A symposium on spatial inequality and economic divergence in the UK: preface

This symposium issue of Fiscal Studies brings together three papers that examine how, and why, the places where people grow up, live and work shape their opportunities in England. The issue is inspired by Paul Collier's book, Left Behind, summarised in an overview written by Collier for this symposium, which looks at these questions in the global context, including the UK. Each paper looks at a different aspect of the broader question of how place influences opportunity, offering new evidence and perspectives. Read together, they also offer insights into the connections between these different aspects, giving a fuller picture than each paper can provide on its own and adding nuance to the policy implications that follow.

The first paper, by Pedro Carneiro, Francesca Foliano, Sonya Krutikova, Julia Loh and Lindsey Macmillan, examines how the neighbourhoods in which children grow up shape their adult labour market outcomes, echoing emphasis in Left Behind on the critical role that communities play in people's lives. Using linked administrative data on education, benefits and tax records, the authors show that growing up in a poorer or richer neighbourhood matters much more for adult earnings in some parts of England than others. The results reflect well-known divides between London and the rest of the country, and between the North and South. But the paper also reveals some less predictable patterns. For example, it shows large differences in opportunity between small areas within the same geographical region. Outside London, large cities tend to produce equally poor outcomes for both men and women, even when compared with the outcomes for those who grew up in nearby towns and rural areas. The authors point to the historically low educational quality across these cities as a potential mechanism. The authors also move beyond the common focus on men in the intergenerational-mobility literature to highlight striking gender differences. While the paper simply documents rather than explains these, it clearly shows that focusing on men, or pooling men and women together in such analyses, misses an important part of the picture.

The second paper, by Xiaowei Xu, helps to think through what might be underlying some of the patterns documented in the first. It uses the same linked administrative data to study geographical migration among people in their 20s and early 30s. While the first paper measures outcomes by place of origin, and therefore captures both the effects of childhood environments and the role of the environment wherever they end up, the second paper makes progress in disentangling these forces by showing who stays, who leaves and where they go. It documents big differences in migration patterns across places and people. Here again, London stands out: while flows out of London are rare, more than a quarter of movers from elsewhere relocate to the capital. Migration is also highly selective: university graduates are much more likely to move than non-graduates. Conditional on moving, graduates head to higher-wage areas (especially London), while non-graduate moves are not related to the strength of the labour market in the destination location. The paper shows that such selective migrations explain a significant proportion of the large differences in skills that exist between different parts of England.

The scale and selective nature of migration documented in the second paper suggest that it may be an important mechanism underlying patterns in the first paper. Take Doncaster, for example. From the two papers, we learn that Doncaster is a place with relatively high inequality of opportunity – that is, a large gap in earnings between those growing up in richer versus poor neighbourhoods – and high rates of outmigration by graduates (who are more likely to have grown up in the richer neighbourhoods). Combining these two findings suggests that an important part of the economic advantage experienced by those from richer backgrounds in Doncaster is obtained through the ability to leave and move to a place with better jobs and higher wages.

Migration patterns may also shape opportunities available to those who stay; outside London, these are more likely to be non-graduates – who are also, on average, from poorer backgrounds than graduates. If they live in a place with a lot of skilled in-migration, inflows of talent may generate positive spillovers for them, improving their labour market outcomes. Perhaps this is part of the story behind the success of women who grow up in poor neighbourhoods of Inner London (documented in the first paper). However, such positive spillovers are not guaranteed. Manchester provides a striking example: more graduates move to Manchester than leave it, yet the first paper highlights that outcomes for those who grew up there – whether from rich or poor neighbourhoods – are among the worst in England.

Manchester and London are in the select handful of places in England where in-migration of graduates exceeds outmigration. Most places are more like Doncaster – those with less education (and likely from poorer backgrounds) tend to stay while the more skilled workers leave. Without intervention, this likely contributes to the downward spiral of weakening local economies that Collier talks about in Left Behind, with few good jobs and little investment characteristic of many English cities and towns.

This brings us to the third paper, by Michiel Daams, Colin Mayer and Philip McCann, which examines the geography of private investment in the UK using a uniquely detailed dataset covering all major commercial real-estate investments (such as offices, factories and stores) in the UK between 2003 and 2023. The authors document a sharp and persistent divergence in risk premiums on real-estate investments in London compared with cities in the rest of the UK. This divergence implies that investors increasingly view London as the safest place to invest in the UK, while demanding much higher returns to invest in other cities. So much so that now the difference in risk premiums between London and most UK city centres is as large as the difference between yields on UK gilts and those issued by governments in the much riskier contexts of Romania and Chile. There are several possible explanations for this trend. The authors favour a narrative that attributes it to the highly centralised banking and financial systems that distinguish the UK from many OECD countries. In their view, this centralisation creates large informational asymmetries that lead lenders to see investments outside London as riskier because they understand those places less well than the capital where they are based.

Taken together, the second and third papers show that London attracts not only skilled workers but also the capital needed to generate high-value jobs. In this context, improving skills in left-behind places – identified as important in the first paper – is likely necessary but not sufficient for reducing spatial inequalities. Without local job creation, skilled young people will continue to leave; and without improvements in access to finance, regional cities will fail to attract the investment needed to support new opportunities even when skills improve.

Thus ‘levelling up’ clearly requires a joined-up strategy rather than the pulling of individual levers in isolation. The third paper and Left Behind take a strong stance that the current institutional set-up is not fit for the development and implementation of such a joined-up strategy across the regions. They argue that significant decentralisation of the financial, banking and public governance systems is required. These are currently highly London-centric and are not conducive to understanding and meeting the very different needs of areas outside of London. Decentralisation of UK financial systems would re-establish lost connections to communities outside London, while devolution of greater authority and resources to city mayors and combined authorities would allow more responsive, joined-up, locally tailored policies. In line with this view, the third paper shows that the only urban areas outside London where risk-pricing appears to have started moving closer to London are Greater Manchester and the West Midlands – the two largest mayoral combined authorities with the greatest devolved powers.

To sum up, the symposium provides valuable new analysis and brings out patterns and narratives that form a compelling story. It also highlights key areas for future research. While the papers document important differences between areas, they have less to say about how far these reflect place-level factors – such as local communities, networks, institutions and agglomeration effects – as opposed to people-level factors – the types of people who live in one area versus another. They also leave open key questions about why people move between places and what barriers they face. Addressing these questions in future work is necessary for developing well-targeted policies that strike the right balance between place-based and individual-level interventions to reduce spatial inequalities.