The Northern Connection: Assessing the comparative economic performance and prospects of northern England

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The Northern Connection: Assessing the comparative economic performance and prospects of northern England Final Summary Report to The Northern Way January 2008 Institute for Political and Economic Governance, University of Manchester Centre for Urban Policy Studies, University of Manchester With David Coates, Independent Economic Consultant Contents Executive Summary 4 Introduction 6 Northern places in a national urban hierarchy 7 – Northern ‘hubs’ in the national context – Northern connectivity – ‘Weight’, connectivity and spatial economic change The emerging policy context 31 Implications for the Northern Way 36 4 / 5 The Northern Connection: Assessing the comparative economic performance and prospects of northern England Executive Summary This report, and the three thematic reports on which it draws, demonstrates that economic growth in the North, and in the UK as a whole, has become increasingly dependent upon the roles and performance of key cities and city regions. In the transition from an industrial to an increasingly service-based economy, high value-added activities in particular have been drawn into cities as a result of agglomeration – the advantage for firms, their customers, and employees of being located together. However, this growth has not been even, and has been focused, as overseas, in the largest, most diverse, and best connected places. A clear urban hierarchy is shown to have emerged in the UK with London standing apart as a genuine world city, dominating national and international business and attracting flows of high qualified people. It is also notably well connected, nationally and internationally, and with places in the ‘super-region’ that surrounds and sustains it. Leading the city regions in the North are those focused on Manchester and Leeds, whose size and recent dynamism are of a different order from the rest. They are also the best connected, within the North, nationally and, in Manchester’s case, internationally. The city regions centred on Newcastle, Sheffield and Liverpool are significant economic centres within their broader region, and emerge in a second tier in terms of economic ‘weight’, recent growth and connectivity. A third tier, where recent economic performance has been relatively poor, and connectivity is less good, includes areas focused on Middlesbrough, Hull and Carlisle. Beyond the main metropolitan areas, the smaller centres focused on York, Preston and Chester have also performed well in recent years. Rural areas, and those that continue to be affected by industrial restructuring, have seen the most sluggish growth. Outside the London super-region, the North is unusual in that most of its more buoyant places are located within a ‘growth belt’ extending from Chester and Liverpool in the west, through northern Cheshire and southern Greater Manchester, and onwards north east to Leeds and York, and south east to Sheffield. There is a significant break across the Pennines, especially between Manchester and Leeds, and Newcastle is the one substantial city region in the North that is distant from this belt. However, while the bigger city regions have extensive footprints in terms of the labour markets on which they draw, they are also shown to operate as relatively self-contained economic entities, with firms in services, as against manufacturing, serving predominantly regional or sub-regional markets. Rather than demonstrating the synergies that might have been expected from their proximity, service businesses in Manchester and Leeds largely replicate one another. Indeed, many of the larger ones are part of national firms that tend to concentrate their most highly specialised services and look after many of their biggest national and international clients in London, while some have established support functions in lower cost environments in the North. With some minor but important exceptions, the geometry of northern city regions corresponds to the boundary definitions employed within the Northern Way Growth Strategy. However, differences in their scale and dynamism, and the implications that follow for future development patterns, could be more widely recognised in policy making across the North, and differences in the performance and potential of city regions could also feature more prominently in national policy frameworks. The need to build upon the successes of the North’s most dynamic city regions is implicit in the Government’s Public Service Agreement for Regional Economic Performance, one of whose aims – to reduce the gap in growth rates between the London super-region and the rest – could only feasibly be achieved through better city regional economic performance outside London. But while the importance of ‘sub-regions’ (including city regions) is recognised by the recent Review of Sub-National Economic Development and Regeneration, the largely permissive and decentralist policy framework the Review sets out remains silent about spatial priorities. This contrasts with the wide range of largely uncoordinated projects, actively supported by a number of Whitehall departments, which collectively represent an ongoing, informal growth strategy for the London super-region. The example of the London super- region shows that heavy concentrations of high level economic activities in and around key urban centres can produce significant ‘spill-over’ effects across much broader territories over time. The same might be expected to happen in and around resurgent Northern city regions, and some limited evidence is shown that this diffusion process could already be underway. Overall, however, all the expectations are that the largest, most dynamic city regions will continue to dominate future patterns of economic growth. This poses a number of challenges for economic development policy-making bodies, including the Northern Way. The recent intensification of agglomeration in urban centres is the result of deep-seated structural changes in economic activity and the responses to them by a vast array of economic agents, be they firms, households or individuals. This process has not been led, nor can it fundamentally be changed, by public policies, though it can be enabled or constrained. An informed policy response to the developments explored in this study would therefore need to be based upon supporting and accommodating agglomeration on grounds of economic efficiency and performance, whilst at the same time encouraging spill-over so that the social, as well as economic benefits, from urban success are shared as widely as possible. As the Northern Way takes forward its strategic work to transform the northern economy, seven potential options, with respect to future analytical and policy work, which arise from the research, are: ● further work to analyse the complex agglomeration effects which arise from investment in better transport links, assessing both the long-term economic benefits and the influence on spatial patterns of development within and between city regions; ●within this, exploring in more detail the opportunity for a comprehensive economic development plan to promote agglomeration benefits from closer integration between the Manchester and Leeds city regions; ● further work to understand the nature of spill-over effects of urban growth and what policies might encourage it in the North within and beyond its city regions; ● a better understanding of the diffusion of economic activity within and from the London super-region and how it might benefit northern city regions further in the future; ● a keener appreciation of the role that public sector investment and employment can play in relation to private sector innovation and growth within the North; ●within this, a more critical investigation of the role that universities might play in relation to the development needs of key northern firms and industries; and ● active promotion of a realistic, evidence-based approach to the North’s growth prospects, and to difficult choices that may be needed in order to realise them. 6 / 7 The Northern Connection: Assessing the comparative economic performance and prospects of northern England Section 1: Introduction 1.1 This report summarises the results of a research programme commissioned in 2007 by the Northern Way.1 It presents selective, headline findings from the programme, full details of which are available in three thematic reports.2 It then looks at the ‘fit’ between the study findings and the emerging policy agenda and at the implications that follow for the Northern Way and its principal stakeholders. 1.2 The research was designed to assemble an evidence base that would enable the Northern Way and its key stakeholders: ● to identify and, where possible, quantify the range and strength of economic, cultural and social flows between the northern city regions, focusing on the relationships between core metropolitan areas and other major centres; ● to assess the future prospects of key economic assets/sectors/ opportunities within the principal economic nodes of the North; ● to explore the ‘connectedness’ of northern city regions, focusing in particular upon inter-relationships between Manchester and Leeds but also examining links between the North’s key city regions and other areas of the UK, especially Scotland and the ‘super-region’ centred on London; and ● to better understand: (a) the key opportunities for collaborative working that would make the maximum feasible contribution to sustainable economic development in the North of England; (b) potential priorities that could assist this effort; and (c) the scope for exploiting economic links to London and other parts of the UK that would make the maximum feasible contribution to sustainable economic development. 1.3 The findings and implications of the research are set out in three sections. Section 2: identifies the principal ‘hubs’ of economic activity within the North, as measured by relative concentrations of employment, travel-to-work patterns, levels of Gross Value Added and migration movements; assesses the role that accessibility appears to play in the recent development of the hubs, relative to one another and to elsewhere in the UK, and; considers whether recent patterns of spatial development are likely to continue and what benefits the stronger performers bring to the North as a whole. 1.4 Section 3 assesses the policy context, paying particular attention to the way in which the performance and potential of city regions and sub- regions is now explicitly recognised within an emerging approach to sub- national economic development and regeneration, but also reflecting on the variety of other policy commitments which sit alongside this emerging approach which have the effect of being a loosely integrated, informal growth management strategy for what might be termed the ‘London super-region’. 1.5 Section 4 puts forward initial conclusions that emerge by setting the key observations alongside one another to provide the basis for further debate and refinement by stakeholders with an interest in the future of the North. It concentrates, in particular, upon two inter-related sets of challenges. Firstly, the implications for the way that the economic potential of the North can be viewed, the relationship between its component parts and other areas within the UK, and the priorities that potentially flow from this analysis. Second is the current state of the evidence base and how it might be developed further to provide a still more compelling understanding of the comparative performance and potential of the North and its component parts and which could, in turn, support the Northern Way in refining its ‘case’ and strategy for the North. 1 This report was co-authored by ipeg (Alan Harding and Michael Artis) and CUPS (Brian Robson, Cecilia Wong, Alasdair Rae, Kitty Lymperopoulou) at the University of Manchester, and David Coates. 2 Report 1: The roles and economic functions of the city regions of the North; Report 2 Connecting the North – interdependence and barriers; Report 3 Northern places in a national urban economic hierarchy. See www.thenorthernway.co.uk Section 2: Northern places in a national urban hierarchy 2.1 Northern ‘hubs’ in the national context 2.1.1 The Northern Way Growth Strategy was constructed with an understanding about which places matter most to the economic performance and prospects of the North. Its growth strategy pays particular attention to eight ‘city regions’ centred upon: Manchester, Liverpool and Central Lancashire in the North West; Leeds, Sheffield and Hull and the Humber Ports in Yorkshire and the Humber, and; Tyne and Wear and the Tees Valley in the North East. These cross-district (and in some cases cross-regional) city regions account for around 90% of the population and the bulk of the employment and wealth creating capacity of the North. Less explicit within Northern Way documentation has been how the economic ‘weight’ and dynamism of these places compare both with one another and with other areas of the UK and what, if anything, this means for strategic priorities. 2.1.2 The study assessed whether a focus on these eight city regions captures the key dynamics of Northern economic change and future potential effectively and examined their recent performance relative to other centres within the larger, national urban hierarchy. The context within which this assessment fits is described in Table 1, which compares change in Gross Value Added (GVA) – the Government- approved measure of economic output – over the most recent recorded decade3 (1995-2004) for each of the nations and regions of the UK and, within England, for northern, southern and midland groups of regions. 2.1.3 As might be expected in a period characterised by consistent, national economic growth, the table shows (undeflated) GVA to have grown substantially at each of these scales but at significantly different rates. The highest rates of growth were in the four southern English regions and especially in London whose growth during the period (82%) was ten percentage points higher than that of its nearest comparator (the neighbouring South East). Growth rates in the North, along with those in Scotland and Wales, were, by contrast, the most modest in the country. 2.1.4 The net result of differential regional growth rates has been a growing GVA gap between northern and southern England and more pronounced southern domination of the UK economy. As the final two columns in the table show, the collective GVA of the southern English regions accounted for half of all UK GVA as at 2004 and grew by 74% over the previous decade. Northern England as a whole accounted for 20% of UK GVA in 2004 and its growth rate in the previous decade was a more modest 53%. GVA in the North West grew at the North of England average during the period whereas growth in Yorkshire and the Humber was marginally higher at 56%. Growth of 47% in the North East was the lowest of all the sub-UK nations and regions. 3 The latest GVA figures, for 2005, were released by ONS after the completion of this analysis. 8 / 9 The Northern Connection: Assessing the comparative economic performance and prospects of northern England 2.1.5 This analysis of the growth and distribution of sub-national GVA paints a powerful contextual picture but it is not sufficiently fine-grained to identify where the principal economic ‘hubs’ are located within the regions and nations of the UK or how they relate to one another across standard regional boundaries. In identifying the key northern hubs, the study identified those areas of concentrated employment where the biggest surpluses of jobs compared to population size are found and then augmented this basic picture with detailed travel-to-work and migration data4 in order to assess their ‘pulling power’ relative to one another and other areas of the UK. 4 From the 2001 Census. Table 1: GVA, 1995-2004 by nation, groups of regions and region GVA 1995 GVA 2004 Change 2004 (£000s) (£000s) (%) Share of UK (%) UK 640 416 1044 165 63 100 England 531 210 878 247 65 84 South 297 455 516 576 74 50 North 138 689 212 045 53 20 Midlands 95 066 149 625 57 14 London 95 487 173 323 82 17 South East 93 297 160 786 72 15 South West 47 755 81 322 70 8 East of England 60 916 101 145 66 10 Northern Ireland 14 406 23 573 64 2 East Midlands 41 923 67 884 62 6 Yorkshire & Humber 48 179 75 260 56 7 West Midlands 53 143 81 741 54 8 North West 67 114 102 366 53 10 Wales 26 254 39 316 50 4 Scotland 55 498 82 952 49 8 North East 23 396 34 419 47 3 Travel-to-work patterns 2.1.6 Figure 1 distinguishes between areas of the North according to the scale of in-or out-commuting they experience. The lines on the map depict the levels and directions of the main commuting flows. The figure illustrates the large scale flows that centre on the southern part of the Manchester conurbation and Leeds compared to the rest of the North. It also shows (a) the extent to which Sheffield, Newcastle and Liverpool and, to a lesser extent, Hull, Middlesbrough, Preston and Chester, dominate their respective sub-regions, and (b) the higher level of labour market interaction found between the areas focused upon Manchester and Liverpool compared to any other pair of urban hubs in the North. In terms of future potential development, it is worth highlighting that the number of commuters and the distances travelled increased substantially between the last two censuses. Figure 1: Travel-to-work patterns in the North 10 / 11 The Northern Connection: Assessing the comparative economic performance and prospects of northern England 2.1.7 Figure 2 provides ‘harder’ definitions of northern city regional travel-to-work areas based upon different commuting thresholds around the main employment centres. It suggests that the North’s city regions remain relatively discrete. It is only when low rates of commuting between nodes are shown that the city regions begin to merge together. The two figures largely bear out the definitions of the city regions defined in the Northern Way growth strategy, although the low level of interaction between the main urban centres of Central Lancashire demonstrates the ongoing challenges which exist for this city region. Conversely, York and Chester, despite having been included in the city regional groupings centred upon Leeds and Liverpool respectively, appear as significant and relatively independent, if smaller, travel-to-work hubs in their own right. Figure 2: Ward-based city regions in the North based on TTW patterns Migration patterns 2.1.8 Successful places attract economic migrants. One way of assessing the relative performance of city regions in this respect is to examine migration patterns amongst the most occupationally mobile people, 25-34 year olds5. All the central core areas within the UK’s principal city regions – London included – suffered net losses of 25-34 year olds in the year before the last census. However this masks the fact that the bulk of house moves, even when they involve crossing city boundaries, take place over relatively short distances and do not necessarily result in migrants being ‘lost’ to the urban labour market. In the cases of Manchester and Leeds, most outward migration of 25-34 year olds in the year before the census was found to be to other districts within their respective city regions. Their net gains, by contrast, came predominantly from other cities, especially elsewhere in the North. The overall message is that the young, economically active population in both cities continued to suburbanise but that both cities gained in ‘trade’ amongst this age cohort from most other northern cities. 5 Additional tabular data is available in thematic report 1, ‘The Roles and Economic functions of the city regions of the North’ Figure 3: Net inter-city migration flows, 2000-2001 12 / 13 The Northern Connection: Assessing the comparative economic performance and prospects of northern England 2.1.9 The one big exception to these general rules was the scale of net losses from Manchester and Leeds to London. Figure 3 demonstrates that this was part of a common trend which saw all major UK cities lose 25-34 year olds to the capital. These results demonstrate a general process whereby smaller urban centres lose some of their most mobile and aspirational workers to others further up the urban hierarchy whilst the larger centres, in turn, lose members of the same cohort to other areas within their respective city regions through suburbanisation. Graduate labour 2.1.10 ‘Talent drain’ from smaller to larger urban centres is also apparent from the most recent data on newly employed graduates6. Table 2 shows that the three core southern regions – London, the South East and the East of England – ‘consumed’ significantly more graduates than they produced. The northern regions, by contrast, were net exporters of graduates. The differences were only marginal in the North West, where the number of new graduate employees was larger than in any other region bar London and the South East, but the gap was significantly larger in Yorkshire and the Humber and the North East. Further analysis of those graduates from northern universities who remained in the North shows the gravitation pull of the largest urban centres. 35% of all northern university graduates who remained in the North gravitated to the metropolitan labour markets of Manchester and Leeds and a further 30% were employed in the metropolitan areas centred on Newcastle, Sheffield and Liverpool7. 6 Ibid 7 Ibid Table 2: First-job destinations of all UK university students by region Region Graduates Postgraduates East 8815 5830 1.51 4055 3235 1.25 London 26130 18365 1.42 12755 12790 1.00 South East 16370 14400 1.14 7460 5790 1.29 Northern Ireland 4550 4110 1.11 1905 1715 1.11 West Midlands +10540 10280 1.03 4010 4050 0.99 North West 14935 15750 0.95 5780 5995 0.96 South West 9945 10750 0.93 4365 4185 1.04 Scotland 12810 14005 0.91 5675 5855 0.97 Wales 6430 8200 0.78 2485 2875 0.86 Yorks & Humber 11055 14385 0.77 4415 5090 0.87 North East 5515 7415 0.74 2345 2715 0.86 East Midlands 8605 12210 0.70 3175 4130 0.77 i) Fi rs t jo b ii) U ni v R at io i) : i i) i) Fi rs t jo b ii) U ni v R at io i) : i i) 2.2 Northern connectivity 2.2.1 The same broad pattern of differentiation – between London and the ‘super-region’ that surrounds it and the larger northern city regions, on one hand, and between the latter and the rest of the North, on the other – is found with respect to the relative accessibility of cities and city regions. Examination of rail connectivity between the cities within the North8 clearly demonstrates the network centrality and superior accessibility of Leeds and Manchester along with York, which benefits from its strategic location on the relatively high speed east coast mainline, and Bradford – a key node within the Leeds city region – which, like Leeds and Manchester, benefits from geographical centrality within the North’s most heavily populated southern area. The rail connectivity of Sunderland, Hull, Carlisle and Chester, by contrast, is limited not just by geographical peripherality within the North but by less frequent services and poorer access to the main north-south mainline routes (see figures 4 and 5). 8 See tabular data is available in thematic report 2, ‘Connecting the North’ Figure 4: Rail network connectivity in the North* * E.g., total for Leeds includes links to/from Bradford (69), York (55), Manchester (47), Carlisle (38), Middlesbrough (36), Preston (35), Liverpool (33), Newcastle (33), Chester (27), Sheffield (27), Sunderland (27), and Hull (18). 0 100 200 300 400 500 LE E D S M A N C H E S T E R B R A D F O R D Y O R K LI V E R P O O L N E W C A S T LE P R E S T O N S H E F F IE LD M ID D LE S B R O U G H C H E S T E R C A R LI S LE H U LL S U N D E R LA N D 445 407 372 364 352 347 307 302 273 266 264 242 233 N um b er o f tr ai ns t o /f ro m c iti es b et w ee n 06 00 a nd 1 80 0 14 / 15 The Northern Connection: Assessing the comparative economic performance and prospects of northern England 2.2.2 Analysis of rail connectivity to key centres outside the North9 which assesses the relative accessibility of London, Glasgow and Edinburgh from each of the northern cities for business purposes illustrate very significant differences between the overall accessibility of Glasgow and Edinburgh compared to London in that business trips to Scotland’s main centres are only really feasible from those cities that lie closest to the border. London is far more accessible from northern cities, but differentially so. London business can be transacted most easily from cities served by north-south mainlines along with Manchester, Leeds and Chester (which is ‘closer’ to London, in time-distance terms, than it is to much of the North). It is manageable from most other northern cities but least feasible from Middlesbrough, Sunderland and Carlisle. 9 Ibid Figure 5: Rail network travel times in the North* * Data indicates the total time it would take to travel from an individual city to all others, based on the fastest available journey times. For example, adding up the individual journeys from Leeds to York, Leeds to Manchester, and so on, results in a total network travel time of 16 hours and 42 minutes. N et w o rk t ra ve l t im es (h o ur s an d m in ut es ) 0 5 10 15 20 25 30 35 LE E D S M A N C H E S T E R B R A D F O R D Y O R K LI V E R P O O L N E W C A S T LE P R E S T O N S H E F F IE LD M ID D LE S B R O U G H C H E S T E R C A R LI S LE H U LL S U N D E R LA N D 16 .4 2 17 .3 3 18 .4 4 20 .1 3 20 .1 6 23 .0 6 23 .4 1 26 .1 4 26 .2 5 27 .1 0 28 .2 9 30 .2 5 31 .1 4 2.2.3 A similar pattern emerges in relation to road connectivity. Figure 6 shows the total estimated travel time from each northern city to all others under light and heavy traffic conditions. Leeds and Manchester again emerge as the best connected and most accessible cities, followed by others (Bradford, York, Preston) that are less peripheral within the North. Carlisle, Sunderland and Hull – this time with Newcastle – are again found to be least accessible. Table 10 compares driving times under heavy traffic conditions from Leeds and Manchester to each of the other northern cities and to London, Glasgow and Edinburgh. It suggests that road journeys for business purposes are feasible for most other northern cities but are difficult in the cases of the most peripheral northern locations and unfeasible for London, Glasgow and Edinburgh. Figure 6: Road network travel times in the North* * Data indicate the total time it would take to travel from an individual city to all others, based either light or heavy traffic conditions. For example, adding up the individual journeys from Leeds to York, Leeds to Manchester, and so on, results in a total network travel time of 20 hours and 47 minutes under light traffic conditions and 25 hours and 34 minutes in heavy traffic. N et w o rk t ra ve l t im es (h o ur s an d m in ut es ) 0 10 20 30 40 50 LE E D S M A N C H E S T E R B R A D F O R D Y O R K LI V E R P O O L N E W C A S T LE P R E S T O N S H E F F IE LD M ID D LE S B R O U G H C H E S T E R C A R LI S LE H U LL S U N D E R LA N D Heavy Light 16 / 17 The Northern Connection: Assessing the comparative economic performance and prospects of northern England Table 3: Airport passenger numbers, 2006: London and the North * Figures for non-North airports indicate the volume of passenger traffic in relation to the North as a whole. For example, Gatwick’s figure of 89.3 shows that for every passenger flying from northern airports there were 89.3 at Gatwick. **Doncaster Sheffield airport began operating in April 2005. Airport Passengers % of North Total Growth UK Total = 100*% 2001-06 Heathrow 67,339,227 28.6 (176.5) 11.4 Gatwick 34,080,345 14.5 (89.3) 9.6 Stansted 23,680,352 10.1 (62.1) 73.4 Manchester 22,123,762 9.4 58.0 15.9 Luton 9,414,829 4.0 (24.7) 44.0 Newcastle 5,407,362 2.3 14.2 60.2 Liverpool 4,962,460 2.1 13.0 120.4 Leeds Bradford 2,787,217 1.2 7.3 82.9 London City 2,358,159 1.0 (6.2) 45.7 Durham Tees Valley 900,107 0.4 2.4 23.2 Doncaster Sheffield 899,307 0.4 2.4 n/a** Blackpool 552,641 0.2 1.4 586.5 Humberside 515,889 0.2 1.4 18.5 Total North Passengers 38,148,745 Total UK Passengers 235,139,346 2.2.4 Differences between London and the North, in general, and between northern cities are even more stark in respect of air travel. Table 3 compares air passenger numbers for northern and southern airports. It demonstrates the huge dominance of UK air traffic by the five airports closest to or within London which together account for nearly 60% of all passengers. Within the North, Manchester International Airport is similarly dominant in terms of its share of passengers using northern airports but it nonetheless accounts for less than 10% of total UK passenger numbers. Further analysis undertaken for the study10 tells a similar story with respect to the variety of destinations that are accessible from different airports. The London area airports are shown to serve 80% of key global cities. Manchester, which serves 42%, is nearly four times better connected to global cities than its nearest northern comparator (Newcastle) but carries less than a tenth of the passengers flying to these destinations from the London area airports. A similar pattern is also evident in the patronage of airports specifically by business travelers. Heathrow is hugely dominant in terms of domestic and, especially, international business travel. Manchester emerges as the most important airport for business travelers outside the south east but trails Gatwick and Stansted, as well as Heathrow, in terms of passenger numbers. The main international connections of the other regional airports, including those in the North, provide links into international hub airports (which include the likes of Paris and Amsterdam as well as the London area hubs). 10 Ibid 18 / 19 The Northern Connection: Assessing the comparative economic performance and prospects of northern England 2.3 ‘Weight’, connectivity and spatial economic change The rise of city regions? 2.3.1 Whilst it is not an absolute truth to claim that places become economically successful because they are well connected, the study found powerful evidence of correspondence between the two. This is summarised in a series of figures which map GVA and employment data at the ‘NUTS 3’ level11. Measures to improve connectivity can have complex effects, however, and these include the genuine challenges of addressing congestion and securing balanced growth. Indeed, current UK transport policy has an increasing focus upon relieving congestion in order to enhance productivity. 2.3.2 Figure 7 shows the distribution of GVA as at 2004. It confirms the differences in ‘weight’ and ‘pulling power’ (a) between southern and northern England and (b) within the North. GVA concentration peaks in London which acts as the epicentre of more or less continuous belts of high GVA that fan out along the principal motorways as they leave the capital. Beyond this London-centred super- region, high levels of GVA outside the North are centred upon relatively free standing, provincial conurbations (e.g. Glasgow, Edinburgh and Birmingham). Provincial metropolitan dominance is also apparent within the North. Newcastle and its environs, for example, stand out within the immediate sub-regional and (North East) regional context. However the North is unusual in that it contains the one other loosely inter-connected high GVA ‘belt’ in the UK, comprising much of Lancashire, Cheshire and the city regions focused upon Manchester and Leeds. 2.3.3 Figure 8, which maps increases in GVA at NUTS 3 level between 1995 and 2004, is more revealing still. It shows that the biggest net gains in economic activity were overwhelmingly concentrated in the super-region centred upon London – especially north and west of the capital – that has the highest volumes of GVA. Elsewhere, the same inter-relationship applied on a smaller scale. Thus it was the relatively freestanding provincial city regions (including Newcastle in the North) and the area linking the city regions centred upon Liverpool, Manchester, Leeds and Sheffield that proved most dynamic. Northern Greater Manchester, Cheshire and, to a lesser extent, Lancashire, by contrast, experienced comparatively sluggish GVA growth even though their GVA levels remained high. 2.3.4 The marked differences in recent growth rates within the North are consistent with data on variations in sectoral employment. These are described in Figures 9-11 which map broad sectoral employment trends in northern NUTS 3 areas between 1998 and 200512. 11 ‘NUTS 3’ areas are standard geographical units used by the European Commission to compare economic and social trends across member states. In the UK case, they typically comprise a collection of local authority areas whose geographies are smaller than most counties and considerably smaller than regions. They do not correspond to city regions in any simple sense but when the data are mapped and colour coded it is possible to identify key patterns of change across and between city and sub-regions. 12 These data points were used because (a) employment data is released more quickly than those for GVA, hence a later series was available, and (b) consistent time series data is only available from 1998. Sources: Employment statistics - ABI 2006 NUTS boundaries - Geodan IT bv Crown copyright material is reproduced with the permission of the Controller of HMSO Figure 7: Absolute GVA for all UK NUTS 3 areas United Kingdom: Absolute GVA 20 / 21 The Northern Connection: Assessing the comparative economic performance and prospects of northern England Sources: GVA statistics - National Statistics website: www.statistics.gov.uk NUTS boundaries - Geodan IT bv Crown copyright material is reproduced with the permission of the Controller of HMSO Figure 8: % change in GVA in UK NUTS 3 areas, 1995-2004 United Kingdom: Absolute GVA 2.3.5 Figure 9 shows that manufacturing employment, predictably, has uniformly been in decline, with the largest number of jobs being shed in the former industrial heartlands of Lancashire, West and South Yorkshire and the North East. Figure 10, by contrast, shows expansion in financial and business services jobs across most of the North, but especially in Greater Manchester South, closely followed by Leeds and Newcastle. Lancashire, too, experienced substantial gains. Other northern urban hubs fared much less well. East Cumbria (including Carlisle), saw employment in these sectors fall whilst growth was very limited in the areas focused upon Hull (especially) and Middlesbrough. Figure 11 maps change in public service employment. Unsurprisingly, given the substantial increases in public investment since 2000 in particular, it shows growth across the board but especially in those areas that serve as centres for the delivery of regional or sub-regional public services functions. Thus Greater Manchester South, Newcastle, Leeds and Sheffield – along with Lancashire, once more – have benefited disproportionately from public as well as private sector service growth. Sources: Employment statistics - ABI 2006 NUTS boundaries - Geodan IT bv Crown copyright material is reproduced with the permission of the Controller of HMSO Figure 9: Employment change in manufacturing for northern NUTS 3 areas, 1998-2005 North West, North East, Yorkshire and the Humber: Employment 22 / 23 The Northern Connection: Assessing the comparative economic performance and prospects of northern England Sources: Employment statistics - AbI 2006 NUTS boundaries - Geodan IT bv Crown copyright material is reproduced with the permission of the Controller of HMSO Figure 10: Employment change in business, professional and financial services for northern NUTS 3 areas, 1998-2005 North West, North East, Yorkshire and the Humber: Employment Sources: Employment statistics - AbI 2006 NUTS boundaries - Geodan IT bv Crown copyright material is reproduced with the permission of the Controller of HMSO Figure 11: Employment change in public services for northern NUTS 3 areas, 1998-2005 North West, North East, Yorkshire and the Humber: Employment 24 / 25 The Northern Connection: Assessing the comparative economic performance and prospects of northern England Sources: GVA statistics - National Statistics website: www.statistics.gov.uk NUTS boundaries - Geodan IT bv Crown copyright material is reproduced with the permission of the Contoller of HMSO 2.3.6 The implications of recent changes in wealth creation and employment for the spatial structure of the North are summarised in Figure 12, which shows the change in share of total GVA in the North experienced by NUTS 3 areas between 1995 and 2004. Greater Manchester South is shown to have gained more, in terms of northern GVA, than any other area, in very strong contrast to neighbouring Greater Manchester North which lost most. The area focused upon Leeds is the other main gainer, followed by Newcastle, the belt running between Liverpool and Manchester, and the areas around York and Sheffield. If the assumption is made, not unreasonably, that the areas in North Yorkshire which experienced the biggest gains in GVA share are concentrated in its southern fringe near Leeds and York rather than distributed evenly across its largely rural territory, the importance of the North’s southern growth belt, defined by the western M62/M1 axis, would be clearer still. North West, North East, Yorkshire and the Humber: Figure 12: Change in share of Northern GVA by NUTS 3 areas, 1995-2004 Towards a settled and ‘stretched’ urban hierarchy? 2.3.7 The evidence from the study suggests that, if areas are differentiated by their contributions to wealth creation, their importance as centres of employment, their sectoral employment mix, the size and density of the labour catchment areas on which they draw, their relative attractiveness to mobile, skilled workers and their physical connectedness: ● the North as a whole, like the rest of the UK, continues to lose ground to the vast and better connected London super-region; ● the North’s most buoyant places are the city regions centred upon Manchester (especially the southern area of the conurbation and its surrounding area), which has a clear edge in terms of international connectivity, and Leeds; ● at the next level in the northern urban hierarchy are the city regions centred upon Liverpool and Sheffield, which are loosely connected to Manchester and Leeds within a putative northern ‘growth belt’ that breaks for the Pennines, and Newcastle, which is remote from it; ● other, smaller urban areas to have performed well in the last recorded decade are Chester and York, on the fringes of this growth belt, and Preston, which is more detached from it; and ● the least buoyant areas in the North are the key urban areas focused upon Middlesbrough, the Humber estuary and Carlisle, which none- the-less continue to dominate their respective sub-regions, the area straddling east Lancashire and northern Greater Manchester, and the remote, partly rural and partly old industrial areas of Cumbria and the North East. 2.3.8 Where these various hubs fit into the northern hierarchy of places depends upon the extent to which they act as substantial centres of: ● public and private consumer services (which enables them to act as a focus for a wide variety of ‘travel-to’ movements - to work, shop, be entertained, be educated, travel, access public services etc.); ● advanced manufacturing industries (variously in automotives, aerospace, chemicals, pharmaceuticals, bio-technology); and especially ● producer services (e.g. in law, finance, other businesses services and IT), given that they account for the fastest employment growth in recent years. 26 / 27 The Northern Connection: Assessing the comparative economic performance and prospects of northern England 2.3.9 What seems apparent, however, is not only that the gaps between different levels of the hierarchy have grown in recent years but that what differentiates places from one another depends as much upon where they ‘fit’, in the division of labour within different forms of economic activity, in relation to London as how they inter-relate across the North. This is exemplified, in the cases of financial and legal services, by Figures 13 and 14, which summarise an analysis of where key firms in these sectors – overwhelmingly headquartered in London – are active within the North relative to other areas of the UK. These ‘business architecture’ diagrams, whose links describe the number of leading firms that are represented within more than one of the named centres, provide a powerful illustration of the way producer service industries are organised, geographically, and the dominant positions occupied within the North by Manchester and Leeds. 2.3.10 It should be noted that the links described in the figures are predominantly organisational rather than functional. The principal nodes in the North function in business terms essentially within their own sub-regional footprints rather than cohering into a polycentric complex. Almost invariably, where a company has offices in, for example, Leeds, Manchester and London, its headquarters are in London and the functional links for both Leeds and Manchester are essentially with and through the London headquarters. Figure 13: Business linkage, financial service companies Aberdeen Glasgow Milton Keynes Reading Sheffield Nottingham Leicester Birmingham Liverpool Newcastle Belfast Preston York Edinburgh Bristol Cardiff Exeter London Brighton Cambridge Norwich Southampton Leeds Manchester 60+ links 40-59 links 20-39 links 28 / 29 The Northern Connection: Assessing the comparative economic performance and prospects of northern England Figure 14: Business linkage, legal service companies Glasgow Sheffield Liverpool Newcastle Preston Chorley York Edinburgh Hull Stockton Leeds Manchester 10+ links 5-9 links London Cardiff Bristol Birmingham 2.3.11 Indeed, the study found very little evidence of trade in services across the Pennines. Rather, producer service functions in Manchester and Leeds, even when they involved branch offices of the same national or international firm, were found to largely replicate one another and to serve separate markets on either side of the Pennines whereas the smaller group of firms active in Newcastle, serving a more restricted market, tended to be protected by distance and the difficulty of servicing firms in the North East from, say, Leeds. This pattern was compounded by a tendency for firms in the different regions of the North to prefer relationships with business service providers in ‘their’ regional centre and to secure additional services from London, rather than elsewhere in the North, if the required expertise was not readily available regionally. 2.3.12 The locational preferences of producer services firms offer one simple illustration of the ‘agglomeration economies’ that (a) are argued to be driving spatial economic change in an era in which productivity is increasingly reliant upon high level skills and (b) tend to privilege the larger, more diverse and best connected urban centres. The reason for this is related as much to the preferences of key knowledge workers themselves as it is to the needs of firms. Thus, for example, the study unearthed a significant amount of qualitative evidence to suggest that the most skilled and potentially mobile workers tend to gravitate to those places that are able to provide the greatest density of high level career development opportunities and to think very carefully about the risks of moving away from them, even when a potential move offers advantages in terms of the quality of life available elsewhere. Notwithstanding some examples of enterprises moving out of, or avoiding, big city locations on cost grounds, the mobility of firms, too, is often limited by the fact that the larger urban centres offer them the choice of labour, partners and service providers that could not easily be replicated elsewhere. 30 / 31 The Northern Connection: Assessing the comparative economic performance and prospects of northern England 2.3.13 The disinclination to exit from big, diverse cities and their respective city regions that are perceived by workers and firms alike were particularly apparent in high level service sectors, where the hierarchical distinctions between places are most apparent. However they were also found, increasingly, to be a factor in terms of staff recruitment within trade and manufacturing sectors, whose locations are more dispersed, given that the skills profile of firms in these sectors have come to resemble those within service industries more closely over time. This was reflected in the difficulty that firms in a variety of sectors in the more peripheral locations reported in attracting high level managerial and technical staff, particularly from the Greater South East but also, to some extent, from the more buoyant northern city regions. Firms suggested that this obstacle was easiest to overcome when potential recruits had a historic connection or affinity with the area. However they also reported a need to (a) resort to recruitment of overseas staff who were likely to stay only temporarily to gain experience, or (b) accept flexible working practices on the part of domestic recruits who preferred to rent additional accommodation near to their workplaces for some or all of the working week rather than ‘risk’ moving themselves and their families on a more permanent basis. 2.3.14 Interviews identified a strong tendency in financial and business services firms, that have made such a strong contribution to recent growth to draw staff and operations into larger centres. This is to take advantage of scale and of specialisation in providing services to clients, many of whom will also have developed their businesses to take advantage of local growth in demand. Such ‘centripetal’ processes have included closing offices in smaller urban centres in the North and concentrating supplies from Leeds and Manchester, and numbers of larger firms have similarly tended to concentrate their services to national and international clients in London. Faster travel links can make it easier to service smaller centres from larger ones, potentially enhancing centripetal effects. This applies as much to Leeds and Manchester in relation to London, as to smaller centres in the North, for example Newcastle and Hull in relation to Leeds, making it important to consider these effects when assessments are being made, for instance, of the spatial effects of building fast rail links. 2.3.15 A consequence of cost pressures in and around London is that nationally organised service firms have tended to move supporting blocs of work into lower cost environments in the North. Where different levels of work is done can have an important impact on GVA in relation to employment, and therefore on the output gap, which raises an issue as to the scope for attracting more higher level services work generated in London into the North. Interviews showed some Northern based firms have been very successful in securing such work, but the scope within nationally organised firms, which tend to dominate these markets, is influenced by the fact that clients tend to want to have their work done by teams whom they know and to whom they have access, which favours Manchester and Leeds above other centres in the North, and London over all other UK centres There is also a perception among business service, including many in the North, that the highest quality work is available in London, even when northern providers can fairly point out that work of the same quality is available at lower cost without the need to travel so far. 2.3.16 The fact that personal relationships between people in firms and their clients can have considerable influence on where high-level services are bought can also make the location of company headquarters important for the spatial pattern of demand for such services. The study has identified an ‘headquarters effect’ on higher level jobs in the North in services as well as manufacturing as firms previously controlled in the North have been acquired by others, often with their headquarters, or UK headquarters, located in and around London. There are also good examples of northern firms acquiring others elsewhere in building their business, but the net effect has clearly favoured London, and is thought to have a good deal further to go. 2.3.17 Whether the agglomeration advantages enjoyed by the larger city regions will continue to intensify and with what implications for smaller and/or more peripheral locations in the North was found, by the study, to be subject to subtly different interpretations. On one hand, a bespoke economic forecasting exercise undertaken specifically for the study demonstrated that the pattern of GVA and employment growth amongst northern NUTS 3 areas in the three- year period since the last data were available is likely to have witnessed a limited slowdown in the rate of growth enjoyed by the areas that made most progress in the last recorded decade and a degree of ‘catch-up’ by some of the lagging areas, particularly in the North East. This is consistent with what is known, theoretically, about the tendency of agglomeration econom

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