A failure to invest in the UK’s main regional cities has held back economic growth and meant standards of living lag behind the US, France and Germany, according to a report before the 50th G7 summit in southern Italy this week.
The Centre for Cities thinktank said the major difference between the UK and its main rivals was the low level of productivity in cities such as Manchester, Birmingham, Glasgow, Sheffield and Nottingham.
It said the higher level of productivity – measured by the output of each worker per hour – could be seen in cities outside Paris and Berlin of a similar size to their UK counterparts.
The study found that investment was also spread more evenly across a wide range of US cities, which have performed well after benefiting from local financial support and, more recently, the Biden administration’s Inflation Reduction Act and Chips Act, which offer more than £800bn worth of subsidies over 10 years.
Lyon and Frankfurt were ranked more highly than Birmingham and Manchester and made the difference between the UK being the top-ranked G7 economy behind the US and remaining a middle-ranking country.
Canada, Italy and Japan were ranked lower than the UK, according to a measure of output per hour.
In a report titled Climbing the Summit: Big Cities in the UK and G7, the thinktank said London was flagging as a consistent provider of income and wealth to the rest of the nation, leaving other cities even more exposed.
It urged the next government to focus on a broader investment programme to help consolidate digital industries in regional cities.
Andrew Carter, the thinktank’s chief executive, said: “The message for policymakers is to take note of why the US, France and Germany perform so much better than the UK. While not the exclusive reason, a major part of this is the success of their big cities.
“The size of cities like Manchester and Birmingham means they should have an advantage in attracting cutting-edge businesses. This is exactly what cities like Chicago, Munich and Lyon do, offering access to skilled workers, high-quality office space and ‘spillover’ benefits from neighbouring firms.”
Carter said ministers should give cities the power to physically expand, allowing them to build attractive suburbs near public transport links. These areas could attract businesses and especially firms with high levels of pay that export their services, such as finance, graphic design, marketing, software and publishing.
The report said “urban areas where more clustering of knowledge happens tend to be more productive”.
In 2022, a measure of G7 productivity as a proportion of annual national income ranked the UK as fourth behind the US, Germany and France. UK productivity was about 16% below the US and Germany.
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“There are 112 cities in the G7 the size of Nottingham or larger, but of the bottom twenty for productivity, seven are British. They are in effect the sick men of the G7, with the recent stuttering of London adding to the UK’s woes,” the report said.
A ranking of cities with service industries that rely on staff with digital skills found the UK was the lowest of the G7. The G7 summit takes place in the city of Fasano from Thursday to Saturday.
Last year Rishi Sunak, the prime minister, scrapped the northern leg of the HS2 high-speed rail project between Birmingham and Manchester in a move seen as a setback to efforts to level up the economic imbalance between the south-east of England and other parts of the UK.
In a submission to parliament, the thinktank said: “If the goal is to improve the economic performance of the North then it will only be successful if HS2 is treated as a small part of a broader package of investment.
“The focus should be on investment in the skills of local populations via FE [further education] colleges and spending on transport within cities.”