Who needs time travel when you have enterprise?

The economy is back to where it was in 2006 - where do we go from here?

It’s strange to be waking up in summer 2012 to find ourselves in an economy that is no bigger than it was in 2006. So how can we travel "back to the future" and get the economy back on track? In the absence of a plutonium-powered car, the vehicle to get us back to economic growth is enterprise.

Centre for Cities’ new report, "Open for Business", shows how important enterprise is to a city economy. The research, sponsored by ICAEW, takes a detailed look at the make-up of city economies to establish what makes a city economically successful.

It finds there are two prongs to private sector economic growth in our cities – the ability to attract businesses from elsewhere (other UK cities and abroad) and the ability to "grow your own’. Our strongest cities are those that have been able to do both.

A detailed breakdown of the business bases of UK cities reinforces this point. The majority of the UK’s strongest cities are those that have a large proportion of branch businesses and high levels of enterprise:

Of course, being open to external business also means that in the short term some cities may be even more exposed to turbulence in the global economy. The Eurozone crisis may impact upon businesses headquartered in the Eurozone, potentially leading to consolidation of businesses and knock-on job losses. Cities like Coventry and Swindon, with a higher proportion of Eurozone-owned businesses, will need to focus on policies that can support domestic enterprise to help offset any potential fallout from troubles across the Channel.

Overall it is clear from the research that cities with a mix of home grown businesses and branches are best placed to weather any storms heading our way. But what does this mean for policy?

There has been no shortage of enterprise initiatives from previous Governments, ranging from Thatcher's Enterprise Allowance Scheme to New Labour's Local Enterprise Growth Initiative. The recently launched Start-up Loans are the latest addition to the list. But the impact that these schemes have had upon levels of enterprise is difficult to quantify based on existing evidence. So what can the government and cities do to hit the accelerate button on enterprise at a time of economic instability?

One thing that can make an important difference is for national government and cities to continue investing in the core themes that make a big difference to business. This means improving transport and skills and making the planning process more responsive to business needs.

Cities also need to respond to the specific challenges facing their local economies. Our work shows that open, entrepreneurial cities are best placed to grow, and cities should aim for this mix of home-grown business and receptive to new ideas and people.

Depending on the city’s specialisms and where it needs to improve, this could mean implementing policies from support for start-ups or existing companies to ensuring the city is working with UKTI and others to showcase where there are opportunities for external investment.

It will take time to get back to where our economy should be. But by getting enterprise policy right today, cities can help to steer the wider UK out of economic underperformance and into growth.

TechHub, a start-up shared space in Old Street, West London. Photograph: Getty Images

Alexandra Jones is the director of the Centre for Cities

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.