Forget London, Birmingham is the place for businesses, workers and house-buyers

In the 1960s, the UK had what some of the press referred to as a “Birmingham problem”. The city was too big, it was creating too many jobs, too many people lived there, and too many more people wanted to live there.

“The five counties in and around Birmingham lie at the strategic heart of manufacturing Britain,” said the now-defunct Statist magazine. They have the “fastest rate of population growth and the highest ratio of working population to total population in the UK . . . they help to underpin the whole nation’s economy by their output of capital goods, their direct exports and their supplies of products and work to other regions.”

Average wages were higher in Birmingham than in London. This sounds impressive, but to the government of the day, the intense concentration of commerce and wealth was considered to be a very bad thing.

It caused housing problems (a study in the early 1960s suggested that more than 500,000 people needed to be “decanted” from the region to prevent overcrowding); it meant the area was always “chronically short of labour”; and it created endless rows about slum clearances, housing policy and the value of Birmingham’s proposed greenbelt. So instead of nurturing Birmingham’s brilliance, the UK’s increasingly centralised state made it share: between 1945 and 1963 “some 200 industrial firms or projects had been steered out of the region” to “parts of Britain with labour to spare”. They took 100,000 jobs with them.

What was really needed, or so a departmental study group for the West Midlands suggested, was a way to build new towns away from Birmingham and to “persuade industry to conform and provide a sufficient number of jobs in these outlying areas”. In the meantime, wrote JE Dolby, general manager of Northampton Town and County, in 1964, “new industry is not encouraged”.

This was a policy that Birmingham’s leaders would come to regret. The once-great city fell into a nasty decline in the 1970s as the unions grew rather too powerful, industries shifted to other locations, and the car industry imploded. Two hundred thousand jobs were lost and unemployment rose from effectively zero to close to 20%.

In a couple of decades Birmingham had turned from being the strategic heart of a fast-growing Britain to being an unfashionable, unloved and largely ignored symbol of its industrial failure.

The good news is that the story doesn’t end there – things are changing again in Birmingham. HSBC announced a few months ago that it is to move its head office for its retail and business lending operation, and 1,000 of its staff, from London to Birmingham. Deutsche Bank has also expanded its operations in Birmingham: it now has 1,500 people based there, in both front- and back-office capacities.

A global survey of 300 cities by Jones Lang LaSalle put Birmingham at number 53 for foreign direct investment. PwC ranks it as the sixth-best city in Europe for investment — ahead of London.

A survey at the start of this year showed 46% of West Midlands firms reporting rises in output, and 34% reporting rising orders. That may explain why the city is showing the highest growth in manufacturing and technology jobs in the UK outside London.

As George Osborne noted in his Budget in March, a job is created in the Midlands every ten minutes. It might go some way to explaining why Birmingham was the top regional city for people in their 30s leaving London in 2014 – more chose Birmingham than chose Bristol.

So what’s bringing Birmingham back? One reason is that the extreme cost of living in London has reminded everyone just how close Birmingham is to the capital (100 miles) and how much cheaper it is to set up shop outside London. Jan Thompson, of commercial estate agent Jones Lang LaSalle, notes that setting up in Birmingham will have cost Deutsche only 55-60% of what it would have cost in London, while the bank’s head in Birmingham talks of the ease of transport between the cities and of the “lively and exciting” lifestyles Birmingham would offer their staff.

Birmingham also has one of the youngest, most highly qualified and most diverse workforces in the UK, and a development policy that seeks to work with rather than against business, says Thompson.

The universities are working together to put a “strong sales pitch” to students and employers; and since 2010, Birmingham’s 20-year Big City Plan has produced a pretty good infrastructure programme.

The airport has been extended and direct flights to China (the only ones outside London) began in July last year. The Midland Metro is being expanded. New Street station is to get a vast new atrium. And if HS2 goes ahead — note that its headquarters is located in Birmingham — you will be able to travel from London to Birmingham in 49 minutes. That, for reference, will make the journey 15 minutes faster than the trip from London to Winchester.

Pippa Malmgren, author of Signals: The Breakdown of the Social Contract and the Rise of Geopolitics, reckons the Midlands is the most exciting place in the UK at the moment, for the same reason she reckons the Midwest is the most exciting place in the US. Firms are “reshoring”, bringing their manufacturing home to take advantage of falling prices, high-quality labour, new manufacturing processes, easy logistics and, in the US at least, cheap energy.

All investors, says Malmgren, should be watching these areas “very closely”. When you think Midwest or Midlands, you no longer think “manufacturing and innovation” — but you should.

She points me to a report from Bank of America Merrill Lynch last year, which states: “New manufacturing plants are popping up all over the US, but the Midwest is the place to be.” The bank cites 70 firms that have reshored there, and a mere 39 that have headed to the west.

I thought of that a few weeks ago at a conference in London for small British businesses: almost everyone I met, setting up a new business in the UK, manufactures in the UK too. One example is a tiny firm called Kmossed, which makes rather gorgeous silk scarves. I assumed they’d be manufacturing in China or in Italy. But no – the scarves are digitally printed in the Midlands, because “the price is right and the quality is amazing.”

Thompson thinks the reshoring story might be a little “over-egged”. I’m not so sure. A survey in 2013 showed that almost a third of senior decision makers from the British manufacturing industry planned “to source more components from UK companies over the next five years”, and a few hours with the Birmingham Post business pages will soon convince you that reshoring is real.

Once convinced, what do you do? Bar setting up your own manufacturing firm to take advantage of all the benefits, it is probably worth looking at the property market. All those London escapees will be looking too, and Thompson tells me that Chinese buyers are also plentiful: as far as many of them are concerned, anywhere an hour’s train ride from London is effectively a suburb of the UK capital, so on that reckoning, Birmingham itself is something of a bargain.

It’s worth remembering that one of the reasons London is so expensive is that investors from less financially and politically stable places than ours use it as a safety deposit box for their money. But not everyone wanting to protect their wealth is filthy rich: for moderately affluent foreign buyers, whose ranks are swelling fast around the world, Britain’s second city offers the same property rights at a rather lower price.

Albert Bore, leader of Birmingham city council, says he is “determined not to repeat” the mistakes London has made — allowing “rampant house price growth” to force an “exodus of young people” from the city. But even with his hefty development plans, estate agent Knight Frank reckons there will be a shortage of supply over the next five years, something that isn’t really being reflected in the market. Prices bottomed in London more than six years ago and are up more than 50% since. Those in Birmingham bottomed around the same time but have risen only 10% since (an average of £13,000 versus an average of £144,000 in London).

Where to look? I suspect the red-brick warehouses being converted to supercool housing in the Jewellery Quarter might be the answer: £390,000 gets you a wonderful three-bedroom, warehouse-style town house. Move on a bit and £925,000 gets you a huge Grade II-listed Georgian town house (the type Deutsche folk will fancy) a mile from New Street Station. And the very best houses I can find in and around the city top out at less than £2m (think 7,000 square feet, eight bedrooms and an orangery). That’s the cost of a tiny four-bed terrace in Fulham. No wonder everyone’s moving in. JE Dolby would be horrified.

  • This article was first published in the Financial Times

  • Cameron Holder

    I think this is fantastic, Manchester is back on it’s feet and now Birmingham’s starting to take off. If we could repeat this across another 4 or 5 cities (the likes of Cardiff, Newcastle, Bristol, Leeds, Glasgow etc) we could re balance this country a bit. It would be good for those cities and also good for London.

    Government needs to help support this by putting the infrastructure in place, particularly transport.

    • Edgar Fr0gg

      Totally agree Cameron, Infrastructure is vital and investment into this sector is much preferred to being over reliant on the housing market again -of course it is important to balance all of these things.

  • Aztec

    Merryn is absolutely right on the history of Birmingham. Factories were refused licences to expand in the 1960’s/70’s. Know the City well and the restaurants are certainly busy and have a buzz about them but one swallow does not make a summer. The people going to Birmingham are those that cannot afford London so the brightest sparks are still in the South where living standards are higher. But I do agree London is so expensive. Birmingham’s problem is that it never really found a good replacement for the car industry it lost. Austin at Longbridge and Rootes Group, but they still have Jaguar and Rover.

    • Oliver Thornton

      I guess you mean Jaguar and Land Rover. I think you understate it. The rise of Jaguar Land Rover over recent years has been truly stratospheric and has an massive impact on the area.

    • Ronnie Rees

      Rooted Group were in Coventry for heavens sake. so too are Jaguar though they currently do have a factory at Casyle Bromwich between Birmingham and Coventry. Jaguar are building new production facilities in Coventry next year.

      • joo1joo

        Castle Bromwich is the correct spelling and it is in Castle Vale Birmingham, not between Birmingham and Coventry. I know because I live and work here. The business has grown so much that JLR has bought/leased several sites in the locality. There is also the much larger Land Rover site at Solihull. Coventry has the much smaller Gaydon and Whitley sites which are not manufacturing sites.

        • Ronnie Rees

          Gaydon is around 18 miles out of Coventry but Jaguar’s R&D offices are at Whitley in Coventry, Jaguar HQ remains in Coventry and a new production factory is being built at a so-far unspecified site in Coventry next year. All of which means that Coventry remains the main base for that company.

          The only two taxi manufacturers in the UK are both in Coventry and both have announced big expansion plans recently.

          Rootes Group have entirely disappeared from the city.

          Land Rover are indeed in Solihull, West Midlands.

          I stand corrected regarding Castle Bromwich; there has obviously been a boundary change.

  • Oliver Thornton

    As someone who grew up there with friends and father working in the steelworks, in hindsight all those closures were a good thing. The people I knew including my Dad were not doing any productive work if any at all. The place has turned itself around over 30 years with proper productive industry. It may not be perfect now but it was a truly bizarre place before for someone growing up there. The final closure of Longbridge was probably a defining moment. The place sucked the life out of the West Midlands and defined everything that had been bad about it.

  • Jack Worth

    The midlands are booming without the help of Europe apart from sending us people we can’t house and this over population will now spread and make more parts of the country unaffordable. Why is our tax money providing jobs for incomers?

    • Edgar Fr0gg

      Jobs for people who migrate to the country is part of healthy economical growth. Its the able bodied people that won’t work – immigrants and brits alike that are a drain. I don’t understand why immigrants get all the blame when there are Brits on benefits that have never worked a day in their lives with 6 kids.

    • Cameron Holder

      I’m so sick of this argument. I’ve got a few acquaintances in London who own bars and restaurants, they find it almost impossible to get British staff. Seems the local kids are too cool to work in MacDonald’s

      We can moan about migrants or we can avoid the crappy jobs, to do both is hypocrasy

  • Mark Bishop

    In the Victorian era, a town in Lancashire (Preston?) was named Britain’s most prosperous conurbation, driven by the textile industry. In the 1960s it was Birmingham, due to engineering (particularly cars). Today it’s London, as a result of the growth in financial and professional services.

    While the sectors that power the capital’s growth are present in the regions, including Brum, these are mere outposts. This makes little sense given that knowledge-based work, as opposed to the manufacturing that drove the success of the North West and Midlands in previous generations, relies less on physical proximity. So it is unsurprising that firms are seeing opportunities to cut costs by relocating.

    One barrier to such rebalancing is that there are network effects in which smart people like living among others of their kind and in places where there are plenty of jobs for people with their skills. Here, one of the UK’s challenges is that its capital is proportionately too big, and its second city – Greater Manchester – about half the size it should be, based on the typical ratio in size between capital and second cities globally.

    Thankfully the Government knows this – Osborne’s Northern powerhouse – and is on the case. If it succeeds in growing and revitalising that city, and once HS2 is completed, Birmingham will be midway between two great conurbations, within easy commuting distance of both, so will be uniquely advantaged to grow without Government help.

    • Pongo Waring

      Mark Bishop – I see you’re still dreaming about second city status. A dream that includes a city with a £56 billion economy overtaking one with an £81 billion one. Not gonna happen, sorry, no matter how much taxpayers money Osbourne and the BBC take from Birmingham and pour into the cotton village.

      Private money (thankfully) knows where it’s at.

    • Ronnie Rees

      HS2 in its current form will be a colossal waste of money, the more so since it does not even connect with European services out of St Pancras. To spend that amount of money just to save a relatively few businessmen and women 20 (?) minutes is ludicrous. No one else will be able to afford the fares that this government will demand.

      An HS2 type route from the north west down to the Midlands there connecting into London bound links would at least make some sense and be a lot cheaper. And using the route of the old Great Central to enhance rail links to Yorkshire and East Midlands to, say, London St Pancras would not only improve business and trade links but could also enable those Londoners unable to find any affordable housing in the capital to instead move up country

      • Cameron Holder

        I think we are looking at HS2 the wrong way. The UK’s transport infrastructure is horrid and over capacity and needs to be modernized. I hope HS2 will be the start of this (with HS3 following swiftly behind). Where the 1st phase goes is less relevant than the fact that it happens

        Although I agree that we should take another look at the thinking behind it. You are right that it should probably link well to St Pancras, I’d also like them to look at the train tech as it’s already outdated.

    • Feddie

      As I suspect you well know, Greater Manchester is NOT a city.
      Manchester city is one of the UK’s smaller cities with a number actually larger.
      Birmingham is twice the size of Manchester.
      If in the near future Greater Birmingham is formed, it will be larger than Greater Manchester in every respect with the exception of its ability to exaggerate its own size and importance.

    • Oliver Thornton

      Without Government help – other than the shed load of HS2 money!

      Birmingham actually started its fightback to where it is today when the Government abandoned pouring in public money in the 80s. We rejoiced when Longbridge finally closed its doors for good – it was like the last Crack house in town

  • Ashley Stephens

    It is a fantastic time to be in Birmingham, especially to buy and invest in property. Besides the new H2 rail link, HSBC moving up and boost in the economy, its a great and exciting time to live in Birmingham.