The Balance of Power: Central and Local Government - Communities and Local Government Committee Contents


Memorandum by The Core Cities Group (BOP 32)

SUMMARY

    — Cities are the drivers of economic growth and as such require a higher priority in national and regional economic and regeneration policy. With their surrounding city regions, some Core Cities produce in excess of 50% of their entire region's economic output. Collectively these eight areas have an economy bigger than London's and are home to 16 million people.

    — The performance of comparable competitors in Europe and elsewhere is higher than that of English cities. Evidence has consistently shown that the most competitive cities have more devolved governance and freedoms, able to work effectively across city regions with their government's support.

    — To compete on an equal playing field, English cities require these same tools. Greater devolution in respect of taxation and clearer local empowerment through powers over transport, infrastructure, spatial planning, housing, economic development and skills will accelerate local economies, reducing regional disparity and increasing national growth overall.

    — Our Core Cities need the ability to plan in a more coordinated way within city regions and greater funding certainty over longer periods of time.

    — It is important to remember the much used phrase of "not one size fits all". Cities are unique and complex structures that require individual approaches to their development, as opposed to mechanisms where the same science can be applied in all cases.

    — The Core Cities are strong economic hubs, generating tax revenue for the country; however they have little direct control over that revenue and must look to the decisions of Whitehall for the majority of spending.

    — In a recent survey of local public and private sector leaders, nearly all (98%) agreed that the ability to finance infrastructure is currently preventing their city from achieving its full potential. Furthermore there was across-the-board confidence (95%) that increased investment in infrastructure would deliver real economic benefits.

    — There is insufficient public funding available in the UK to satisfy the competing demands for improving and expanding existing infrastructure and new options are needed.

    — The Core Cities have recently undertaken a major piece of research "Unlocking City Growth" looking at how cities can raise and retain the finance they need to undertake major infrastructure projects.

    — If the three projects considered as case studies in this report (in Birmingham, Leeds and Sheffield) were to be delivered in their entirety, they could generate an additional 26,000 new jobs, 6,150 homes and growth (GVA) of œ1 billion a year. These outputs would be generated by an investment of less than 1% of the annual national business rates take.

    — A wider range of financial mechanisms is required, and in particular pioneering mechanisms such as those mentioned within the Core Cities report, that provide cities/sub regions with the ability to first generate and then capture long-term revenue streams that can be leveraged into up front capital funding for enabling infrastructure.

    — The high degree of centrally-developed initiatives and priorities and ring-fenced budgets can hamper the implementation of local choice in service delivery.

    — Whilst cities generally use existing powers, the picture is less clear across local authorities nationally. This may be an issue of capacity and confidence where peer-group learning could be employed.

    — There has been significant progress in discussion of devolution in policy, which we would now hope to see implemented in practice.

    — Population estimates and predictions can be very inaccurate for our major cities, with variances of up to 20,000 people, affecting settlement grants.

INTRODUCTION

  1.  The Core Cities Group is a network of England's major regional cities: Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield. They form the economic and urban cores of wider surrounding territories, the city regions.

  1.1  The Core Cities work in partnership to enable each city to enhance their economic performance and make real advances within a highly competitive international market, increasing their comparative standing and—in different ways—securing positive identities as places to live, work, visit and do business.

  1.2  The Core Cities Group is a strong cross-city and cross-party collaboration with a track record of more than 12 years. Leadership across the Cities takes in all three major political parties. It is a self-selected and self funded group.

  1.3  The work of the Core Cities Group has demonstrated the critical economic role of these cities. They are major centres of business and wealth creation that in turn power the economy of the surrounding region. They sit at the heart of travel networks, surrounded by towns and rural areas that are economically dependant on each other and across which people travel to and from work; functional economic areas that have developed city-region partnerships to work across boundaries.

FURTHER DEVOLUTION

  2.  When the Sub National Review was released in 2007, the aim of the paper was to give local authorities a greater role in ensuring economic opportunity for all. Following on from the "Local Government White Paper" (October 2006), the SNR's aim was to consult on devolved powers to support prosperity, reinvigorate economic performance and make changes in order to work more effectively support business growth, including the delivery of skills.

  2.1  We have welcomed moves by Government to deliver more coherently within sub regions with the implementation of Multi Area Agreements, and greater local finance-raising abilities through Supplementary Business Rates and the Community Infrastructure levy. However, the final outcome of the SNR has not been released at the time of writing and we are keen to move toward implementation as soon as possible.A top priority for devolution is flexibilities and freedoms on financing (outlined below). In addition, increased local transport powers, greater control over the levers of economic development and regeneration and a stronger ability to pull the operations of national and regional agencies into alignment within city regions are essential in accelerating economic growth.

  2.2  Core Cities want to achieve sustainable economies with through accountable local control, planning in a more coordinated way over longer periods. This will not only help us deliver core government objectives, for example to reduce gaps in regional economic performance and increase international competitiveness, but also empower the communities that live within these places.

  2.3  Devolution to the Core Cities and their city-regions will mean devolution to communities, through structures already in place like Local Strategic Partnerships as well as through improved neighbourhood governance. Each of the Core Cities has strong civic leadership and it is these local council Leaders working on the ground in their localities who can win the public's backing for economic and social initiatives. They are also the people who can form strong partnerships with the private and business sector, and work with wealth and social capital creators to deliver major physical improvements and stronger local economies. This can only happen if they have the devolved powers to do so.

  2.4  Evidence for this approach can be seen across Europe and elsewhere; the "State of the English Cites Report" (ODPM 2006) reminds us that there is little room for complacency about the performance of English cities. Despite the UK experiencing an unprecedented period of growth and stability, English cities, with the exception of London, do not feature amongst Europe's 30 wealthiest urban centres. On the continent, cities such as Frankfurt, Milan and Madrid have higher, faster growth compared to equivalent cities in Britain.

  2.5  These cities have managed to develop successful local economies through increased local control, particularly over financing. Without decentralisation, we will continue to fall behind European counterparts, risk being overtaken by up-and-coming cities like Warsaw, Leipzig and Prague and, in a few short years, those in emerging economies like China, India, Russia and Brazil. If England's Core Cities are to close the gap with other countries, and between our own regions, we should learn from other countries experience and devolve in a similar way to the partnerships and governance systems already in place.

  2.6  Using an example closer to home, London's economic success is further evidence of the importance of devolved powers. The restoration of city-wide strategic government has led to real and significant improvements to many aspects of life in the capital. We would stress that we do not believe that there is only one governance model that should be used to achieve this.

  2.7  Cities are unique and complex structures that require individual approaches to their development, as opposed to mechanisms where the same science can be applied in all cases. Allowing different accountable, sustainable forms of governance and sub-regional leadership to evolve from the ground up, will allow innovation and creative thinking to flourish in tackling the major economic and social challenges we face.

FINANCIAL AUTONOMY

  3.  The Core Cities have emerged from a period of decline in the 1980s to become major centres of business and wealth creation. Over the past 15 years they have witnessed an economic transformation, with strong employment growth and improvements in incomes and competitiveness. Most cities have also experienced an "urban renaissance", with increased investment in inner city housing and the urban fabric. Despite these successes however, the Core Cities continue to face difficult challenges and economic performance is uneven. They are still home to some of the most deprived neighbourhoods in the country; most have a low skills base and above average levels of worklessness. The wealth gap between the Core Cities and comparable cities in Europe has narrowed over the last decade but most city regions on the continent still account for a far higher GDP per capita. The Core Cities are committed to improving their competitiveness and economic performance to match the best in Europe, however they need the tools to do so.

  3.1  A recent survey of local public and private sector leaders was commissioned by PwC and Centre for Cities, "Financial Devolution for Local Growth". A total of 122 leading professionals and opinion formers (mostly Chief Executives and directors of local authorities, local business leaders, chairs of local strategic partnerships and other third-sector bodies) participated. The results showed a strong appetite for change in local funding arrangements with 86% of respondents across all sectors arguing that current funding regimes were not flexible enough to meet local infrastructure needs. On the specific issue of whether local authorities should be given more freedom and flexibility to raise extra capital through taxation of major projects, the survey found the strongest support among local authorities (83%) and the third sector (95%). However nearly all (98%) agreed that infrastructure issues are currently preventing their city from achieving its full potential. Furthermore there was across-the-board confidence (95%) that increased investment in infrastructure would deliver real economic benefits.

  3.2  Currently less than 5% of all tax revenue in the UK is collected by local government, "England's Core Cities: why financial freedoms would drive improvement" (Tony Travers, 2006), the remaining 95% being determined by central government. This means that although the Core Cities are strong economic hubs, generating tax revenue for the country, they have little direct control over that revenue and must look to the decisions of Whitehall for the majority of spending. In many of our European and North American counterparts, financial control is much more decentralised to regional and city levels of government.

  3.3  As mentioned, infrastructure and its role in supporting productivity and growth is incredibly important to local economies. The Core Cities have suffered from a legacy of persistent under-investment in their infrastructure. Most have benefited in recent years from increases in public spending on housing, transport and public services, but there is still a large and growing need for investment in new and replacement infrastructure. Moreover, as the OECD observes, there is insufficient public funding available in the UK to satisfy the competing demands for improving and expanding existing infrastructure "Infrastructure to 2030" (OECD 2007).

  3.4  City authorities have been working together to improve infrastructure networks, but have little discretionary powers or funding for sustained infrastructure development. The potential for improvement in the Core Cities economies remains strong, but many high quality investment projects that offer substantial social and economic benefits are being delayed or constrained due to a lack of finance. Macro-economic uncertainty and the impact of the credit crunch have reduced the availability of private finance, but the demand for infrastructure investment over the medium to long term is robust. In particular, there is an appetite for greater use of public/private partnerships and innovative local funding schemes to secure additional investment, especially in enabling infrastructure.

  3.5  Sustained investment in local and regional infrastructure is viewed as vital to the long term prosperity of the Core Cities and to meeting the Government's long standing objective to narrow the economic divide between and within regions. Immediate action aimed at bridging the infrastructure deficit in the Core Cities could also act to boost market confidence during challenging economic conditions and bolster investment activity.

  3.6  Government have recognised there is a need for places to have the ability to raise local finance and emerging funding tools such as the proposed Community Infrastructure Levy (CIL) and Business Rate Supplement (BRS) and other more established funding streams such as Business Improvement Districts (BIDS) and the Local Authority Business Growth initiative (LABGI) have provided new propositions for raising finance locally. However when faced with carrying out major infrastructure regeneration schemes these do not have the required potential to raise the amount of finance needed.

  3.7  The Core Cities have recently undertaken a major piece of research "Unlocking City Growth" looking at how cities can raise and retain the finance they need to undertake major infrastructure projects. The report examines two new financing concepts which have the potential to generate and support new and additional infrastructure investment: Accelerated Development Zones; and Regional Infrastructure Funds.

  3.8  Accelerated Development Zones (ADZ) are a concept based on that of Tax Increment Financing, pioneered in the United States. It is designed to allow cities to "participate in the growth dividend"—or, in other words, allow local authorities to capture incremental value in the form of tax revenues generated from new development. In order to do this, cities require the power to retain, for a long term period, local tax revenues such as business rates allowing funds to be raised for investment through securitisation of those revenues.

  The key principles underlying the concept of the ADZ include:

    — ADZs would be defined physical areas, consisting of either a single or multiple administrative areas linked by a common infrastructure requirement;

    — Within ADZs, local authorities could retain new business rates that are supplementary to the existing revenues for the area, and secure that income to raise funding for upfront infrastructure investment;

    — Business rate growth would be captured and reinvested for a maximum of, for instance, 20 years or until finance raised to invest in upfront enabling infrastructure is repaid;

    — There would not be a blanket entitlement to use ADZs, but cities would need to "make the case" to central government so that zones created the maximum impact; and—this would mean that endorsed ADZs would meet agreed criteria on achieving accelerated growth and multiplied outputs.

  3.9  Regional Infrastructure Funds (RIF) are a concept designed to provide forward funding to promote strategic infrastructure investment. Key features of the concept include:

    — a fund is established to operate in a 'banker role', whereby it provides either up front finance, or finance raising guarantees, to facilitate infrastructure investment;

    — funds invested by the RIF would be wholly or partially repayable from future income generated from an ADZ, BRS or the CIL; and—

    — RIFs would play an important role in kick starting new funding secured on CIL, BRS or ADZs as well as providing market confidence in these new funding instruments.

  3.10  The research demonstrates that the four projects detailed in the report cannot be fully developed and achieve all outputs if CIL and BRS were used in isolation, as they would not be able to generate sufficient funds and therefore would further restrict the cities ability to compete and to generate sustainable growth.

  3.11  Bridging the infrastructure funding gap with these new financial tools mentioned will offer quantifiable benefits to the Core Cities and to the national economy. At a moment of economic downturn, it is even more important that the economies of the Core Cities are able to pull their weight.

  3.12  If the projects considered in Birmingham, Leeds and Sheffield case studies were to be delivered in their entirety, they could generate an additional 26,000 new jobs, 6,150 homes and growth (GVA) of œ1 billion a year. This represents a potential increase in housing, employment and economic activity outputs of between 50-80%. These outputs would be generated by an investment of less than 1% of the annual national business rates take. The research provides clear evidence that a more innovative mix of funding tools could help unlock substantial additional economic and employment outputs from existing products.

  3.13  Regeneration projects are feeling the effects of this difficult period, with the Credit Crunch critically limiting money available for various schemes. It has been reported that the regeneration schemes in the most challenging areas are those most hard-hit and this is why powers to allow local government to raise finance in innovative ways should be considered and brought into fruition as soon as possible. This will mean local authorities have the power to fulfil their role in place shaping but also more crucially have the necessary tools available to them to lead cities and regions out the other side of downturn when the moment comes.

  3.14  The proposed scheme also provides a powerful incentive for local authorities to take the necessary steps to grow local economies, by allowing them to share in the growth dividend.

EXISTING POWERS

  4.  Local government services are inevitably a mix of national and local priorities. There is considerable scope to design services according to local priorities and needs within the Core Cities, but the large number of centrally-developed initiatives, priorities and ring-fenced budgets can effectively bar a local authority from delivering service priorities that match greatest local need. This can result in a democratic deficit, insofar as local decision making by locally accountable and elected representatives has a limited field of influence.

  4.1  Within the Core Cities Group, good use is made of the additional powers offered to local authorities to trade, prudentially borrow, charge and make use of their well-being powers. However, we would accept that across the board there is still further use that could be made of these powers amongst local authorities as a whole. This may in some cases be an issue of capacity and confidence and it may be that Core Cities and other first-tier authorities might be able to share practice and learning on this subject as a positive step toward further use of such powers.

  4.2  Core Cities welcomed the production of the Central-Local Concordat and the subsequent development of Local Area Agreements, which the cities have been actively involved in pursuing. We have also been working on Multi Area Agreements, both in individual cities and collectively, on policy and best practice to drive this concept forward. However, whilst the Concordat helps clarify some roles and relationships, it does not change the balance of power.

  4.3  There have been a number of significant policy initiatives heading toward devolution: Lyons Inquiry; Local Government White Paper; Leitch; Eddington; Barker; Constitutional Green Paper; Housing and Planning Green Papers; and the Sub National Review. The latter in particular has already helped to shift relationships between cities, regions and government, but in reality we have seen little real devolution to cities and city regions. In our joint response to the SNR with all the RDAs and the Homes and Communities Agency (attached for information), we were clear that, for the cities, this is not just an issue about where budget's sit, it is about greater local influence in setting investment priorities through co-authored plans and shared working arrangements.

  4.  One point we would wish to make regarding the financial settlement for local government is that population estimates and predictions for most of the Core Cities are hopelessly out of line with the actual situation. As an example, Leeds is estimated to have 20,000 more residents than the last settlement provided for (we can provide further information if required). We understand this topic is now the subject of an Office of National Statistics review.

  4.  Local decision-making can also improve efficiency. Developing funding-bids can be a costly process for local authorities, as can writing a large number of priority documents and partner agreements. In particular, transport feasibility studies, which can reach easily into the tens of œmillions with very uncertain outcomes, are felt to be highly risky processes. This work also reduces the local authorities ability to respond quickly to changing circumstances—something that is more important in the current economic climate.

  4.6  Raising the Major Scheme Bid threshold from £5 million to £10 million (and a means to access smaller scheme funding via the Regional Funding Allocation), and less cumbersome requirements for schemes between £10 million and £20 million, will speed up the process of evaluating transport bids. Currently, cities have to bid to DfT to be able to go ahead with any scheme worth more than £5 million, relatively very small schemes for transport. This threshold has not been changed for sometime, so has not been adjusted to allow for the impact of inflation.

  4.7  Similarly streamlining the DfT's detailed inquiry process, once bids are submitted and working within an agreed timetable for DfT approvals, will reduce delays and provide a greater degree of certainty of programme. Inflation savings from quicker decisions can be considerable, making best use of limited resources. Currently, similar questions have to be answered several times, for different transport schemes, even though our responses have already been approved by DfT for previous bids.

  4.8  We would welcome some reduction by DfT in the sometimes excessive and costly reporting requirements such as the Congestion Delivery Plan. The gains from this reporting are felt to be quite limited and their reduction will release valuable resources to produce reports to spend on actual schemes. Overall congestion targets are already monitored through Joint Local Transport Plans, where they exist, and the Congestion Delivery Plan is felt to be something of a duplication.

  4.9  To ensure the smooth and efficient delivery of existing and future transport schemes, local governance arrangements are being streamlined and made more locally accountable. DfT has been supporting this process and producing helpful guidance, including workshops for areas engaged in this process. Our hope is that they will continue to be responsive to locally evolved solutions to transport governance.

September 2008






 
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