Research shows challenges of 'high wage, low welfare' economy ambitions

Almost a million new jobs were created in UK cities between 2010 and 2014, however, pay for city dwellers dropped by 5 per cent in the same period meaning wages fell by £1,300 on average for each urban worker.

The finding were revealed in the report Cities Outlook 2016, by think tank Centre for Cities, which examined the economies of the UK’s 63 largest cities.

Results showed that more than 980,000 new jobs were created in the four years from 2010 to 2014 with cities accounting for three quarters of them in this period.

But the research also found that 29 of the cities qualified as ‘low-wage, high-welfare’ economies.

The report’s authors warned that this highlights the enormity of the challenge faced by the government in achieving its economic plan of a “higher wage, low-welfare” economy in Britain, as set out in the Summer Budget 2015.

Report authors pointed to 14 British cities that are achieving ‘high-wage, low-welfare’ economies, with the top three being London, Reading and Aldershot. The report suggests that government policy makers could learn from them.

It said that cities with high wages had also enjoyed faster jobs growth with the number of jobs in high-wage areas rising by 10 per cent since 2010, compared to just 3 per cent jobs growth in low-wage cities. 

Cities need to focus on supporting high-skilled employment in knowledge-intensive sectors, such as the digital and professional sectors, because these jobs help raise average pay and boost jobs growth in other sectors including retail, leisure and hospitality, the report said.

However, welfare spending has also grown at a much faster rate in high-wage cities, with housing benefit payments more than 50 per cent higher than in other places. For example, welfare spending in high-wage cities like Milton Keynes and Cambridge has risen by 4 per cent since 2010, but has decreased in low-wage cities like Liverpool and Glasgow.

The report also showed a North/South divide across the country, with eight of the top 10 ‘high-wage, low-welfare’ cities located in the South East, while nine of the bottom 10 cities for wages were in the North or Midlands.

The report’s authors recommended that the government should continue to increase investment in regional economies through initiatives like the Northern Powerhouse, while bolstering devolution deals by giving cities more control over local tax revenue, skills, infrastructure and housing.

Alexandra Jones, chief executive of Centre for Cities, said: “One of the most pressing issues is the need to tackle skills-gaps and improve schools' attainment, especially in low-wage cities, to help those places attract businesses and jobs, and support more people to move into work, particularly in high-skill sectors. 

“Cities also need more powers and incentives to boost jobs and wages. Giving places control over skills and welfare budgets, and allowing them to keep any savings made by reducing the welfare bill, would incentivise local leaders to invest in employment programmes that, if successful, would reduce people’s need for benefits payments.”