The best way for the government to deliver economic growth across the UK is by creating, or building on, clusters of economic activity in different parts of the country, according to the Confederation of British Industry (CBI).
CBI director-general Tony Danker will say in a speech to a business audience on Monday that “growth in turn provides better paid jobs, skilled work, firm-level success and creates the kind of virtuous circle that helps a place to prosper”.
Combining these elements in economic clusters, where businesses co-locate to an area for mutual benefit, will greatly contribute to levelling up, the CBI said.
“For us, the answer is a clusters approach,” Danker will say. “Where you get a concentration of firms co-located. They compete, but also collaborate. They have the same skills needs. And supply needs. Their ideas and innovations spur each other on.
“It becomes an ecosystem, made up of start-ups and anchor institutions, colleges and universities. Thus, flows skills and expertise in turn generating innovation and ideas. Surprise, surprise — then finance, legal and professional services show up. And soon, adjacent sectors come to town.”
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Economic clusters have already been adopted successfully in the UK and around the world, the CBI said.
“It’s not a new idea. We know London did it in finance; Aberdeen in oil and gas; Cambridge in science. It’s also enabling South Wales to emerge as a player in the world’s compound semiconductor market, which is projected to grow to over $300bn (£223bn) by 2030,” Danker will say.
“In the US, it’s cemented Massachusetts’ reputation as a global leader in biotech innovation. And, in Germany, it’s helped Hamburg to become a world-leading civil aviation hub.”
In order for the cluster approach to work, the CBI said there are four key elements that are needed to lift productivity and allow more areas to prosper: high-value sectors; high-value firms; high-value skills; and higher business investment.
“There is a clear correlation between high-productivity sectors in a place and the economic outcomes for local people,” Danker will say.
“The truth is that in too many sectors, the UK now feels like a branch line economy. With the most productive parts of a sector, such as HQs, too often based in London and the South East, and the branch managers and the back-office based everywhere else.”
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The CBI is calling for this to be replaced by an “economy of many hubs” made up of “high-value firms” that will be “the job-creators, the skills-builders, the innovators — a catalyst for growth in our local economies”.
Danker will also call on the government and businesses to focus on levelling up skills across the UK.
“When skills rise, so does economic growth. And that golden thread between skills and productivity only becomes more important over time,” he will say.
“In parts of central London, such as Wandsworth, Camden and the City, around three quarters of workers are educated to at least degree level. That’s a big part of the explanation why London has the highest productivity of anywhere in the UK. It’s a similar story elsewhere, with other prosperous places, such as Edinburgh, Bristol, Brighton and Hove having relatively high graduate shares too.
“But many of our other major city-regions have traditionally lagged behind — like Leeds, Birmingham, Manchester and Glasgow, despite being home to some of the UK’s leading universities.
“And we can guess why that might be — better prospects elsewhere. All of this, in turn, exacerbates local skills shortages. It’s an age-old problem, but it’s one we must crack if we’re to level up”.
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The CBI also wants business investment to increase across the UK. “Business investment is something that needs tackling locally, but nationally too. That’s about tax and markets. And about regulation too, which we need to think about more holistically. We need UK regulators to pioneer pro-investment and pro-innovation regulation, alongside competition and consumer price,” Danker will say.
The CBI is calling on the government and business to work together to help the UK level up.
Danker is also due to announce the creation of the CBI Centre for Thriving Regions, which will “act as a vehicle for the private sector to engage in genuine economic placemaking”.
The Centre for Thriving Regions will launch two demonstrator pilots to build on the economic cluster model, write a “levelling-up playbook” on how to get high quality industries, firms and jobs in all regions of the UK, have a have a steering committee of leading local, national and multinational businesses and universities, and draw on the input and ideas of the CBI’s 800 strong regional council network.
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