A recent study, carried out by Centre for Cities has revealed that almost 50% of the cities in the UK are currently plagued by high welfare, low wage economies. Many believe this to be a confirmation of the huge challenges that face George Osborne as the chancellor of the exchequer attempts to implement more austerity driven policies.
When the conservative party formed their government, headed by David Cameron, last summer, George Osborne announced in his opening budget that he would be aiming to deliver a “high wage, lower tax, lower welfare country”. However, the research that was published last Monday, suggests that this aim will take much more time than this parliament to complete. The poorly performing education system, the housing crisis and ineffective programmes for jobs, are all reasons that George Osborne ‘s dream appears to be a long way from realisation.
The study by Centre for Cities also points to a continued divide between cities in the north and in the south of the country. The organisation has called for George Osborne to push forwards with his attempts to rebalance this with movements such as the “northern powerhouse”.
The think tank publishes its “Cities Outlook” every year and investigates each of the country ‘s biggest 63 cities. Out of these 63, the report classifies 29 as being driven by low-wage, high welfare economies. Out of these 29, nine cities on this list are from the north of England or the midlands.
This report has led its authors to called on the conservatives to increase the level of investment in regional economies, and they also believe that more power over things such as taxes, skills, housing and infrastructure should be devolved to these area ‘s local governments.
Alexandra Jones, the 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.”
Jones went on to say that the government should be focusing on decreasing the huge level of inefficiency that is often found in the current system and that there is too little connection between the level of investment in skills programmes and the level of welfare spending.
“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.”
The study does however go on to say that there are 14 cities in the country that are currently operating with high wage, low welfare economies. This cities include Cambridge, Aberdeen and London. Eight out of the top ten cities in this list are located in what is referred to in the report as the “greater south east”.
The report categorises all cities with a below average wages and above average welfare as being a place with a high welfare low wage economy. Cities, which have wages above the national average and welfare spending below the national average are categorised as being places with high wage, low welfare economies.
The study also points to problems in high wage cities, such as a huge lack of affordable housing, that have had knock-on effects on other things. High wage cities have seen a much faster increase in the rate of welfare spending, with payments for benefits being more than 50% larger than in other cities. This is mainly down to the fact that the higher price of rent means that people are paid out more in the form of housing benefit payments.
Jones went on to say that:
“For cities which have seen strong growth in wages and jobs, the focus should be on addressing housing shortages, to ensure that their success isn ‘t derailed by a lack of affordable homes.”
One thing that the report is very careful to highlight is the fact that all of the changes that it recommends will take a long time to implement and even longer still before all of the impacts can truly be observed.
It concludes by saying:
“Creating a higher wage, lower welfare economy will, in all likelihood, be the work of not one parliament but of several”.
The study contributes to the growing amount of evidence that there has been little by the way of wage growth to accompany the jump in employment figures. Even though the report noted that there were around one million new jobs created between 2010-2014, it said that wages in urban areas actually went down by 5% in the same timeframe; annual average wages for urban-based people went down by £1,300 in real terms.
The Department for Communities and Local Government released a statement via a spokeswoman that read as follows:
“Today ‘s report is out of date, ignores the latest Office for National Statistics figures showing the employment rate at a record-breaking 74%, and focuses solely on cities, which takes no account of employment growth in large swaths of the country.”
“In fact, 1.5 million more people are in work outside London and the south-east compared with 2010, a third of new apprenticeship starts in the last year were in the northern powerhouse, and full-time wages grew faster in areas including Greater Manchester, Leeds, Birmingham and Worcestershire compared with the national average ñ even before our new national living wage takes effect in April this year.”