Given the findings set out in No City Left Behind?, the goal of rebalancing the UK economy may be unattainable. The interventions so far do not go far enough, and public sector cuts will have a negative effect on many places outside of the South East.

The Coalition Government believes that ‘rebalancing’ the UK economy is a top priority. It wants to stimulate growth in the private sector outside of the South East of England and later this summer it will publish a white paper on how it intends to do just that.    

The government has already announced £61 billion of public spending cuts. It has also set out some preliminary ideas and policies for ‘rebalancing’ the economy:
•    The NIC holiday for small businesses outside of London, the South East or the East;
•    The Regional Growth Fund  - a £1bn pot of capital money to support areas particularly affected by public spending cuts; and
•    The transition from Regional Development Agencies to Local Enterprise Partnerships

Over the next five years it is hoped that a ‘strengthened private sector’ will have the capacity to absorb job losses in the public sector. The Work Foundation estimates that job cuts of 750,000 would just about be manageable, and new research conducted by our Ideopolis programme highlights the sheer magnitude of this task.  

Given the findings set out in No City Left Behind?,  the goal of rebalancing the UK economy may be unattainable. The interventions so far simply do not go far enough, and public sector cuts will have a disproportionately negative effect on many places outside of the South East. This will only reinforce the problems caused by the recession.

Some commentators suggested that this recession would affect the South East most and that job losses would be greatest in the City. But the geography of this recession matched that of the 1980s - cities in places like South Yorkshire and the West Midlands that were characterised by ‘traditional economies’, were the worst affected.  More specifically those places, typically in the north of England, with low skills and a reliance on manufacturing, suffered the greatest increases in unemployment in both recessions.

This recession has perpetuated structural change in the economy with 84% of job losses in manual, unskilled and administrative jobs, supporting the argument that today’s economy rewards the more knowledge intensive activities. It is little wonder that London, which accounted for 26.7% of all UK private knowledge intensive services employment in 2007, was padded from the negative consequences of this change.

We must also appreciate that the public sector acted as a shield against further unemployment across the country, especially in so called ‘public-sector cities’ —  cities heavily reliant on the public sector for employment. These cities are mostly located outside of the South East.  

The public sector has been a key driver of economic and employment growth for these areas. The West Midlands is a typical example: between 1998 and 2008 (during healthy economic times) the number of private sector jobs fell by 64,800 in real terms while the number of public sector jobs increased by 130,100 across the region. Without this increase, the West Midlands would have had a net loss of jobs.

Looking ahead, our research suggests that it is going to be hard for those struggling areas to benefit from the recovery. The places that are expected to experience the greatest economic and employment growth over the next decade are those places that were left relatively unscathed by the recession; the places that are expected to see the greatest decline are those cities that fared worst.

In No City Left Behind? we argue that the UK economy will be driven by four growth sectors – knowledge intensive services, ‘manu-services’ (where manufacturing and service activity become increasingly intertwined), low carbon goods and services, and the creative industries. New jobs will come from high growth businesses which are located, along with clusters of high skills and enterprise, predominantly in the South East of England in cities such as Reading, Cambridge and London. These cities have a high growth potential in the recovery.

The public sector cities, on the other hand, tend to have lower than average skills and are void of ‘growth sector’ businesses. The geography of the growth sectors is such that they will be unlikely to provide employment in low skilled cities. Our research has identified cities like Doncaster, Barnsley and Grimsby as having limited growth potential.

It is looking very likely that the recovery will bypass certain cities - the cities that lack the ingredients for future success: high skills and a strong knowledge intensive private sector. The recession and subsequent recovery is widening the gap between the best and worst performing cities.

What we are experiencing is a growing structural divide within the UK economy, both economic and geographical. The plans put forward by the government to support private sector growth are unlikely to alter the trajectory of the cities that are in decline. More needs to be done to ensure that indeed no city is left behind.

When the government publishes its white paper later this summer we hope that they delicately negotiate the balance between maximising the potential of the high growth cities in the South East and supporting the economies and people of those places that are in decline. We propose, if the government wishes to be successful, a greater focus on innovation, better access to finance for businesses in the regions, and support for those enterprises that have high growth potential. It will require new thinking and radical ideas if the Coalition truly wishes to ‘rebalance’ the economy.

Jonathan Wright is a researcher on the Ideopolis programme at The Work Foundation and co-author of the report No City Left Behind?

The cited report can be found at www.theworkfoundation.com