The British economy is largely urban
More than half of Britain’s population lives in cities. The economy clusters there too: cities account for 63 per cent of national output and 72 per cent of knowledge-intensive jobs in the private sector.
Figure 1: Big cities are a significant share of the national economy
Source: ONS; The Data City; IMD 2025; WIMD 2025, SIMD 2020 • Notes: New economy firms (NEFs) are companies in emerging knowledge-intensive sectors at the forefront of new technologies and innovations, see: Rodrigues G, Vera O, and Swinney P (2022), At the frontier: The geography of the UK’s new economy. Centre for Cities. High-skilled and low-skilled residents refer, respectively, to the share of the population with degree-level qualifications and with no formal qualifications, taking the average of 2022–2024 estimates to account for fluctuations in data. Deprivation measure shows proportion of neighbourhoods within each grouping which are in the top 20 per cent most income deprived neighbourhoods in each constituent country (excluding Northern Ireland).
But cities underperform their international peers
Seven of the 20 least productive big cities in the G7 are British. The underperformance of large cities outside of London accounts for 57 per cent of the UK’s prosperity gap. Stronger national growth depends on improving the performance of Britain’s cities.
Figure 2: Britain’s secondary cities underperform their G7 peers
Britain’s productivity divide has a clear geography
The UK has experienced weak productivity growth for almost two decades, but there is a large variation in performance across the country. The Greater South East remains one of the most productive regions in Europe, while many cities in the North lag behind the national average.
Figure 3: With the exception of Edinburgh, Leeds and York, all 15 cities with productivity higher than the national average are in the South
The skills divide follows a similar pattern
Skills are a fundamental driver of economic performance. Knowledge-intensive businesses invest where they can recruit the workforce they need to help them grow. Cities further north tend to have higher shares of residents with no formal qualifications than those in the South. For example, 12.9 per cent of people have no formal qualifications in Blackburn compared to 4.0 per cent in Exeter.
Figure 4: Northern cities tend to have higher shares of residents with no formal qualifications
Part of the challenge is fiscal: the UK is exceptionally centralised, limiting cities’ power to shape their local economies
The UK is extremely unusual in the extent to which fiscal powers are concentrated centrally. Only one in every five pounds that sub-national government has access to comes from taxes, while nearly two-thirds come from grants determined by central government.
Figure 5: In the UK, 95 per cent of all tax revenue goes to central government
Greater fiscal devolution could support economic growth
Across the OECD, countries that are more fiscally devolved tend to have higher average wages. Giving local areas more control over tax retention would give local leaders stronger incentives and more opportunity to grow their economies.
Figure 6: Across the OECD, fiscal devolution positively correlates with wages
Fiscal devolution should start with England’s mayors
The introduction of mayors is widely regarded as a successful constitutional innovation. Mayors and metro mayors represent most of England’s economy, and crucially, they represent local labour markets in a way that local authorities cannot.
Figure 7: Mayors represent most of England’s economy
Source: Annual Population Survey, Business Registry and Employment Survey, Regional gross domestic product • Note: All data is for 2024, except for GVA data which is for 2023 (the most recent available year).
Britain needs to build a lot more housing in cities
British cities have a ‘density gap’ of 2.3 million homes across their urban cores compared to their French and Japanese peers. The density gap is largest in the big cities outside London and is a likely cause of their economic underperformance.
Figure 8: Density gaps exist in cities of all sizes, but Britain’s big cities have the biggest density gap
Poor transport connectivity holds cities back too
Around 80 per cent of residents in big European cities with up to 1 million people can reach their city centres by public transport within 30 minutes. It’s about 50 per cent in those with more than 1 million. Cities in the UK fall well below this benchmark. For example, just one in six of West Yorkshire’s 2.4 million residents has good access to Leeds city centre.
Figure 9: Britain’s big cities lag behind their European peers on public transport accessibility
Source: TravelTime; ONS; Eurostat; Centre for Cities’ calculations. • Notes: For more details, see Rodrigues & Breach (2021).
The biggest economic prize lies outside of London
If the UK wants to overtake France and Germany to become the G7’s second most productive economy, the greatest opportunities lie in its big cities outside London.
If London’s productivity matched that of Paris and Munich – Germany’s most productive city – it would deliver 25 per cent of the needed growth, equivalent to £44 billion. However, if Britain’s other major cities performed as well relative to London as their French and German peers do relative to Paris and Munich, they would deliver 57 per cent of the required growth – equivalent to £104 billion.
Figure 10: Big cities outside of London would deliver more than half of the growth needed to close the UK’s productivity gap
The size of the prize
The benefits of improving Britain’s big cities would be significant. The £104 billion international comparison is the most ambitious benchmark, but closing even part of the productivity gap would deliver substantial gains. These figures are illustrative rather than exact predictions, but they show the scale against which the Government’s ambition and progress should be measured.
£34.7 billion
How much bigger the UK economy would be per year if big city productivity matched the current national average.
This is equivalent to having another Leeds in the national economy.
£104 billion
The addition to national economic output if the UK’s big city performance matched that of their peers in France and Germany.
An increase of this magnitude would close over half the output gap between the UK and Germany.
£31.6 billion
The total increase in the amount big city residents could spend on raising their material standards of living if their disposable incomes matched the UK per-person average.
That would mean an extra £2,720 per year in each big city resident’s pocket.
The benefits would not be confined to big city residents. As the centres of their regional economies, stronger cities would create opportunities and raise prosperity in surrounding towns and communities too.