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
|
