Two speed Britain

May 2012

The global economic downturn and Britain’s growing national debt have led the UK government to introduce a series of "austerity measures". They consist of dramatic cutbacks in public spending alongside higher taxes. How is the economic geography of Britain changing in response to these economic challenges?

This article examines evidence for an intensifying "north-south" divide and, at a local scale, emerging inequalities between neighbouring towns, both in the north and south. With unemployment now approaching 2.7 million, a new geography of uneven spaces is being created. What can the government do to help? The article concludes by analysing current growth pole policies, including the new generation of Enterprise Zones and the Regional Growth Fund.

In the Members' Area:

• Britain's new economic challenge

• The new "two-speed" economic geography of the UK

• Meeting the challenge: possible solutions and futures

• References

Britain's new economic challenge

In common with people living in the USA, Japan and many Eurozone countries, most UK citizens are suffering increased economic hardship. Young people especially are finding it hard to get work; around one quarter of 18-24 year olds are now unemployed. What are the reasons for this current state of affairs?

Root causes of the financial difficulties currently experienced by many people and places include:

• Economic recession During 2009, negative economic growth was recorded for two consecutive quarters in the UK, following a collapse of the banking sector in 2008. The root cause for this was the global credit crunch - a massive worldwide "bust" that followed boom years when banks engaged in high-risk lending (see Geography in the News article ‘Credit crunch geography'). Economists now view the current period of reduced national output (beginning in 2008) as the longest economic downturn on record (Financial Times, 02 November 2011). Simply put, less new money is being created.

• National debt In August 2011, the size of the UK’s national debt (a long-term product of government spending exceeding tax revenues over many years, resulting in borrowing) reached £945 billion. This figure is equivalent to 61% of GDP, according to the Office for National Statistics (ONS). It has exploded in size (from around half that amount) since 2007, partly on account of enormous government rescue packages mounted for major British banks (Lloyds and Royal Bank of Scotland). To avoid the problem getting worse, the government has cut public spending.

To achieve its stated objective of curbing public expenditure, a series of "austerity measures" have been introduced by politicians. These include:

• Tax rises including increased income tax (people earning over £150,000 now pay 50% on part of their annual earnings), VAT (now fixed at 20%), national insurance payments and alcohol duty.

• Cuts and freezes in benefits including housing allowances, child benefit payments and maternity grants (Financial Times, 22 March 2011).

• Public sector cutbacks including pay freezes, redundancies (with 400,000 jobs set to go over five years) and some pension payment changes.

• Reduced arts and culture grants including a loss of funding for more than 200 arts bodies, following a 30% cut in the budget for Arts Council England.

As one might expect, the geographical impacts of the economic downturn (and the resulting austerity measures) are uneven, for several reasons:

• People’s wealth and incomes are not evenly distributed across the UK. Notably, there is a higher proportion of higher-income earners in the South-east, giving the region as a whole a greater ability to cope with rising prices and to also absorb tax rises.

• Some towns have very high levels of workers in the public sector and have seen unemployment rise rapidly, along with the negative multiplier effect it brings (such as less spending in local shops). For instance, Sefton (a part of the Liverpool suburbs, including Crosby, Formby and Maghull) saw one of the largest rises in public sector employment of any area in the late 1990s. Half of all Sefton’s growth came from expansion of government employment in the region, including police and health services administration.

• In some places, arts projects, which have played a key role over the last 15 years in many regeneration and rebranding projects for peripheral regions (e.g. Sage Gateshead and the Salford Lowry), are now being scaled down or even scrapped. The virtuous effect of culture on urban regeneration was a key strategy of the Blair government; but it will be hard to fund flagship projects again on the scale seen in the 1990s and noughties (Financial Times, 30 March 2011).

The cutbacks have also taken place at a time when living costs are rising globally, notably fuel and food prices, due to a variety of factors (see ‘Four corners of the food crisis’). Prime Minister David Cameron has acknowledged that most people will have to make sacrifices and that citizens may need to help one another as part of a "big society" initiative.

The new two-speed economic geography of the UK

During past periods of economic difficulty, such as the early 1980s, a strong "north-south divide" developed in the UK, measured in terms of regional performance across a range of economic and social indicators. Evidence for the same pattern - consisting of a more prosperous south and a struggling north - is again becoming highly visible. However, current regional trends are, on closer inspection, more complex than the simple idea of a north-south divide suggests. In both northern and southern regions, stories of "successful settlements" and "terminal towns" can be told.

The new north-south divide?

The current economic downturn has increased regional disparities. Although its impact has, so far, been less uneven than the recessions of 1980-83 and 1990-92, the UK has nonetheless become more unbalanced since 2005, according to the Office for National Statistics (Financial Times, 21 July 2011).

• More than half of those people earning £150,000 - the threshold for the new 50p income tax rate - live in London and the South-east (Financial Times, 12 February 2011).

• Local authorities with the greatest increases in unemployment - Hull, Wolverhampton, and Blaenau Gwent - all lie outside of southern regions (Financial Times, 21 July 2011).

• Counties in the north have the highest percentage of boarded-up shops. Of 17 English counties with above-average rates, only two lie in southern England. The worst figure is for Lancashire in the North-west, at 18.7%.

Private sector growth looks less promising in northern and central England: for every extra private sector job generated there between 1998 and 2008, 10 were created in London and southern England, according to research by the Centre for Cities think-tank (Financial Times, 22 February 2011). In recent years, the north has been far more reliant in general on public sector job creation. However, this type of work is now becoming less available. The Work Foundation, another think-tank, warns that northern England could face a flight of young graduates to the South-east.

Source: University of Cambridge Local Examinations Syndicate, 1993

Uneven spaces

The geographical pattern is actually more complex than a simple "north-south divide". For instance, London’s Brixton area has a very high number of shop vacancies and in neighbouring Camberwell there are 42 jobless people per job vacancy (this is seven times higher than the national average). Also, riots and looting took place recently in many poorer parts of London, including out-lying Hackney and Croydon. Parts of inner London share characteristics of decline with large parts of northern England and Wales.

Elsewhere in the country, strikingly divergent conditions can be found in settlements sited mere miles apart, such as Whitstable and Margate in Eastern England. The former has a high street vacancy rate of only 2%, well below the national average. A historic town, it attracts tourists and is home to many high-income retired people ("affluent greys") who provide one quarter of all spending. Some affluent Londoners have a second home in Whitstable. In contrast, Margate has a retail vacancy rate of almost 40%. It is in the bottom 1% of England’s most deprived areas and has an unemployment rate three times higher than its neighbour, Whitstable.

This stark polarisation of fortunes amongst unequal neighbours is an emerging feature of the new economic geography of the UK. Possible factors that may help explain why close neighbours sometimes exhibit contrasting levels of resilience to the economic downturn include:

• Reputation Some tourism "honeypots" such as Brighton, Harrogate and Stratford-upon-Avon remain popular with tourists, which helps to maintain local incomes.

• Demography Selective in-migration of affluent greys or commuters has often focused on certain key settlements, such as Yorkshire’s Hebden Bridge.

• Public sector activity Settlements with a high proportion of public sector workers, such as Sunderland, Birkenhead and Swansea are suffering greater job losses than their neighbours (Financial Times, 24 January 2011).

• Private sector activity The most buoyant cities, like Milton Keynes, Reading, Aberdeen and Bristol, continue to enjoy plenty of private-sector employment and have lower vulnerability to public sector job losses. In some cases, localised clusters of high-tech manufacturing have been the secret for success.

• Accessibility Whether they are located in the north or south of the UK, highly accessible places, sited close to motorways, are continuing to receive inward investment from foreign companies (see our Geography in the News article on cars).

• Size One recent study suggested that new manufacturing growth has been concentrated in medium-sized towns such as Aberdeen, Lancaster, Huddersfield and Telford; whilst larger, more traditional centres such as Birmingham and Sheffield have so far lagged behind (Financial Times, 24 January 2011).

The current state of the high street offers an important insight into any town’s level of resilience. Some places have been hit badly by the partial closure or disappearance of retail chains such as Woolworths, Focus DIY, TJ Hughes, Habitat, HMV, Dixons and Oddbins. One quarter of all main high streets in the UK are in serious decline, with vacant premises left unfilled. In more prosperous towns, though, retail units do not stay empty for long; new bars or cafes move in.

Places with the worst-performing high streets were recently dubbed "terminal towns" by the retail analyst Colliers International (Financial Times, 17 June 2011). These settlements are struggling to find either public or private finance to spur future growth and are generally lacking in resilience. Colliers say 83 UK towns have reached a "tipping point" that has sent them into a downward spiral. With sales in shops falling at the fastest rate for 20 years, conditions are unlikely to improve soon.

Liverpool: "terminal town" or "supercity"?

Predictions for Liverpool are mixed. Some reports are extremely pessimistic. For instance, the inner city district of Bootle, with its struggling high street, was recently classed as a "terminal" place by the retail analyst Colliers International. Another district, Liverpool West Derby, has 33 applications per job vacancy. The city as a whole has been characterised as "vulnerable" by Centre for Cities, with 2.3% of the workforce potentially laid-off by public sector cutbacks.

A survey by HBSC Commercial Banking, however, predicts that Liverpool will emerge, phoenix-like, from the current economic downturn as a "supercity". The city is apparently poised to become a national and global hub for several clusters of important growth industries, including cultural and branding activities, as well as the renewable energy sector.

• Wind farm plans Merseyside is on track to become a green energy (wind) hub. £15 billion will be invested in projects over the next ten years. Located on the North-west’s coastline, with excellent land and quay facilities, Liverpool is an ideal location for offshore wind turbines. Construction and servicing of wind turbines will be sited Cammell Laird, which used to be a world-famous ship-building yard. The renewable energy industry should offer high job potential to the local community (Financial Times, 14 November 2010).

• Enterprise zone and trade centre The new Liverpool Enterprise Zone covers an area where Peel Holdings, the property developer, has gained permission to build a new £6 billion multi-purpose development that includes a trade centre for Chinese companies. Liverpool City Council recently took a delegation to the Shanghai Expo; clearly, the mission was a success. This development helps make Liverpool an even more globally-connected place.

• Liverpool One funding Liverpool One, the large flagship shopping complex in central Liverpool, managed to secure one of the year’s largest loan packages during 2010, despite the fact that commercial loans have in general become harder to raise. Liverpool One has performed well since opening two years ago, in spite of the economic climate. The new loan comes from a group of banks including the Bank of Scotland, suggesting that the UK business community still views the Liverpool brand as a strong and successful asset.

Can development such as these provide a sustainable future for the city and its residents, including those in Bootle and Liverpool West Derby? Or will the city become an unequal space, with winners and losers?

Meeting the challenge: possible solutions and futures

To "bounce back" from the economic downturn, places need to find "pathways to resilience". The role of government can be to provide financial assistance to help with this. However, the UK’s debt is now so great that the government can only afford to make a limited amount of public funds available, following its own austerity measures. What are the main regional aid priorities?

A new crop of "top-down" strategies have been targeted at a limited number of "hopeful" industries and business districts spread across the UK, especially those parts of northern and central England where public sector job losses are highest. Investment is being channelled in two ways: through the Regional Growth Fund (RGF) and a new generation of Enterprise Zones (EZs).

Regional Growth Fund

The Regional Growth Fund (RGF) is a £2.4 billion fund operating in three rounds over 3 years from 2011 to 2014. The objective is to stimulate private sector investment by providing support for specific projects and businesses that offer significant potential for long term economic growth (and the creation of additional sustainable private sector jobs). High-tech manufacturing firms in particular have been encouraged to apply for support. Massively over-subscribed, this scheme replaces the scrapped nine Regional Development Agencies (RDAs) and represents a policy shift towards greater "top-down" governance. Critics say around one-third less money is available under the new RGF than would have been the case if the RDAs had not been axed.

The first £1.3 billion was allocated in two rounds during 2011 (the 3rd round is expected to be announced in 2012):

• Competition in the first round of funding, when £450 million was made available, was so high that just one in ten applications were successful. Nearly half of the 50 bids approved fell in the North-east and North-west. Successful recipients included the Haribo sweet factory near Wakefield, Bentley Motors in Crewe, Nissan Motors (North-east), Jaguar Land Rover (West Midlands) and the Yorkshire and Humber Carbon Trust. "The basic criteria we adopted was alleviating concentrated deprivation and the effect of public sector cuts. The East and South-east is clearly less of a priority than the North-east and that is reflected in how we judged the bids," said Vince Cable, business secretary (Financial Times, 12 April 2011). In contrast, London and the South-east received no money during the first round.

• The second round of funding saw £950 million released across the entire UK. Of this, southern regions received just under £200 million (successful applicants included the Cornwall and Isles of Scilly local enterprise partnership and Portsmouth Naval Base Property Trust). In contrast, a further £463 million of funding was given to northern regions (winners included Newcastle University and Yorkshire’s Sirius Minerals). In central England, grants were given to JCB (East Midlands) and Zytek Automotive (West Midlands).

Alongside this, the government has also put an additional £150 million into a "business angel" scheme. This is intended as a community micro-financing and bank-lending programme designed to support small companies. Some further details can be found in: HM Treasury financing business growth

Enterprise Zones

The new Enterprise Zones (EZs) are a revival of the growth pole concept originally advocated by Peter Hall in the 1970s and first adopted by the Conservatives during the 1980s. Then, areas where the worst manufacturing and mining job losses had taken place were generally targeted as recipients for a 10-year period of tax breaks. In 2011, a select handful of business districts are once again being offered holidays on taxes and fast-track planning to encourage new investment from all-comers.

This time around, though, areas with strong medium-term growth prospects, rather than the most severely struggling locations, have been prioritised in order to give the new growth poles a high chance of success. This may be a sensible approach. The 1980s EZs were sometimes criticised for their lack of durability (when the 10 years came to an end, businesses often closed or moved on, notably so in Corby and Hartlepool, although Canary Wharf has a successful legacy). In contrast, the new recipient regions have already experienced some modest success prior to selection; with an additional boost from the government, it is hoped they will become highly dynamic and sustainable business hubs.

22 local areas were designated as Enterprise Zones during the first rounds of funding in 2011. More will almost certainly be announced as time passes. Of the first 22, 11 were hand-picked by central government, clearly illustrating the "top-down" nature of this aid strategy. Another 11 choices were made with some "bottom-up" input from local communities, following a competition launched among England’s 38 local enterprise partnerships (LEPs).

The LEPs are partnership bodies composed of representatives from local authorities, universities, businesses and voluntary sector players. The bidding process was intended to make neighbouring LEPs work together to identify a single merit-worthy growth pole in their wider area, thereby getting beyond petty local rivalries within the region (Financial Times, 25 March 2011).

Concluding remarks

Several generalisations can be made about this latest phase of UK government assistance for economic development.

• Overall, there is less money available than in the immediate past, reflecting the general climate of economic austerity in the UK since 2008.

• Funding is being targeted at (i) areas where public sector job losses are high and (ii) businesses and business districts that already show signs of strength, rather than the worst-performing cases. The government believes buoyant areas are best placed for recovery and that some evidence of innate economic resilience should be displayed by the recipients of this sought-after funding.

• Regional assistance and grants for businesses are very much centrally-controlled, with both the RGF and EZ "winners" chosen by the national government. Contemporary UK regional aid programmes can be characterised as "top-down" policies.

• Regional aid is being used as a tool to leverage private sector investment. For every one pound released through the RGF, the government hopes to leverage more than five pounds of private sector investment, including inward investment from overseas TNCs, thereby creating many thousands of new jobs.

• High-tech manufacturing, green technology and creative industries are strong candidates for government assistance.

• Despite the measures that are being taken, national long-term economic recovery is still some way off. The signs of social unrest seen in UK cities during the summer of 2011 suggest that the RGF and EZs are far from being a panacea for all of the UK’s current economic problems.

Re-branding and ‘supercity’ regeneration

Even if towns and businesses fail to gain support from the new EZ and RGF schemes, there are other routes to success that can be followed. These involve private investment, or support from charities, the National Lottery and agencies such as English Heritage.

A number of new re-branding schemes have recently got the go-ahead following pledges of support from a range of different players. These include:

• Stoke-on-Trent Middleport Pottery is the last working Victorian pottery in Britain. It has been bought by a charity led by Prince Charles. The Prince’s interest is in keeping the craft alive; so pottery will still be made on half the site with the remainder renovated to serve as a museum, restaurant and workshops for tradesmen. The scheme aims to double the number of employees on-site. Additional funding comes from the National Lottery, English Heritage, the European Union and private donations - as well as £1.7m from the RGF. Find out more at: Burleigh.co.uk

• Corby Although Arts Council England has seen its funding slashed, it can still sponsor some projects directly. Corby Cube is a multi-use cultural centre in a town with one of the highest youth unemployment rates in the UK. The Arts Council will provide £140,000 in 2012, rising to £147,000 by 2015. This should be money well spent: according to one estimate, every £1 invested in culture generates another £2 as part of a multiplier effect based around the strengthening of local shops, restaurants or hotels. Find out more: The core at Corby Cube

• Shoreditch (London) Many large companies including Google, Facebook, Intel and McKinsey have agreed to participate in the "Silicon Roundabout" scheme, with Facebook also agreeing to set up a permanent home in east London. The plan is to create a re-branded high-tech hub in east London that might one day become as successful as America’s Silicon Valley. Find out more about Silicon Roundabout

• North-east England With beautiful scenery and characterful urban locations, the region has always attracted film-makers. Now its screen presence should be boosted further by the £2.4m North East Creative Content Fund, a public-private investment partnership in the creative industries. Find out more at Northern Film and media

• Finally, a recent survey by HBSC Commercial Banking optimistically predicts the economic map of the UK will, in the medium-term, be changed by the emergence of supercities. These will be hubs where clusters of private sector growth industries have specialised in technology sectors such as renewable energy, regenerative healthcare, plastic electronics and the space sector. Lynda Gratton, a professor at London Business School, told the Financial Times (02 June 2011): "We will see the rise of clusters of industries that the UK excels in. The UK already has a track record in sectors such as creativity, renewable energy and medicine, so it is incredibly well-positioned."

For instance, the report expects Glasgow to become an international force in renewable energy, one of seven supercities to capitalise on technologies or new ways of working.

Others are Bristol (new materials and advanced manufacturing), Newcastle (scientific research), Leeds (financial services), Liverpool (cultural and branding industries), London (creative industries) and Brighton ("capital of the UK’s rebellious, alternative economy"). The report also sees regenerative healthcare driving half a dozen clusters including Edinburgh, York and Nottingham. It also predicts the emergence of clusters of photonics industries – based around the technology of transmitting information by light – in Strathclyde, West Midlands, the Cotswolds, the Thames Valley and Southampton.

References

"Growth fund favours manufacturing" Financial Times, 02 November 2011

"A timetable for austerity Britain" Financial Times, 22 March 2011

"Corby takes Cube route to urban regeneration" Financial Times, 31 March 2011

"Recession hits low-skilled and widens north-south divide" Financial Times, 21 July 2011

"Top 1% of earners set pay quarter of all income tax" Financial Times, 12 February 2011

"Regions reinvent to fill public sector gap" Financial Times, 22 February 2011

"Smaller towns foster manufacturing bounce" Financial Times, 24 January 2011

"Failure looms over 25% of high streets, says survey" Financial Times, 17 June 2011

"Merseyside tipped as hub for offshore wind industry" Financial Times, 14 November 2010

"North emerges as regional fund winner" Financial Times, 12 April 2011

HM Treasury financing business growth

"Flagship zones accentuate the positive" Financial Times, 25 March 2011

The core at Corby Cube

Silicon Roundabout

Northern Film and media

"Growth cities face severe test as cuts kick in" Financial Times, 24 January 2011

"Regions become rising stars in the film world" Financial Times, 16 February 2011

"A timetable for austerity Britain" Financial Times, 22 March 2011

"Corby takes Cube route to urban regeneration" Financial Times, 31 March 2011

"Supercities to reshape business map" Financial Times, 02 June 2011

"Desire to preserve craftsmanship at heart of deal" Financial Times, 14 June 2011

"Planning policy offers key to survival" Financial Times, 05 July 2011

"Ten more Enterprise Zones to be confirmed within days" BBC News, 20 July 2011

"Enterprise zones announced to help boost growth" Guardian 17 August 2011

BIS Department for Business Innovation & Skills: Regional growth fund

Plymouth City Council: Regional Growth Fund Round 3 announced

Centre for Cities think-tank

 
Dr Simon Oakes is Chief Examiner for the International Baccalaureate diploma course in geography. He is also a senior examiner for A-level geography and GCSE citizenship