Unleashing the Oxford-Cambridge Arc: From Potential to Powerhouse
The Oxford-Cambridge Arc is one of the most impressive science and technology clusters in the world. However, supply side constraints mean it is small in scale, and it fails to deliver its true potential to the UK economy.
At a per person level, Oxford and Cambridge are some of the most innovative and human capital rich locations in the world:
No other region globally produces the same level of scientific publications per person, and only San Francisco outperforms the region in terms of patent creation.
In terms of the quality of the firms it produces, no other cluster in Europe creates as many ‘unicorn’ start up firms (firms that reach $1 billion dollar valuations).
In terms of human capital, no other cluster had a higher proportion of the working population with at least a university degree, driven in part by the world leading universities it hosts
It is no coincidence that Boston and San Francisco are home to three universities that often occupy the other 3 spots in the global ‘top 5’ alongside Oxford and Cambridge.
The region is also incredibly productive in terms of output per person, especially Milton Keynes, which is noted as the most productive city in the UK outside of London without a full scale university.
But despite this brilliance, the region remains very small. In terms of output (gross GDP), the region is over 10 times smaller than Boston, and as a result fails to deliver the positive effects for the wider region that other international hubs provide. As cited by the Chancellor in her speech earlier this month, Public First’s new research on the Oxford-Cambridge Arc highlights how, with the right policy interventions to sustain impressive growth in the region, the region could deliver significant value to the UK economy, as much as £128bn a year by 2050. The research which I led can be found at the end of this article.
Our work shows that on a per person basis, the region competes with some of the most successful innovation clusters across a number of metrics. Covering innovation, human capital and the quality of firms that are created in the region.
In terms of scale however, the region punches well below its weight and as a result the areas around the core cities fail to feel the spillover effects that other clusters deliver. This is demonstrated by the large gap between productivity of the core cities within the region, and the productivity of the wider region. Due to the large scale of other international clusters, the benefits are spread more evenly across the cities and the wider region.
Whilst the region has grown, there are significant signs that growth will not be sustainable standing still. House prices to wage ratios are 150% of the national average, and there is a consistent shortfall in lab space compared to registered demand. The demand for growth exists, but the region is hamstrung by significant supply side constraints. Our analysis shows what the region could deliver for the economy if constraints can be addressed, and looks to quantify the scale of these constraints. If the region can be scaled towards the magnitude of some of these international clusters, the economic impact would have long term material benefits for the UK.
Punching below its weight
In our work, we model the potential growth of the core of the region, defined as Greater Cambridge, Greater Oxford and Milton Keynes. Our scenario analysis looks at the effect of achieving varying levels of performance across key drivers of economic growth; skilled worker growth, research and development spending, venture capital investment and the rate of startup growth. We estimate that achieving ambitious levels of growth in these drivers, in line with the performance of leading international clusters, can grow the region by nearly three times its current size, delivering £128 billion a year to the UK economy by 2050.
Growth path of OxCam GVA under various scenarios of driver performance
It is true that some level of growth is inevitable. The region’s output is larger than it was 25 years ago, and likely would be larger still in 2050 with limited intervention. However, we show that pursuing ambitious growth in the key drivers has an immense impact even above the baseline growth.
We estimate that the region could deliver an additional £47 billion a year above baseline growth by 2050. This includes £33 billion in scale effects, the simple impact of more jobs bringing more economic benefits to the country.
£4.6 billion of value could be created through agglomeration, that is the higher productivity that workers exhibit when industries are grouped together, sharing ideas, infrastructure and better matching of skills to jobs.
Evidence suggests that increases in R&D can have significant productivity gains, especially when invested in the types of high tech sectors that exist in the region. We estimate that ambitious R&D growth in the region would bring local productivity benefits of around £4.7 billion a year by 2050.
Increased investment fosters increased innovation, creates new markets and increases risk taking, all having positive impacts on productivity. We estimate that by policy to increase startup rates through attracting more venture capital will generate an additional £4.7 billion a year to the economy by 2050.
What is needed
The outcomes associated with the ambitious ‘growth scenario’ can only be enabled with targeted action. Skilled worker requirements cannot be met in the long run by the universities, physical infrastructure needs to be delivered at a faster pace than before, and we will need to learn lessons from other countries and clusters that have successfully incentivised research spending and attracted capital investment.
We estimate that to accommodate the new jobs associated with ambitious growth, over 370,000 new homes will have to be built, the equivalent of 40 Cambridge Science Parks of commercial space will need to be delivered. To deliver this the entire region will need to be leveraged. Once complete East West Rail (EWR) would put an additional 680,000 homes within 20 minutes of an EWR station, showcasing the flexibility EWR will add to where infrastructure can be delivered
Over 400,000 new skilled workers will need to be recruited to the region. If skilled worker requirements are to be met, policies should address increasing the capacity of existing universities, enabling companies to upskill the existing workforce, and attracting skilled workers from abroad by addressing skilled worker visa requirements.
To achieve ambitious growth, we estimate the region will need to attract £400bn of Venture Capital Investment over the next 25 years. Maintaining high investment is crucial to maintain the high quality of businesses that are being created in The Arc, and to prevent startups relocating at series B stage to Silicon in search of high scale fast paced investment opportunities. It is vital that the region seeks both physical and virtual networks in the region.
The economic size of the prize is enormous, but there is significant action required to turn the region from a per capita success story into an engine for the UK economy. Policy will need to address supply side shortages in physical infrastructure, boost both public and private spending in R&D and venture capital and, perhaps most importantly, send a strong message that there is (across government industry and academia) a cohesive, credible vision to leverage the full potential of the region.
If you would like to discuss the research in more detail, please feel free to reach out to my email: gabriel.hill@publicfirst.co.uk
Link to Microsite and Research: https://oxcamsupercluster.publicfirst.co.uk/