Executive summary

• The core economic objective of the next government must be to achieve higher growth. Escaping from stagnation, raising living standards and improving generation-on-generation prosperity requires productivity growth.

• Unfortunately, UK productivity growth has stalled since the financial crisis of 2007-09. It is 26% lower today than if it had followed the pre-crisis (1979-2007) trend.

• Stalled productivity growth is not the only challenge. The UK also has high and persistent spatial disparities in  productivity. The best performing areas have gross value added (GVA) per worker around 50% higher than the national average. In the worst performing regions, GVA per worker is 30% lower than average.

• The UK is a world leader in complex tradeable services, such as insurance and consulting. The sector depends on high-skilled workers and the firms that employ them. Both are increasingly spatially concentrated, particularly in London and the south-east.

• Given the UK’s specialisms, improving productivity requires bigger high value-added services sectors, and more cities succeeding with them. This means choosing some places to prioritise and investing heavily to achieve the scale of change required.

• High housing costs in more productive areas are bad for households, constrain growth and have implications for local and national productivity. High house prices also influence how the benefits of growth are shared across poorer and richer households.

• Instead of targeting investment at under-performing cities, government could spread money around. This will work for individual places, but not for the overall economy. Alternatively, it could invest only in London and the south-east to “build on success”. While this might be good for national growth, it is politically unacceptable.

• Neither of the two main parties is grappling with these difficult trade-offs.

• Housing policy will matter – what plans do the parties have to increase housing supply significantly in the right places?

• How should we judge the extent to which the proposals from different parties will level-up the UK? Manifesto commitments on levelling-up will be less important than other commitments. The key question is what they will do on economic growth, taxation, spending and on regulation. Given what we know about spending limits, it is the spatial manifestation of the changes resulting from these policies that will matter most for spatial disparities. 

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Will Brett-Harding and Henry G. Overman

20 June 2024     Paper Number CEPEA059

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This CEP election analysis is published under the centre's Urban programme.

This publication comes under the following theme: What determines urban growth and urban decline and what should be the role of policy?