Productivity, place and poverty

Place based policies to reduce poverty and increase productivity

By Patrick Spencer

One of the most pressing problems facing the UK Government today remains the huge variation in productivity and wealth between regions within the UK, specifically between London and the rest. London accounted for approximately 23 per cent of UK growth in 20151 , while the North West, North East, Yorkshire and Humberside, the East Midlands, West Midlands, Wales, Scotland and Northern Ireland were all below the UK average proportion of output. The average worker in London is 280 per cent more productive than that of someone in Blackpool, and has a salary 164 per cent larger. London has more business start-ups, attracts more private and public investment for infrastructure2 , and has more word class universities than the entire North West, North East and Yorkshire and Humberside3 . Efforts to correct this imbalance have focused on (a) increasing investment in physical infrastructure (HS2, 5G communication networks, etc) and (b) devolving power to local government and local businesses (Local Enterprise Partnerships and City Deals).

These have been well received and popular. They have been successful at building hubs of ecommerce, technology and the creative arts in cities like Manchester, Bristol, Cambridge and Aberdeen. However, whilst growth has begun to thrive in knowledge-driven city economies, there remains an imbalance with the suburban towns that surround them – areas such as Sefton outside Liverpool and Rochdale outside of Manchester which have been largely left behind. Someone in Sefton earns on average £368 per week, while a worker in Liverpool is on £414. A worker in Rochdale is on £353 per week while in Manchester the average wage is £4764 . As city economies boom, more needs to be done to tackle productivity coldspots across the UK. This paper calls for a shift in focus from Area Based Initiative’s (ABIs) that focus solely on job and business growth, to more holistic ABIs that tackle poverty and social breakdown at a local level. Our analysis shows that policies that improve educational outcomes, reduce welfare dependency, and tackle debt and addiction, are likely to help generate local productivity growth. If ABIs tackle the root causes of local poverty, we believe productivity growth will ensue.

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