If you love them, set them free

For a tome with several hundred academic references, I think Overman, Nathan and Cheshire distils several clear messages if we want to use well founded urban policy to drive growth.

First, think people not places. Success will not necessarily come in the form of certain benighted areas doing better than London.  More people being in London doing well counts as success too.  At first blush this may look awkward for the Chancellor’s desire to focus “on the North of England” – not on the Northerners of England.  But it is a sufficiently large area for us to discount this concern – so long as “success” doesn’t mean literally every constituency getting ahead.

This also affects the analysis part of the book. To quote: “labour market disparities are explained much more by who you are than where you live”.

Second, market signals rule.  Don’t fight them.  Above all this means land prices which is why

Third, if you are to deal with anything, deal with planning.  When some parts of the UK have vastly higher land prices than others, often even contiguous, the market is telling you something.  Sometimes it is something you cannot do anything about; riverfront Richmond property is intrinsically more valuable. But often it signals a position of artificial scarcity brought by the planning system.

(Incidentally, this is why what the FT has said here is a non sequitur: “As London comes under increasing population pressure, the idea of developing rival centres is correct”. No: London coming under increasing population pressure is surely a signal to build more in London).

Fourth, recent trends towards services and high tech have favoured agglomeration economics. What this translates to is: the newer industries tend to benefit even more by clustering (and have less pressing disbenefits from congestion, pollution, etc).  This may have provided an accelerator to recent trends favouring the big metropolises.

Fifth, cities are not just centres of production but also centres of consumption. Why are people so rude about consumption, which is after all the ultimate point of economic activity?  This maybe gives a small nod to the Chancellor’s idea of a theatre tax credit, clumsy though it may be.

Sixth, more commuting is not necessarily the answer. It costs money, it is better to have houses near where people live, and it costs money and time.

Seventh, area based initiatives like Enterprise Zones have a spotty record at best. Who knew? They shift jobs around.  And bear in mind that physical regeneration benefits first of all the landowners.

Eighth, London is not too large. The next tier are too small. This is what Zipf’s law would say, extrapolating from the much smaller cities and looking at the UK as a whole.

The biggest issue remains planning, and here I return to the closing theme of the previous post. HMT has husbanded all the tax raising discretion to itself.  Its introduction of Uniform Business Rates in 1990 took away one tool. Its latter attempts in the other way (New Homes Bonus and Business Rates Retention) have been feeble. It judges centrally what each local authority “needs”, thereby stripping them of strong upward incentives.  Their ideas are damningly described as “neither generous nor permanent enough”.  And there is a long history of failed ideas around land caused by the failure of HMT to give decent borrowing capacity to local authorities.

The FT’s editorial linked above makes clear that the actual idea of HS3 is not a runner, at least as specified, and better, smaller and less eye catching ideas are probably better.  This is probably symptomatic of the Treasury making policy without asking the DfT.  A recurring disease caused by arrogance and secrecy. But for me the biggest issue remains HMT’s unwillingness to let go.  One for Osborne and Balls to sit down and discuss together, perhaps?

I suspect the next chapter, on Devolution, will be critical …

Published by freethinkingeconomist

I'm a mid 40s, former special adviser (Downing Street 2017-19, BIS from 2010-14), former FT leader writer and Lex Columnist, former financial dealer (?) at IG, student of economic history, PPE like the rest of them, etc. This blog has large gaps for obvious reasons. The name is dumb - the CentreForum think tank blog was called Freethink, I adapted that, we are stuck now.

One thought on “If you love them, set them free

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