Hull’s energy-intensive industries show the need for a place perspective approach to the energy crisis - Andrew Carter
The price shock caused by the disruption to energy supplies in the Middle East will hit all cities across the country, but the hit to some places will be much bigger and more long-lasting than it will be for others.
For instance, there are just under a million jobs in energy-intensive industries in Britain. But there are more than ten times as many jobs in energy-intensive industries in Hull than in York – two cities with total workforces of similar size.
A large part of Hull’s local economy is focused on manufacturing, whereas there are barely any manufacturing jobs in York. If you include the jobs that rely on the wages earned by those manufacturing workers – jobs in hospitality, entertainment, retail – then the differences are even bigger.
There are notable differences among the largest cities too: Sheffield will be disproportionately exposed to energy price shocks, with 4.4 per cent of jobs in energy-intensive industries – above-average for Britain.
By comparison, Leeds’ economy relies less on energy-intensive industry than the rest of the country. Just 1.9 per cent of jobs are in these sectors.
The impact of the energy price rise is now appearing in official inflation data. It is not clear how high prices will go or how long the crisis will continue.
What we do know is that it will affect jobs, bills and households differently from one place to another.
So, the Government’s recent announcement to expand its British Industrial Competitiveness Scheme, cutting bills for energy-intensive manufacturing firms to protect those jobs, will need a place perspective to ensure it targets those places with large numbers of jobs in the most exposed industries.
The last time there was a prolonged spike in energy prices, in early 2022, was also caused by global upheaval. In October 2022, the year on year inflation rate was at its highest in more than 40 years – at more than 11 per cent.
Centre for Cities analysis at the time showed that there were wide variations around the national figure, driven by the characteristics of places.
Two key factors driving the hikes in the cost of living in 2022 were energy consumption and petrol consumption. In some places, people consume more gas to heat their homes because housing stock is typically old and poorly insulated.
In other places, people rely more on their car to get around, because they drive longer distances or public transport links are poor where they live.
Cities and towns facing both these problems found their bills going up by much more than everywhere else.
The cost of living was rising nearly three percentage points higher in some cities and towns than in others, with no equivalent rises in pay. When national inflation hit 11.1 per cent at its peak in October 2022, Centre for Cities estimated that inflation was around 12.5 per cent in Bradford and 12.1 per cent in Doncaster, and as high as 13 per cent in Burnley – while inflation in London and Cambridge was below the national average.
Since inflation was affecting the price of essentials like heating and transport, households had no choice but to pay the higher costs. This disproportionately affected poorer households – where essentials comprise a higher share of regular spending – than richer ones.
The energy shock further widened already large geographic disparities in disposable incomes between the South of England and other parts of the UK. Inflation made workers in the North, Midlands and Wales £131 a month poorer on average – compared to £103 per month poorer in the South.
Inflation is 3.3 per cent this month – much lower than it was at the peak of the last energy price shock in 2022 – but the impact of the current, and any future, rise in energy costs will have a similar varied impact across the UK.
Last time, the Government adopted a universal response – including an energy rebate package worth £15bn. There is a consensus that this time the Government should adopt a more targeted approach – helping those households most affected by the price increases.
A place perspective can help the Government understand households’ needs and target any interventions.
Adopting a place perspective doesn’t just apply to this situation. It applies to other elements of the Government’s national economic strategy – from innovation to planning to transport to skills.
Increasing national prosperity, which will also enable us to better withstand the next economic shock, depends on the Government fostering the conditions for cities to succeed and grow.
It must continue to shape planning policy, its Industrial Strategy and its export trade strategy to help local economies – especially in cities – get closer to their economic potential.
Andrew Carter is the chief executive of Centre for Cities.