Tuesday, 30 October 2012

City Deals Mark II

I was pleased to see that the government is going to talk to 'fast growing' cities as part of the new city deals process. I think this makes sense, as I argued at the end of the last round of negotiations: "The final question concerns next steps. The government has committed itself to continued negotiations with the bigger cities. That's clearly welcome. The trickier thing is which new deals to start negotiating. I can imagine the temptation is to go for the next biggest cities in terms of population size. I think this would be a mistake if it excluded smaller cities that have, arguably, the biggest growth potential (to use the CfC e.g.: Cambridge, Milton Keynes). In the current economic climate, striking deals with some of these cities must be a top priority."

Other points from that post, remain relevant for the next round of negotiations:

"I am broadly sympathetic to the outcome that this process is trying to achieve. British government is very centralised and more localisation is, on balance, a good thing. That said the process does feel a little odd with powers being granted in one area in exchange for commitments in other unconnected policy areas (e.g. power over some transport spending in exchange for a commitment on youth employment and training). Not much point dwelling on it - the process is achieving something - but you'd hope that in the longer run government will be looking to learn lessons on what works with a view to localising in those areas across the board.

In addition to supporting the ultimate objective, there are specific things agreed in the latest round that I'd certainly support. The end of RDAs left a vacuum in terms of sub-national strategy on transport (at least for some cities). The deals generally look to fix this. Likewise in the broad area of business support - investment funds, support for enterprise, inward investment etc - although I confess to remaining sceptical on whether these policies are cost-effective. I'm also pleased to see local experimentation around skills and training - not least because national policy in this area is in a state of flux (or in a mess, depending on your perspective).

One thing that I don't yet understand is what happens if cities cannot deliver on their commitments as part of the deal? For example, people are talking about Leeds Deal as involving a commitment to achieving a NEET free city (so all young people will be in education, employment or training). That seems ambitious. What happens if they don't achieve it? Even more extreme, what happens if outcome measures in some of these employment and skill areas worsen (with significant budgetary implications)? But true experimentation at the local level must allow for the possibility that policy changes will make things worse, not better, and I don't understand how the latter is going to be managed."

I get the impression the government is sympathetic to the argument for some 'core component' to the next round of deals, so it will be interesting to see how that develops. Finally, I'm still not sure what will happen if a city fails to meet its objectives - I guess we will see!

[NB I am not sure the BBC is right to say "The government earlier this year gave Birmingham, Manchester, Sheffield and five other authorities the right to spend tax receipts from local firms." I thought the earnback deal was limited to Manchester on the first round]

Monday, 22 October 2012

Second homes and the Census

I have never been convinced that 'second homes' a major issue in the UK (although they might be important for a small number of rural areas). The Census figures would appear to confirm this - 165,095 people (approximately 0.3% of the population) report a second address that they use for more than 30 days of the year. Many more people report second addresses (1.57m) but the vast majority of these are students living away from home.

Even the 0.3% figure is likely to be an overestimate of the number of holiday homes. According to the BBC: The Office for National Statistics said the estimates of the number of people with second addresses used for holidays were "not equivalent to an estimate of holiday homes". Although, somewhat oddly, that doesn't seem to have stopped the BBC from providing a map labelled 'holiday homes mapped' which appears to be based on the census data.

Friday, 19 October 2012

Regional Growth Fund (Round III)

I am in the US, so haven't had much time to read the details on which projects will get the next lot of RGF money. On a first pass, I think my more detailed analysis of RGF round 2 remains valid:
  • If £1bn of RGF really safeguards or creates 240,000 it is an incredibly effective scheme;
  • That's a very big 'if'. Incomplete monitoring will mean that it is highly likely much of the 'leveraged' private sector funds ('£6 for every £1 of public money') would have been spent anyhow. This is especially the case with money given to larger firms;
  • If all of government truly believed these numbers you might expect to see a lot more spending on RGF.
In short, I remain to be convinced that these numbers stack up.

[NB: interesting to see so £358m going to Local Authorities or Enterprise Partnerships this time round. If I remember correctly, in my submission to the original RGF consultation I argued that roughly a third of the money should be allocated to LEPs. Third time lucky.]

Friday, 12 October 2012

Are Britain's 'Second Tier' Cities too Small?

Interesting to see The Economist arguing that America's big cities help make it richer than Europe. The basic idea is that big cities deliver productivity benefits so that restricting growth of cities makes us poorer. As The Economist points out (based on research by my colleagues Christian Hilber and  Paul Cheshire) the planning system certainly acts to restrict such growth in Britain.

As I've discussed that particular issue many times before, let me instead flag something else: These kind of arguments imply that the problem with Britain's urban system is not that London is too big. Instead, if anything it's that our cities are too small. As it turns out, this is an argument that applies particularly strongly to our 'second tier cities'. Drawing on Zipf's Law this is an argument that Pat Rice and I made back in 2008 in SERC's first ever policy paper. As we explained:

"Many factors contribute to determining the size of different cities in different countries at different times. Despite this diversity, statistical analysis for a wide range of countries suggests that the relative size of cities often satisfies an empirical regularity known as Zipf’s law. A version of this law which is particularly easy to understand is known as the rank-size rule. In a group of cities that obey the rank size rule, the second largest city is half the size of the largest city, the third largest city is a third the size of the largest city etc. An easy way to see whether a group of cities obey the rank size rule is to draw the scatterplot of the (natural) logarithm of city size against the (natural) logarithm of its rank. Starting from the point on the vertical axis that corresponds to the largest city, we then draw a line with slope -1.If the group of cities obeys the rank size rule then all the cities in the group will lie along this line.

The figure shows such a Zipf plot for English Cities. Medium size cities in England are, roughly speaking, about the size Zipf’s law would predict given the population of London, the largest city. As can be seen from the plot, the right hand end of the line sits just above points for this set of cities. But England’s “second tier” of cities appear to be too small, as can be seen from the fact that their points lie some way below the Zipf line (a similar point can be made for a few smaller cities at the far right hand side of the figure). It is important to note that this feature is not a consequence of London being ‘too large’. If we had predicted the population of England’s largest city by drawing the Zipf line through the medium size cities and projecting to the y-axis then we would obtain a figure not much different from that of the actual population of London. Of course, such a simplistic exercise comes with a number of important caveats (not least the fact that Zipf's law need not necessarily hold for English cities and that the exact definition of urban areas will affect the relative size of urban areas). But, the Zipf plot is at least indicative of the fact that, for England, second tier cities may be too small."

I don't think you should take this analysis too seriously, but I do think it's important to recognise that debates about London being too big may not just be wrong, but may also distract us from the equally important issue of how we ensure some of our second tier cities get bigger.

It's worth finishing by spelling out a couple of things that are likely to make that debate particularly difficult. First, cities can move up the ranking, so the best 'candidates' for big second tier cities could currently be quite small. Second, even if growth is going to come in some of our existing second tier cities, this arguably needs to be at the expense of other similar size cities rather than at the expense of London. You can see why the politics might favour avoiding that particular debate and focusing instead on London 'bashing'.

Tuesday, 9 October 2012

HS2 and the WCML fiasco

No surprises to see some people questioning the HS2 decision in light of the West Coast Mainline franchising fiasco.

My personal position remains unchanged: I'm not convinced by the case for HS2 even on the basis of the existing growth numbers. That said, the WCML fiasco did reinforce my prejudice for the need to present simple headline figures for passenger numbers etc alongside more complex cost-benefit calculations. I say 'reinforced' because my experience on the HS2 Analytical Challenge Panel had already convinced me that only a small number of people are really on top of the modelling work that is being done for these very complex schemes. [Indeed, one of the factors behind my recent decision to resign from the ACP was that I no longer felt sufficiently on top of the details of the economic model to be able to fulfil the challenge role.]

Unfortunately, HS2 (and, I assume, DfT) don't seem to share the same prejudice. So, for example, the economic case for HS2 (updated) predicts that 148,000 passengers will use HS2 each day between Birmingham and Old Oak Common. To my mind, the most helpful way to think about that number is to compare it to current figures. Sadly, this is not a comparison that you'll be able to make easily on the basis of information provided in the economic case. Likewise, I'd find it helpful to see user numbers by station compared to current user numbers. Again, not information that you'll find provided in a simple format anywhere in the report. Without these figures I find the more complex calculations even harder to assess.

In short: Simple descriptive statistics help provide context and allow ballpark assessment of more complex analysis. If nothing else, let's hope that DfT and HS2 ltd learn that particular lesson from the WCML fiasco.

Thursday, 4 October 2012

More conference housing plans

I was pretty critical of Nick Clegg's recent announcement on allowing parents to use their pension pots to help their kids buy housing. Ed Ball's plans announced earlier this week fair marginally better.

I haven't seen much persuasive analysis that the previous stamp duty holiday had much impact, so it's unclear why a new one should make much difference (a much better move would be a wholesale reform of property tax).

Setting aside the question of the overall fiscal position, using the windfall from 4G to help fund affordable homes makes more sense than Clegg's proposal because it boosts supply rather than demand. The crucial question, of course, is whether it will make any meaningful difference to affordability? The answer, I'm afraid, is almost certainly not. Making the very generous assumption that all of these government funded houses are truly additional (i.e. wouldn't have been built anyhow) the plan delivers at most 100,000 affordable houses over two years. If Balls has 'got his sums wrong' as some claim that figure might be closer to the 60,000 mark. 30,000 to 50,000 additional housing units per annum roughly takes annual house building back to where it was in the mid 2000's.

Unfortunately, even in a downturn, building houses is expensive. Ball's scheme makes some sense, but truly dealing with the problem of affordability requires a market led response in the areas of highest demand. This in turn, requires the planning system to allow a proper supply response. Labour only woke up to this problem very late in their last administration and, arguably, did too little too late. Addressing long term affordability isn't a matter of short term stimulus. Instead, it requires a private sector response when the market finally (hopefully) picks up. Developing a planning system that allows that to happen is the real challenge for the next administration.