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Low wage and high welfare dependency holding Birmingham back, report claims

Low wage and high welfare dependency holding Birmingham back, report claims

🕔25.Jan 2016

Birmingham has been identified as one of the Government’s problem cities where an economy based on low wages and a huge welfare benefits bill is making growth harder to achieve and sustain.

While on the face of it the past few months have seen great achievements, with completion of the £750 million New Street Station refurbishment and Grand Central shopping centre scheme, a survey by thinktank Centre for Cities, identifies Birmingham as one of 29 UK cities that Chancellor George Osborne is most concerned about.

While direct foreign investment was at record levels last year and the city is home to more business start-ups than anywhere else, underlying structural problems based on low skills levels and a poorly educated workforce mean that Birmingham is unlikely to meet the Chancellor’s aim of delivering a “high wage, low welfare” economy.

According to this year’s Cities Outlook, Birmingham lies in the worst performing of four quadrants, alongside Manchester, Glasgow, Newcastle, Barnsley, Stoke and Liverpool, their long-term economic prospects dragged down by low wages and a huge welfare benefits dependency.

The best performing quadrant, high wage and low welfare, is dominated by towns and cities in the south of England including Reading, Oxford, Cambridge, Brighton and Crawley, with Warrington the sole northern city alongside Aberdeen in Scotland.

Centre for Cities examined the Birmingham city region which includes Birmingham, Dudley, Sandwell, Walsall and Wolverhampton. The findings won’t come as a great surprise, highlighting  a low-wage, high-dependency pattern that is proving difficult to shake off.

While the average weekly wage in cities was £545 in 2015, in Birmingham the figure was £452. By contrast, in Derby in the east Midlands, the average was almost a third higher at £588.

Nine out of 10 UK cities with the fastest weekly age growth last year were in the south of England.

Welfare spending in Birmingham was an average £3,658 per person compared to £2,535 in Reading.

The report singles out a poorly educated workforce and difficulty in retaining graduates from the city’s four universities as a major problem.

In Birmingham, only 26.6 per cent of the population has a university degree or equivalent qualification and 15.5 per cent of the workforce has no qualification at all – one of the highest levels in the country; only Liverpool, Belfast and Stoke have a poorer record.

Birmingham has an employment rate of 64.3 per cent, one of the worst in the country, and average GVA per worker is £45,700 against £53,700 for Britain.

The study says devolution deals like the one signed between West Midlands councils and the Government open the possibility of more investment in improving skills and creating jobs, but only if council leaders are given real powers around local decision making.

Crucial to this is integrating skills development with jobs, by making sure people entering the workforce are being equipped with the right kind of skills for the work available.

The report notes:

High wage, low welfare cities tend to have more highly qualified people living in them. Cities with large shares of high skilled residents living in and around them are attractive to high skilled businesses. The higher skilled a person is, the more likely it is that they will be able to find employment and the less likely it is that they will require welfare support.

Under the last Labour government, welfare spending outstripped economic growth. Between 2004-05 and 2010-11 the welfare bill grew at over four per cent a year in real terms, compared to an average annual growth rate of the national economy of 0.8 per cent.

Growth in welfare spending was driven by tax credits, pension benefits and housing benefit. In the first couple of years of the last parliament, welfare spending slowed, particularly welfare spending on things other than old age benefits, but continued to grow.

This has changed since 2012-13. Benefit spend has declined in real terms, with welfare spend excluding old age benefits falling by 0.7 per cent a year.

The report says the size of the welfare bill in cities where spending is above average is not simply a result of increases in welfare budgets over the past 10 years. The causes of high welfare spend in these cities are much more fundamental, and are likely to be due to “long term structural weaknesses in their economies”.

It adds that the weaker economies of cities like Birmingham means that they will need a range of economic policy interventions if they are to experience sustained economic growth at the same time as cuts to welfare spending.

The study makes three recommendations for low wage high benefits cities like Birmingham:

  • Welfare cuts must be accompanied by policies to improve the economy, particularly around skills. Low skills will both hinder the opportunities available for people to move off welfare and into work and will hinder attempts by cities to attract investment from businesses.
  • Devolution will help all cities better integrate skills and employment interventions and welfare spending. Currently, spending on employment and skills programmes and benefit spending are not connected.
  • Build more affordable houses in cities where housing benefit payments are the highest.

Alexandra Jones, 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.

This should be a key part of the Government’s Northern Powerhouse initiative alongside investment in infrastructure, and a top priority for local leaders.”

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.

Further devolution would also enable local leaders to make spending decisions which better meet the needs of their communities and give them more incentives to drive economic growth.

Meanwhile, Marketing Birmingham has revealed the city best’s hotel occupancy rates for October.  Occupancy rates in city’s hotels hit 81%, a 2% rise from same month in 2014. The average room rate reached £66, a £5 rise compared with previous October.

Among the events which led to the record figures was the  inaugural Print Show and One Direction gigs at NEC venues. The latest figures come from travel research company STR Global and analysis from the Marketing Birmingham Regional Observatory. It is the 16th month in succession where hotel occupancy rates have been higher compared with the same period in the previous year.

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