For more than a year the state of the economy has been the number one concern among voters according to YouGov, and both the Government and opposition have put economic recovery and reducing inflation at the centre of their policy platforms. While the invasion of Ukraine, the impact of the pandemic and the effects of Brexit all play a role, the roots of the UK's poor economic performance run deeper.

UK productivity growth has been poor for more than a decade. When looking at these national figures, it can be hard to see how abstract UK-level percentages affect day to day life. However, the effects of this stagnation are very real, and felt across the country in local economies and in quality of life.

In the face of these national or global issues, what can local policy do? It's not within the gift of a local authority to stop the war in Ukraine or fix a shortage of semiconductor chips. And even some local factors may have been shaped by hundreds of years of development. Against strong economic forces and with limited local powers, focusing on the right things and being realistic about impacts is crucial.

Residents matter

Local economies rely on residents or incoming workers to be productive. For some places the challenge may come in the form of an ageing population, exacerbated by increases in early retirement. For others, the issue may be difficulties in retaining skilled graduates. Other areas may have plenty of opportunities, but housing isn't affordable and transport links may be poor, preventing people from accessing those jobs.

All of this means that increasing the number of highly productive jobs requires more than a skills strategy. And it's important to be realistic about the scale of change possible. If a local economy is relatively small and poorly connected, or house prices are rocketing but there is no appetite to drastically increase the housing supply, the impact of other measures may be modest.

The makeup of businesses matter

Feedback loops mean it's possible for local economies to find themselves in virtuous, or vicious, cycles. A strong economy with lots of innovative firms may see rapid growth and attract interest from outside investors that may benefit other local businesses. Struggling firms, and a strong reliance on the foundational economy – public sector activities, and services such as hospitality, retail, and care – produce the opposite effect. Again, having a detailed understanding of the makeup of employers in the area can help to choose interventions, and to be realistic about the scale of impact.

Level of investment matters too

For businesses starting up or wanting to grow, access to finance is critical. This can include public sector grants or loans aimed at particular industries or types of businesses, or private finance from banks or investors. Investment covers the costs of capital assets needed to grow a business such as larger buildings or new equipment, and intangible assets such as intellectual property and R&D. Investment can also include transport and broadband infrastructure needed to support the economy. If local government wants to connect more people to jobs and education, better transport links can enable those journeys.

But the returns on these investments, both public and private, can depend on how well the local economy is performing. If poor performance means low returns, low investment places can find themselves stuck.

Limited policy levers

Local authorities face an additional challenge when developing strategies to improve their local economy – there are a limited number of policy levers available. Much of the funding available comes from competitive funding pots, which means local government can't be certain it can enact its plans. And if central government opts to target investment to address the national productivity gap, this may focus funding more on larger cities where there is already a strong mix of skills and capital.

Local governments are not powerless, but they need to be realistic about the challenges they face and the policy levers at their disposal.

Tailoring an approach

In short, areas need to make sure they better tailor their policies, funding bids, and allocations to the local mix of residents, businesses, and investment. Of course, places know this, but struggle to use local data and evidence on what works to help inform priorities and make decisions. This evidence gathering is crucial. It gives policymakers a better sense of what is happening in the area, what are the causes and the challenges, and what needs to be and can be done to address an issue.

Is this unrealistic? It is certainly a challenge given the level of resources available for many local areas, but a few examples highlight how important local data and analysis can be in helping inform planning and decision making.

Overlooked barriers to growth

Led by a panel of independent experts, Great Manchester Combined Authority's Independent Prosperity Review undertook an assessment of the state and future potential of Greater Manchester's economy, summarising the existing evidence base. This review was last updated in 2022, and has informed the Local Industrial Strategy, including a commitment to ‘good jobs'.

One outcome of the prosperity review is a focus on the foundational economy – the jobs providing everyday services such as in adult social care, early education, childcare, retail, and hospitality and leisure sectors – as it accounts for more than 40% of jobs in the city region. The foundational economy is often overlooked in economic strategies as these workplaces do not typically have high productivity. Greater Manchester has recently set up an innovation fund to improve productivity through better business practices in foundational economy employers. This fund is informed not only by the evidence base, but also by the commitment to improving the quality of work.

How the response to Covid changed evaluation

In the face of the pandemic local authorities had limited policy levers available to address uncertainty in their local economies. West Midland Combined Authority quickly established a data monitor with the West Midlands Regional Economic Development Institute, combining a wide range of quantitative and qualitative data, insights and models. This monitor fed into the weekly Economic Impact Group, chaired by Mayor Andy Street, allowing local policymakers to understand the situation and rapidly respond using the levers available to them.

One example was the business support programme Pivot and Prosper developed in the early months of the pandemic. It helped West Midlands firms in specific sectors to change the way they work, produce new products or services, or enter new markets. Since then, a clear process for how data feeds into decision-making has been a key part of the region's approach, with the evidence gathered informing the State of the Region reports.

Identifying sectors with productivity potential

The North East LEP and North East Combined Authority have a strong economic evidence base for the region which underpins their Strategic Economic Plan. The region's evidence base combines key economic data and information from a range of sources, providing an up to date view of the North East economy, the ongoing and new challenges and issues for the future. The North East LEP Local Industrial Strategy was launched in 2019, building on the evidence base and research, with critical friend support from the North East economic evidence forum. This evidence-based approach has focused on key sectors to address their productivity gap, such as in advanced manufacturing. This has led to programmes such as Made Smarter Adoption North East which focuses on digital technology adoption by manufacturing and advanced manufacturing businesses.

The State of the Region updates continue to use evidence to shape priorities and projects. For instance, evidence showed that there was both a recruitment issue in filling vacancies with suitably skilled applicants and increasing inactivity as people left the workforce. In response, the LEP has used its convening role to develop a health and sciences career pathway for shortage roles, supporting businesses and education providers in addressing the gap.

How we help

Could more areas adopt such approaches? Resources are a major constraint, but not the only issue. At What Works Centre for Local Economic Growth we're developing new guidance for local government on using data and diagnostics to better understand the local context. This will complement our existing evidence reviews that look at ‘what works' on policy interventions from apprenticeships to transport.

That balance of looking at data and robust research, combined with hearing from local stakeholders, can put local government in a stronger position to tackle the challenges, identify opportunities for local economic growth, and be realistic about the scale of change.

Megan Streb is head of outreach at What Works for Local Economic Growth (Partners with the London School of Economics and Political Science and Centre for Cities)

@whatworksgrowth