Regeneration

Regen 62

Written evidence submitted by Core Cities Group

1 Core Cities Group

1.1 England’s Core Cities (Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham and Sheffield) are the main drivers of the country’s economy outside London and the South East. Their primary urban areas deliver 27% of the national economy, more than London, and contain 16 million residents. The UK’s top performing cities grew by an average of 4.2% compared to a UK average of 3.4% in GVA over the decade to 2008. England’s cities and their hinterlands also contain 75% of the country’s private sector jobs.

1.2 However, cities are also home to much of England’s deprivation and regeneration need, with as an average, 62% of each region’s Job Seekers Allowance claimants residing in a Core Cities’ primary urban area. People are drawn to these cities in the hope of accessing employment, housing or public services. Concentrations of deprivation remain high, even in areas of relative affluence, as people who are able to improve their life chances often move away, further concentrating deprivation.

1.3 We would generally take a broad definition of regeneration in the urban context, including the process of urban renewal and recognising the importance of the person-centred, social components as well as the physical, economic and cultural factors, within an integrated long-term approach. Regeneration can act as a catalyst to economic growth, but Core Cities experience also clearly demonstrates that economic growth at the same time can make a significant contribution to community regeneration – for example through opportunities for skills development and employment. This role is even more critical at a time of reduction in public finance.

1.4 The role of cit ies and other urban areas is central to delivering national regenerative outcomes, reducing dependency ( and therefore public spending ) , and in driving growth and increasing productivity. The Core Cities have repeatedly demonstrated their commitment to these objectives and are able to drive faster, increased growth in private sector jobs if given the tools to do so.

1.5 The achievements of England’s core cities are even more noteworthy given the centralised system of governance and public expenditure that has characterised the UK. Other European and international cities have far greater powers, local autonomy and ability to raise revenue locally than UK cities. The impetus to devolve powers, localise spending and revenue raising and extend the capability to drive economic growth over wider economic footprints must continue and will only enhance the ability of cities and their economic areas to drive faster economic growth.

2 Core Cities: international reputations for regeneration

2.1 All England’s Core Cities have become bywords for successful regeneration and are internationally renowned, particularly for their success in post-industrial transformation. They have improved productivity beyond expectations, undertaken economic and physical restructuring and transformed themselves into some of the most attractive business and lifestyle locations in Europe and beyond.

2.2 Although the language and the narrative around regeneration may change – and in some respects this can be seen as a good thing and an opportunity – the work and the outcomes it seeks must continue. Economic, social and environmental renewal is a constant process within large cities and does not necessarily have an end point. It is a process rather than a finite set of actions.

2.3 The danger facing urban regeneration now is that it is incomplete. There is a real risk of: a sliding back toward urban decay and blighted communities in some areas; the loss of capacity within the system impacting on future practice; a significant wasted investment; and large economic recovery costs in the future.

3 Core Cities’ role in driving growth and reducing dependency

3.1 As the above figures demonstrate, cities matter to regeneration, and are the places that can create the biggest wins but also potentially sustain the biggest losses. The regeneration of the last decades has begun to show remarkable results in many places, but it has further to go. The scale and pace of the shift in the national and local regeneration finances and architecture poses severe threats and risks for much of this work. Our own submissions to government on the financial settlement 2011 have demonstrated a geographic correlation between deprivation and the largest funding reductions. The Index of Multiple Deprivation 2010 also shows that several Core Cities have either stayed the same or worsened in their rankings on deprivation from the 2007 position. We attach an excel sheet to this submission which demonstrates this; ‘Cuts in spending power vs Indices of Deprivation’. Table 1 below provides an overview of the financial impact of the settlement on Core Cities, from our January submission.

3.2 Population growth also creates an unbalanced impact for the Core Cities. Although the Office of National Statistics estimates for growth are largely accurate when applied nationally, for Core Cities this is not the case, with the difference between DCLG estimates and actual figures in cities as high as 8.5% in some cases. This means that, as populations increase and public spending declines, the difference in spending power per head of population is decreased quite dramatically in Core Cities, by an average of -12.6% in the coming financial year.

Table 1. The impact of the Local Government settlement on Core Cities

3.3 The above evidence clearly indicates that transformation is not complete in our major cities, and there is a real risk of a slide back into urban decay in some places without proper provision to continue this vital work. This approach, if not balanced with additional freedoms to generate revenues for regeneration, risks losing the gains we have made against the international competition, which is a very real risk to the national economy, both within and beyond the EU, and therefore to the delivery of the Government’s Plan for Growth.

3.4 Core Cities are able to work together, with their Local Enterprise Partnerships, to drive sustainable economic growth by connecting economic opportunity to areas of deprivation. They can do this at an unprecedented collective scale across urban areas which are home to almost one third of the country’s population, and Government might take this opportunity to work more closely and directly with them to deliver improved outcomes. National policy and allied funding streams have often siloed deprivation and opportunity, which is not efficient.

3.5 Working in the above collaborative way through the Core Cities Group, across our LEPs, wider local authority and sectoral boundaries, there is the potential for Government to create an enormous reach through our partnership, into communities that number 16 million people across the Core Cities urban areas. This affords an opportunity to implement policy in a very efficient and focused way.

3.6 Deprivation is still very high and skills levels are low in many areas. This hampers productivity for the city as a whole, and reduces life and employment chances for those furthest from the labour market. It also creates a cost to the public purse. In our view this is very likely to increase significantly if regeneration is significantly slowed or indeed brought to a halt, due to the economic recovery costs that will need to be made in the future. One example of wider impact of cuts are the changes in eligibility criteria for ESOL courses – now restricted to particular benefit claimants (JSA), which means that only 20% of current students in some cities’ colleges (predominantly male) will continue to benefit from the courses without charge. Lack of good English is a key barrier to employment to disadvantaged communities in the inner city.

3.7 Housing stock remains a critical issue in the Core Cities. In some areas inflexible, run down and devalued housing stock remains an unresolved issue, particularly in the face of declining house prices overall. The very large funding reductions to Housing Market Renewal programmes will impact significantly on the ability of areas to follow through on the regenerative strides forward that have been made. The variety of stock and availability of new housing is equally hampering economic growth in other areas within the Core Cities, and the ability of public investment to unlock development and drive growth is greatly reduced. The HCA ‘gap funding regime’ is considered to be a very cost effective way of supporting schemes in many places, for example by funding a mix in tenure to get developments going. However, a broader ‘whole area’ approach to pooled investment might deliver even greater benefits in the future (see 5.1.3 below).

3.8 Recent independent forecasts [1] have demonstrated that the new Core Cities’ Local Enterprise Partnership areas are capable of producing an additional 1 million jobs and £44billion of GVA over the next ten years, dependent on influencing a number of growth factors.

3.9 The Local Government Resource Review seeks to incentivise authorities to drive exactly this kind of growth through the retention of business rates. However, business rates do not necessarily correlate well with economic and productivity growth, and could lead to a perverse incentive being offered to local authorities. Core Cities have made separate submissions to the LGRR, but we offer one example here which has a direct potential bearing on inner city regeneration.

3.10 One of the fundamental questions that the review must seek to answer is ‘what are we trying to incentivise’? ‘Business growth’ is too broad an answer and business rates alone too blunt a tool to drive the economic and productivity growth that is required to rebalance the economy. For example, business rate return is generally highest from the retail sector, and yet the country also requires high value knowledge industry to flourish, as well as some manufacturing. Replacing infrastructure in cities will lead to a temporary loss of business rate revenue, and could perversely incentivise Greenfield development. Global forces can influence growth and decline, and to be truly incentivising a new system will need to clearly understand the connection between local authority activity and the returns in business rates. Core Cities have therefore proposed that the new system:

a) creates a weighting to incentivise growth in particular sectors;

b) allows authorities that are net recipients to receive a ‘top up plus’ where they have demonstrably achieved growth;

c) supports authorities in bridging the gap in revenues where infrastructure is replaced;

d) has in place a system to deal with unforeseen and major economic shocks; and

e) clearly understands the link between local authority intervention and growth.

3.11 Furthermore, Core Cities have set out a case to the above review which demonstrates that in order to drive growth, a city authority (and its business partners) require greater control over the levers of productivity at the local level. This is not necessarily an argument about who holds the budget, it is an argument for more locally directed investment and commissioning, which creates efficiency and has more chance of leveraging private sector investment for regeneration and other purposes.

3.12 Achieving this will require a major culture shift within Whitehall away from a centralised notion of delivery toward a more localist vision, shared across departments. This culture of centralisation created challenges for regeneration previously, and with less resource and capacity in the system overall, it must shift to generate the efficiencies and new solutions required.

3.13 The role of Core Cities is therefore critical in driving growth and particularly in strengthening the productivity of labour markets, and following through on regeneration to reduce dependency. Our Cities are in the best position to take an holistic approach to this important work through:

· raising skills;

· reducing worklessness and dependency;

· improving transport connectivity; and

· balancing housing markets so that they meet the broad needs of workers.

3.4 Fundamentally this is an agenda of increasing employment, access to employment and reducing welfare dependency in cities and therefore reducing the costs of public services – an aim that both central and local government share. Cities will continue to provide a huge contribution to the tax base in terms of business growth but should also increasingly have the ability to control and drive down welfare dependency. This means that local government should - over time - be given the tools to tackle dependency and add value to the Government’s Work Programme, as well as being given the tools to promote business growth. Cities therefore welcome many aspects of the plans for regeneration to achieve growth, but wish to be able to work on the detail of policy development to ensure that it is fit for purpose on the ground.

4 The Importance of Community Budgets

4.1 Whilst driving economic growth must be a key priority, the other side of the equation is public sector reform, reducing dependency and ensuring the benefits of economic growth can be linked to the local population. The second phase of the local government resource review, with the emphasis on community budgets, has a pivotal role in how we use our resources more effectively to achieve this, as well as important implications for the future use of capital finance.

4.2 Core Cities are already working to support regeneration through public sector ‘business’ – using recruitment, procurement and commissioning to create local employment and training opportunities, supporting local economies and the growth of local markets as well as to secure sustainable development. This approach has the potential to be significantly developed beyond the Community Budget Pilots, through Core Cities Group.

4.3 Core Cities are interested in developing the potential of pooled approaches to finance and integrated service delivery to invest in interventions to reduce dependency, but also on pooling of capital finance. These are, based on but going further than the current Community Budget models, which have considerable potential to produce regenerative effects across wider urban areas. There is a strong need to tackle the institutional barriers and structures that exist both within places, and between agencies that invest and intervene in an area, to enable efficient, outcome focused working at neighbourhood level on regeneration. Community Budgets offer a route to creating combined single budgets which could radically transform local ability to create growth and reduce dependency. However, it is essential that key partners such as DWP, Work Programme prime contractors, GP commissioners and others are fully engaged in the Community Budget project.

4.4 Following the principle of Localism, we see no reason why this approach should not be available to any geography that wishes to use it, subject to a set of competency tests, for a broad range of thematic priorities to be decided at the local level, rather than designated centrally.

4.5 We understand that this will be covered in Phase two of the Local Government Resource Review, but raise the issue here as we consider it critical to achieving our shared aims for growth and reducing dependency. Phase one of the review is covered below. Getting solutions closer to problems, creating significant efficiency through decentralisation and pooling finance to leverage private sector investment for private sector growth are all possible through an expanded Community Budget approach. This becomes more likely if longer timescales over certainty of funds can be provided (i.e. a more stable income stream).

4.6 Although CLG has shown significant leadership, we have yet to see a real enthusiasm for this approach across Whitehall and it risks undermining the whole decentralisation agenda. If Community Budgets do not develop very significantly beyond the pilot phase it would be a negative signal for the future of Localism.

4.7 The community budget approach must be underpinned by robust evaluation and co-investment across agencies based on understanding to which agencies the benefits of interventions accrue.

5 Further points for consideration

5.1 Financing and infrastructure

5.1.1 Much ‘localist’ policy discussed by Government resonates with Core Cities, but urban regeneration as a policy area has been particularly hard hit by spending reductions and, in the context of the overall financial settlement for local authorities, becomes increasingly challenging to implement. This is particularly so without the additional freedoms cities would like to see devolved to the sub-national level, following the principles of localism and ultimately leading to further devolution, i.e. to the lowest level appropriate for the issue at hand.

5.1.2 At a moment of greatly limited financial resource, Government should focus that resource primarily on those areas that are capable of delivering the required economic and jobs growth, in order to get the best possible return on public investment, particularly in terms of private sector growth.

5.1.3 Financial innovation and the application of creative thinking to the use of such resource is also required to obtain greatest value, and Core Cities have set out a number of such options in our response to the local Government Resource Review. Not least of these is the implementation of TIF, which should now be quickly expedited. The potential for pooled investments and funds, including for capital, across LEPs and Combined Authorities should also be explored and piloted.

5.1.4 Well funded flagship projects often spearheaded previous regeneration programmes. This model relied on significant cash injection from Europe and other sources, but with the accession of new EU countries and the impact of recession on countries like Greece and Portugal, we can no longer rely on such funding. We now need to look to a more sustainable model of urban development, driven bottom-up, by grassroots community and business engagement, real local autonomy and real economic opportunities, rather than by large-scale funding programmes determining need top-down.

5.1.5 The Local Government Resource Review becomes a missed opportunity if it is seen simply as a redistributive financial exercise The primary missed opportunity in the review is to set out the strategic vision for the future relationship between local and central government, and relate this to economic growth on the one hand and reduction of dependency on public services on the other. We would welcome an opportunity in the review to clearly set out that longer journey toward a point where local government can be financially independent of central government, and where major urban areas can play their full role in driving productivity and growth. Business rate retention alone will not achieve this. The recent work of the Political and Constitutional Reform Committee on codifying the relationship between local and central government has set out some promising ideas in this respect.

5.1.6 We are therefore recommending that the review is extended to a ‘Phase three’, that will examine these issues, but which will not necessarily delay implementation of Phases one and two. Alternatively, a standing committee of working group with Core Cities might be formed to guide implementation and take a view on these wider issues. We are submitting separate analysis on this review and are happy to share this with the Committee.

5.1.7 As above, although the pilots focus on reducing dependency, the principles behind the Community Budget approach holds out a potentially different future model for capital finance. The development and devolution of single capital budgets for economic development, housing and transport to cities and city-regions would be a significant measure to enable areas to better plan and co-ordinate development and attract private sector investment. Linked to this it is also important that investment on transport and other infrastructure is assessed and appraised in a way that recognises their contribution to economic and employment growth and reducing dependency.

5.1.8 The financing of much needed infrastructure remains very challenging for cities. We recognise that there is less resource within the system overall and capital resource in particular has reduced. However, we must find new ways to invest in creating competitive places for the long term, or risk losing out significantly to the competition, which exists primarily in other countries, not this one. The financing of public realm has particular challenges associated with it, and yet it can add significant value to developments and to surrounding land and business values.

5.1.9 Tax Increment Financing will have an important role to play in resolving these issues in the future, and following ministerial commitment, Government should now move quickly toward its implementation. Government’s view is that primary legislation is required for TIF, but there are other views that should be tested. TIF is part of the Local Government Resource Review. If that review becomes protracted, TIF should still be implemented quickly, particularly within Enterprise Zones. The view of the Core Cities is that Government can relatively quickly implement a model of TIF, and that arrangements could be made to run TIF in Enterprise Zones in any case.

5.1.10 The last decade has seen the Core Cities greatly improving their productivity through regeneration interventions, yet they do not regard this as ‘job done’. There is a view that incomplete regeneration will become entropic, and a slide back toward urban decay in some places is likely if programmes are not followed through into completion. The sudden and large-scale withdrawal of funding makes this a real likelihood in some areas and schemes.

5.1.11 The Regional Growth Fund and other funds such as ERDF are relatively small and should be used where they can be most effective at leveraging private sector investment for private sector growth. This should be a condition of their deployment and, in the case of ERDF, Core Cities and their partnerships should be central to the development and delivery of programmes in the new 2014-2020 programme period.

5.1.12 In general we are supportive of the limited range of opportunities and incentives being made available by government on financing at present. In the longer term cities require increasing financial autonomy and access to a wider range of potential revenue streams than at present so that they can better drive economic and employment growth. It is essential that Local Enterprise Partnerships are given the opportunity to have greater influence over skills policy and delivery in order that they can combine and co-ordinate interventions and ensure that skills are available to meet the needs of a growing local economy.

5.1.13 Similarly it is important that cities with the potential for high job growth are able to support those businesses that wish to expand. National and local programmes of activity need to be supportive of one another and need to link to other local interventions such as training. Linking back to the Local Government Resource review it would seem inconsistent to provide incentives for local business growth through business rate retention whilst maintaining nationally driven programmes.

5.3 Skills and business support

5.3.1 Skills are a critical economic driver and a means to move people closer to the labour market. A high quality, private sector-led skills market driven by current and future demand that meets the needs of employers and local economies would of course be valued, but the market can have perverse outcomes where commercial providers make real effort and progress in some areas, but not in others, losing productivity gains overall. Enhanced local influence over skills provision is critical to get the solution closer to the problem, to enable closer connection from local labour market demand to supply, and to understand the individual needs of different functioning labour markets and businesses within them.

5.3.2 Improving skills means that strategic planning involving all local agencies must take place alongside the development of private sector provision. Commercial providers and businesses will tend to focus on short-term market demands. Core Cities through their LEPs have a critical potential role in ensuring that the longer term skills needs across sectors are recognised and invested in, which is an issue of national economic resilience for the country.

5.4 Inward investment

5.4.1 Inward investment is challenging to generate for any city, and capacity to attract this has been removed from the system. There is a view that the market will always place investment where it will create greatest return, but is this is always the case? An alternative view might be that the market often places investment where it has little risk, and a reasonable return can be guaranteed. There is perhaps an endemic issue here, which is that the investment market perceives urban areas away from the South East as more risky than they actually are, and Government support in demonstrating and making the opposite case could lead to a significant and mutually beneficial rebalancing of the economy. This is essentially about supporting market growth potential and we would welcome a more focused relationship between our cities and relevant Government agencies, for example UKTI.

5.5 Decentralising to drive productivity and growth: the opportunity of the Localism Bill

5.5.1 The Core Cities are committed to localism and a localist approach, and are working with Government to secure this across a wide range of policy areas. This includes a supportive approach to Community Budgets, whose use we would like to see developed and extended to cover a wider range of policies which impact on regeneration. However, real decentralisation that will drive productivity from the local level has yet to materialise.

5.5.2 The Local Government Resource Review, Local Enterprise Partnership policies and Enterprise Zone announcements all contain elements that point toward decentralisation and devolution, but that do not – as they stand currently – confer the powers needed over the levers of productivity to drive growth, reduce dependency and deliver regeneration. In addition, investment, particularly for infrastructure, and economic policy focus has concentrated heavily on London and the South East, leading to an unbalanced national economy.

5.5.3 The Localism Bill offers a major opportunity to set this right, and to create a level and equal playing field of opportunity between the London and the South East, and the rest of the country, to enable major urban areas to achieve their economic potential. The Bill does provide these powers for London. Core Cities group is proposing a similar new power, for the Secretary of State to designate ‘Urban Economic Growth Areas’, which through a process of earned autonomy and robust governance development, are over time able to access further powers to drive sub-national growth. This is not an anti London argument, it as ‘London plus our other major economic centres’ argument. It is difficult to see a reason why we would not want to enable our other cities to drive growth and deliver regeneration in this way.

5.5.4 Such an amendment may, in the longer term decrease the effect of the Local Government Financial Settlement 2011, which – as evidenced in our submissions – resulted in an unfortunate correlation between the biggest cuts and the most deprived areas in the country, many of which are in Core Cities’ urban areas.

5.5.5 Community led regeneration is powered by a strong civil society with the capacity engage and drive initiatives. Community-based infrastructure has been significantly developed in recent decades through funded regeneration programmes and this is being reduced through budget cuts and programmes ending. It is limiting the capacity of organisations, groups and individuals, particularly in disadvantaged communities, to engage with and maintain initiatives which contribute to the regeneration of their areas. These local organisations and groups have a critical role to play in engaging and supporting those hardest to reach.

5.6 Capacity

5.6.1 The issue of ‘capacity in the system’ for regeneration and economic development needs to be recognised. England has built an international reputation for excellence in regeneration which it has successfully exported globally. We stand to lose this expertise and experience to competitors.

5.6.2 The restructuring of economic and regeneration architecture has led to a large withdrawal of capacity and the learning, best practice and importantly the mistakes of the past have perhaps not been properly captured. Where this capacity does exist – and it is largely within our major urban areas – it is worth thinking about how it can be used to support the development of capacity elsewhere and for the future, perhaps through peer group learning.

5.6.3 Learning the lessons of past successes and mistakes is critical to enhancing current capacity. We should for example:

a) avoid short term initiatives that can lead to fragmentation at the local level;

b) recognise and empower the local knowledge, expertise and energy of individuals and communities;

c) set individual schemes within a wider programme of a strategic area/city wide approach;

d) join up at a national as well as local level – for example the policy and programmes of BIS, DWP, DfT DCMS, and others all have an impact on regeneration as well as DCLG (commissioning of the Single Work Programme and JCP becoming part of DWP create worrying precedents in this respect and opportunities for Core Cities to really engage with shaping the mainstream employment programmes remain very limited); and

e) acknowledge that Core Cities are well placed to work with Government on this to ensure effective investment and greatest impact in our major cities.

5.7 Final thoughts

5.7.1. The Government needs to bring forward policies that favour those places that are best able to drive growth, and extend the benefits of that growth across a wider field. Evidence from a Core Cities group analysis of the growth potential of Local Enterprise Partnership areas shows that up to 1 million additional jobs could be created over the next 10 years but only if they are properly empowered, supported by robust and democratically accountable local government mechanisms, including the amendment to the Localism Bill that we propose.

5.7.2. There is a strong synergy with many of the Government’s proposals and the autonomy that Core Cities have long advocated. The cities stand ready to work on these issues jointly, and with Government and its agencies. It feels in many ways as if we are on the cusp of the devolution that we know will drive prosperity, but it is critical that this is quickly followed through into action to maintain confidence and continuity.

5.7.3. We would be very happy to provide more information on any of the above points as needed.

April 2011