cities, growth and poverty

Cities, growth and poverty: review of existing literature 1

February 2014

Cities, growth and poverty Evidence paper 1: Review of existing literature Neil Lee, Duncan Adam, Andrés Rodríguez-Pose, Anne Green

& Gaby Atfield


Acknowledgements

This paper is part of a wider project focusing on Cities, Growth and Poverty. The research

was commissioned by the Joseph Rowntree Foundation and conducted by a team consisting

of Neil Lee, Paul Sissons and Ceri Hughes from The Work Foundation, Anne Green, Duncan

Adam and Gaby Atfield from the Institute for Employment Research at the University of

Warwick and Professor Andrés Rodríguez-Pose from the London School of Economics. The

research was undertaken in early 2013.

We would like to thank the Joseph Rowntree Foundation for supporting this research, and in

particular the project manager, Josh Stott. The project has also benefited from the insights of

an advisory group, including Alex Jones and Andrew Carter (Centre for Cities), Ed Cox

(IPPR North), Michael Parkinson (Liverpool John Moores University), Tom Aldred (The

Cabinet Office), Tom McInnes (New Policy Institute), Ruth Lupton (London School of

Economics), and Tom Bridges (Leeds City Region). We are grateful for their support and

would like to thank them for contributing to this project.

We would like to thank Alex Fenton, Ruth Lupton and Amanda Fitzgerald for providing

access to the Unadjusted Means-tested Household Benefit Rate (UMBR). We have also

benefited from discussions with them with regard to the data and the wider implications of

the project. Lloyd Martin provided very good research assistance in the early phases. Katie

Schmuecker, Mike Campbell and Christine Appleton also provided valuable comments and

support.

In addition we would like to thank Tony Champion (Newcastle University) for reviewing an

earlier draft of this paper.


About the authors

Neil Lee led on this research as Head of the Socio-economic research centre at The Work

Foundation. Neil is an Assistant Professor in Economic Geography at the London School of

Economics. His work focuses on cities and the social dimensions of economic change.

Anne Green, Gaby Atfield and Duncan Adam work at the Institute for Employment Research

at the University of Warwick. Anne Green is a Professorial Fellow with interests in local and

regional labour markets, the spatial aspects of economic, social and demographic change

and trends in employment and non-unemployment. Gaby Atfield is a Research Fellow. Her

interests include differential access to the labour market and the relationship between

employment and social inclusion/exclusion. Duncan Adam is a Research Associate and his

research has focussed on welfare to work, interactions between market and non-market

activities, and low-paid, insecure work.

Andrés Rodríguez-Pose is a Professor of Economic Geography at the London School of

Economics with expertise in regional growth and disparities, fiscal and political

decentralization, regional innovation, and development policies and strategies.


Contents

Acknowledgements ................................................................................................ 2

About the authors .................................................................................................. 3

Contents ................................................................................................................. 4

Executive summary ................................................................................................ 5

1. Introduction ...................................................................................................... 10

2. Linking cities, economic growth and poverty ................................................ 11

3. Enterprise and economic growth in cities ...................................................... 15

4. Human capital and urban economic growth................................................... 24

5. The physical environment and urban economic growth ............................... 31

6. Leadership, governance and urban economic growth .................................. 36

7. The UK policy context ...................................................................................... 43

8. Conclusions and evidence gaps ..................................................................... 61

References ............................................................................................................ 62


Executive summary

The Joseph Rowntree Foundation commissioned The Work Foundation, the Institute for

Employment Research and the London School of Economics to undertake a project on the

links between cities, growth and poverty. The main project report – ‘Cities, growth and

poverty: a review of evidence’ – is available from the Joseph Rowntree Foundation1. This

report reviews the secondary evidence on cities, economic growth and poverty.

Cities are highly important for economic growth, and they are where growth may reduce

poverty. Yet the links between this growth and poverty reduction have rarely been made.

This review considers the drivers of growth in cities and how they may relate to poverty. It

considers four main topic areas: enterprise, human capital, the physical environment and

leadership and governance. It also considers the empirical evidence on the link between

economic growth and poverty and the current policy framework. Finally, it also aims to

identify evidence gaps to help inform the Joseph Rowntree Foundation’s research in this

area.

The link between growth and poverty

Evidence suggests that while deprived neighbourhoods experienced growth in

the 2000s, disparities widened between rich and poor places. In the period of

growth between 1993 and 2008, deprived neighbourhoods experienced

improvements on some indicators. However, disparities in employment and income

continued to widen in this period.

The link between economic growth and poverty seems to depend on specific

local circumstances and policies. Economic growth is not sufficient to reduce

poverty, at least when measured at a neighbourhood level. However, there is little

empirical evidence at the city level. Many cities which have experienced growth,

such as Manchester or London, also have high levels of poverty.

Enterprise, growth and poverty

Cities with entrepreneurial economies, like Silicon Valley or Cambridge, grow

faster. However, the quality of new firms created matters and new firm creation

alone does not lead to growth. Economic context is important: efforts to encourage

entrepreneurship in cities with weak economies may lead to long-term reductions in

employment if new firms created are of poor quality.

1 Link: http://www.jrf.org.uk/publications/cities-growth-and-poverty

http://www.jrf.org.uk/publications/cities-growth-and-poverty


Innovation is vital for economic growth – but the gains from innovation can be

uneven. Innovation is increasingly important for economic success. Many cities in

the UK have developed innovative economies (such as Cambridge) or significant

sectoral strengths (such as Life Sciences in Dundee). Yet strategies focused on

innovation, if successful, are not well targeted to address poverty. In particular,

innovation may lead to a small group of skilled workers gaining disproportionately.

This has led some – such as Richard Florida – to argue that cities with innovative

economies may be more unequal and even have higher poverty. There is no

evidence linking strategies based on innovation and poverty.

The sectors in which jobs are created will be important in determining the

impact of growth on poverty. Of those sectors predicted to grow, care work is

likely to employ increasing numbers of workers on low wages or in poverty. In many

cities, service work like this is likely to be a key source of employment for low skilled

workers. Ensuring this work is reasonably paid and offers progression opportunities

will be important for addressing poverty. In contrast, there is little evidence on

whether economic development strategies based on knowledge economy sectors

have a significant influence on poverty.

Human capital, growth and poverty

Skills are the key determinant of long-term urban growth – they are also the

most important way of making growth equitable. Cities with skilled populations

have tended to experience faster wage and output growth. This is one of the

reasons for the economic resilience of cities such as Edinburgh. However,

vocational and employability skills play a more important role in addressing poverty.

At a local level, skills mismatch between the available employment and

unemployed workers may exacerbate poverty. In some areas, spatial mismatch,

where unemployed workers cannot reach available jobs, may also be a problem.

This will limit the extent to which employment growth reduces poverty.

Demand for skills is particularly important in low-wage work. Under-utilisation of

skills is highest in low-wage sectors, and increasing demand for skills is an important

way of potentially improving wages for those in in-work poverty. Skills under-

utilisation may be highest in former industrial cities which have developed low-skills

equilibriums.

Physical environment, growth and poverty

The agglomeration of cities makes them economically productive – but may

impose costs on certain groups. For those on low-wages the costs may outweigh

the benefits of urban scale – some evidence suggests that cities which have

experienced population growth will have higher costs. There is little evidence on how

these costs and benefits are distributed.

Transport at a city level is important in reducing poverty. Ensuring transport

availability is good and that costs are reasonable is an important way of ensuring


low-wage workers can access work and of reducing the cost of living. This may be

particularly important for shift-workers or those working irregular hours.

Cities with strong transport infrastructures have experienced long-term

growth. This is one of the explanations for London’s long-term growth, and the

success of cities like Reading which are close to Heathrow airport. However,

improving transport links between cities can paradoxically exacerbate disparities.

Because they allow firms in economically strong cities access to markets elsewhere,

transport improvements may benefit some cities more than others. Similarly, there is

evidence that transport improvements principally benefit skilled workers.

Different cities will experience different types of growth, and connections

between them may be particularly important in ensuring residents have

access to employment opportunities. Research shows that cities specialise in

different parts of the economy. Some smaller cities near major Northern

conurbations have experienced weak jobs growth. It may be easier to help link areas

of growth and decline than to try and create jobs in cities with weak economies.

Housing costs are an important determinant of poverty. After housing costs are

taken into account, 3.1 million more people are in poverty than when not. Housing

costs may be particularly problematic in cities which have experienced rapid growth.

In London, for example, the poverty rate is 28 per cent after accounting for housing

costs compared to 22 per cent in the rest of England. Housing is a policy area in

which cities play an important role.

Leadership and governance, growth and poverty

Leadership is seen as important for long-term growth in cities. Engaged, long-

term local leadership has been seen as helping turn around the fortunes of cities

experiencing economic decline, such as Bilbao. Case studies of other cities, such as

Manchester, suggest that they have benefited from stable long-term leadership.

Clearly, poor local leadership also has the potential to hinder economic growth and

increase poverty.

However, empirical research suggests the quality of local government appears

to be less important than other factors in determining urban growth. Empirical

evidence suggests that, in general, the quality of local government is a less

important driver of urban growth than, for example, skills or industrial structure.

However, there is little empirical evidence on this point and case studies of

successful cities suggest local government can play a role in some cases.

The evidence on decentralisation, growth and disparities is mixed. Despite the

considerable policy effort in this area, empirical evidence on whether

decentralisation will increase growth is inconclusive. Some evidence suggests fiscal

decentralisation, where local areas generate more of their own tax revenues, may

have the largest impact on growth. However, fiscal decentralisation may also

increase disparities between cities.


Other large local actors can play an important role in driving growth and

reducing poverty. The US literature on ‘Anchor Institutions’ highlights the

importance of other institutions in driving economic growth and addressing poverty.

Evidence gaps

The review highlights a number of important evidence gaps. Amongst the most important

are:

Do strategies based on innovation or knowledge-based industries create jobs,

and for whom? Key questions include whether they create significant numbers of

jobs and the quality of any new jobs created for/taken up by low skilled workers.

How to create “good quality” firms in less affluent cities. Generic approaches to

entrepreneurship do not seem appropriate to deprived areas, so there is a need to

understand how high quality new firms can be created in cities with weak

economies.

How to ensure entrepreneurship “sticks”. Successful entrepreneurs often move

from deprived local economies. An important question is how to ensure new

successful firms stay in deprived places.

Linking those out of employment into specific jobs. Steps need to be taken to

ensure the unemployed have the employability attributes and skills to meet the

requirements of specific (often ‘entry level’ jobs) and then to ensure that there are

routes through which they are able to sustain and advance in employment.

Increasing the demand for skills, enhancing skills utilisation and improving

job quality. This is not solely a ‘skills’ issue, but one which also embraces business

support and development. There may be scope to link this in to ‘knowledge-based’

economic development strategies, such as those aiming to help firms innovate. Yet

the evidence is weak on specific interventions in this area.

‘High value, low employment’ models of urban economic growth. While the

evidence suggests that human capital is a key determinant of economic growth, in

some sectors (e.g. advanced manufacturing) high value might be achieved through

deployment of highly qualified engineers and technicians, but with relatively low

levels of employment in the sector (at least by historical levels). It is unclear whether

and how a ‘high value, high employment’ growth model is possible and sustainable.

(A ‘low value, high employment model’ is unlikely to be conducive to medium- and

long-term economic growth.) Hence one of the most important questions for linking

urban growth to poverty reduction is how the potential wealth gained from a ‘high

value, low employment’ model in key growth sectors can be distributed in such a

way as to reduce poverty – including by generating jobs in other sectors.

Costs of living and urban poverty. An important question is the extent to which

higher costs of living for workers in cities are compensated by wages – and whether

some groups do not benefit.


Encouraging and sharing local best practice to address poverty. One of the key

arguments for decentralisation is to encourage innovation and learning between

different areas. Yet the major policy measures related to poverty take place at a

national, rather than local level. An important question is the extent to which local

innovation, experimentation and shared learning is taking place on poverty issues at

a local level.


1. Introduction

The Joseph Rowntree Foundation commissioned The Work Foundation, the Institute for

Employment Research and the London School of Economics to review the evidence on the

links between cities, growth and poverty. The research project followed a four-stage

methodology, including the development of a framework, a review of the evidence, data

analysis and case study work in ten UK cities. In addition to this evidence paper, which

considers the evidence linking cities, economic growth and poverty, evidence papers relating

to the data analysis (Evidence Paper 2) and case studies (Evidence Paper 3) are available

at www.theworkfoundation.com.

This paper presents a (necessarily selective) review of secondary evidence on cities,

economic growth and poverty, and an overview of the policy context and current economic

situation. The paper draws on existing evidence to investigate three questions:

(1) What are the drivers of economic growth in cities?

(2) How do these drivers relate to poverty?

(3) Where and what are the evidence gaps?

This review begins with a discussion of the literature on cities, why they are vital for

economic growth and how this may link with poverty. It then considers four main areas:

Enterprise – the role of new firm creation, innovation, key sectors and the wider

business environment in driving growth at a firm level.

Human capital – the evidence on skills, labour markets, migration, diversity and the

creative class.

The physical environment – agglomeration, investments in infrastructure, quality of

place, technology and planning and how they relate to urban economic growth and

poverty.

Leadership and governance – civic institutions, anchor institutions, partnerships,

strategy, and vision in driving urban economic growth.

Rather than focusing narrowly on a single aspect of growth, we take a broad view and

include studies which consider employment, output and wage growth.

http://www.theworkfoundation.com/


2. Linking cities, economic growth and poverty

This section reviews the direct evidence for the link between growth and poverty. It

considers the different ways in which growth may influence poverty and evidence for these

effects.

2.1 An overview of the relationship between growth and poverty

There is no single measure of ‘growth’. The most common measure of growth at a national

level is output growth, either total GDP or GDP per capita. At a city level, GVA data is often

used. Similarly, research on urban growth also includes measures of total employment

growth or wage growth.

Output growth is assumed to directly alleviate poverty in two related ways:

Job creation – Economic growth is theoretically linked to job creation. The link

between growth and poverty in this sense will depend on the nature of this job

creation. In some cities, employment growth may have been because of the private

sector. Others will have seen strong public sector growth.

Wage increases – Output (or productivity) growth is associated with increased

wages, as workers produce more. However, some evidence suggests there has

been a ‘decoupling’ of growth and median earnings in the UK, which means this link

may be context dependent.

In addition, growth may have indirect impacts on poverty – for example, it may increase tax

revenues and so allow cities to support better services. Growth may also have costs,

particularly if it raises prices, such as housing or if the benefits of growth go to new residents

rather than existing residents in poverty.

Here the relationship between growth and poverty is expressed, in large part, through the

labour market with the proceeds of growth (theoretically) being distributed through higher

wages and new jobs. In light of this, the review – and wider research – focusses on working-

age poverty.

Cities will be important for economic growth and linking growth with poverty for a number of

reasons. First, because growth in one part of a city economy will have local multiplier effects

which create growth in other parts: increased spending in a sector will benefit local suppliers,

with both firms and staff buying goods locally. While some of this will leak out of the local

economy, much will stay locally. This means growth in one sector will have benefits for other

parts of the city’s economy.


Second, many of the policies which link economic growth and poverty will happen at a local

level. For example, skills policy may be tailored according to local growth sectors to help

residents into work. These local factors will be important for ensuring growth translates to

reductions in poverty.

An important caveat is that there is no single type of ‘growth’ – but a number of different

types of economic growth at a local level, each of which will have different implications for

city poverty levels. For example, growth based on Foreign Direct Investment or new

knowledge based industries will have a different impact on poverty than a growing public

sector. It may also be that growth in different contexts will influence poverty in different ways.

There is little evidence on these issues, however.

Different cities will experience very different growth trajectories. In their work on regional

growth, the OECD (2011) suggest that the drivers of growth will differ between urban areas

and other places, and between fast and slow growing regions. There is no single, top-down

path to growth but instead different areas need context specific policies. For example, some

of the regions they studied experienced productivity growth, but weaker employment growth.

Others experienced both population and employment growth. However, they note that

measures of growth tend to be correlated.

One way of understanding this is to consider economic relationships between places. Hall

and Pain (2006), Overman et al. (2007) and Jones et al. (2009) consider how economic

linkages across space matter. Large cities can operate as nodal points in spatial economies

– London is a clear example of this – with clusters of smaller cities nearby performing distinct

functional roles in these spatial economies (Hall & Pain 2006). These relationships can

operate both in terms of labour market links, such as commuting flows, or firm links, with

supply chains developing between firms in different places. Where there are strong links

between places, it may be that growth in the urban core may help reduce poverty in outer

areas. However, these relationships are not positive between all cities. As Jones et al.

(2009) note, growth in one city may help growth in other cities – although this is dependent

on the scale and extent of relationships.

2.2 Evidence on growth and deprived neighbourhoods

The growth performance of cities in the UK has been mixed. Many cities in the UK grew in

the industrial revolution, when locations near to sources of energy and ports were highly

important for economic success (Leunig & Swaffield, 2007). These cities developed

relatively strong economies during the industrial period, but they were often relatively poorly

suited to economic change. Globalization, technological change and the rise of the

‘knowledge economy’ meant major changes in the UK economy. Many cities had industrial

bases built on manufacturing or extractive industries, and these industries were often

declining, in employment terms at least (Turok & Edge, 1999). Skills were an increasingly

important driver of urban success, and many formerly industrial cities had relatively few

workers with high skill levels. In addition, proximity to the economic mass of the continent

was increasingly important (Leunig & Swaffield, 2007). While cities such as Manchester or

Leeds were able to develop new economies based on the newer sectors, others failed to

adapt successfully.

Following the recession of the early 1990s, cities in the UK began to recover economically.

There were suggestions that cities were ‘resurgent’, although growth performance varied


significantly between cities (Cheshire, 2006). The evidence base on the link between

economic growth and overall poverty at the city level is limited, and – to the best of our

knowledge – no studies considered how poverty was related to overall city growth in this

period.

However, several studies have investigated how neighbourhood level poverty has varied in

periods of national growth. Tunstall and Fenton (2009) consider which parts of the country

benefited between 1993 and 2008 in the UK, a period which saw considerable increases in

employment and output. While they find that there was economic growth in deprived

communities, this was not sufficient to close the gap. As they conclude:

“while some of the benefits of the growth during 1993 – 2008 trickled down to less

advantaged communities, and public service reform and regeneration had some

notable effects even in the poorest areas, there was no unambiguous reduction in

gaps” (Page 3)

They highlight evidence that suggests that wider economic growth worked alongside

regeneration policy to help deprived neighbourhoods gain during this period (Griggs et al.

cited in Tunstall and Fenton, 2009). In short, it is the intersection between growth and policy

which translates to reductions in poverty.

In a similar study, Cox et al. (2010) consider the drivers of economic growth or decline in

deprived neighbourhoods and whether this is related to the economic performance of the

wider functional economic area (essentially the City Region) in which they are located. They

show that rising economic growth is not sufficient for reductions in deprivation at a

neighbourhood level. In Manchester, strong growth led to smaller reductions in income

poverty than in Liverpool, which had also experienced strong growth albeit from a lower

level. In contrast, deprived neighbourhoods in Tees Valley experienced declines in income

deprivation similar to those in Liverpool, although Tees Valley experienced only weak

growth. The context of the local labour market was highly important. Where sufficient entry

level jobs were created, this was more likely to help reduce neighbourhood deprivation. The

location of these jobs was particularly important. Their findings are similar to those of

Tunstall and Fenton (2009) who argue that a rising tide does not automatically lift all boats –

rather, policy frameworks are important.

Economic growth, wages and employment

Academic work has focused on the links between economic growth and wages, with a focus

on wage inequality rather than poverty. However, one caveat to this view is that national

level growth has tended to have little impact on wages for many people; despite national

growth throughout the period 2003 – 2007, the median wage increased little.

Increases in wages will not always reduce poverty. The observation that low pay and poverty

overlap may appear obvious, but in fact only 14 per cent of low-paid workers live in

households below the poverty line (see Gardiner & Millar 2006). This implies that minimum

wage policies will have a relatively small impact on poverty (see Harkness, Gregg &

MacMillan 2012). Thus tackling underemployment may be more effective, enabling

household members to work more hours and thereby lift themselves out of poverty.

The links between employment growth and poverty vary by area. In a study of how US


county employment growth influences poverty, Partridge and Rickman (2008) find that broad

metropolitan job growth is more likely to reduce poverty in small and medium rather than in

larger metropolitan areas. They note that poverty rate differentials between central cities and

suburban areas widened in the 1990s, suggesting that the poor in central cities may face

mobility, transport and information barriers or may simply lack the requisite skills that new

metropolitan jobs require. In addition, neighbourhood effects, such as peer pressure, a lack

of role models in employment and less social capital more generally, may limit the potential

of jobs growth in cities to lead to poverty reduction.

Job growth will only reduce poverty if the jobs created are accessible to the area’s original

disadvantaged residents (hence the importance of linking unemployed workers to jobs, as

discussed in section 2). If job growth simply attracts commuters and new migrants, the poor

may not gain from the growth (Levernier, Partridge, and Rickman 2000). Partridge and

Rickman (2008) emphasise that individual outcomes from particular policies and

interventions can differ from more aggregate labour market outcomes, with access to

training perhaps improving the labour market outcomes for participants but having little

impact on the local unemployment rate, as individuals are simply shuffled around in the

queue for jobs.

The quality and type of jobs that are created is important. Whether or not the poor benefit

from growth in a particular sector of the economy is likely to depend on the profile of growth,

the sectoral location of the poor and their ability to move across sectors (Hull 2009). There is

also evidence to suggest that workers have become trapped in poor quality employment at

the bottom of the labour market. In a study of the changing geography of employment growth

in Chicago since the 1980s, Doussard, Peck and Theodore (2009) consider the impact of

unequal and unstable growth patterns on both wages and the contingent workforce. The

authors conclude that retrenchment in manufacturing has contributed to uneven growth and

wage polarization.

2.3 Summary and evidence gaps

Given the dynamic nature of the relationship between growth and poverty, the need for

further city-level analysis of the particular characteristics and policies that are associated

with poverty alleviation, or improved outcomes for people on low incomes, is clear. Since this

relationship is mediated by a variety of factors, studies that provide further insight into the

context for these interactions are particularly valuable.

Linking different types of growth to poverty. There is little evidence on the links

between economic growth and poverty – beyond that at a neighbourhood level –

and how different forms of growth relate to this. One of the aims of this project is to

investigate these issues.

How cities can create new employment – and which employment will best

address poverty. A second important evidence gap is on the nature of employment

creation at a city level, and which types of employment will best address poverty.


3. Enterprise and economic growth in cities

This section considers the evidence on the links between enterprise, growth and poverty in

cities. It covers four main areas:

Entrepreneurship and new firms

Innovation

Key growth sectors

Access to finance

We also consider the implications of the evidence for policy and the JRF’s future work on

cities and poverty.

3.1 Entrepreneurship, new firms and economic growth in cities

New firms and urban growth

Entrepreneurial cities which create new firms are likely to experience long-term growth

(Glaeser et al. 2012). Entrepreneurial large cities include New York and London, where the

creation of new firms can help disseminate innovation and replace older, less productive

incumbents. In some cases, traditions of entrepreneurship can develop as workers create

new firms in the sectors in which they work. Cities with traditions of new firm creation tend to

experience long-term growth. A number of studies suggest that this is the case in many

cities in the UK (Baptista & Preto, 2009; Bishop, 2012; Botham & Graves, 2011; Knoben,

Ponds, & Oort, 2011; Mueller, Stel, & Storey, 2008).

The impact of new firm creation on employment in a city is not linear, however, and studies

have suggested there is a U-shaped relationship: (1) new firms increase employment in a

city as jobs are created in the firm itself, (2) next, employment in a city is reduced as jobs are

displaced from other firms, (3) finally, employment in the city increases again as the resulting

firms are more productive and successful than those they have replaced. The effect of new

firm creation on employment growth is not immediate, and it can take a decade or so for the

employment impact of a wave of start-ups to be felt in a local economy (Fritsch & Schroeter,

2011). But the effect of entrepreneurship can be felt over a long time-period with more

entrepreneurial cities experiencing significantly higher employment growth over several

decades (Glaeser et al. 2012).

High growth firms and urban growth

There are two important caveats to the view that new firms are vital to urban employment

growth. First, the quality of new firms matters (Botham & Graves, 2011). As the quality tends

to be reduced as the number of start-ups increases, the impact of new firm creation suffers

from diminishing returns. Beyond a certain point, each additional new firm leads to

increasingly smaller impacts on employment, and may eventually have a negative effect

(Mueller et al., 2008). The negative relationship between new firm formation and


employment growth may be explained by a reduction in the quality of start-ups (Mueller et

al., 2008).

One way of focusing policy on ‘quality’ firms, is to focus support on high growth firms – those

seeing employment growth of 20 per cent per annum for three years or more. In a study of

UK city-regions, Mason et al. (2009) show that high growth firms have an impact on private

sector employment beyond the direct impact of the new jobs they create (i.e. they have a

multiplier effect). More specifically, each five percentage point increase in the share of high

growth firm employment in a city is associated with a one percentage point increase in the

employment rate. They suggest a number of reasons why this is the case: high growth firms

can improve local skills, supply chain linkages may be more effective, or their presence may

indicate wider innovation linkages with research institutions or other firms. However, while

high growth firms are important for employment they find that high growth firms have no

impact on urban wage growth.

Such findings are significant because high growth start-ups can appear anywhere (Mason &

Brown, 2011). Evidence also suggests that the geography of start-ups varies relatively little

between affluent and less affluent areas (Anyadike-Danes, Bonner, Hart, & Mason, 2009;

Botham & Graves, 2011; Mason & Brown, 2011).

Swinney et al. (2010) present data on cities with high shares of high growth firms, including

Aldershot, Reading and Cambridge. Cities with high shares of high growth firms tend, for

obvious reasons, to be relatively affluent and to experience growth. However, high growth

firms can appear in all cities, and other cities such as Newcastle also have relatively high

shares. Cities with fewer high growth firms include Bolton, Burnley and Birmingham

(Swinney, Larkin, & Webber, 2010).

A second significance of high growth firms is that because it is relatively harder for them to

recruit, they are more likely to recruit those from groups less privileged in the labour market,

although obviously this will vary by type of firm. Evidence from Sweden suggests that high

growth firms are more likely to employ those who have been unemployed, young people and

migrants (Coad, Daunfeldt, Johansson, & Wennberg, 2011). Their evidence was for

relatively knowledge intensive industries in the period 1989 – 2002, a period in which

Sweden experienced economic difficulties.

Local economic context and the benefits of new firms

There are examples of cities such as Cambridge or London which have developed traditions

of high-quality entrepreneurship and have experienced sustained economic growth as a

consequence. Yet in other cases attempts to create new firms have been less successful. A

second important caveat is that local economic context conditions the extent to which new

firm creation leads to employment.

Greene et al. (2004) consider the case of the town of Middlesbrough and the wider Tees

Valley. A “successful” enterprise support policy in the 1980s led to an increase in the number

of new firms. However, the firms created were of poor quality and the city itself did not

experience any resulting growth.

These findings are true beyond the Tees Valley. Mueller et al. (2008) show that in English

counties with strong economies, and high levels of entrepreneurship, new firm creation is


associated with an increase in employment. However, where local economies are lagging,

new firms actually have a negative long-term effect on total employment. The creation of

new firms in Liverpool, one of the areas they study and an area then experiencing a

challenging post-industrial transition, actually cost jobs. This is probably because the quality

of new firms was lower, with policies aiming to create new firms dividing up existing local

markets rather than creating new ones. The implication is that efforts at job creation need to

take very different forms in different cities, with new firm creation prioritized only in those with

stronger economies.

Mueller et al. (2008) argue that this implies that national level policies aiming to encourage

entrepreneurship would be regressive, even if they were to be successful in their

intermediate goal. Similar results are obtained by Van Stel and Storey (2004) who also

highlight the importance of local economic structure. Other contextual factors may help link

new firm formation and employment growth. Studying German regions, Fritsch and

Schroeter (2011) show that the effect of new firm formation on employment is greater in

more innovative regions, compared to those with a higher share of medium skilled workers

and cities (not rural areas).

The distinction between entrepreneurship and self-employment is often fuzzy, and a similar

strand of research has considered the links between self-employment and local economic

growth. Rupasingha and Goetz (2011) find self-employment to be associated with increased

employment, income and reduced poverty across US counties, but that the effect does not

apply in urban areas.

3.2 Innovation

Innovation and city growth

Innovation – defined as the successful introduction of new products and processes – is seen

as a key driver of urban and regional growth, and a wide literature has suggested that

innovation can drive growth in cities and regions. The classic example of city growth driven

by innovation is Silicon Valley, where spin-out firms from Stanford University, combined with

government finance, led to growth in the high-tech economy (Saxenian, 2006). Silicon Valley

is clearly a unique case, but other cities have developed highly innovative sectors

themselves (Crowley 2011). For example, Athey et al. (2007) highlight the importance of Life

Sciences in Dundee as a particularly innovative sector, where the University has a strong

specialism. Scientists from the University have created new companies which have created

growth, with strong inter-firm networks helping knowledge sharing.

The link between innovation and growth varies according to the socio-economic

characteristics of the city. Rodriguez-Pose and Crescenzi (2008) show a link between R&D

expenditure and GDP growth over the period 1995 – 2003 for European regions, but that the

effect is influenced by local socio-economic conditions, such as levels of education. In

particular, research has considered the notion of ‘absorptive capacity’ – the extent to which

firms can use externally produced knowledge in their own economic activity – which

influences the extent to which innovations spread between firms (Roper & Love, 2006).

The link between investments in innovation and wage, employment or output growth will be

uneven in different contexts. One determinant of the extent to which investments in R&D

translate into growth is the level of development: if agglomeration or critical mass are


important for innovation, investments may be better made in regions with strong economies;

if already innovative regions are experiencing congestion, investments may be better made

in lagging regions (Rodriguez-Pose, 2001). In particular, the presence of suitably skilled

workers is important for investments in R&D to translate into innovation (Bilbao-Osorio &

Rodríguez-Pose, 2004). Similarly, investments in R&D are more likely to translate to GDP

per capita growth in regions with higher social capital – trust and linkages between

individuals, estimated through measures of trust and membership of voluntary groups

(Akçomak & Ter Weel, 2009).

There are two major evidence gaps relating to innovation, growth and poverty. The first is

that, while there is good evidence linking urban innovation and output, there is less evidence

on the link between innovation and employment. The few studies in this area suggest the

link depends on both the type of innovation, market structure and other socio-economic

conditions. Buerger et al. (2012) investigate the links between innovation and employment

growth in German regions. They find the relationship depends on the sector in which

innovation takes place.

A second consideration is that the distributional benefits of innovation at the city level are

unclear. Lee (2011a) shows that innovation can lead to inequality in European regions, with

some groups gaining relative to others. However, the evidence is less clear for United States

cities, where only certain innovative sectors lead to inequality (Lee & Rodríguez-Pose,

2013). Yet there is good evidence that the wage premium from locating in an innovative city

is higher for highly skilled workers than low skilled workers (Echeverri-Carroll & Ayala, 2009).

Because of this, it is far from clear that the benefits of strategies focused on innovation are

widespread. If innovation increases inequality it is unlikely to be leading to reductions in

poverty.

Clusters

Innovative clusters – geographical concentrations of interconnected firms – have been seen

as highly important for urban economic growth. Influenced by the work of Michael Porter

(Porter, 1998), clusters became an increasingly popular policy tool based on the idea that

connections between firms could help them innovate and grow. The evidence for clusters is

largely found in case studies of innovative areas such as Cambridge or San Francisco’s golf

equipment cluster, which was apparently a spin out from the local aeronautical industry

(Porter, 1998).

In addition, empirical research seems to suggest clusters are important for city growth, albeit

with some caveats. Firms which co-locate near complementary innovative firms are more

likely to innovate themselves (although the effect is negative if nearby firms are not

innovative) (Beaudry & Breschi, 2003). But other authors have suggested that the clustering

effect is incidental, and that firms in clusters benefit more from labour market advantages

and the benefits of a distinct cluster ‘brand’ than they do from knowledge sourcing locally

(Huber, 2011).

Evidence on clusters does suggest that they lead to new firm creation and GDP growth. In a

study of the US, Delgado, Porter and Stern (2010) show that firms in clusters tend to be

related to the creation of new firms in complementary industries. In a European study,

Rodríguez-Pose & Comptour (2012) show that the presence of clusters has a positive effect

on regional GDP per capita across Europe. However, they note that the scale of the effect is


relatively small compared to other factors such as regional skill levels or R&D spending more

generally. Spencer et al. (2010) show that the presence of clusters of non-ubiquitous, related

industries can be beneficial for output in Canadian cities – but that the effect depends on

whether industries are growing or declining.

There is little literature on the link between clusters, growth and poverty. In a developing

country context, research for UNIDO suggests that clusters can be important in developing

countries’ incomes, employment and well-being for poor workers (Nadvi & Barrientos, 2004).

In particular, for entrepreneurs in deprived areas, clusters can help overcome problems of

risk sharing of specialised equipment and suppliers. But as clusters in developing economies

grow, there is some evidence that vulnerable workers (in particular low skilled workers and

women) can be squeezed out of the process.

However, in the context of most UK clusters, it is suggested that the major effects will be on

employment and wages for those in the clusters. As most clusters in the UK will tend to be in

knowledge based, high-skill industries this means their impact on poverty will be indirect. A

second issue is that it is unclear whether policy can help clusters develop, with reviews

suggesting that government policy has rarely been successful in this area.

3.3 Job creation

Employment creation schemes

A number of authors have suggested the importance of explicit schemes to create

employment in deprived parts of the country, often with the aim of reducing poverty. At the

level of the national economy, Dolphin & Lanning (2011) suggest that active industrial

policies should be used to help create jobs in different sectors. They suggest this might be

achieved through a state investment bank which would address a lack of business

investment in some areas.

There have been a number of explicit attempts to link economic development in cities with

poverty by creating jobs in deprived areas. Michael Porter (1995), in the ‘Competitive

Advantage of the Inner City’, argued that the poor inner-city areas within US cities had a

number of advantages for enterprise and economic development. They are close to city

centres, have labour forces with unused skills, untapped market demand from residents who

are often poorly served by businesses, and proximity to transport links and business

clusters. Porter argued that the private sector should be a key part of addressing urban

poverty.

3.4 Access to finance

Access to finance for firms, the third sector and other institutions is important for urban

success. Yet, in the wake of the credit crunch a lack of finance has been seen as hindering

growth – particularly in some parts of the country and for certain groups. This may hinder the

ability of new firms to address poverty.

Venture capital

“Finance” comes in many different forms. There has been much discussion on the link


between venture capital and growth, based on the American model where it has been seen

as important in enabling technology based firms to grow (Nightingale et al., 2009). The UK

scores highly on measures of venture capital as a share of GDP compared to international

comparators. However, the venture capital industry in the UK is highly concentrated in

London, the East and the South East (Sunley, Klagge, Berndt, & Martin, 2005). This means

that ‘equity gaps’ where the provision of specialised finance is low are particularly acute

outside of these areas. It is unlikely that venture capitalists would intentionally ignore

appropriate investments in less affluent parts of the country. Yet information asymmetries

may prevent them from finding investments. Some parts of the country may develop ‘thin

markets’ where there are too few investors looking to find firms, and too few firms seeking

venture capital involvement (Nightingale et al., 2009).

There is some evidence that disparities in the provision of specialist finance exist in the UK.

Over the 2000s, the North of England became dependent on public sector backed venture

capital (Mason & Pierrakis, 2011). Yet the influence of public sector venture capital

investments on firm growth tends to be lower than private sector investments (Nightingale et

al., 2009). This may hold back growth in some cities. A second point is that while there is a

clear link between successful venture capital backed firms and urban economic growth, such

as in the case of Cambridge in the late 1990s, the link with poverty is less clear. Moreover,

venture capital is only important for a small minority of firms (Canton, Grilo, Monteagudo, &

Zwan, 2012).

Access to finance for deprived areas and groups

A second issue is whether finance is harder to obtain for firms in deprived areas or potential

entrepreneurs from less affluent backgrounds. It might be harder for those in deprived areas

to access finance to start firms for several reasons. By definition, the poor will have fewer

financial resources to help them start and sustain businesses. Bank provision may be

sporadic in deprived areas, with mainstream finance less willing to take a risk on

investments in less affluent places. And there may be fewer successful mentors and role

models, making it harder for those in deprived areas to access finance (Williams & Williams,

2011). Such problems may exacerbate poverty.

Providing improved access to finance for firms in deprived areas has been an important goal

of government policy (Blackburn & Ram, 2006). However, a number of authors have

criticised the assumptions made on this basis. One problem is that most new firms created in

deprived areas are likely to be in low-value sectors and are often unlikely to grow and

provide large numbers of new jobs (although they may provide employment for certain

groups) (Frankish, Roberts, & Storey, 2011). Entrepreneurship is difficult, and those in

poverty are often least well equipped and face the hardest demand conditions. Indeed, there

is some evidence that, if entrepreneurs living in deprived areas are successful, they are

likely to move to more affluent places (Coad, Frankish, Roberts, & Storey, 2013).

3.5 Growth sectors in UK cities

Some sectors are – often controversially – seen as particularly important for city

development strategies, and some will create more jobs than others (Campbell and

Partridge, 2013). These sectors often involve job creation for different groups, and so have

implications for levels of poverty. Three key areas are the broad category of ‘knowledge

intensive sectors’, the creative industries and advanced manufacturing. Healthcare and care


work are also likely to be highly important for poverty, and so potential growth in this sector

is also considered.

A more recent argument in this vein comes from Enrico Moretti (2013), who argues that

employment is split into two forms – tradeables, which can be produced in any city and then

transported to other cities, and untradeables, such as personal services which can only be

performed in the same city. If there was an increase in employment in a tradeable sector,

this would increase demand for untradeable industries reliant on consumer demand (such as

restaurants and shops) and so increase employment and wages. Moretti finds that multiplier

effects differ by sector. The highest multipliers are in high technology sectors, where each

new skilled tech job leads to an additional 5 new jobs in the wider economy. In this sense,

strategies which focus on innovation can lead to trickledown benefits for others in the labour

market.

Knowledge intensive industries

The key shift in the UK economy has been towards knowledge-based industries – those

based on the use, production and dissemination of knowledge. These are a broad group of

sectors including high technology employment such as ICT, employment in knowledge-

based services such as Business Services or Finance, and – in some definitions – elements

of the public sector such as healthcare or education (OECD, 1999).

The significance of knowledge-based industries is that they are both growing and relatively

urban (Morris et al., 2010). Almost half (47%) of knowledge-based employment in Britain is

located in London and the 12 largest cities. However, there is considerable diversity in the

types of knowledge-based employment in different cities. Some cities, including London,

have high levels of private sector knowledge-based employment.

Healthcare and care work

One sector likely to employ increasing numbers is health and social care. Fifty years ago,

the National Health Service (NHS) in the United Kingdom consumed 3.4 per cent of gross

domestic product (GDP). Today however, public spending on the NHS is nearly two-and-a-

half times greater – amounting to 8.2 per cent of GDP and equivalent to seven times more in

real terms (Appleby, 2013).

The main reasons for spending on health and long-term care increasing include an

expanding population, increases in the costs of providing care, and developments in medical

technology. An ageing population is also a factor, albeit not as important as is often thought.

Increases in life expectancy tend to delay the time at which the health care costs associated

with death are incurred rather than increasing these costs. This challenges the conventional

thinking that spending on health care will rise inevitably as the population ages. In fact, the

pressure to spend more will largely be driven by other factors (Appleby, 2013).

Spending on health and social care is likely to outpace growth in national income, and drive

employment growth in many cities and regions (Appleby 2013). Around one in 16 UK

workers are employed in the social care sector, equivalent to more than 1.8 million workers

in total (UKCES 2012). 40 per cent of the workforce is in residential care and 52 per cent are

in non-residential services. Almost half of the workforce (47 per cent) is employed by

private/commercial organisations and less than a third work for the public sector (29 per


cent); more than 400,000 workers (23 per cent) work for a charity or voluntary organisation

in the sector. The number of voluntary workers in the sub sector represents more than half of

all voluntary sector workers in the UK.

These jobs tend to be in relatively low wage work, so it is unclear whether growth in the

sector will reduce poverty. The Resolution Foundation (2013) estimate that there are

1,070,000 low and middle income jobs in Health and Social Work in the UK, comprising 31

per cent of employment in the sector. Specifically with regard to care work, the Low Pay

Commission identified pay rates in this sector to be among the lowest in the UK in recent

years (Low Pay Commission 2009, 2010, 2011). Indeed a significant number of direct care

workers in the UK are paid below the minimum wage: between 9 and 13 per cent of the

sector (Hussein 2011).

Advanced manufacturing

Manufacturing has historically been seen as a sector in decline in British cities. Turok and

Edge (1999) chart the decline in manufacturing in the 1980s and 1990s, which hollowed out

the labour markets of urban areas. However, the newer employment in sectors such as

business services or the creative industries has not proved a suitable replacement for the

lost jobs in manufacturing – leading to a ‘jobs gap’ in the cities. Manufacturing was able to

create relatively well paid employment for relatively low skilled workers, who were often not

employed in the sectors which eventually grew to replace it. Moreover, the period between

employment growth in the new urban sectors and growth in replacement services had a

scarring effect on many urban economies.

More recently, there have been discussions about the potential return of manufacturing

employment. The coalition government has been rhetorically interested in this as part of the

‘rebalancing agenda’, and many Regional Growth Fund bids have focused on manufacturing

employment. Others have doubted whether manufacturing has the potential for large-scale

employment creation, with Swinney et al. (2010: 7) arguing that: “manufacturing will not be a

source of future private sector jobs growth”. To compete with other countries, manufacturing

industries have invested in a capital intensive process. This suggests that even if there was

a large-scale resurgence of manufacturing employment in the UK, the jobs would be of a

very different type to those that were lost.

Creative industries

A final key sector for urban growth is the creative industries, defined as those which “have

their origin in individual creativity, skill and talent and which have a potential for wealth and

job creation through the generation and exploitation of intellectual property” (DCMS, 2010:

4). Under this heading are a diverse group of industries ranging from Advertising, Software

to the Arts, although exact sectoral definitions vary. The UK has seen long-term growth in

these sectors, driven by a combination of factors including an increasingly educated

population, more value placed on symbolic goods and technological change, which allows

creative goods to be produced and consumed (The Work Foundation, 2007).

The creative industries have tended to cluster in urban areas generally, and a small number

of cities in particular (De Propris, Chapain, Cooke, Macneill, & Mateos-Garcia, 2009).

Significant clusters tend to be in cities in the South of England, such as London, Cambridge,

Guildford and Bath, although other cities such as Manchester have strong concentrations. In


part because of this link with cities, urban governments have been keen to encourage

growth in the sector (Chapain & Comunian, 2010).

There is some evidence linking the creative industries and urban growth. For example,

looking at Italian local labour markets Piergiovanni et al. (2012) show that firms in new

creative industries lead to employment growth. Stam et al. (2008) find that Dutch cities saw

faster employment growth between 1994 and 2004 when they had higher shares of

employment in creative industries, but that the results were partly driven by Amsterdam.

However, there are two important concerns about the creative industries as a strategy for

growth. The first is that employment in the creative industries can often be poorly paid and

uncertain (Comunian, Faggian, & Cher Li, 2010). A second issue is that strategies in the

sector are not always effective. Cities have invested considerable resources in growing their

creative industries, but their strategies have often looked very similar and are rarely based

on a genuine nascent strength in the sector (Swinney et al., 2010). For example, “Creative

Quarters” are regularly used to attract the sector but there is no robust evidence of their

success. Even if such strategies did work in the occasional city, they would be unlikely to

work in all. Indeed, the creative industries may – according to some research – thrive in

cities experiencing employment growth, rather than creating it (Freeman, 2010).


There are a number of gaps in the evidence on enterprise, growth and poverty in cities. The

main important questions relate to job creation and the extent to which development

strategies create new employment and for whom:

Do strategies based on innovation or knowledge-based industries create jobs,

and for whom? Despite the evidence-base on the link between innovation,

knowledge based industries and economic performance we still know little about the

type of jobs these firms create. Key questions are (1) whether they create significant

numbers of jobs and (2) how skilled these jobs are, and (3) what the quality of any

new jobs created for/taken up by low skilled workers might be.

How can cities match job-creation to the needs of low skilled workers? Is such

a strategy feasible? Many of the predicted urban growth sectors will not directly

employ workers in poverty. Yet most economic development strategies seem to be

focused on these sectors. Would a strategy focused on job-creation for low skilled

workers be feasible and how would it work?

How to create good quality entrepreneurship in less affluent cities. Public

efforts to create new firms in deprived places have tended to be unsuccessful and

have even had perverse outcomes. Generic approaches to entrepreneurship do not

seem appropriate to deprived areas, so there is a need to understand how high

quality new firms can be created in economically weak cities.


4. Human capital and urban economic growth

Human capital is the key determinant of economic growth, and ensuring workers have

appropriate skills is the main lever for making growth equitable (LSE Growth Comission

2013). Yet the geography of skills in the UK is highly uneven. In this section, we consider

key arguments around skills and economic growth. It focuses on the following topics:

Skills

Local labour markets

Migration and cultural diversity

The creative class

4.1 High level skills and urban economic growth

Human capital and growth

Human capital is seen as the key determinant of urban growth. Some UK cities have

successfully attracted more skilled workers, with this underpinning strong economic

performance. Edinburgh, for example, has a high number of degree educated workers and

the economy has been relatively resilient. Skilled workers are likely to be both entrepreneurs

and workers in knowledge intensive industries. This increasingly skilled population has been

one of the key factors underpinning the success of London and many smaller cities in the

South East. Other cities in the UK with large shares of well qualified workers, such as

Edinburgh and Bristol, have also tended to be more resilient to economic change.

Studies investigating the determinants of employment growth in US cities over a very long

time period (1940 – 1986) show a robust relationship between the two (Simon, 1998).

Similarly, Simon and Nardinelli (1996) show that in the century from 1861 English cities grew

faster if they had more business professionals in the starting period, a variable they assume

is related to high workforce skills. Other factors, such as location near a port, also helped

employment growth in that period. In their study of the drivers of growth in European

Functional Urban Regions from 1978/80 to 1992/94, Cheshire and Magrini (2009) show that

the number of university students was an important determinant of GDP growth over the

period.

Yet there is not a simple, linear link between skill and employment growth. The relationship

is complicated by other socio-economic factors. For English cities, Lee (2011b) shows that

the effect of workforce skills (the share of the population with a degree) in 1981 on

employment growth over the subsequent two decades is non-linear, with relative

employment growth fastest in cities with medium-skilled populations. One potential

explanation for this finding is that the residents of highly skilled cities such as Oxford or

Cambridge tend to succesfully resist expansion.


People versus place and human capital externalities

An important debate is the extent to which the productivity of workers, and so wages, is

driven by their location or simply their other characteristics. This question is important

because it tells us whether the wages of workers can be best increased by changing

individual characteristics, such as qualification levels, or through interventions aimed at

improving local productivity. If disparities are mainly based on the differences between the

characteristics of the people working in different cities, they are of less concern. Gibbons et

al. (2010) use income data for workers in UK travel to work areas and find that only ten

percent of observed wages are due to place effects, with the remaining 90 percent of wages

being determined by worker characteristics. However, the effect they identify varies

significantly according to the exact specification they choose. A similar strand of literature,

on the urban wage premium, estimates this to be around three percent (Heuermann,

Halfdanarson, & Suedekum, 2010).

A second important issue related to human capital is that of human capital externalities: the

idea that the presence of highly skilled workers in a city can help make other workers more

productive, raising wages. This might happen if workers learn from each other, or if firms

invest in ICT for skilled workers, thus helping low skilled workers at the same time

(Heuermann et al. 2010). Evidence suggests that while the human capital premium applies

to all workers, it is greatest for those with high skill levels.

4.2 Vocational and other skills and cities

Whilst high level skills are seen as most important in driving urban economic success, it is

vocational and other skills which are important in integrating deprived groups into the labour

market and, potentially, reducing poverty. Those with poor skills have fewer potential

employment opportunities and face more barriers to work than those with more skills. The

strength of local economies is more important for those with low skill levels than those with

better skills: there are greater spatial disparities in unemployment rates for low skilled

workers than high skilled workers (Green & Owen, 2006). This provides one reason to

suspect that urban economic growth may be able to help low-skilled workers into

employment and, potentially, out of poverty.

The geography of those with low skills in the UK closely reflects patterns of economic

decline. Data from the Annual Population Survey (APS) for travel to work areas shows that

cities with the highest shares of the population (16-24) without formal qualifications are in

places like Bradford, Stoke and Liverpool. In contrast, Cambridge, York and Southampton

have the fewest residents at this qualifiaction level. In their analysis of this topic, Green and

Owen (2006) show that it is often peripheral areas in the UK which have relatively more

workers at lower skill levels.

Those with fewer skills are more exposed to local labour market demand than those with

higher level skills. Demand for low wage workers is more relevant to reducing poverty,

however, and there are substantial variations in demand for low skilled workers across the

country. Green (2011) shows that the inter-regional range of employment rates for those

without qualifications is 12 percent. In contrast, for those with higher level skills the range is

only 2 percent. Both demand and supply of higher level skills are highest in London and the

South of the UK.


One reason for the greater variation in the employment rates of low skilled workers is that

they may be more reliant on local labour demand. A key factor will be the skills of the

population. Manning (2004) shows that in cities with more highly skilled workers, low skilled

workers are more likely to be employed in non-tradeable occupations, such as personal

services or working in shops. This is because highly skilled workers alter the employment

opportunities in local economies by creating markets for these activities.

An important challenge is around how the skills of existing residents can be upgraded to help

them find opportunities in growth industries. Some cities have found innovative ways of

doing this. The Sheffield JobMatch programme is one example (Winkler, 2008). Sheffield

had experienced long-term industrial decline but was, in the late 2000s, experiencing some

employment growth in construction. The City council introduced the 'JobMatch' programme

which was intended to help the long-term unemployed, and those from hard to reach groups,

into employment. One of the key success factors for the scheme was that it was demand led

– seeking to solve a skills shortage and help residents into work. The scheme was

subsequently rolled out in a number of other local authorities that were facing similar issues.

4.3 Local labour markets

Local labour markets are less of a driver of economic growth in cities, than a framework

condition which may (or may not) help translate that growth into reductions in poverty. As

they tend to travel shorter distances to work, local labour markets and job creation are

particularly important for those with relatively low skill levels.

Matching supply and demand of skills

Two main reasons suggested for unemployment are skills mismatch and spatial mismatch

(Houston, 2005). Skills mismatch occurs when the available vacancies require different skills

to those of the unemployed. Because commuting can be difficult and expensive, particularly

for those on low wages, it may be that that the unemployed find it hard to reach available

employment opportunities: a spatial mismatch.

The spatial mismatch may be a particular issue in many UK cities because of changes in the

geography of employment. Tochtermann and Clayton (2011) find that highly skilled

employment is increasingly concentrated in city centres and along major transport corridors,

but that low skilled employment is becoming more dispersed. They argue that one reason

why this matters is because low skilled workers are less adaptable to changes in the

geography of available jobs (for more on transport, growth and poverty see section 5.2).

Others have argued that the process of matching skills with local demand requires local

initiatives. Local Enterprise Partnerships are likely to play an important role in this process.

Schmuecker (2012) outlines a number of areas where there are skills shortages: business

services, manufacturing, construction, and community, social and personal services.

However, she notes that skills shortages are most common in skilled occupations and may

reflect relatively low wages offered by employers.

Employer demand for skills

Employer demand for skills, and how individuals’ skills are used in the workplace (their skills

utilisation), are also important factors in low-wage employment (Sissons & Jones, 2014).


Where there is weak employer demand for skills, combined with a weak supply of skills, this

can result in a low-skills equilibrium. Under the low-skills equilibrium, skills supply and

demand are balanced, but there is a predominance of low skill/low wage firms operating with

lower value added product market strategies (Green, 2012).

Mason’s (2011) work has demonstrated that higher-value added product market strategies

are generally positively correlated to employer demand for skills, although this relationship

varies across sectors (Ashton and Sung, 2011). In situations where employer demand for

skills is weak but the supply of skills is relatively strong, this can lead to the under-utilisation

of skills; with employees being over-skilled for the jobs they are able to find. Levels of

reported skills under-utilisation are particularly high in lower-wage sectors (Wright and

Sissons, 2012).

Green (2012) empirically examines the relationship between skills supply and demand in the

UK NUTS 3 areas and finds that peripheral rural areas and former industrial areas are most

often characterised by a low-skills equilibrium. In contrast, a number of (primarily) southern

areas are in a high-skilled equilibrium, characterised by a strong supply of higher level skills

and strong demand from employers. It is worth noting that this work denotes the ‘average

condition’ in an area, and within each area there will be firms and sectors in different

conditions – for example some firms might suffer from skill shortages while the wider trend is

one of the under-utilisation of skills.

Increasingly there is an acceptance that skills policies – with both sectoral and spatial

perspectives – should seek to influence both the supply of and the demand for skills

(Buchanan et al, 2010). Yet, in England in particular, much less policy attention has been

paid to the demand side (Payne and Keep, 2011). Critical to increasing employer demand

for skills is the integration of skills policies with wider economic development, industry

development and business support policies (Green, 2012; Buchanan et al, 2010; Sissons &

Jones, 2014). However the evidence base evaluating specific types of policies which seek to

increase employer demand for skills and improve the utilisation of skills is not

comprehensive. In particular, it is not clear how best to design policies which engender

lasting changes in firm strategies (Buchanan et al, 2010).

4.4 Migration, cultural diversity and growth

Migration

The changing socio-demographic composition of the population has also been seen as an

important driver of urban growth. Two related, but distinct, concepts have been highlighted:

migration and cultural diversity. Labour migration has been strongly linked with positive

economic outcomes for cities and regions. Migrants are more likely to move to cities which

are economically successful, but even controlling for this there are benefits to the economy.

A related, but analytically distinct concept is that of cultural diversity, and researchers and

government have been keen to claim that there is a ‘diversity bonus’ with culturally diverse

entrepreneurship and growth (Syrett & Sepulveda, 2011).

Migration is often, but not always, linked to urban population growth. Attracting migrants is

seen as highly important for successful urban economies in other ways, with case study

research showing that the most economically succesful cities, such as Silicon Valley and

London, tend to have been successful in attracting immigrants (Saxenian, 2006). However,


the link between migration and urban success is clearly highly context dependent and

depends on both the state of the urban economy and the characteristics of the immigrant

groups themselves (Dustmann, Glitz, & Frattini, 2009). Of particular concern is the issue of

which groups gain wages (or employment) in the face of immigration. There is a general

consensus that there is a positive effect from immigration on wages overall. There is some

evidence of a negative impact of immigration on wages at the bottom of the wage

distribution, although such an impact is small (Dustmann, Frattini, & Preston, 2008).

However, the free movement of migrant workers within the European Union means that this

is an issue that continues to raise concern in the UK.

Moreover, there are concerns that economic development strategies based on the attraction

of highly skilled residents may be of little benefit to existing low skilled residents (Gibbons et

al. 2011). While such strategies may work in a small number of places, they cannot by

definition succeed in all cities. In some cases, it may even worsen conditions for low skilled

workers by increasing prices (Gibbons et al. 2011).

Cultural diversity and cities

The link between migration, cultural diversity and urban growth is based on a number of

theoretical processes. First, migrants are – by their nature – assumed to be among the most

dynamic and entrepreneurial residents. Cities with higher shares of migrants are likely to

benefit from this. Second, there is a link at the regional level between migrants and new firm

creation, particularly innovative firms. Studying technology firms in Silicon Valley, Saxenian

(2006) showed how migrant entrepreneurs and workers were pivotal in the development of

Silicon Valley.

Third, there is a link between diversity and innovation at the team level, with some

suggesting that this may translate to cities. Diverse teams are seen as having a greater

range of approaches to problem solving, being able to introduce ideas from elsewhere and

allowing new combinations of existing ideas. Because of this, cities with diverse populations

are seen as more innovative: a finding now replicated in a number of studies (Niebuhr,

2010). A fourth reason is that the presence of migrant groups is supposed to be an indicator

of a socially attractive environment. We consider this explanaition when investigating the

creative class, below.

International evidence on the link between migrant diversity shows a positive effect on city or

regional growth. For US cities since the 1970s, an increased share of foreign born

residents/workers is associated with higher wages and rents for native workers (Ottaviano &

Peri, 2005). Evidence from UK TTWAs suggests that migration increases the wages earned

by natives, particularly highly skilled natives (Nathan, 2011). But an important contextual

point is that such studies are highly dependent on the measure of diversity used (Lee,

2011b; Suedekum, Wolf, & Blien, 2012; Syrett & Sepulveda, 2011). For example, Suedekum

et al. (2012) finds a positive impact of both highly skilled and low skilled migrant diversity in

local labour markets. However, there is only a positive effect from increased numbers of

highly skilled migrants on both wages and employment. Increasing numbers of low skilled

migrants seems to reduce wage and employment growth.

The “Creative Class”

Based on the work of Richard Florida, the idea of the “Creative Class” has become


increasingly important in public policy and a number of cities have based economic

development strategies on the concept. Florida (2007; 2002) argues that production in the

modern economy is based on the creativity of a group of high human capital individuals: the

“Creative Class”. Importantly, this is not simply a group of workers in the creative industries

but a wider concept which includes other workers in knowledge intensive industries such as

law, finance and higher education (Bontje & Musterd, 2009).

The implication for cities is that the location choices of the creative class are not simply

based on proximity to jobs, but on attraction to a particularly fashionable environment.

Florida argues that economically succesful cities benefit from three ‘T’s – Technology, Talent

and Tolerance. While technology and talent are obvious, tolerance is also important – the

creative class are attracted to cities with low barriers to entry for human capital and tolerance

of alternative lifestyles and diverse groups (Peck, 2005). However, Ed Glaeser (Glaeser,

n.d.) has criticised the basic results as lacking robustness and being driven by a small

number of US cities. Peck (2005) argues that the approach is tailored towards consultancy

work and focused on place-marketing, rather than genuine social trends.

An important critique of research on the creative class has been its lack of focus on poverty

and inequality (Peck 2005). However, Florida links the presence of the creative class to

higher levels of inequality:

“Not only is Silicon Valley the home of great economic wealth; it’s also one of the

most innovative and creative regions in the world. If ever a rising tide of prosperity

were going to lift all boats, you would expect it to happen here. Yet it doesn’t.

Instead the opposite occurs” (Florida 2007: 186)

Florida links the presence of the creative class with indicators of economic inequality, and

suggests that the wage ratio between creatives and other workers is higher in cities with high

shares of the creative class. However, Florida does not make a specific link with poverty; his

evidence is that there is greater urban inequality where more workers are part of the

‘creative class’.


Skills are the key driver of economic growth in a city, but they are not distributed equally.

Shaping demand and supply of skills for different groups is an important way of addressing

poverty, and influencing the link between growth and poverty. However, there are a number

of questions remaining about how this should be done:

Linking those out of employment into specific jobs. If those outside employment

are to be able to take advantage of employment generated through economic

growth, it is likely that steps need to be taken to ensure that they have the

employability attributes and skills to meet the requirements of specific (often ‘entry

level’ jobs) and then to ensure that there are routes through which they are able to

sustain and advance in employment. This suggests that there is a need to ensure

that there is a good awareness on the part of those involved in local economic

development and labour market intermediaries of current and likely future job

opportunities, the qualities that local employers are looking for, and how to enhance

access to specific job opportunities for local non-employed people. At a strategic

level this involves enhancing the link between the supply and demand elements of


local skills strategies. At an operational level it is likely to involve brokering

opportunities with employers to enable local non-employed people to take up

employment opportunities (e.g. through bespoke training courses meeting

employers’ requirements, guaranteed interview schemes, ‘fitting’ individuals to

specific jobs/ employers, etc.)

Increasing the demand for skills, enhancing skills utilisation and improving

job quality. In order to break out of a ‘low skills equilibrium’ it is necessary for

employers to demand higher level skills, rather than to compete on a ‘low cost’

business model. This is not solely a ‘skills’ issue, but one which also embraces

business support and development. It remains unclear how local level actors can

best work to enhance the demand for skills in low wage work, although supply chain

approaches, promotion of ‘high performance working’ practices and improving work

organisation are likely to have a role to play. There may be scope to link this in to

‘knowledge-based’ economic development strategies, such as those aiming to help

firms innovate. Yet the evidence is weak on specific interventions in this area.

‘High value, low employment’ models of urban economic growth. While the

evidence suggests that human capital is a key determinant of economic growth, in

some sectors (e.g. advanced manufacturing) high value might be achieved through

the deployment of highly qualified engineers and technicians, but with relatively low

levels of employment in the sector (at least by historical levels). It is unclear whether

and how a ‘high value, high employment’ growth model is possible and sustainable.

(A ‘low value, high employment model’ is unlikely to be conducive to medium- and

long-term economic growth.) Hence one of the most important questions for linking

urban growth to poverty reduction is how the potential wealth gained from a ‘high

value, low employment’ model in key growth sectors can be distributed in such a

way as to reduce poverty - including by generating jobs in other sectors.


5. The physical environment and urban economic

growth

The physical environment is linked to urban economic growth, and may shape access to the

labour market for the residents of a city. In this section we consider the links between the

physical and built environment, growth and poverty. We consider the following topics:

Agglomeration

Transport infrastructure

Quality of life and amenities

Planning and the built environment

5.1 Agglomeration

The underlying economic benefit of cities is their economic mass, with larger cities more

productive than other areas. Alfred Marshall (1890) argued that there were three main

reasons why cities were more productive than other areas:

Labour market pooling – cities allowed the presence of wide and deep labour

markets. This provides an incentive for workers to develop specialised skills, and for

firms to develop specialised positions, improving productivity.

Specialised customers and suppliers – similarly, cities facilitated specialised

transactions. In dense urban areas firms are more able to specialise, and so

increase their productivity, while remaining confident they can find markets.

Similarly, urban scale allows firms to find appropriate inputs into their production

processes.

Knowledge spillovers – the third reason for the benefits of cities is knowledge

spillovers, with cities providing spaces in which indivduals can learn from each other.

Marshall’s three agglomeration economies have been important in explaining the economics

of cities. A similar, more recent formulation by Duranton and Puga (2004) is that urban areas

allow three activities: sharing, of infrastructure and other facilities; matching, of workers to

firms, or of customers to suppliers; and, learning, with cities allowing economic actors to

learn from each other.

Agglomeration economies make cities more productive than less dense places. This may

lead to wage or output growth and the creation of new jobs. The size of these effects can be

quite large. For the UK, Melo and Graham (2009: 43) find that: “doubling a labour market’s

employment density can raise hourly earnings by nearly 1%, while halving the distances to

other markets produces an increase of hourly wages of nearly 3%.” The effect is much

stronger in some sectors than others, with two knowledge-intensive sectors – Research &


Development and Other Business Activities – seeing the most benefit.

These agglomeration economies are important reasons why certain economic activity has

tended to cluster in cities. As Morris (2010), showed, the knowledge economy was relatively

urbanised with large cities having a particularly high share of knowledge based activity. In

the UK, however, this is complicated by the density of the country. The scale of London,

alongside the fact that it serves as a focal point for transport infrastructure, means that cities

nearby benefit from labour market spillovers – even if they are small cities. Cities like Oxford

or Reading enjoy these benefits (Hall and Pain, 2006; Jones et al. 2009). The economic

mass of the conurbations in the North are combined with worse transport linkages. This can

provide worse labour market links and hinder effective agglomeration.

Some workers will benefit more from agglomeration than others. While there is no UK

evidence on this point, research on the US suggests that agglomeration economies tend to

increase wage disparities (Fallah, Partridge, & Olfert, 2010). Similar effects can come from

improvements in transport infrastructure, with better transport having a similar effect to

increased urban density in bringing economic actors closer together.

Agglomeration and costs

Agglomeration is important for productivity, but it also increases costs. In particular, in the

absence of flexible housing supply there may be significant pressure on housing costs. This

is significant if the costs are greater for some workers than others – it may mean that low

wage workers in expensive urban areas have lower real earnings than low wage workers in

less dense, and so cheaper, places. Most of this effect is likely to be through housing costs,

which vary between different cities far more than retail prices (Lee, Sissons and Jones,

2013). Yet the greater choice available in dense urban areas may allow residents to pick

cheaper options, reducing their costs. The extent to which these effects operate is an

important area for future research.

5.2 Transport infrastructure

Transport between cities

Transport infrastructure is an important determinant of agglomeration economies, and so

growth and the wage distribution. For the UK as a whole, Sanchis-Guarner (2012) shows

that increased accessibility leads to higher wages for workers and an increased likelihood of

working overtime, results she suggests are due to better matching of workers to firms and

increased labour market competition. However, she finds no link between accessibility and

the probability of employment.

Studies for the United States also find a significant link between road availability and city

growth over the subsequent twenty years (Duranton & Turner, 2012). However, new road

investments are more beneficial for some industries and groups than others. Moreover, the

major benefits of road-building for productivity in developed countries such as the UK may

already have been realised (Fernald, 1999). There may be diminishing returns from future

investment.

Given that the UK has a relatively well developed road network, one argument is that new

development should be focused on congestion. Econometric work has suggested that the


returns to roadbuilding to address congestion are highly nonlinear, with large returns in the

densest and most congested places (Hymel, 2009). Clearly, the impact of new transport

infrastructure will be greater in some cities than others.

The link between better transport and wages will be stronger for some workers than others.

Essentially, new transport infrastructure increases trade between and within cities. Such

improvements increase wages for skilled workers in relatively highly skilled areas while

decreasing the returns to skill elsewhere (Michaels, 2008). In the UK, this might mean that

better transport provides higher benefits to graduates in highly skilled cities such as

Edinburgh, York or London than to low skilled workers elsewhere.

Similarly, improved transport between cities will be more beneficial for some cities than

others. New transport infrastructure allows firms in lagging regions access to markets

elsewhere, but also improves access to markets in lagging regions for outside firms. This is

the conclusion which Vickerman et al. (1999) reach in their study of high speed rail

investments in Europe. While all regions may gain from reduced journey times, gains are

greatest in cities which are already well connected. Particularly where investments are

justified on economic grounds, new transport investments are likely to link to already well

connnected cities. Because of this, on an aggregate level improved transport investments

may exacerbate disparities between cities and between people.

Transport within cities

Transport infrastructure within cities is also important in helping residents reach potential

employment opportunities. Transport allows better labour matching and workers to access

labour markets (Social Exclusion Unit, 2002). Transport has multiple impacts on individuals

life chances: it can influence education chances and so labour market outcomes, but also

limit labour market participation in other ways. It is also important in ensuring indviduals have

access to support services. These effects can reinforce each other and so lead to

concentrated pockets of poverty (Lucas, 2012).

This is particularly important given that many low skilled workers live relatively far away from

employment opportunities, with changes in the planning system likely to further disperse

employment, away from the centre of cities (Clayton, Smith, & Tochtermann, 2011).

Similarly, Power (2012) suggests that the location of many new housing developments in

areas distant from existing transport infrastructure has entrenched poverty amongst

residents. She argues that a model of development which better integrates new housing,

particularly new high-density housing, with existing transport infrastructure is important for

inclusive growth. A second possibility is remote working or home working, which may

overcome some transport issues. Yet many firms remain resistant to new forms of working.

The two main transport barriers are cost and availabilty. Cost can be particularly important

for those working on low wages, and high costs can lead to in-work poverty either by

reducing real incomes or by preventing access to work. Similarly, poor transport availability

can reduce choice in the labour market and prevent individuals accessing employment. This

may particularly be the case where public transport only runs during normal working hours,

which may prevent those who work shifts or have unsocial or unpredictable working hours

from using such services (Wixey et al., 2005). The interplay between these two factors is

often important.


Transport has been seen as a key way of addressing social exclusion and poverty. Policy

has been divided between (1) approaches which focus on disadvantaged groups, and

attempt to improve their specific transport options and usage, and (2) measures which

improve transport for all (Lucas, 2012). However, transport investments in addressing

poverty are locally specific and may need to be considered on a case by case basis.

5.3 Quality of life and urban economic growth

Quality of life has been seen as increasingly important for urban growth, particularly for

highly skilled workers (Storper & Scott, 2009). The logic is that technological change has

meant that many jobs are possible in a wider range of cities, freeing up skilled workers to

move to cities with higher quality of life. Unsurprisingly, this has proven a controversial idea

(Houston, Findlay, Harrison, & Mason, 2008). In particular, quality of life has very different

implications for individuals with different tastes and in different stages of life. This makes it

hard to base city strategies on the preferences of a single group.

Climate is seen as an important determinant of quality of life. Some studies of the United

States suggest that there have been movements towards cities with ‘nicer’ weather over the

long-term. Such moves have been helped by the availability of air-conditioning, changing

industrial structure and longer-retirements with affluent retirees moving South (Rappaport,

2007). However, the move South began in the 1920s suggesting other forces are at work –

with individuals simply valuing warm weather (Rappaport, 2009). Indeed other factors may

have helped this migration, such as the availability of land in many Southern cities. And

while many southern cities have experienced population growth, fewer have seen economic

growth (Kemeny & Storper, 2012).

Fewer studies have considered the case of Europe. Cheshire and Magrini (2006) note that

Europe has lower levels of population mobility than the United States, which may limit urban

population growth. However, they show that over the period 1980 – 2000 sunnier and drier

functional urban regions in Europe saw faster population growth than cloudier and wetter

cities. While this led to southwards population movements within countries, this effect was

only within countries and not between them.

5.4 Housing and the built environment

The cost of living is an important mediator of the link between economic growth, employment

growth and poverty. Of particular significance are housing costs. House prices in Britain

have risen dramatically since the 1970s (Hamnett, 1999); between 1984 and 2008 house

prices grew at around four times the rate of average earnings, and more than five times the

rate of the Retail Price Index (Houston and Sissons, 2012). There have also been important

changes in tenure patterns, with socially rented accommodation increasingly housing the

most disadvantaged, but with the private rent sector also housing a greater number of those

who are disadvantaged in the labour market (Wadsworth, 1998; Houston and Sissons,

2012).

The incidence of ‘housing costs induced poverty’ has risen over the past two decades; with

an additional 3.1 million people in poverty after housing costs have been paid (Tunstall et al,

2013). Almost one third of these people are located in London, where housing costs are

particularly high.


These figures demonstrate the potential importance of housing policy in addressing poverty.

Housing is also a policy area in which cities play an important role. While some local

authorities still own sizeable volumes of housing stock, they also hold important powers over

planning and the supply of land for new housing. However the types of policy decisions

which individual cities need to take are likely to vary significantly due to the specific

characteristics of their individual labour and housing markets.


The built environment is both a key determinant of growth and something which shapes

poverty. In particular, transport can be a driver of urban economies and a barrier to

affordable employment. However, the key evidence gap remains around cost of living. This

may mean urban growth actually increases poverty:

Costs of living and urban poverty. An important question is the extent to which

higher costs of living for workers in cities are compensated by wages – and whether

some groups do not benefit. This is particularly the case because growth may

increase cost of living for some workers, reducing real earnings and leading to

poverty. It might not always be the case that growth reduces poverty.

Linking areas of employment growth and areas of poverty. There is an

important question about the ways in which cities which have experienced

employment growth in low skilled sectors can help share this growth with deprived

residents in other cities.


6. Leadership, governance and urban economic

growth

City leadership is seen as vital for economic growth, and there are a number of examples of

cities where local leadership – both from local government and business and the third sector

– has helped drive economic growth and reduce poverty. Yet there is a divergence between

this strong case-study evidence and econometric evidence, which suggests that the link

between devolution and growth is relatively unclear, and that other factors – such as skills or

industrial structure – are more important in driving growth. In this section we consider the

evidence on three areas where leadership may be particularly related to urban economic

growth:

Local government

Decentralisation and growth

Anchor institutions and other local leaders

6.1 Local government

Local leadership

Several studies have investigated the role of local leadership and economic growth. Power

et al. (2010) outline the role played by local government in a series of ‘weak market cities’

which had faced industrial decline. They study seven cities – Leipzig, Bremen, Sheffield,

Belfast, Bilbao, Turin and Saint-Etienne. In each of these, leadership was important in

helping the city overcome the problems of post-industrial decline. For example:

Turin and St-Etienne both saw the election of new mayors who acted as a turning

point in the cities’ development.

Bremen and Bilbao saw local leadership play a coordinating role in new economic

strategies which helped the cities reinvent themselves and rejuvenate their

economies after a period of post-industrial decline.

In each of the cities they studied, partnerships were important, with the third sector and

businesses also important in helping turn around the prospects of these cities.

They outline three key factors driving successful civic leadership which helped the industrial

cities to address their problems:

(1) Citizens and civic organisations – playing a ‘dominant role’ in changing the

directions of these cities

(2) Strong central and regional governments – investing to support new initiatives,

reinvent industrial-era infrastructure and develop new social programmes

(3) Private companies – with a major stake in the future of the cities


There were challenges in terms of ensuring that workers benefitted from the changed

economic circumstances. In several of the cities they studied, Power et al. (2010) suggest

that second generation manual workers may find it hard to enter the new growth industries

which were driving the cities’ resurgence.

These case studies suggest that local government can have a significant long-term effect on

growth. However, the importance of the quality of local government appears to be relatively

minor when compared to factors such as industrial structure or skills, although it may help in

the long-term to influence other structural factors. The influence of local government on

urban growth and poverty is likely to be in the long-term only. For example, testing for the

economic performance of UK Primary Urban Areas (PUAs) for the ten years from 1995,

Greasley et al. (2011) find only very weak evidence that local government quality –

measured through the performance of planning departments, the overall comprehensive

performance assessment, an Audit Commission rating of ‘corporate capability’ and

resources spent on economic development and planning – leads to growth. However, they

note that this finding contrasts with existing international evidence.

Scale of local government

A second question is whether the geographical scale of local government matters for

economic performance. Cheshire and Magrini (2009) argue that if the scale of local

government better matches the functional economic area around it, local government might

be better able to ensure growth. There will be incentives to engage in growth promotion

policies if fewer of the benefits will ‘leak out’ into other areas. Policy areas such as transport,

coordinated infrastructure investments and information sharing may all be improved if local

government is at the appropriate scale. They show that European Functional Urban Regions

(FURS), where the local government is more closely matched to their geographical

boundaries, grew faster in that period.

Evidence from 314 US Metropolitan areas suggests that over a long time period (1960–

1990) cities with more fragmented local government structures (measured as more county

governments per 100,000 population) grew faster in both population and income terms

(Stansel, 2005). While this might be due to historical location patterns, the author suggests

more decentralised delivery may actually help growth.

In the UK, most local authorities are relatively poorly matched with their local economies

(Greasley, John, & Wolman, 2011). Local Enterprise Partnerships are partly an attempt to

address this, although one of the challenges LEPs face is that they do not all match

functional economic areas (Henderson et al. 2013).

Public service innovation

Clearly, one of the most important ways local government can influence both growth and

poverty in a city is through the wider provision of public services (OECD, 2012). In particular,

in the context of declining finance, city leaders have a vital role to play in ensuring that public

services continue to facilitate innovation and growth.

Hambleton et al. (2011) suggest that leadership at the city level can be crucial for achieving


radical public service innovation. They outline how different policies have been implemented

in Bristol, Swindon and Enschede in the Netherlands. In Enschede, a new model of

providing services to deprived groups – ‘Social GPs’ – was introduced as a bottom-up

process, rather than from central government. The process was introduced by an alliance of

local actors and supplemented rather than replaced existing structures. Local leadership was

necessary to overcome the wide number of local bodies which may have operated in this

area, and there was a strong lead organisation in the form of a Senior Manager in the Local

Government’s Social Support Department.

Incentives for local leadership

An important policy agenda has been the increasing focus on incentives for local

government. This relates to the argument that devolution, without incentives for local areas

to make particular interventions – for example, to build new houses – will have little effect.

One reason why incentives are important is that they ensure that local areas are

compensated for the increased cost of local action, although they may also prevent

decentralisation of powers being hijacked by NIMBYs (Overman 2011). There are strong

concerns that the current system of housing incentives, the New Homes Bonus, is not large

enough to compensate for the cost of development.

6.2 Decentralisation and growth

Advocates of decentralisation argue that it allows local government to better target resources

to local needs, create new and innovative policies and compete to improve their local

economies (OECD 2009). Hambleton et al. (2011) suggest that more locally based decision

making and freedom may help develop new approaches to address social exclusion.

Because of this, there is a general assumption that decentralisation of powers is positive for

economic growth. In the UK at least, there have been ongoing attempts to decentralise

power to the local level – most of this builds on the observation that the UK has a relatively

centralized government but also relatively large regional disparities (Parkinson et al. 2012).

A number of authors have drawn on international data to suggest that decentralization will

have long-term positive impacts on growth. Parkinson et al. (2012) draw on international

measures of productivity and show that counties with the most productive second tier cities

tend to have higher levels of decentralization. The reasoning behind this is set out by

Schmuecker (2012), who suggests that decentralisation may enable growth by:

Ensuring policy is targeted at the appropriate scale for managing and

supporting economic development – in particular, by ensuring economic

development matches with functional economic geographies.

Ensuring transparency and accountability – ensuring decision making reflects

local preferences and that local bodies are responsible for their actions. In particular,

effective local governance arrangements should allow hard choices to be made at a

local level and minimize problems of ‘free-riding’.

Other institutions operating over a functional economic area can help achieve coordinated

strategic leadership. Schmuecker cites the example of Barcelona, Spain, where “a general

assembly of municipalities, chambers of commerce, universities and trade unions meet to


agree a strategic plan for the area” (2012, pg. 13).

Yet the arguments for decentralisation are not straightforward, and decentralization may

have costs as well as benefits. Prud'homme (1995) highlights four potential negative

consequences:

Increased disparities between people. Fiscal decentralization can result in greater

inequality – in particular, the poor in affluent regions may receive better services

than the poor in less affluent regions. Redistribution of wealth in local areas can be

self-defeating as the rich may move to more favourable local tax regimes.

Increased disparities between places. Decentralization of taxes and spending

may help affluent regions that are better able to raise funds for economic

development. Because of this, fiscal decentralization may increase disparities

between cities, worsening poverty in those with the highest poverty rates.

Zero-sum competition. Competition may be destructive, with cities competing with

each other for investment rather than investing.

Lack of economies of scale. Economies of scale may not be available at the local

level, meaning that certain policies are more expensively delivered by local

government than by national institutions.

The empirical evidence for these effects is mixed. One reason for this is that it is very difficult

to measure ‘decentralisation’. A second, related issue is that there is no single kind of

‘decentralisation’. It is more appropriate to consider what the evidence says on different

types of devolution (e.g. fiscal or political decentralisation and which powers); and on

different types of outcomes (e.g. growth in particular regions and the implications for

disparities).

Research focuses on three specific types of decentralisation:

Fiscal decentralization – the decentralisation of resources or tax raising powers to

a sub-national level

Political decentralization – the extent to which local government can engage in

political aspects of power, such as representative democracy

Administrative decentralization – the autonomy at a local level to control policy

and practice

A number of studies have considered the link between different forms of decentralization and

growth. In a study of 21 OECD countries, and distinguishing between fiscal, political and

administrative decentralisation, Rodríguez-Pose and Ezcurra (2011) show that fiscal

decentralisation reduces national economic growth (as does political decentralisation, but to

a more limited extent). In a similar vein, Rodriguez-Pose et al. (2009) investigate

decentralisation in Germany, India, Mexico, Spain and the USA and find that the

decentralization of powers is associated with a reduction in capital investment but an

increase in current spending. However, the results have been more positive when regions

have been important in guiding and shaping the process of devolution. They argue that this

may be because in these cases decentralisation was a genuine response to local need.

A related issue is whether decentralisation allows cities to address regional disparities.


Decentralisation may allow poorer regions to better target policy to their specific needs. It

might help them borrow money for investments in infrastructure, without national government

help. And it might provide incentives to be more cautious with finance and make better

investments if finance is raised locally.

Alternatively, however, decentralisation might reduce transfers from affluent cities to poorer

ones. It will give significant powers to more affluent places, helping them grow at a faster

rate and take advantage of their greater borrowing power to attract capital and improve

regional infrastructure. Local government in poorer cities will tend to be worse funded and

more pre-occupied with poverty alleviation than growth.

The evidence on the link between decentralization and disparities is mixed and depends on

context and the exact type of devolution or decentralization. Evidence for 26 OECD

countries suggests that overall there is no effect from decentralisation on regional disparities,

but that in richer countries (such as the UK) decentralisation tends to reduce disparities

between regions (Rodríguez-Pose & Ezcurra, 2010).

Considering growth in all regions, the OECD (2009) argues that a division between national

and local policies is not always helpful. Instead, they suggest that the best recipes for growth

are a combination of supportive top-down policies from national government, along with

bottom up policies produced by strong local institutions which help address region-specific

needs. This is particularly the case, they argue, in lagging cities or regions.

6.3 Local leadership beyond local government

Local leadership can come from local government, but also managerial / professional

leadership within the public sector and community and business leadership from elsewhere

(Hambleton et al. 2011). In a number of cases – notably those highlighted in Phoenix Cities

– other actors, beyond local government, have played an important role in local leadership

(Power et al. 2010).

Anchor institutions

Local leadership is not simply about government. Anchor institutions are a US concept that

describes large employers which are fixed in a local economy (Morris et al., 2010; ICIC,

2010). Examples include hospitals, sports teams, universities or major employers which are

‘embedded’ in the local economy. Anchor institutions have a large stake in a city, usually

through a combination of internal missions and landownership. They also have important

economic impacts due to their employment, revenue-garnering and spending patterns

(Birch, 2010). In some cases, anchor institutions have demonstrated significant local

leadership.

In some cases, anchor institutions have explicitly focused on poverty. John Hopkins

University in Baltimore is one example. The area to the north of the main campus had seen

sharp increases in poverty, drugs and crime, with vacancy rates reaching 70%. In response,

Johns Hopkins partnered with state and local governments and the Annie E. Cassey

Foundation to create East Baltimore Redevelopment, Inc. (EBRI), which in 2003 launched

an ambitious $1.8 billion plan to redevelop 88 acres. The EBRI master plan calls for the

construction of 2,200 mixed-income housing units, 1.1 million square feet of life sciences


and biotech labs and offices, retail space, a new cultural centre, playing fields and other

open public spaces.

Anchor institutions are often among the largest employers of their host city and can

significantly improve the local economy through purchases and strategic development (De

La O, 2012). Hospitals and universities can enable economic development by supplying

quality jobs for a diverse workforce and by purchasing goods and services from local and

regional businesses (Harkavey and Zuckerman, 1999).

The Henry Ford Hospital in Detroit provides incentives to managers to hire locally and has set

in place a policy to pay local vendors in advance to provide working capital. The hospital

expanded this initiative in 2010 by partnering with two other local anchor institutions, Detroit

Medical Centre and Wayne State University, and has already seen an impact of $400,000 in

redirected purchasing to local businesses.2 This shows how anchor institutions can help the

local area and possibly help in the fight against poverty.

Other examples include Anchor institutions intervening in their local economies to:

Direct a greater percentage of their purchasing power toward local vendors

Hire more of their workforce from the nearby area

Provide workforce training for people needing assistance in the local area

Protect the development of new businesses, including social enterprise

Use pension and endowment funds to invest in local job creation


Local government is important in encouraging growth and reducing poverty – both through a

leadership role and a role in better public service innovation. The empirical evidence on the

link between the decentralisation of powers to cities and economic growth is ambiguous, yet

there are many case study examples where strong local leadership has been important in

creating growth and producing new policy solutions to poverty.

While important, local government’s tools for encouraging growth are limited in the extent

that they can work against powerful economic forces, such as globalisation. As we set out in

section seven, many of the significant policy areas that influence poverty (such as Universal

Credit) are national level policies.

Moreover, it is clear that local leadership is not simply about local government. Other

research has highlighted the importance of leadership from business and the third sector in

helping cities grow and address poverty. In particular, the role of other large local employers

- often termed anchor institutions - in addressing poverty at a local level is significant.

2 See

http://community-wealth.org/strategies/panel/anchors/index.html


There are a number of important evidence gaps related to leadership and governance in

cities and how this may relate to growth and poverty:

How to avoid regressive fiscal decentralisation. Many urban policy measures in

the UK are based on fiscal decentralisation to cities, with policies designed to

provide incentives for urban growth. Yet these policies will tend to favour cities which

are economically successful and leave cities with high levels of poverty with fewer

resources to address it. In this respect they may entrench poverty. There is an

evidence gap on this point.

Which powers need to be devolved to local areas to help address poverty?

The current localism agenda is focused on economic growth, with local areas being

given increased powers to drive growth locally. However, it is unclear which powers

are needed at a local level to address poverty

Anchor institutions and poverty. In many cities, anchor institutions have the

potential to both drive growth and address poverty in many ways. Building an in-

depth evidence base on this is potentially important.

Financial incentives to address poverty. New financial incentives for cities are

intended to help shape the behaviour of city governments. It is also important to

consider if local government could be given further incentives to reduce poverty. We

know little about the cost of poverty locally, and so what the incentives for local

government to reduce poverty might be.

Encouraging and sharing local best practice innovation to address poverty.

One of the key arguments for decentralisation is to encourage innovation and

learning between different areas. Yet the major policy measures that relate to

poverty are national, rather than local. An important question is the extent to which

local innovation, experimentation and shared learning is taking place around poverty

issues at a local level.


7. The UK policy context

Government policy may influence the drivers of growth, how growth can translate into

poverty reduction and, conversely, how it might exacerbate poverty. This section considers

the UK policy context as it applies to cities. This is understood to mean policies which have

been and are operating within cities in the UK, rather than the context which applies across

the whole of the UK. Different configurations of policy options and funding pots are available

at city level, notably across different countries of the UK, but also within countries.

The review considers where and how policy can intervene in the growth / poverty equation.

In particular, it assesses the extent to which city-level policies can influence economic

development; employment (particularly moving out-of-work individuals into work); and skills,

by focussing on key policy areas:

Policy related to urban areas

Labour market and benefits policy

Specific policies addressing poverty and low wage work

Policies operate at different spatial levels, so some may operate UK-wide, whilst others only

run in selected regions, cities and so on. The focus of this review is to understand the policy

context within which cities operate, to highlight the policies which address issues of poverty

and to note any learning which is relevant to future policy development. The city is the main

focus of the review here, but because context is important, policies which operate at larger

spatial scales will also be referenced. The broader context is important especially in the

sense of assessing the relative importance of city-level levers versus national levers, and

also the relative importance of city-level levers against other factors, such as the role of the

market, firms’ behaviours and so forth. This illustrates some of the limitations of city level

policy and the constraints and challenges which cities will have to address.

The scope and extent to which powers have been transferred is examined below. The

review outlines how attempts to transfer powers have resulted in a complex and fragmented

landscape and the implications for cities in terms of poverty and growth are explored.

Specific details of how policies have been made operational in cities will be drawn out

in detail in the case studies.

Policy may work in different ways to address issues of poverty. These may aim to reduce the

numbers in poverty through various means, principally through strategies to connect

individuals with job opportunities, or they may be designed to alleviate some of the worst

problems of poverty – in other words to make the experience of poverty less harsh. In

addition, some policies may not be concerned with poverty at all but will nonetheless have

an impact on poverty measures, for example by attracting more affluent residents to a

particular area.


The review of policy builds on the model set out in the research framework which aims to

establish the links between growth and poverty and illustrates where local policy can have

input. It may be the case that cities have more powerful policy levers on issues such as cost

of living rather than growth. The review examines the substantive issues which policy has

been, and is, directed towards in order to understand the scope and potential for future work.

Thinking about the policies in terms of where the different strands fit into the model is useful

in this regard.

The review concentrates mainly on how economic growth can be harnessed to combat

poverty in cities. Linking up individuals with employment opportunities is the central plank in

this work, so the review focuses its attention on policies which relate to working age

individuals.

The approach considers the policy levers and approaches which can contribute to growth

and hence job creation and then how these jobs can be accessed by the residents of cities.

A central tenet of our approach is that the quality of work and levels of wages are important

factors in an anti-poverty strategy and work itself is not a guarantee of lifting individuals out

of poverty.

The review considers ‘the direction of travel’ in relation to policy to try to draw out some of

the key messages. It considers some of the learning points and evidence from previous

experience and examines the opportunities for cities to exert influence within the current

framework. Thus the review examines a mix of strategy documents, which outline the broad

rationale and aims of policy, and where available we consider some of the evidence of

evaluation work. Again this is a ‘helicopter’ view – more specific and micro level evidence of

how policies and projects have worked will be explored through the case study framework.

7.1 Key policies for cities

The Coalition Government is committed to a localism agenda, promising to ‘end the era of

top-down government by giving new powers to local councils, communities, neighbourhoods

and individuals’ (HM Government 2010a). However, the extent to which these reforms

comprise a ‘radical’ approach (HM Government 2010) is contested, as is the rhetoric of

decentralisation. This review (and the case studies presented in Evidence Paper 3)

examines evidence for these claims including exploration of the sorts of powers which are

transferred to the local levels (and with what expectations, accountabilities and incentives)

and which powers remain at central government level, thereby illuminating the tensions

within the localising / centralising agenda.

It is worth noting that the current approach and the approach taken by the previous

Government was to decentralise power to a range of spatial levels. The question of what this

means for a city is what needs to be answered. Decentralisation to the city level implies that

different cities will adapt and shape the policies in different ways in order to meet the needs

of that city according to the opportunities and barriers available to them. Case studies of the

selected cities are intended to draw out more clearly what this means in practice.

Regional bodies, such as Regional Development Agencies (RDAs) in England, have been

abolished by the Coalition Government and a new architecture of local government has

replaced them. The RDAs were established in eight English regions in 1999 and the ninth


was established in London in 2000. RDAs received substantial budgets from central

government and their remit was to:

further economic development and regeneration

promote business efficiency, investment and competitiveness

promote employment

enhance development and application of skill relevant to employment

contribute to sustainable development

Two of the most important elements (in England) of the new local architecture are:

Local Enterprise Partnerships

City Deals

The discussion below highlights how these two key pieces of the arrangements at local level

relate to cities. We also explore options available through these arrangements and the

funding pots which LEPs and City Deals are able to access and we offer some thoughts on

the implications of these structures and the arrangements for funding them.

Local Enterprise Partnerships

Local Enterprise Partnerships (LEPs) are business-led bodies which aim to identify,

understand and address barriers to growth at a local level. The focus of their activities is on

reducing business burdens and minimising inefficiencies, while promoting local growth.

The creation of LEPs was announced in the Budget of 2010, which also confirmed the

abolition of the Regional Development Agencies (RDAs). The LEPs replaced some of the

functions of the RDAs, but were designed to reflect functional economic geographies, rather

than arbitrary administrative boundaries. The 2010 Budget announced the commitment to:

“support the creation of strong local enterprise partnerships, particularly those based

around England’s major cities and other natural economic areas, to enable improved

coordination of public and private investment in transport, housing, skills,

regeneration and other areas of economic development”; (HM Treasury 2010)

There are currently 39 LEPs across England. Responsibility for governance of the

partnerships is held by the private sector, rather than the public sector, and there are

guidelines to ensure private sector representation on their boards. In contrast to the RDAs,

the LEPs typically cover much smaller areas, although they vary in size and some local

authorities are in more than one LEP area (as discussed below).

LEPs continue to evolve. A review of LEP economies (LEP Network, 2012) outlines a range

of economic performance indicators and gives some benchmarks against which LEPs may

be assessed as well as outlining some of the challenges and opportunities which the LEPs

face. However, there is no single recipe for success in addressing such challenges and

opportunities. All LEPs are different and it is for the LEPs themselves to decide which

priorities and strategies are appropriate for their area.


Strategies to reduce poverty and social exclusion tend not to be at the forefront of their

agendas. IPPR and NEFC (2012), in their study examining prospects for Northern

prosperity, note that LEPs have made some efforts to engage with the skills agenda. Their

report considers the city region (CR) to be a suitable area for developing a skills policy

because CRs reflect real travel-to-work and travel-to-learn areas, and represent a sensible

scale at which to develop networks with employers and trades unions. They note that LEPs

which operate at that level have tried to define a role for themselves in relation to skills

policy. The All Party Parliamentary Group on Local Growth (2012) has produced a number of

recommendations regarding LEPs (recommendations to Government, to LEPs themselves

and to local authorities and others). Among other recommendations, it is argued that

Government needs to empower LEPs to have a greater coordinating role in work and skills

provision and steps should be taken to explore how this can be done.

Other research on LEPs has picked up on the issue of scale (Centre for Cities 2011, All

Party Parliamentary Group on Local Growth 2012), variously noting the benefits of working

across local authorities as local authorities themselves are often too small to reflect

functional areas. Working across areas can lead to better policy making, and can enable

more effective use of resources by reducing fragmentation and duplication.

The Centre for Cities (2011) note that LEP geography varies widely, citing the example of

the South East LEP covering 16 TTWAs, and the opposite problem of the Birmingham City

Region being split across 6 LEPs, suggesting that local politics have impeded the

establishment of a body at the most appropriate scale. The geography of LEPs still needs

working through. The Centre for Cities (2011) further note that, now that they have been

established, there is unlikely to be radical change in the LEP geography, but funding could

be used to shape how LEPs operate. The Growing Places Fund offers the opportunity to

incentivise LEPs to come together to address issues where, as in the case of Birmingham,

the city region is split across LEPs. There may still be issues around how stronger areas can

be incentivised to work with weaker areas (Bailey and Bentley, 2012).

‘Local politics’ is a factor which can shape how LEPs have been configured but also how

they operate. The All Party Parliamentary Group on Local Growth (2012) recommend that

the government should commit a small amount of core funding to ensure basic levels of

staffing (important in driving forward the activities of the LEP) and also to give LEPs greater

ability to ‘balance different local interests’ rather than LEPs being dominated by bodies more

able to devote personnel and resource.

Enterprise Zones

Proposals for Enterprise Zones (EZs) were outlined in the 2011 budget (HM Treasury 2011).

EZs apply in LEP areas, hence only in England.

The initial ten EZ LEPs were Birmingham and Solihull; Leeds City Region; Sheffield City

Region; Liverpool City Region; Greater Manchester; West of England; Tees Valley; North

Eastern; the Black Country; and Derby, Derbyshire, Nottingham and Nottinghamshire, in

addition to one for London which would be permitted to choose its location, reflecting ‘the

Mayor of London’s unique economic development responsibilities.’ Subsequently, further

applications for Enterprise Zones were invited, to be assessed against the following criteria


Ability to deliver growth and jobs: a clear, evidence based strategy to deliver

sustainable economic growth by removing barriers to businesses

Value for money: the proposal should deliver as much as possible for the

investment being made

Implementation: plans for delivery are robust and support the growth focus of the

bid

EZs benefit from a business rate discount of 100% worth up to £275,000 over five years for

businesses moving into (or setting up in) an EZ within the current Parliament. Any growth in

business rates in the EZ are shared among the LAs covered by the LEP area for at least 25

years and are earmarked to support local economic priorities. Planning restrictions in the

zones are simplified and Government is to support superfast broadband rollout in the zones.

At the time of writing a total of 24 EZs now operate across England. What this means is that

not all LEPs have EZs, though they are present in the major cities and it is not clear how

LEPs without EZs will be able to generate funding (All Party Parliamentary Group on Local

Growth 2012).

Competitive Funding Arrangements

Competition for funding is a key element within the LEP strategy. However, the All Party

Parliamentary Group on Local Growth (2012) noted a lack of support for both the number of

different funding streams and the competitive bidding processes which applicants were

required to undertake to access that funding. Various stakeholders who contributed evidence

to the inquiry pointed to the bidding process itself being heavily resource intensive –

reinforcing the Centre for Cities (2011) finding that LEPs invested a great deal of time in the

early stages of developing bids for EZs and this had diverted attention away from the more

practical matter of getting the LEP up and running – and therefore was an inefficient use of

time. It was also felt that the distribution of funding, and of EZs, risked imbalances between

LEPs and also between local authorities within the same LEPs. These reasons led to

support for allocation based funding along the lines of the Growing Places Fund (GPF). One

of the recommendations made to Government by the All Party Parliamentary Group on Local

Growth (2012) was that ‘government should commit to consolidating funding streams

available to LEPs and extending local financing mechanisms to enable LEPs to invest in

local economies’.

City Deals

As part of their localism agenda, the Government has negotiated specific sets of powers for

the major cities in England: City Deals. These were announced in 2011 (HM Government

2011) in Unlocking Growth in Cities, in which some of the challenges faced in achieving

economic growth in cities were outlined. The paper locates City Deals in the context of other

enabling reforms such as LEPs and the Regional Growth Fund.

The City Deals have proceeded in two waves. Wave one of the City Deals were negotiated

with the eight ‘Core Cities’ – Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle,

Nottingham and Sheffield. The Core Cities estimate this wave will create 175,000 jobs and

37,000 apprenticeships over a twenty year period. The second wave of City Deals focuses

on the next largest cities in the UK, and a group of cities which have experienced rapid

population growth. In total 20 cities have been asked to put together proposals to achieve

City Deal status. This is a competitive process and deals are not guaranteed. Criteria for


selection include demonstrating strong governance across the functional economic area,

harnessing private sector investment and the ability to use public resources more efficiently

– i.e. being able to do more for less.

The City Deals initiative can be seen as part of the ‘localisation’ agenda concerned with the

decentralisation of powers to local areas. The core basis of the deal is that there will be

negotiation around ‘asks’ and ‘offers’ to strike a balance between central control and city

freedoms. HM Government (2011) noted that the ‘asks’ which Government make will be

specific to each of the Cities.

While there has been a focus on economic growth in the City Deals, there has been no

explicit attempt to link them to poverty. However, most City Deals include measures to tackle

worklessness and unemployment, create new jobs and develop workforce skills. They are

therefore a potentially important way of developing new policies to address poverty at a local

level.

City Deals will be an important mechanism to boost skills and employment in their areas. HM

Government (2011) note specific ways in which City Deals will be able to interact with and

shape the skills agenda which include:

Growing apprenticeship numbers through establishing City apprenticeship hubs

Creating a City Skills Fund to enable cities and colleges to work together to tailor

adult skills provision to the needs of local employers

Giving cities greater opportunity to drive employment and skills through better

service integration with Jobcentre Plus, and co-location of service delivery,

Allowing cities to expand existing DWP contracts such as the Work Programme to

include other wraparound services

City Skills Fund

In February 2012 BIS announced that the City Skills Fund (CSF) would total £4.5M. The

fund is to be allocated to each of the eight Core Cities (plus London) and their surrounding

LEP areas – with each city forecast to receive ‘around’ £500,000. The specific aims of this

fund were to enable more effective local working between cities/LEPs and local training

providers (both independent providers and local colleges) and to develop and agree a set of

skills priorities so that there is a shared understanding of what is required to meet business

needs and stimulate local growth. The Fund is designed to be used to set out how the

partners will work together to implement these priorities and how best to ensure that

employer and individual demand in the priority skill areas are met.

The CSF is one of the key ways in which cities and LEPs are being tasked with developing

the skills agenda in their areas. Yet, cities may have been hoping for higher levels of funding

and there are questions about how far this level of funding will allow these priorities to be

addressed. Questions also remain about if this fund will be extended to phase two City

Deals and if so, at what level. The case studies will seek to draw out how this fund can be

used – particularly how cities have attempted to increase demand for skills and how they

have sought to match skills policies with employer demand.


City Deal insights / issues

The Centre for Cities (2013) has undertaken some research into the phase one City Deals

through interviews with representatives from each of the eight core cities. Several important

findings have emerged including lessons for the core cities themselves, for government and

for cities involved in negotiating wave two deals:

Cities recognise that there is increased local flexibility, but control of the levers of

local growth and job creation and access to funding are co-dependent.

Cities would like to see better incentives so that returns generated by growth can be

retained locally. Negotiation around this could progress through the City Deals

framework.

City Deals are seen as particularly important in the context of RDA abolition and are

most important for cities experiencing the greatest effects of austerity.

Cities had to develop their ideas very quickly and often from a starting position

where, through years of conditioning under a centralised policy making framework,

they lacked the experience and knowledge to engage with government in designing

policy. Although cities acknowledged the positive role played by the Cities Policy

Unit, there were suggestions that co-design with departments was often not seen as

collaborative, with an emphasis on questioning cities’ intended approaches rather

than trying to work together to develop new ideas.

Post-deal negotiations have been slow. Cities feel they are often being asked to

remake the case for measures previously agreed, officials at negotiations are often

too junior to move discussions forward, resulting in (over) cautious behaviours, and

timescales have slowed because funds could not be committed until the

Comprehensive Spending Review is complete.

Cities still need to address issues of geography. It will be essential to collaborate

with neighbouring areas to achieve greater influence over local growth, but these

relationships will take time to become fully established.

Regional Growth Fund

The Regional Growth Fund (RGF) is designed to support areas which are over-reliant on the

public sector for employment to assist them in creating sustainable private sector jobs. It is a

competitive fund where applicants must demonstrate a coherent business plan, and must

also match the public sector funding with private sector investment. Applications have been

invited for projects or programmes to run in England only, though the bidders themselves

may be based elsewhere. The initiative is jointly funded by BIS and DCLG. The applications

are assessed on a number of factors including the value for money to the taxpayer and the

ability to create private sector jobs. Bids are for a minimum of £1 million. To date four waves

of funding have been announced, three of which have already been allocated. The fourth

wave was announced in January 2013 with an allocation of £350 million. However as Bailey

and Bentley (2012) note, the budget for the RGF is ‘substantially smaller’ than RDA

allocations and they argue that it is important for business in particular to be convinced that

LEPs have real power and real resources to make a difference, otherwise there is the


danger that businesses will become disengaged from what are essentially voluntaristic

partnership arrangements.3

The distribution of the RGF is much more tightly controlled from central government than

was the case with RDA decision making where decisions were taken nearer the ground.

There is a case for extending greater LEP influence over the decisions regarding allocation

of funding so that projects which accord with local priorities are in a better position to receive

support (Bailey and Bentley 2012).

The National Audit Office investigation (NAO, 2012) into the £1.4 billion allocated to the first

two bidding rounds made the following observations:

The bids selected were found to offer better returns than those that were not

selected, and the bids selected followed the brief in supporting private sector jobs in

areas more heavily reliant on the public sector.

41,000 additional full time equivalent jobs are projected to be created through the

fund. The cost per job is estimated at £33,000.

Applying tighter controls over value for money would improve cost-effectiveness and

allow projects to get up and running more quickly

Plans should be put in place for robust monitoring and evaluation to validate the

number of jobs created by the fund.

This emphasises the need to monitor whether the job growth objectives of the RGF are

reached.

Community Budgets

Community budgeting is an approach which seeks to empower public service providers to

work together at the local level to (re)design services around local needs to improve

outcomes for citizens – for example one strand of this approach would be to improve locally

planned welfare-to-work provision designed to link people with job opportunities and thus

improve their material circumstances. There are three strands to the strategy – whole place

community budgets, troubled families, and neighbourhood community budgets. The

approach involves making better use of resources by encouraging local agencies to pool and

align their budgets to work towards shared objectives, on the grounds that this will allow

more to be achieved from the same financial resource and will break down silo thinking and

encourage cross-domain working. The idea is that local professionals will be further

empowered through removing central rules and regulations so that improved services can be

delivered. The approach also seeks to establish appropriate partnership and local

governance arrangements to create a framework which is appropriate for each particular

area.

https://www.gov.uk/understanding-the-regional-growth-fund#what-is-the-regional-growth-fund


European Regional Development Fund (ERDF)

European funding remains an important source of finance in the UK. The ERDF is aimed at

supporting economic regeneration projects promoted primarily by public sector bodies such

as local authorities, government departments, further and higher educational establishments,

voluntary sector organisations and other public bodies. Private sector bids are encouraged in

partnership with the public sector. Bids are considered in the three areas of business

support, innovation, and sustaining communities. Future bids can cover more than one of

these categories. In England the funding is available in selected regions which demonstrate

the need for support. Bids from LEPs are expected to be the way through which English

areas will be able to access this fund. ERDF is expected to cover some of the costs of the

programmes but match funding is required from other sources to make up the full costs.

Heseltine Review

Published in October 2012, this review sets out recommendations for promoting economic

growth (Heseltine, 2012). It is not concerned with anti-poverty measures or the distribution of

the profits from that growth. The review makes the case for greater localism with central

government playing the role of ‘partner, catalyst and enabler’. The Review suggests that

LEPs should be a key driver of growth, working with local stakeholders to develop growth

plans in their areas, which would then be used to bid for funds from central government. It

suggests that funds for LEPs should be released from department underspends and

efficiencies. The Review also recommends closer business links with schools and colleges,

and swifter intervention when schools are found to be underperforming. Across a wide range

of government areas, the report makes a total of 89 recommendations. HM Treasury and

BIS (2013) made a response to the Heseltine Review in which further information was set

out as to how the recommendations may be taken forward. The main headline is that

Government has decided to accept either in full or in part 81 of the 89 recommendations to

‘dramatically advance the process of decentralisation, unleash the potential of local

economies, strengthen partnerships with industry and foster economic growth’ (HM Treasury

and BIS 2013:p5).

7.2 Key labour market policies

The Coalition Government’s welfare policy has been based on two major reforms:

The Work Programme – an active labour market policy to get the long-term

unemployed (and other vulnerable groups) into employment

Universal Credit – a radical simplification in the benefits system designed to ‘make

work pay’

Both policies have important implications for both cities and poverty, though, despite the

government’s commitment to localism in other areas, neither policy matches newer local

government structures.

Two other policies which attempted to adapt labour market policy to local needs are also

considered below:

City Strategy

DWP Worklessness Co-Design


Other policies are also mentioned in the discussion where appropriate to highlight particular

learning points.

The Work Programme

The Work Programme is the government’s flagship scheme for getting the unemployed back

to work. The scheme operates on the basis of sub-regional lots, with prime providers bidding

to run services across particular areas. These ‘primes’ have complete authority (a ‘black

box’ approach) to determine the individualised support required for individuals to enter and

sustain employment. Primes work with a network of sub-contractors at a local level, who

receive referrals.

Although the Work Programme has many similarities to previous models, the payment by

results model is distinctive, with a differential payment structure for different groups of long-

term unemployed, reflecting the difficulty associated with getting them into work. This

differential payment structure aims to create incentives for providers to work with those

furthest from the labour market rather than a system which ‘parks’ the harder to help

individuals and ‘creams’ off the ‘easier’ cases.

Concerns have been raised about the performance of the Work Programme to date,

although there are differing interpretations of the performance indicators. The Social Market

Foundation (Mulheirn 2011), while generally supportive of the approach, raised concerns

about whether the Work Programme would be able to attain the minimum performance

levels. The Public Accounts Committee (2013) in its analysis of the outcome figures made

the following observations:

Performance (to July 2012) fell well short of the DWP estimates of performance and

less than the estimate of what would have happened if no Work Programme were

running.

Performance among the 18 prime providers varies significantly. Economic conditions

are not thought to be responsible for this underperformance. Instead performance

differences between providers are attributed to the providers’ approach and

competence.

The difference between expected and actual performance is largest for those

considered hardest to help, including those with disabilities.

A further criticism is that because it is offered for sub-regional lots, the Work Programme

bypasses local government and cities altogether; the contract packages are not aligned to

functional economic geographies and will often cover several different areas. This may

create issues with providers choosing to focus efforts on the unemployed in areas with

relatively strong local economies (such as Leeds) relative to less affluent cities nearby (e.g.

Bradford). This may be more of an issue if the regulatory framework in terms of minimum

performance standards and the outcome based funding arrangements are not sufficiently

robust to iron out these inequalities. The payment model considers the difficulty of placing an

individual into work in terms of the characteristics of the individual and does not account for

the different labour markets in which individuals compete.


Universal Credit

Universal Credit has been designed to “make work pay” by simplifying the benefits system,

removing categories of claimant and bringing benefits together into a single payment. By

adjusting employment incentives it aims to address the problem of people being trapped on

out-of-work benefits. In combination with other strategies it is designed to reduce the

marginal tax rates so that paid work is a more attractive proposition to a life on out-of-work

benefits. One of its stated aims is to reduce in-work poverty.

Universal Credit should reduce the problems associated with “churning” between

employment and non-employment, and related interruptions in benefit claims, through the

automatic linkage between records. Its success will, in part, be determined by the technical

capability of the IT system to link together earnings records and to deliver the correct

payments. However, the policy does not address the costs involved in getting to or

participating in work, and cannot therefore guarantee employment. Nor does it guarantee

quality of work.

Universal Credit is an example of a policy which is determined and set at the national level to

apply equally across the UK. The national benefit framework is an important consideration

when looking at potential strategies to alleviate poverty and the efficacy of approaching the

problem from the position of benefit transfers. Even if it were possible under legislation, it

may not be desirable for cities or LEP areas to be given responsibility over welfare

payments. Different levels of benefit in neighbouring areas would be likely to drive perverse

incentives. The idea of the itinerant welfare claimant has a long history; it was one of the

drivers behind the establishment of the New Poor Law of 1834 which sought to impose

national uniformity in welfare provision.

City Strategy

City Strategy operated from 2007 to 2011 and was an attempt to take a holistic, local view to

worklessness. It operated across 15 partnerships across England, Scotland and Wales,

which were mainly based in urban areas which contained locales with particularly low

employment rates and high out-of-work benefit claimant numbers.

The policy was designed to help those furthest from the labour market towards and into

employment and to test how working in partnership might secure better outcomes. City

Strategy Partnerships (CSPs) were tasked with delivering better outcomes and could

request ‘enabling measures’ from central government. The partnership approach

encouraged co-operation rather than competition and sought to adopt a more holistic view of

the barriers faced by those out of the labour market. Partnerships had some ‘seed corn’

money granted to them by the Department for Work and Pensions, but the initiative was not

primarily about new funding. The aim was to establish new ways of working, align and pool

funding streams to achieve better services, and reduce duplication of effort.

One of the main funding sources which was utilised by CSPs was the money allocated

through the Deprived Areas Fund (DAF). This was allocated to CSPs and was widely

considered one of the most flexible funding pots which providers had worked with. Crucially

DAF was ring-fenced to be spent on projects which were intended to tackle worklessness. In

England, DAF was replaced by Working Neighbourhoods Fund in 2009, though DAF

continued in Scotland and Wales. This caused problems for CSPs for a number of reasons.


WNF was allocated at local authority level rather than at partnership level and this caused

problems in some multi-authority partnerships where issues of pooling the money arose.

WNF was not ring-fenced and there were suspicions that not all of the allocation was used to

tackle issues of worklessness.

City Strategy was knocked off course in terms of its outcome targets of increased

employment rates and reduced benefit rolls by the effects of the recession. Similarly,

calculations of cost-effectiveness were limited by the loosely defined parameters of what

constituted City Strategy and what did not. However, there were numerous examples of

good practice in partnership working.

Two national evaluation reports were produced from the initiative (Green et al 2010 and

Green and Adam 2011). These reports highlighted the following key learning points:

Evidence of success or lack of success in outcome terms was limited. This

was due to methodological challenges, the design of the intervention and the effects

of the recession.

There was a need for greater clarity at the outset on the issue of enabling

measures, which were to be granted to the partnerships.

Partnerships benefitted from being able to fund a central secretariat function.

A central co-ordination function for partnerships was important in driving activity

forward.

Partnership representatives often reported tensions between the needs and aims

of the partnerships and the needs and aims of their employing organisations.

It was acknowledged that in situations where there may be conflicts in terms of

either direction or time, that the primary allegiance was to the employer; partnership

was seen as an extra to the ‘day job’.

The vast majority of partnerships were public sector led, and dominated by public

sector representation.

There was insufficient employer engagement. Partnerships were more

successful at orchestrating and delivering supply-side interventions designed to

increase levels of human capital than they were with engaging with employers.

DWP Worklessness Co-Design

The Worklessness Co-Design pilot was launched in June 2010 with the aim of bringing

together Jobcentre Plus, DWP and five selected local authorities in England (Birmingham,

Bradford, Lewisham, South Tyneside, Swindon) to explore how working collaboratively might

result in better outcomes for tackling worklessness, and to develop shared understanding of

the evidence on what works. Its inception was inspired by the ideas embodied in the Total

Place Initiative (HM Treasury and DCLG, 2010). An interim report was published in January

2011 (DWP, 2011a) and the final report was published in May 2011 (DWP 2011b) in which

the invitation was made for all other local authorities to work with Jobcentre Plus by

contacting the relevant district manager. The final report describes the co-design approach

as ‘removing controls and establishing a culture of flexibility, innovation and partnership

working rather than imposing ‘top down’ prescription’. It is intended to be more than about

devolving funding and function to local areas, with the report stating that ‘real localism lies in

shaping policies around individuals’.


The Co-Design Pilots also aimed to show how effective partnership working can deliver cost

effective public services. The final report notes that similar initiatives have operated to

increase local level partnership working (e.g. Working Neighbourhoods Fund, City Strategy)

but there is limited evidence in regard of their effectiveness to increase outcomes for

disadvantaged groups or of the cost-effectiveness of the interventions.

The key findings from the Worklessness Co-Design pilots were:

That each area achieved buy-in from partners, agreed priorities, decided what was

required and designed solutions in the time available. Some areas also successfully

moved into delivering these solutions

That, as planned, different areas focused on different priorities including tackling

intergenerational worklessness, working more closely with individuals and involving

them in identifying best routes out of worklessness, working with families living in the

most deprived areas, and employer focused services linked to opportunities for

young people.

Examples of activity from the individual pilot areas included:

Widening the partnership to include agencies whose remits have not traditionally

been directly concerned with worklessness.

Working with the Audit Commission to develop a cost-benefit framework to

demonstrate the benefits of the work.

Establishment of a single point of access for employers wishing to engage with

jobseekers aged 18-24.

Providing access to high quality, flexible and intensive employability support to

individuals in their own local areas.

The general principle of co-design remains in place. The DWP is committed to working with

partners to co-design services which extend and support mainstream provision to ensure

best value for money. To that end DWP has produced a checklist for local authorities and

other partners who are interested in the co-design approach to produce more cost-effective

local service delivery.

7.3 Specific policies for addressing poverty and low wage work

The Living Wage Campaign

The Living Wage Campaign seeks to encourage employers to pay a wage to employees,

which in broad terms, is sufficient to live on. In the UK the campaign began in London in

2001, partly in recognition that although a national minimum wage had recently been

introduced, it was still possible to be in full time work yet be struggling to make ends meet.

Living wage campaigns were not new and had happened in several other major cities. In the

case of London, its much higher cost of living compared with other areas of the UK meant

that it was the most suitable place for the campaign to begin as wages were under most

pressure.


Paying the living wage is a recognised sign of good employment practice. From an

employer’s perspective paying the living wage may be ‘the right thing to do’ from a fairness

perspective, but also sends out a message that the employer is reputable.

The Living Wage Campaign is grounded in the notion that work is the best way out of

poverty and its approach follows from that perspective. It does not seek to remedy poverty

by recourse to such policies as minimum income guarantees and other forms of social

protection, though of course, these types of measures may still be necessary based on

individual need. To that end the approach mirrors the late nineteenth and early twentieth

century debates which revealed tensions within the nascent labour movement about

solutions to poverty through high wages or social welfare. This strategy for reducing poverty

requires complementary policies to ensure fair access to labour market opportunities.

Skills upgrading

Strategies to enhance the supply of skills can be seen to be relevant to both growth and anti-

poverty. A growth strategy which is rooted in skills can be seen as anti-poverty in the sense

that it is giving citizens the best chance to be able to support themselves in a competitive

market place. Skills may encourage growth through attracting investment into areas, which

would be likely to have knock-on effects in terms of growth by supporting industries and

services. Skills upgrading may be part of other policies, and is integral to local skills

strategies.

7.4 Policies in the devolved nations

As noted the policy landscape is different in the four countries of the UK. Some elements

relating to growth and poverty are common; one obvious example of this is the benefits

regime. This section notes some of the key policies which exist and have existed in the

devolved nations of the UK. In England during the period under consideration, RDAs

operated with large budgets to promote economic growth. In the devolved nations this

arrangement was absent and different policies and funding pots were in place.

Scotland

In Scotland for example the Cities Growth Fund was financed by the Scottish Executive

following the review of Scotland’s cities in 2003 (Scottish Executive, 2003a; 2003b; 2003c).

£90M was allocated from 2003-06 and £83M from 2006-08. Funds were allocated in

proportion to city population. Cities drew up visions in order to guide spending. CGF was

intended to be a capital fund but in reality was split between capital and revenue projects.

The evaluation of the project (Cities growth fund evaluation report, 2007) concluded that it

was difficult to assess the economic impact of CGF as this was most likely to be apparent in

the longer term. There was some evidence found of additionality, though the evaluation also

concluded that there were few examples of “iconic” or “visionary” projects. The report also

concluded that funding the cities according to population meant that the smaller cities

received very small amounts of money, despite the fact that it was in these cities where the

greatest impact could have been achieved.

The Scottish Government are responsible for setting out the economic plans for the nation

and have done so in various strategy documents (Scottish Government, 2007; 2011). The

2007 and 2011 strategy documents outline some of the key strategic objectives including a


commitment that Scotland should be “wealthier and fairer”. Little is included about powers

for cities specifically; the document tries to make the case for greater devolution of powers to

the national level, particularly on the issue of taxation. Scottish Enterprise is the delivery

arm of the Government’s economic strategies. The current business plan (Scottish

Enterprise, 2013) emphasises a partnership approach to working with various bodies,

including those at the city level, to improve economic performance.

In common with the rest of the UK, more recent policy documents and discussion papers

relating to issues of economic development and growth in Scotland note the changed and

challenging economic context and hence the need to develop different strategies for funding

projects. The regeneration discussion paper of 2011 (The Scottish Government, 2011)

notes, among other possibilities, the opportunity of tax incremental financing (TIF). This

approach develops the idea of partnership, noted elsewhere in the discussion paper to have

been successful in the past, and allows the public sector to finance initiatives by borrowing

against future revenues for business rates. This type of approach need not happen in cities,

but they are the most likely locations for this arrangement; TIF has already been applied in

Glasgow to finance part of the ongoing improvement of the city centre. It has also been

applied in Edinburgh to fund the Waterfront Regeneration Project. It is too early to make a

full assessment of the effectiveness of this model, but it does appear to offer opportunities in

the current climate when finding funding for capital projects is difficult.

The regeneration discussion paper also notes the potential for linking local residents with the

opportunities created through capital investment through the use of community benefit

clauses in procurement (CBiP). These are particularly useful in construction and likely to be

used in the major urban areas. The investment in the upcoming Commonwealth Games in

Glasgow in 2014 has provided some opportunities to use these clauses to secure training,

work placements and apprenticeships for people from nearby deprived localities.

Wales

In Wales recent discussion has focused on the possibilities of developing city regions. The

2012 report (Welsh Government, 2012) recommended the establishment of two city regions

– Swansea Bay, and South East Wales (though the latter would be named “Cardiff City

Region” as this was thought to be advantageous in attracting investment) and envisaged a

collaborative arrangement between the two. The approach is envisaged as a long term

strategy rather than a quick fix. Commitment to the city region model should be underscored

by allocating funding to the regional level across a range of policy domains including

transport and housing. Funding options outlined for the city region model include taking

advantage of EU funding streams and lobbying for greater flexibility in the use of these

funds.

Strategies developed by the Welsh Government (e.g. Welsh Government 2010) note that the

public sector is a major procurer of services and that this procurement needs to be opened

up for small and medium sized businesses to compete on a more equal footing with larger

businesses. The arrangements proposed are in line with competition laws; sometimes

Welsh businesses will win and sometimes they will lose out.

Since 2004 Wales has adopted a Spatial Plan as a statutory requirement of the Planning

and Compulsory Purchase Act 2004. Under this plan, Wales is divided into six areas and

area groups are responsible for the development and delivery of area plans.


Alongside the spatial plan, the Welsh Government has also established Regeneration Areas

(RAs) since 2007, which seek to address market failures through working with individuals

within their communities to tackle the causes of deprivation. Within the RAs, activity is

driven by the boards, which are made up of partnerships between local authorities, and other

representatives from the public, private and third sectors. The approach has been applied to

7 areas thus far, and these areas have been selected on the basis of high levels of

disadvantage. The majority of the funding is earmarked for capital spending, though a small

amount of revenue funding is also provided.

Evaluation work undertaken by the Welsh Government (2010) highlights that RAs have been

successful in leveraging in additional funding. Priorities for funding allocation indicate that a

local approach has been adopted in that different priorities and objectives are being

addressed in the areas. The work also noted that for local partners to be able to co-ordinate

policy at a local level, greater policy coherence was needed at a national level.

Also running in Wales since 2001, the Communities First Programme, is an initiative which

seeks to tackle the multiple causes of poverty and disadvantage. The early interventions

were based at small area level, however the plans are now to base activity around larger

areas known as clusters. Evaluation work (Welsh Government 2010) of the programme has

found evidence of the success of the area based approach, noting that although the

communities in question may still show worse than average levels of deprivation, gaps are

being closed with the more affluent areas across a range of indicators. It also noted that

although the overall programme worked well the relationships in some areas were

dysfunctional and alternative arrangements should be made in those cases. The evaluation

also noted that one of the main factors influencing the success or otherwise of individual

areas was the quality and ability of the staff to drive forward the various projects.

The Welsh Government (2012) have also published a poverty action plan which envisages

action based around three mutually reinforcing priorities – preventing poverty (i.e. the child

poverty angle), giving people the skills and qualifications to be able to find employment

(explicitly recognising employment as the best route out of poverty) and mitigating the worst

effects of poverty.

Northern Ireland Policy

Northern Ireland is somewhat distinct in policy terms compared with the rest of the UK.

Development and decision making powers are held by the Northern Ireland Executive and

there is a relative lack of powers at the level of the local authority or the city level. As an

example of this the economic strategy document of 2011 barely mentions the roles of cities

or the city councils4. Northern Ireland is obviously much smaller than the other countries of

the UK and there are questions about whether devolving to smaller levels within the province

would be useful or what could be achieved by doing so.

The history of Northern Ireland affects policy implementation. Given the historical divisions

across society, there have been attempts to implement demand side policies using the tools

http://www.northernireland.gov.uk/draft-economic-strategy.pdf


of inward investment to locate jobs near to communities and individuals, often targeting

areas of high worklessness5 so that jobs can be accessed without having to cross these

social barriers. Although objective need is cited as the rationale, this is as much about the

unspoken need to manage potential sources of dissatisfaction and conflict in a divided

society. The NI Department for Employment and Learning (DEL) and the NI Industrial

Development Board, who have been the key players in this approach, oversee from the

national perspective. This local demand side approach to employment has also been

endorsed by the central anti-poverty unit6.

Northern Ireland is over-dependent on public sector employment. Given the current

economic situation and the UK government’s response to that, there is a need to rebalance

the economy towards the private sector. The UK government has been exploring ways in

which this can be achieved7. Funds have been made available to supply superfast

broadband to Belfast and Derry / Londonderry. Projected infrastructure investment is

detailed in the Northern Ireland Investment Strategy8. However, these plans and funding

operate at the Northern Ireland level, rather than at lower levels. As well as infrastructure

plans, the UK government has also proposed to devolve powers to set corporation tax to the

Northern Ireland Executive in order to stimulate inward investment.

The Social Investment Fund9 is one initiative which operates across Northern Ireland and

has a particular area focus. It operates until 2016 with an £80 Million allocation from the

Northern Ireland Executive. Eligibility is based on levels of deprivation and the initiative

hopes to tackle issues relating to poverty, unemployment, lack of services and physical

dereliction. The fund is delivered in partnership with communities across nine social

investment areas. Each area has a steering group comprising public and private sector and

community and voluntary groups. There are four zones within Belfast and Derry /

Londonderry is also a zone. Given the remit of the fund, it is not surprising that activity may

be focused on these two urban areas.

7.4 Summary of key points

The current government of the UK has enacted a series of policies aimed at devolving

powers to cities. The thrust of policy is to provide incentives and powers for cities to drive

economic growth.

Yet many aspects of government policy are still fixed relatively nationally, including those

which influence the labour market, and also poverty levels, such as the Work Programme

and Universal Credit. Indeed, policy for poverty in the UK is still extremely centralised. As

Aldridge et al. (2012: 11) note:

http://www.ofmdfmni.gov.uk/central-anti-poverty-unit

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/81554/rebalancing_the_northern_ireland_economy_consultation.pdf


http://www.sibni.org/investment_strategy_for_northern_ireland_2011_-_2021.pdf

http://www.nidirect.gov.uk/the-social-investment-fund


Universal Credit, the government’s big idea for tackling poverty, is wholly owned by

the Department for Work and Pensions (DWP), subject to strict Treasury oversight.

As a result, strategic responsibility for poverty reduction falls almost entirely to the

DWP.

While this may not be a problem from a policy perspective, it does highlight the limitations of

a city perspective in addressing poverty.

However, cities still clearly have a number of policy levers to influence poverty. In particular,

the context and shape of the policies will have important ramifications for the type of growth

which will be delivered, the extent to which the growth is shared among different social

groups and whether this makes a real difference to levels of deprivation. From the above

review it is evident that there has been much thinking both in terms of how to encourage

growth and how to (re)connect people with the labour market. Important issues such as the

quality of, and progression in, work must be explored as well as sustainability and security.

However, providing greater powers for local actors to shape policies may make it possible to

address poverty in new ways.

This review has highlighted a number of key issues:

The need for a balance between strategic activity and delivery. Partnerships

need to strike a balance between formulating strategic visions and undertaking

project delivery (these are lessons from LEPs and from City Strategy)

It is important that some core funding is available to ensure a level of activity

and to balance competing local interests. In the case of partnerships such as LEPs

there will be a need for individual partners to balance the needs of their

organisations and the needs of the partnerships.

The scale and structure of funding matters. The way in which funding sources

are allocated or awarded has an implication for the ability of cities to deliver projects.

The amount of funding available through various streams is in decline – for example

contrast the RGF budgets with the budgets the RDAs enjoyed.

Broadly, poverty may be avoided or alleviated by (suitable) individuals gaining

suitable employment or through transfers through the tax and benefits

system. In practice for many individuals both of these situations may apply at any

one time.


8. Conclusions and evidence gaps

This review has considered the literature on the principal drivers of growth in UK cities –

enterprise, human capital, the built environment and leadership and governance – and

investigated how each links to poverty. It has also considered the main current policies for

cities related to economic growth and poverty. These drivers of growth will operate differently

in cities with different economies, populations and growth trajectories. As the OECD (2011)

have noted, there is no single path to urban growth. Similarly, there is unlikely to be a single

path to poverty reduction.

Evidence suggests that in some cases growth can help alleviate poverty in cities, but

that whether it does so depends on the nature of growth and the framework that is in

place. The period of economic growth before 2008 benefitted some deprived

neighbourhoods, but not all (Cox et al. 2010). In Liverpool, strong growth led to larger

improvements in income and employment than in Hull, which only experienced weak growth.

Yet Tees Valley, which also experienced weak growth, saw faster improvements than Hull.

While growth is important, context matters.

A crucial question for linking growth and poverty in cities is the nature of the jobs

created by growth. The labour market plays a crucial role in mediating between economic

growth and levels of urban poverty. Classic strategies based on the knowledge-economy or

innovation tend to be focused on employment at the top of the wage distribution which is

likely to only be accessible to more skilled workers.

To address poverty, growth strategies may need to focus on low skilled workers - but

this may not always be the best way of achieving growth. A crucial question for

economic development strategies is the extent to which they create employment for low-

skilled workers. This may be through direct interventions (such as measures to attract

manufacturing employment) or indirect job-creation in associated areas (including cleaning,

childcare or retail work). Local demand is far more important for the employment chances of

low skilled workers than high skilled workers. This can be done either through job creation

for low skilled workers or through schemes – such as Sheffield JobMatch – which aim to

provide low skilled workers with the skills to succeed in growing sectors.

A second key factor linking growth and poverty is the cost of living. For many city residents,

increased costs will not be compensated for by wages or employment. If urban economic

growth is accompanied by rising costs of living, low-wage workers or those on benefits in

cities experiencing rapid growth may find that their real wages are actually reduced.

Economic growth in cities does not inevitably lead to reductions in poverty, but can

actually increase the cost of living for poor people.


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