Levelling up: how big is the productivity gap across UK regions?

The Government must focus on improving productivity in poorer parts of the UK as the Covid pandemic subsides, to level up the economy.

Experts from the Centre for Cities and Resolution Foundation think tanks say the levelling up agenda must focus on bringing high quality, high skilled and well paid jobs to UK regions – not simply reducing unemployment.

It comes as the West Midlands Mayor Andy Street warns coronavirus has reversed progress to close the productivity gap between his region and stronger economies in southern England

So how big is the productivity gap between the UK regions and devolved nations – and how can we close it?

What is productivity?

Productivity is a measure of how efficiently an economy produces goods and services.

It is commonly measured by Gross Domestic Product (GDP) which, according to the Office for National Statistics (ONS), is a measure of the value of goods and services produced; household, government and business expenditure; and income.

Centre for Cities measures productivity per worker – GDP divided by the total number of people in employment in a given area.

By that measure, London workers are by far the most productive, adding £92,490 each on average to the economy in 2018, according to the latest available data.

That was 65% higher than the least productive region, Wales, where the GDP per worker was £55,942.

The GDP per worker in each region is:

Does that tell the whole story?

The problem with regional inequality is that there are not equal employment opportunities across the regions.

If an area has a high unemployment rate it means there are lots of people not producing goods or services in the economy.

So just looking at GDP per the number of workers may undersell the extent to which the economy in some areas is underperforming.

If we instead look at the GDP divided by the entire working age population (those aged 16 to 64) the North East sinks to the bottom of the pack, with a GDP of just £37,725 per person.

And the gap between the North East and London widens to 115%, with the capital seeing a GDP of £81,001 per person.

The GDP per working age person in each region is:

How can productivity be levelled up?

Lord Sainsbury, founder of Centre for Cities, says the only way to truly level up the UK is to support the growth of high value industries in poorer parts of the country.

Most plans for levelling up to date have simply focused on improving employment rates but still relying on low value, low skilled jobs that are vulnerable to technological change and foreign competition, he says – replacing cotton mills with call centres.

The think tank is calling for the Government to give directly elected mayors more powers to control transport, planning, and Further Education, to help them drive investment in higher value industries in their area – and boost productivity.

West Midlands Mayor Andy Street, speaking at a recent Centre for Cities event, said the coronavirus pandemic had reversed progress to close the output gap in his region – with the gap now widening.

What do others say?

The Resolution Foundation think tank says the UK was experiencing failing regional pay and employment gaps in the run up to the Covid pandemic.

“But while policies like the National Living Wage were ‘levelling up’ long before the phrase was fashionable, the UK was still marked by big geographic gaps on productivity,” says Charlie McCurdy, Resolution Foundation economist.

“Tackling geographic disparities – whether addressing the quantity and quality of jobs available locally, or raising productivity throughout the UK – will need to be a priority in post-pandemic Britain.”

What does the Government say?

The Ministry of Housing, Communities and Local Government says levelling up is at the centre of the Government’s agenda, which aims to empower “our regions by devolving money, resources and control away from Westminster”.

A spokesperson added the best way to improve people’s life chances is through education, and the Government is transforming Further Education to build an “apprenticeships revolution”.