Cities are vital to our economic growth, but we need to give them real power to succeed

I will admit it, I am biased. I love cities. Having grown up in Zone 2 of London, it has always been hard for me to imagine living anywhere other than a city.

Everything that people hate about cities, I love. The busyness, the noise, the mass of people, the anonymity, the sheer sprawl — they all create a sense of energy, that things are happening. Everywhere, unstoppably and all the time.

But it is more than that.

There is something intrinsically human about cities. How a large group of people coming together not only represents safety and security, but innovation and possibility.

And it is not just my psychological desire to recreate my childhood that is telling me that — 56% of the world’s population, some 4.4 billion people, live in cities. That figure rises to an incredible 87% if you include all urban areas such as towns and suburbs.

So why are so many people drawn to cities?

The main reason is economic opportunity. According to the World Bank, more than 80% of global GDP is generated in cities and, perhaps, that should be no surprise. By their sheer size cities create efficiencies and economies of scale — resources can be shared in close geographical proximity whilst specialisation and innovation can thrive when diverse skills are brought together.

“The 19th Century was the Century of Empires; the 20th, that of Nation-States; and, the 21st Century is that of Cities.”

Wellington Webb, Former Mayor of Denver, Colorado

Across the world, we are seeing cities continue to expand, resulting in the growth of ‘megacities’ with populations over 10 million. There are more than 30 megacities worldwide led by Tokyo (with a population of a staggering 37 million), and more than 17 in China alone, many of which will not register in the average Westerner’s consciousness (Linyi — 11 million people, anyone?)

The UK picture

However, looking back at home in the UK, our cities are somewhat less ‘mega’. 

According to economists, there is an optimum size of a city, where the ‘agglomeration economies’ (the benefits that come with having a large concentration of people and businesses in one place) balance with the ‘agglomeration diseconomies’ (the downsides of a city getting big such as congestion, house price inflation etc), which is somewhere between 3m – 7m residents.

If we look at population data from the ONS, after London (c. 9 million) there is a significant drop-off to Birmingham (1.1m), Leeds (536k), Liverpool (506k), and Sheffield (500k) to round off the Top 5. Manchester comes in 6th place with 470k, while cities that we think of as ‘big’ in UK terms such as Newcastle (286k) would barely register on global league tables.

But that is not to say that closing the productivity gap between London and the other UK cities is as simple as increasing their size.

Research from the Centre for Cities amongst others has shown that there is not a neat correlation between size and productivity in UK cities as can be seen in some parts of the world, and that is because of structural problems within them. Access to skills and, more often than not, inadequate public transport systems hold these conurbations back from reaching their potential.

Fiscal devolution has to be the answer

It’s no surprise therefore to see that most of the Metro Mayors put transport and skills at the heart of their policy programmes (see our analysis of the 2024 Mayoral elections and the Mayors’ policy priorities here). Quite simply, if our cities are to thrive and create the economic growth that the country is crying out for, then we need to make them work better.

Nationally, the ‘Levelling Up’ agenda was right in identifying that there is a problem with regional inequality, but the policy execution has been disappointing. If we are serious about making our cities thrive then we need to devolve more power to people locally rather than dole out cheques from Westminster and give leaders the power, and most importantly the money, to do what is needed.

The progress towards devolution is encouraging, but the UK remains one of the most centralised advanced economies in the world, and this needs to change. 

With a change of government on the horizon, Labour’s plans are encouraging and increased devolution of policy and decision-making is to be welcomed. But they still lack any clear move towards fiscal devolution which is disappointing.

The Governor of Tokyo raises 70% of her operating budget from local taxes, for the Mayor of New York, it is close to 50%. In London, that figure is 7%. According to the IfG, “The West Midlands, Liverpool City Region and South Yorkshire MCAs receive less than 3% of their income locally”, while in Cambridgeshire and Peterborough, Tees Valley, and West Yorkshire the figure is 0%.

If we are serious about devolution this needs to change.

People will continue to flock to our cities; unless we empower them, we will be letting them and the country down.