positive launch pad for further growth when global economic prospects improve.

  10.  But although the past decade has seen more jobs and lower unemployment in all Regions the trends in underlying competitiveness point to a further widening of regional disparities. The increase in GDP per head in London's regions (as defined in Para. 3 above) between 1995-99 was 74% greater than the equivalent increase in the Core City regions. The UK Competitiveness Index for 2001 (Robert Huggins Associates, November 2001) shows a similar picture—and in the most recent 12 months these three south eastern regions had increased their collective share of national competitiveness by over 8%—"highlighting the increasingly startling division between the big three growth regions and the other regions of the UK".

  11.  The logic of these trends, particularly when matched with emerging reports and anecdotal evidence about congestion and competition for resources across the south east, is that a UK economy increasingly dependent on London and the south east could struggle to accommodate the additional economic activity generated in a sustained global upswing.

  12.  We are wholly convinced that any diminution in London's unique global role brought about by key international investors going overseas would have negative economic consequences for the whole country. The key challenge is therefore for regional policy to create the conditions which will enable the cities and regions away from the south east to develop as favoured locations for a critical mass of internationally competitive organisations. By adding more cylinders to the UK economic engine this will also create more space to enable London to further develop its flagship role as a global capital city.

  13.  Experience from other advanced economies demonstrates that highly competitive and prosperous regions can and do develop based on their major regional cities. The US economy is the most notable example of dispersed wealth creation. The "World Knowledge Competitiveness Index 2002" (Robert Huggins Associates) benchmarks the globe's high performing regions. 49 of the highest performing 90 regions are in the US, 32 are in Europe (of which three—London, South East and Eastern—are in the UK). What is significant for this inquiry is that half the Continental EU regions appearing in the top 90 are focused around non-capital cities.

  14.  This picture of strongly performing European city-regions is reinforced by GDP data. GDP per head in the Stuttgart city-region (135% of the EU average), Milan (132%), and Antwerp (137%) are not isolated examples. These figures contrast with the leading English city-regions outside London—West Midlands, including Birmingham (93% of EU average), Greater Manchester, including Manchester (93%), and West Yorkshire, including Leeds (92%). (All figures taken from the EU Commission's Sixth Periodic Report on the Development of the EU Regions).

WHETHER AND HOW THE TARGET CAN BE ACHIEVED WITH CURRENT AND PROPOSED POLICIES—INCLUDING THE IMPACT OF CURRENT REGIONAL STRATEGIES; THE IMPACT OF RDAS; AND THE POTENTIAL IMPACT OF REGIONAL ASSEMBLIES

  15.  Developments since 1997, such as the establishing of RDAs and the range of new measures to strengthen links between higher education and business, to improve the availability of venture capital, to improve skills and employability, to provide more strategic support for new and small businesses, and to strengthen and formalise strategic partnerships in cities and towns are all working to strengthen the economic development context regionally and locally. ODPM has recently commissioned further research into the factors which underpin success in the leading Continental regional cities. This will provide more information about the significance of devolution and governance for competitiveness.

  16.  However, our considered view is that the scale of current regional disparities—and the evidence that these are continuing to widen even in a climate of overall economic success in the UK—requires a more fundamental analysis of both the causes of regional disparities in a modern economy and the potential policy responses. We have therefore welcomed ODPM's decision to address this agenda through a high level Working Group reporting to Ministers, Core City Leaders and RDA Chairs. In particular we attach importance to the following overarching issues, which are at the centre of the Working Group's action plan:

—  Stronger policy alignment at national, regional and local levels. The main spatial dimensions of economic policy must become more clearly mutually reinforcing. For example, there is substantial evidence that the UK's international competitiveness is boosted by its pivotal position as an inter-continental air hub. But the concentration of these air services at south east airports not only reduces the attractiveness of other regions as business locations, it also adds to congestion in the south east as businesses which operate internationally cluster near to these airports. Similarly there is a need to translate national sector policies into an effective local focus—concentrating resources to areas where there is a real prospect for achieving international profile and avoiding wasteful duplication.

—  Competitiveness and urban policy agendas which are mutually reinforcing. As we argue throughout this paper the attractiveness of our principal cities as locations for international functions—business, academic, cultural sporting—has to be a key ingredient for the UK's overall standing in the world. But to date policies for competitiveness and urban renaissance have operated separately. The former has been successful at national economic level, while the latter has developed comprehensive approaches to neighbourhood renewal. The key issue now is to recognise the need for systematic policy links between these macro-economic and micro-spatial agendas.

—  A common agenda for measuring competitiveness. At present debates about relative competitiveness draw on a wide range of statistical indicators, and different combinations of indicators are used to illustrate particular perspectives. Available indicators are collected at differing points in time and have differing strengths in terms of the retrospective or forward-looking signals they can give us. Most significantly there is little common ground about the distinction between causal and consequential indicators in this field. Accordingly the information base for policy formation is weaker than in other high level policy areas (such as education or health) and our collective ability to evaluate the impact of policy initiatives on the overall competitiveness of a region is limited. This issue of measurement is clearly pivotal to the central question about whether any given set of policies is or is not capable of improving the performance of regional economies. It is therefore important to note that DTI have undertaken to make specific proposals in this area for consideration by the ODPM-led Working Group.

WHETHER A COHERENT NATIONAL POLICY CAN BE ACHIEVED, AND IF SO HOW

  17.  We are confident that the existing policy and institutional back-cloth provides a positive platform from which to develop a coherent national policy for maximising economic growth through stronger competitiveness in the regions away from the south east. More competitive regional economies would also provide a stronger base for tackling social exclusion, particularly in those cities and regions where social divides are currently most apparent. However it is important to recognise at the outset that UK policy has traditionally seen "regions" in terms of administrative boundaries. We are convinced that the key to effective regional policy is to recognise the economic dynamics which operate both across and within these administrative boundaries—and, as we argue throughout, to recognise the pivotal role of cities in enhancing the functioning of these dynamics. The term "city-region", now increasingly used by researchers and policy makers, reflects this fundamentally economic rather than political relationship between cities and the regions in which they are located.

  18.  In our view an effective policy for creating competitive regions must be fundamentally shaped by the critical factors which differentiate competitive locations in today's global economy. Our analysis highlights three dimensions of regional policy which must take full account of significant changes in the relative competitiveness of advanced economies such as the UK. We describe these three dimensions in the next paragraphs.

  19.  First, the UK—and therefore the regions of the UK also—is part of a world economy which is increasingly characterised by competition from new entrants into established markets. Advanced economies such as the UK are finding that traditional competitive advantages in lower value economic functions are being progressively eroded by developing countries. The imminent accession of ten new EU States with significantly lower cost bases than the UK is a specific example of this new competition. Policies for strengthening regional economies must therefore recognise the changes which are occurring in the UK's international competitiveness and put priority on creating conditions in which increasingly high value functions can take root, grow, and evolve. This will also mean recognising the limited future prospects of some lower value functions which have until now formed a familiar part of the indigenous business base.

  20.  Second, the growth of the global economy means that the more significant business investment decisions are now being taken in an increasingly international context. This is particularly so in those areas of the economy where the UK's competitive advantages now lie. This means that locational choices for higher value, more sustainable economic investments will be determined primarily by market considerations—eg ease of access to international air routes—rather than by public inducements and subsidies designed to counteract a less than favourable market environment. Successful regional policies therefore need to put high priority on understanding the conditions which will attract internationally successful businesses and then on utilising public interventions effectively to create those conditions in regions which are currently on the margins of investors' mindsets. Regional policies also need to understand and foster the process by which international business functions spill over to lever up competitiveness in the indigenous business base—and conversely to recognise also that indigenous businesses operating in markets where there are no locally based international players will become progressively detached from leading edge techniques.

  21.  Third, there is a strong and consistent message from researchers about the pivotal role which major cities play in creating competitive regions in a modern knowledge economy. Cities are the natural locations of the key assets which power modern economies. Well run cities enable these assets to flourish and to be accessed by both regional and international stakeholders. A typical summary of how researchers see the assets of cities highlights "the concentration of human resources at the frontiers of knowledge; the location of primary sources of knowledge and information; access to sophisticated risk and venture capital; and the trading frontier position conferred by connectivity with wider economic markets" ("Innovative Clusters and Competitive Cities in the UK and Europe" Oxford Brookes University 1999).

  22.  Regional policies therefore need to recognise and develop this critical role for cities. A successful country needs to have a mutually reinforcing hierarchy of cities. The economic interaction between the capital city and the major regional cities needs to be clearly understood and reinforced by policy. For example policy needs to recognise and support the functions which only a capital city with a global role can sustain (eg global financial services), while also recognising and supporting the roles which regional cities can undertake more cost effectively (eg back office financial services). Similarly successful regions will have a hierarchy of cities—a regional capital with unambiguous international standing, other major cities with national or international niche roles (as Oxford and Cambridge have in London's wider region), and other significant regional service centres (as with Southampton and Norwich in London's wider region). The Core Cities Group has badged much of its policy work with the slogan "competitive cities make prosperous regions" which in our view neatly encapsulates the central research messages.

WHAT LESSONS CAN BE LEARNED FROM PAST REGIONAL POLICIES

  23.  In our view it is essential to learn some very significant lessons from past regional policies. First, earlier regional policies operated in markedly different economic conditions—where, for example, tariff barriers and public ownership of major industries enabled governments to be more prescriptive about the location of major investments. Second, these earlier policies took as their starting point the need to provide fiscal incentives to persuade individual businesses to locate in areas which lacked market advantages. For the reasons we have described in the preceding paragraphs the conditions which permitted these approaches to regional policy no longer exist in advanced economies such as the UK.

  24.  Accordingly there is a need for market-driven regional policies—to create the conditions in all our regions which leading businesses will recognise as conducive to the success of their particular operations. The need for such a fundamental change was recently articulated by the present Chief Economic Adviser to the Treasury—"The first generation of regional policy, before World War 2, was essentially ambulance work getting help to high unemployment areas. The second generation in the 1960s and 1970s was based on large capital and tax incentives. This was top down, inflexible and didn't work. The present Government's regional policy is based on two principles—strengthening the essential building blocks for growth (innovation, skills etc) and exploiting the indigenous strengths of each region and city. It is bottom up—not top down, with national government enabling powerful regional and local initiatives by providing the necessary flexibility and resources". (`Britain's New Regional Policy', Ed Balls, 2000, published by the John Smith Institute).

  25.  We fully endorse this change from national prescription to the enabling and facilitating of economic initiatives by the regions and their cities. But, as this paper is strongly arguing, the scale of the challenge means that the welcome overall direction of current policies still requires rigorous translation into further practical measures. We also want to make the important point that future policies need to be informed as much by experience in our competitor countries as by previous UK policies. Our own work is fundamentally driven by research from other countries' experience.

WHAT CHANGES TO POLICIES ARE REQUIRED TO ACHIEVE THE TARGET—INCLUDING WHETHER GOVERNMENT DEPARTMENTS ETC SHOULD BE MOVED TO LESS PROSPEROUS REGIONS

  26.  We have argued throughout this paper that the economic strength of regional cities is the pivotal issue which differentiates success and failure in regional policies. Just as competitive cities create prosperous regions, so also do uncompetitive cities mean that their regions will lack the dynamics necessary to raise competitiveness and living standards generally.

  27.  This critical focus on cities does not imply that other policy themes are of little consequence. Manifestly this would be nonsense. The development of strong regional institutions; the creation of a competitive transport infrastructure; the economic roles of market towns and the countryside they serve; and the continuing transformation of seaside towns and former industrial settlements are all key parts of an effective regional policy. But without the driving force of competitive cities the other parts of a regional economy will lack the critical assets necessary to compete nationally and internationally, and the internal regional economy will lack focal points able to generate higher levels of aspiration and support innovative developments in smaller centres.

  28.  So ODPM's decision in 2002 to convene a high level Working Group on the role of cities in creating competitive regions is a very significant step forward. The Working Group's remit and its action plan fundamentally flow from briefing papers submitted to Government by the Core Cities. These papers were meticulously based on our assessment of the available research about competitive cities and regions—including the research we ourselves commissioned from CURDS. The welcome involvement of RDAs in this work ensures that issues are explored from the regional as well as the city perspective. We are confident therefore that the evidence we want to put before the Select Committee is best presented by describing the agenda now being systematically addressed by the ODPM-led Working Group.

  29.  This Group plans to produce a substantive report with policy recommendations in May this year. This timing of the Select Committee's inquiry therefore means that there is not yet a comprehensive policy agenda which this Memorandum can describe. However the Working Group published an Interim Report last October, to coincide with the Government's Urban Summit, and this provides both the overall work plan and some early conclusions. (The Interim Report can be read in full on www.urbansummit.gov.uk)

  30.  Given this context our response to the Committee's central question about "what changes in policies are required?" can only be partial at this stage. The complexity of the issues and the Working Group's determination to base its recommendations on robust evidence means that firm conclusions on many key policy questions are not yet to hand.

  31.  The following bullet points therefore describe the policy issues which the Working Group's May 2002 action plan identified as being fundamental to the remit. Early actions which were highlighted in the Interim Report and summarised in italics—the remaining issues are being addressed in the current phase of the Group's work.

—  The principal factors which influence the locational decisions of internationally competitive businesses—and how public policy can enhance the strength of these factors in the English regions. (The Group has commissioned more detailed analysis of these factors and the potential policy responses).

—  The process by which internationally competitive business functions spill over to enhance the aspirations and capability of the indigenous business base—and how public policy can foster this process more systematically. (The Group is giving detailed attention to the existing research base in this area, which has recently been analysed by DTI).

—  The success factors which underpin the growth of internationally successful business clusters and the roles which public agencies can play to stimulate this process. (The Group has commissioned a detailed report on these factors and, in particular, how the necessary capabilities in public agencies can be developed).

—  The key characteristics of an internationally competitive regional city—and how these can be developed through targeted policy mechanisms. (The Group has produced an initial set of 10 success factors, and these will be tested against the findings of ODPM's research into the success factors in leading Continental regional cities).

—  The role of publicly funded research and development in catalysing and supporting the growth of internationally competitive business clusters—and how policy can promote and facilitate centres of research excellence which become critical economic drivers and generate leverage of private sector resources for R&D. (The Group has agreed a range of actions to strengthen the input of city and regional perspectives to the processes for (a) assessing research in higher education, (b) funding knowledge transfer between universities and business, and (c) resource allocation. Action has also been agreed to strengthen the profile and application of local research bases in city and regional economic strategies).

—  The role which transport connectivity (inter-continental air travel, inter-regional air, rail and road connections, and internal transport systems) plays in the competitiveness of cities and their regions—and how transport policy can best support the development of more competitive and inclusive city-regions. (The Group has (a) made a submission to the national consultation on aviation, containing a small number of specific proposals geared to delivering early enhancements to regional competitiveness; (b) identified a short list of road and rail projects to enhance regional cities' competitiveness, and (c) is currently undertaking further analysis of existing evidence about the role of transport in city competitiveness).

—  The contribution education and skills must play in providing both the pools of highly qualified workers to enable the growth of internationally competitive business clusters and the broader skills base required to create the diverse economic base that is key to cities economic competitiveness. (The Group has agreed actions to identify and strengthen linkages within major cities between the economic agenda and the education and skills system at all relevant levels).

—  The role of land use planning in creating the conditions for greater competitiveness and a distinctive urban renaissance in cities.

—  The ways in which distinctive roles in culture and sport can enhance the reputation of cities and strengthen their economic competitiveness—and how public policy should support such developments.

—  The ways in which fiscal measures could enhance competitiveness in a high value knowledge economy—and how such measures could be positioned within current macro-economic policy.

—  The process by which enhanced competitiveness in cities works to lever up competitiveness and prosperity in the surrounding region—and the most effective measures for tracking competitiveness both in cities and in regions.

  32.  The Working Group is planning to launch its substantive report at the Core Cities Conference in Newcastle on 5 and 6 June 2003. This will ensure that the Core Cities continue to be at the centre of this important policy agenda—on this occasion by providing all the main stakeholders with an early opportunity for detailed debate about the way ahead for urban and regional policy.

  33.  We fully recognise that whatever the policy agenda which emerges from this work the critical test for its success will be the ability of cities to gain the respect of a wide range of stakeholders—from our own residents to international investors—for their ability to set forward visions which are both challenging and realistic and to successfully integrate the relevant policy levers and resources for delivery. Government, regional institutions, and cities must all share the task of delivering this challenging agenda.

  34.  The Committee has asked specifically about the potential for moving Government Departments etc to less prosperous regions. Our view is that such moves can add significant strength to a city economy if they are carefully planned as part of an overall economic strategy for the area. Conversely moving a national agency to an area with which it has little potential affinity seems unlikely to generate the necessary commitments on either side of the relationship. Earlier regional policies have produced some significant successes for local economies. For example the location to Sheffield of major employment and training policy functions in the 1980s has instigated a growing cluster of public and private sector organisations. The economic impact of national agencies moving to regional cities is an issue which might usefully be further researched.

HOW MUCH ADDITIONAL FUNDING IS NEEDED IN THE POOREST PERFORMING REGIONS

  35.  Our own analysis has been driven by our need to understand more systematically why the major cities and their regions in our competitor countries have been able to develop significantly stronger economies than their counterparts here. We have seen this as an essential pre-requisite for testing the ways in which public policies and resources could be more effectively targeted to create the conditions for stronger economies in cities and regions which currently lag behind the EU average. This is also the basis on which the ODPM-led Working Group was established.

  36.  Accordingly our agenda has not made any prior assumptions about the overall scale of public investment likely to be required. Indeed the points we have made above about the need for stronger alignment of policy levers and greater understanding about measuring the impact of these levers on regional competitiveness suggest that there is still significant work to be done before systematic conclusions can be reached about the scale and targeting of future public investment in support of regional economic policy objectives.

  37.  However, our work to date certainly leads us to the broad conclusion that a more systematic and focused understanding of the role of major cities and their regions in advanced economies would lead to more effective use of resources, and better value for money, across large areas of policy—and notably in the national network of transport infrastructure.

  Submitted to the Select Committee by Sheffield City Council on behalf of the Core Cities Group

31 January 2003