Public as well as private sector spending drives knowledge economy success in cities all over the UK

The ëpoorer Northí and ëricher Southí idea of the UK is no longer an accurate description of the economic life of the nation, a new report finds today. The report argues that a more subtle analysis of cities across the UK is needed if policy makers are to fully understand their diverse economic profiles and find the right policies to help different places flourish.

The future economic success of every region in the UK is increasingly dependent on well-educated minds, cheap computers, high value businesses, and sophisticated goods and services ñ loosely the ëknowledgeí economy. Regions that employ the most people in ëknowledge industries' are thriving, while those without are being left behind. Naomi Clayton, author of the report and researcher at the Work Foundation said, ëOur new analysis clearly shows that the UK is much more than a tale of two types of city, North and South: inequalities, challenges and successes are scattered throughout the regions of England.í

The report stresses the vital role that public expenditure plays in supporting certain cities across the UK in developing their knowledge economies. Cities in both the North and South including Doncaster, Plymouth, Stoke and Hastings rely almost exclusively on the state for generating high value ëknowledge jobsí with less than one quarter of knowledge jobs in private businesses. The report argues that in light of the recent Comprehensive Spending Review and a shrinking public purse, cities need to do more to co-ordinate efforts in the public and private sectors to maximise the development of the regional knowledge economy.

The Work Foundationís new analysis of the 56 major English cities compares high value knowledge intensive employment in both public and private sectors against economic indicators.

The report finds:

Though the knowledge economy is growing throughout the UK, there has been little overall change to the regional disparities in economic competitiveness.

Cities that have more knowledge intensive jobs in the public sector tend to be less competitive than those where most knowledge jobs are provided by private sector businesses. Attracting private sector knowledge industries is essential to driving productivity.

The picture is much more chequered than received wisdom about the ëNorth / Southí divide suggests. Leeds and Manchester have experienced high levels of private sector investment in recent years. By pushing up regional salaries and skills, they have attracted thriving private sector knowledge industries and increasing regional productivity. Conversely, some places in the South, such as Hastings continue to struggle to attract interest from knowledge intensive private sector businesses.

Though winning private sector investment is key, the public sector does have a huge role to play in creating conditions for success, driving up skills and generating demand. High levels of knowledge intensive employment in the public sector can have a role in encouraging new knowledge intensive private enterprise to develop.

Naomi said: ëIt is often assumed that regions with high levels of employment in the public sector will contribute least to the British economy, while places with high levels of private knowledge intensive employment tend to be more highly productive. Our report highlights that this isnít always the case, the important thing is how cities manage the benefits of public sector investment and capitalise on key institutions like universities. Cities across the UK, such as York and Cambridge have successfully crafted public sector growth to foster private sector enterprise; think Sheffieldís thriving environmental technologies sector, closely linked with the University.í

The report categorises English cities into six distinct ëfamiliesí,

Enterprise Priorities: Private sector employment is diminishing in these cities, with up to three quarters of knowledge workers employed by the state in various guises. Cities in this family are much less productive than the average, have low numbers of graduates (13.8 per cent of the population in Hull, for example), relatively low pay, and low skill levels. They include Doncaster, Burnley, Blackpool, Birkenhead, Wakefield, Plymouth, Hastings and Liverpool (the only ëcore cityí in this group).

Enterprise Sparks: Once industrial, but now dominated by public sector employment, cities in this family include the core cities of Nottingham, Newcastle, Sheffield and medium sized cities such as Barnsley, Bolton and Southend. Though the private sector is growing, productivity remains below average. Knowledge economy jobs exist, but are relatively low value and low skill (for example, a high proportion of call centre employment).

Enterprise Ready: Cities in this group have roughly a 50:50 split between employment in public and private sectors, but are characterised by relatively poorly performing private sectors. Earnings are below average (with the exceptions of Brighton and Chatham ñ both within Londonís commuter zone), and skills are relatively low. In cities such as Birmingham and Telford, private sector employment is in decline. Cities in this family include Bournemouth, Norwich, Wigan and Chatham.

Knowledge Hubs: This small cluster of cities are performing well, but the main driver of employment is the public sector knowledge economy rather than the private, the great examples being the university cities of Oxford and Cambridge (45 and 41 per cent public sector employment, respectively). Others in this group are York, Gloucester and Worthing ñ cities where the health and education sectors (both major ëknowledge sectorsí) are very significant employers. Cambridge University in particular has nurtured science, technology and bioscience business clusters.

Enterprise Engines: In this family, the private sector dominates, but the public sector remains a major graduate employer. These cities have levels of productivity above the average. Included in this group are Bristol, Manchester and Leeds, as well as Derby, Ipswich and Northampton. All have growing knowledge economies ñ both public and private. Some, though, such as Coventry and Peterborough have suffered from the decline of high tech manufacturing, leading to a decline in their respective knowledge economies.

Enterprise Powerhouses: Located in and around London (the one exception being Warrington, in Cheshire), these cities have strong private sectors concentrated in high value, skill-intensive, highly productive sectors; 62 per cent of Londonís workers are knowledge workers. London accounts for about 40 per cent of the UKís GVA, a world class global city. Average weekly earnings in London exceed 493 compared to a national average of 373 ñ though massive inequalities are evident, especially in London itself. In this group are Milton Keynes, Crawley, Aldershot, Swindon and Reading.

Naomi explained: ëAgainst this background, it becomes clear that some cities in the UK are struggling, but the traditional lines of the North South divide have been redrawn. The city families concept allows us to better appreciate different types of cities, identifies those with similar experiences to generate a much subtler understanding of their needs.í

The report highlights the role the public sector can play in fostering growth, for example through procurement, by opening up contracts to local firms and small and medium enterprises, creating jobs and leading to increased capacity and competitiveness in local businesses. State spending of more than 120 billion a year can have a huge impact on local economic performance. Newcastleís commitment to local procurement was found to correlate to 60% of council spending with suppliers within the North East region[1]. Universities also play a role in creating demand for local services as well as attracting and creating skilled workers and generating research, all of which can make a contribution to the local economy. But our city families show that some cities are better at capitalising on their public sector assets than others.

ëBoth public and private sector are critical to driving forward the most productive sectors of our economy ñ the knowledge economy. Both sectors can work symbiotically to increase the output from city-regions at different stages of development. Nonetheless, private sector knowledge intensive employment remains the most effective way to increase productivity and struggling cities need to make more of their public sector to help enable sustainable private sector employment to flourish.í

[1] North East Centre Of Excellence (2007) Local Multiplier in South Tyneside (online) available on https:www.nece.gov.uk