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Cities need financial freedoms to strengthen private sector base in preparation for cuts. Last week, Centre for Cities launched the fourth edition of Cities Outlook, our annual index of UK cities.

Our findings show that while the UK is showing signs of emerging from recession, growth across the country is uneven. The economic performance of cities in particular varies. Over the past decade some cities, like Cambridge, York and Reading, constantly outperformed the national average across a variety of economic indicators. Others, like Hastings, Blackburn or Hull, persistently scored below the UK average.

The last Government’s responses to halting decline within these cities and compensating for low private sector jobs growth resulted in growth of the public sector instead. Birmingham, for example, lost 61,400 jobs in the private sector between 1998 and 2008, but gained 91,100 within the public. Stoke lost 20,900 private sector jobs, but created 2,900 within the public.

This means many of our weakest city economies are vulnerable to public sector spending cuts. Cities Outlook assesses the impact of the announced cuts on GB cities. It estimates that by 2014/15 Liverpool could lose 7,900 public sector jobs, Hull could lose 2,300 and in Stoke 3,100 jobs are at risk.

The Coalition is taking steps to address this problem. The Regional Growth Fund (RGF) sets aside £1.4bn over 3 years to support areas at risk from public sector job losses and is a key tool in pursuing the Government’s aim of rebalancing the economy.

But £1.4bn over 3 years is a relatively small amount of money for such a challenging task. The RGF’s budget only represents about a fourth of the budget of the Regional Development Agencies (RDAs) between 2008/09 and 2010/11. And despite their larger budgets RDAs struggled to rebalance the geography of the economy during the 12 years of their existence. Stoke’s growth is still substantially below that of Cambridge.

And now cities need to raise economic growth in a more challenging economic and fiscal environment – which is even more difficult in areas reliant on public sector employment. So what next for cities with a legacy of industrial decline, low levels of skills and weak private sectors?

First, cities need to be realistic about what is right for their economies. Stoke should not aspire to grow in the same way as Cambridge: instead it should prioritise stabilising its private sector jobs base. Stoke also needs to address the consequences of long term economic decline, for example by reducing dereliction.

Second, cities need more financial powers to respond flexibly to local economic circumstances. Wigan’s economic development strategy (which will be developed with neighbours in Greater Manchester) will be different to Blackpool’s. More flexibility over funding streams and local sources of revenue, such as the Business Rate, will help both cities implement their strategies.

Third, while cities need more powers, the most vulnerable will also need continued support from central Government. Adapting to long-term economic change is costly and many cities will struggle to bear this cost - even with more flexibility and powers. This is why, despite scarce resources, we would like the Government to provide a dedicated resource of funding for cities adapting to change, through a permanent ‘Transformation fund’ of £500 million a year.

Finally, vulnerable cities also need to prepare for the immediate challenges ahead. Past experience suggests that the impact of large scale job losses can be ameliorated by effective collaboration between stakeholders. The way Longbridge prepared for job losses at MG Rover is a good example of this.

The recent GDP figures have re-ignited debate about whether the Government’s austerity measures are delaying growth or even risk a double-dip recession. With 60 percent of the UK’s GVA being created in cities, cities must be a core element as the Coalition develops its growth strategy for the Budget. Giving our cities the economic freedoms and support to adapt and develop will be crucial if we are to sustain the nation’s economic recovery and avoid a feared double-dip.

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Written by Alexandra Jones   
Thursday, 10 February 2011 11:00
Last Updated on Monday, 07 March 2011 11:22


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