Transcript - Episode 23 - Good Growth for Cities: Economic wellbeing in a post-COVID world

Freddie Martin:

Welcome back to a brand-new episode of the Economics in Business podcast. I’m your host, Freddie Martin, and in this episode we are talking about the Good Growth for Cities index, which has just published its 2020 results. Developed by PwC and the thinktank Demos in the aftermath of the financial crisis, Good Growth for Cities measures the performance of the UK’s largest cities against 10 indicators that the public thinks are most important when it comes to economic wellbeing. Ten years after its launch, as we leave another global crisis, the time is ripe to reflect on what economic success really means from place to place, and where our priorities must lie when it comes to recovery.

Discussing these issues and more, I am joined virtually by George Mason, one of the economists who conducted the analysis behind this year’s report; and James Bowman, a South East and London PwC partner, who has worked for the last 15 years, specialising in local government transformation. Thank you both for joining me today.

George Mason:

Thanks for having us, Freddie.

James Bowman:

Thanks Freddie.

Freddie:

Now George, you’ve worked on the index for a number of years, and although I’ve given a very brief explanation of Good Growth for Cities, I was wondering could you go into a bit more detail about the index, and in particular, why it was felt it was necessary after the financial crisis?

George:

We created our first Good Growth in Cities with the thinktank Demos back in 2011. The aim of the index, in the aftermath of that financial crisis, was to recognise that traditional, narrow measures of success are no longer really an accurate way of measuring a place’s overall wellbeing. If, for example, we believe that the pursuit of growth is about improving citizen’s prosperity, really that focus needs to be widened, beyond just GDP or GVA.

What our index looks at is a broader set of measures. We look at things like jobs, income, health, skills, work-life balance, housing, transport, and then also the environment. Those characteristics were chosen by the UK public as essential for judging a place’s overall success. We then weighted those according to the level of relative importance. In this year’s index, what we’ve seen is an increase in the average score for these cities, with Oxford, Reading, and Southampton in the top three performers.

Freddie:

Thanks, George, for going into the details of why the index was constructed and a bit about the results of this year.

James, I wanted to understand how the index is used, particularly for cities and local areas?

James:

Thanks Freddie, so Good Growth for Cities is so useful for cities and local councils, which I work with. As George says, a basis for a successful place isn’t just how wealthy it is. You can be really wealthy as an area, on average, but that can hide huge discrepancies in life expectancy and outcomes for people. Just because the average life expectancy is great, doesn’t mean it’s great for everyone.

Good Growth for Cities gives another lens. It shows why people would want to live somewhere and work in a place. And actually, in my work, it gives a really important steer to local politicians about where services and funds should be focussed. It gives a really important sense check for progress as well, because it’s been running for a long time. I am personally a really big fan of the TV show Location, Location, Location, I am not sure George or Freddie if you watch it, but they will always give you a bit of blurb about each place at the start. I actually think that Good Growth for Cities actually gives a much better, more balanced lens about a place. Perhaps ask Phil and Kirstie if they should start adding it into their intros.

Freddie:

I think there are probably a lot of reality TV programs that could be improved with a bit more economic analysis, but perhaps that’s just me.

You both mentioned then the importance of looking beyond GDP to understand economic prosperity. It does seem quite intuitive and obvious that it’s many different facets of people’s lives that determine their overall wellbeing, rather than just income, for example. George, you mentioned these ten indicators, and I was wondering how you were able to choose those ten specific measures and what work went into deciding the relative weightings for them when comparing cities?

George:

Sure, the first thing really in determining our weights is to refresh our public polling. What we do every year is we run a poll with over 2000 citizens of working age and then we test how the importance of our measures have changed in defining an area’s overall success. This is really important, because what it means is that our index continually captures what matters most to the public in that given year.

We used the results of that polling to calculate the relative weights for those measures. Interestingly, we don’t typically see much change year-on-year in the weightings of different variables. For example, if we look at the weights for this year’s index, what we see is they are actually the same as last year’s, but if we look over the longer term, what you can see is that some variables increase in their relative importance. For example, if you take health, what we’ve seen is that it’s become increasingly important in recent years and is now seen as the joint most important variable in the index.

In contrast if you look at jobs, which has historically always been the most important variable, actually that’s started to wane in importance in recent years, which reflects things like the historically low unemployment rates in the UK, and as a result it’s become slightly less important in the eyes of the public. But what’s going to be interesting next year is that clearly the pandemic has had a fundamental shift in the consciousness of the public, and also what matters most to them. It’s going to be really interesting, to see how those ratings change over the course of the next couple of years.

Freddie:

Sure, that’s really interesting to hear. It makes sense that people’s fundamental priorities are roughly consistent across years, but it’s so interesting to learn how that’s shifting in response to major events, and, as you said, particularly to see what’s going to happen now the pandemic has hit, in terms of the peoples’ priorities.

We’ve talked a bit about how the public’s weightings have changed over the years, but I was wondering George, what are the main trends within the results of the index over the past few years?

George:

Sure, one of the key points to note about that index is that we use a three-year weighted average. The reason we do that is to try and smooth out the volatility that can occur in the data at this level. Really when we are talking about the 2020 index, what we are referring to is data from 2017 to 2019. The trends that we see relative to last year’s index are really driven by changes in the data between 2016 and 2019. Actually, the biggest improvement that we’ve seen across the variables over this period is in income, which shows that between 2016 and 2019 what we’ve seen is there has been a general increase in the levels of household income. What’s perhaps is a bit more worrying is that over the past year what we’ve seen is a decline in the average scores of things like health, skills of young people (so those aged between 16 and 24) and then also in new businesses. We know that COVID has had a huge impact on each of those variables, so that’s a particularly worrying trend. Related to that, what we know is that addressing skills gaps, unemployment and health challenges are therefore going to be a key priority for policy makers if they are going to improve their rate of recovery in the aftermath of pandemic.

James:

George, perhaps I can pick up on the health point you made, because the decline now I’ve found most interesting in the regions. In my view, it’s not acceptable for local political leaders to lead a place to prosperity but allow some people to decline. If you look at the averages of life expectancy in South East it looks great, but there are some areas and some people that have been left behind. So, it’s not just health, but health inequality that matters. There is widely a huge focus and debate in the country at the moment about levelling up across the country. Most of the things I’ve seen in most of the conversations have been about rebalancing things North to South, inter-region levelling up. I saw the government department, MHCLG, announced moving their offices to Wolverhampton earlier this week as part of that.

That’s really a bit of a missed opportunity in intra-region levelling up, so levelling up within a region. What the Good Growth for Cities index shows is it can’t be right that you can walk a kilometre down the road in area, especially in the South East where I am focussed, and life expectancy could drop by 10 or 15 years in such a short geography. That perhaps doesn’t happen in other places in the country as much. So, that’s levelling up within a region. Another reason why GVA itself is not a great measure, because if we looked at that that would be hidden in the South East and that’s the value and colour given by something like the Good Growth for Cities.

Freddie:

That’s a really interesting and nuanced point that you’ve mentioned there James, and one that’s often left out of the levelling up discussion that’s had so often now.

We’ve been able to discuss the long-term trends before the pandemic, and George, you mentioned before that this year’s index does not actually use data for 2020, but 2017 to 2019. How do you think the pandemic is going to impact the results of the index for the next year and the years to come? Is there anything you can tell us about the potential recovery profiles of different cities within the index?

George:

Yes sure, so as you say what we used in the index is data from 2017 to 2019, and the reason for that is just because that’s the latest available information that we have at the Local Authority level. Really what the index is giving you is a snapshot of how cities were performing going into the pandemic. What we’ve done in this year’s report is we’ve also looked at the expected impacts that COVID 19 is likely to have on cities. That’s primarily based on the sectoral mix of each city. That takes into account how those sectors have been impacted in 2020, and then also what their recovery profiles are likely to be in 2021. We then overlay that with things like Google mobility index, COVID 19 infection rates, and also the percentage of people in the furlough scheme. We use that to calculate what the expected GVA impact is to different cities in both 2020 and in 2021. Perhaps unsurprisingly, what we’ve seen is that the pandemic is expected to impact cities disproportionately across the UK.

For example, we estimate that Edinburgh is going to be the least impacted city, and Liverpool is going to be the most impacted city in 2020. In the case of Liverpool what’s driving that is really due to the high number of COVID 19 cases that they saw over the summer. If we look ahead to 2021, we think that the strongest recovery profiles are likely to be seen in cities like Medway and Doncaster, who have a really strong reliance on the construction sector within their economies. We expect that sector to grow by roughly 14.2% in 2021. Really its that sectoral mix that’s going to be driving growth over the course of the next two years.

Freddie:

Thanks George, that’s a really important point, particularly that the recovery profile is so varying between cities and because of that our route for recovery is going to have to be very tailored from place to place. Again, that shows the value of having indices like these to really pinpoint how we can promote recovery between areas coming out of the pandemic.

James, we’ve gotten some of the main results and trends coming from the index, but I wanted to know your view on how we should apply these results in practice for local recovery?

James:

Thanks Freddie, the results show interesting pointers to some wider macroeconomic changes we are seeing across the country. Post-COVID we are seeing a general movement outside cities, both in terms of people being balanced to more homeworking and hybrid working, so not traveling into the bigger cities, and actually people moving. Good Growth for Cities shows firstly why people should be moving there, and it gives pointers for cities and regions how to attract people coming out of the cities. I work with a number of large local authorities in the South East and I think we are beginning to see the end of commuter towns, whereas public services historically needed to cater for people perhaps just at weekends, because everyone is traveling into the big cities for work. If people working at home two or three days a week, that’s going to fundamentally change the makeup of the place, so a fundamental change of the makeup of places across the country. As a council and as a local leader you can wait for that to happen or you can help shape it, and councils own a huge amount of property in each town centre. That can be reshaped for more effective community use. We will see a lot more of that over the coming years. But saying that, I don’t think it’s a change that will take a long time to happen. We will see an increasing number of people moving out of London into the South East. PwC’s economic output report in January showed that London’s population could fall by 300,000 in 2021. Its certainly something I’ve already seen from my own teams relocating.

That actually gives us a bit of an opportunity in the South East region. In fact, all across the ring around London, we’ve already got the highest furlough rates in the country and that will exacerbate the challenges I talked about around health inequality. How do we grasp the opportunity of people moving outside of London and attracting more growth? This fits with the flexible working and less commuting that we will see. We will see the whole of the South East be reshaped by those macroeconomic indicators that Good Growth for Cities have already been a pointer for.

Freddie:

James that’s a really great point and particularly highlights the fact that there are opportunities we can take from the pandemic, such as flexible working and commuting. I know for one that I am definitely not going to go back to commuting five days a week like I was doing before.

But George, finally, I was wondering whether you had any final insights on this from the work that you’ve done so far for Good Growth?

George:

In our report, we outline six recommendations that we think central government, businesses, and local leaders should consider as we come out of the pandemic. The results of our analysis can really be used by policymakers as a snapshot to understand where the localities are performing well, but also where potential areas of improvement might be needed. As we start to return back to normality, and Freddie as you, maybe, start to commute bit more to the office, it is critical that local leaders start to address any shortfalls that’s caused by the pandemic. So, for example, developing the skills of young people. We then need to tie that back into the wider agenda of delivering inclusive growth and then also levelling up. That’s levelling up both across different regions, but also, as James mentioned earlier, within regions themselves.

Freddie:

Thank you, George and James, for both joining me today. It has been really great to get into the detail of the index, and in particular to see how we can apply its findings to help develop targeted local recovery strategies, both in response to pandemic and just in general.

If you would like to learn more about the Good Growth For Cities report, or see where your local area ranks in the index, then be sure to visit the PwC website or check the description of this episode, where you can find the link to this year’s results. Along with this, our sister podcast, Business in Focus, has also recently released a Good Growth episode that goes into more detail on the recommendations for recovery set out in the report. You can find that episode on the PwC website, iTunes, or Spotify.

Be sure to subscribe to the Economics in Business podcast to keep up to date with our latest episodes and thank you for listening.