2The Swansea Bay City Deal
Background
39.The Swansea Bay City Deal was agreed by representatives of the UK Government, Welsh Government and the four councils of Carmarthenshire, Neath Port Talbot, Pembrokeshire and Swansea in March 2017. An official ceremony involving the former Prime Minister, Rt Hon Theresa May MP, the former First Minister, Rt Hon Carwyn Jones AM, and the four council leaders took place at the Liberty Stadium in Swansea.82 This agreement followed the Swansea Bay City Region Board putting forward a deal proposal in February 2016, with the then Chancellor of the Exchequer, Rt Hon George Osborne, announcing in his March 2016 budget that he was opening discussions with the region.83
40.The agreement document provides further information on rationale for the deal, the funding arrangements, its projected impact and investment themes. Its executive summary states that:
This City Deal will provide the region and its partners with the new ways of working and resources to unlock significant economic growth across the Swansea Bay City Region. It is a Deal where both Welsh and UK Governments have committed to jointly invest, subject to the submission and approval of full business cases in relation to the eleven identified projects and the agreement of governance arrangements for the deal, up to £241 million on specific interventions which seek to support and further build on the region’s strengths which include health, energy and manufacturing sectors and are underpinned by a world-class digital infrastructure, successful universities and innovative health boards.84
41.The funding arrangements for the deal agreed at the time are that:
- The UK Government and Welsh Government will contribute up to £241 million (£125.4 million from the Welsh Government and £115.6 million from UK Government);
- The four local authorities and other public sector bodies in the region will contribute £396 million over the period of this Deal; and
- An anticipated £637 million of direct private sector investment.
The total value of the City Deal was therefore £1.3 billion over a 15-year period.85
42.The overall theme of the deal is “Internet Coast”. The Deal focuses on the benefits of digital infrastructure, the energy sector, smart manufacturing and innovation in life science for both urban and rural areas across the region.86 The agreement document details the four investment themes for the City Deal, each with several interventions identified within them.
Box 1: Projects of the Swansea Bay City Deal
a)The Internet of Economic Acceleration
i)Digital Infrastructure
ii)Swansea City & Waterfront Digital District
iii)Centre for Excellence in Next Generation Digital Services
iv)Yr Egin–Creative Digital Cluster
b)Skills and Talent Initiative
i)The Internet of Life Science & Well-Being
ii)Life Science & Well-being Campuses
iii)Life Science & Well-being Village
c)The Internet of Energy
i)Homes as Power Stations
ii)Pembroke Dock Marine
d)Smart Manufacturing
i)Factory of the Future
ii)Steel Science Centre87
43.The investment within the City Deal is intended to deliver up to 9,465 new jobs for the region, contributing to an uplift in the Gross Value Added (GVA) of £1.8 billion.88 This ambition was argued to be all the more important due to the GVA per head of the region having fallen from 90% to 77% of the UK average over the past 30 years.89
Progress and Performance
44.The Swansea Bay City Deal had been criticised for moving too far away from the original proposition document produced in February 2016 with the input of Sir Terry Matthews, a businessman who became Wales’ first billionaire.90 Subsequently, there has been criticism in the media of what is seen as a move away from the original aims. Professor Dylan Jones-Evans, then of Bristol Business School, reportedly said that the deal had gone away from “investing in infrastructure and people” towards “building more buildings”. He argued that the strategy taken had “been discredited by economic development organisations around the world”.91 Professor Jones-Evans criticised the deal for moving away from funding and skills for business by no longer having an infrastructure or investment fund and claiming that less than 1% of the budget specifically earmarked for skills.92 In addition, he argued that the emphasis on new digital technologies, which was at the heart of the proposition document, had been cut back to a single funded project. Most worrying, he argued, was the absence of any funding to support the proposed installation of a new transatlantic cable from North America into Oxwich Bay. This project, Professor Jones-Evans argued “has the potential to totally transform the economic fortunes of the whole of South Wales.”93
45.Councillor Rob Stewart, the Leader of the City and County of Swansea Council, responded to the accusation that it had moved too far away from the original deal by suggesting that the core of the City Deal remains exactly the same as the original ‘Internet Coast’ vision.94 Councillor Stewart explained that because the process presented to them by the UK Government changed, away from the investment model seen in the Cardiff Capital Region City Deal and towards project based deals, some changes had to be made. He explained that:
We were marshalled into making sure that we fully defined the 11 constituent projects of the deal upfront.95
The Secretary of State concurred with Councillor Stewart’s assessment highlighting that the structure of deals across the UK has “moved away from the funding-type scheme to the project-led scheme”.96 On the transatlantic cable, Councillor Stewart explained that they designed the proposals to ensure that the 5G digital project or the digital project within the City Deal was not entirely reliant on the transatlantic cable.97 He denied that the City Deal had moved away from “investing in infrastructure and people” and towards just “building more buildings”, explaining that there was a need to create a “modern city centre [in Swansea] that will attract visitors to it”.98
46.In January 2019, Actica Consulting Ltd was commissioned jointly by the Welsh and UK Governments to undertake a rapid, independently led review of the arrangements for the delivery of the Swansea Bay City Deal. The Review was to provide both the Welsh and UK Government Ministers with an assessment of the deliverability of the Deal. It followed reports of difficulties with a number of projects within the deal, notably Yr Egin and the Llanelli Wellness Village.99 Yr Egin, S4C’s new headquarters and a creative and digital hub, was reported in December 2017 to only be projected to be 60% occupied when it due to open, with co-tenants alongside S4C difficult to attract.100 There were also staffing issues, with a report in June 2018 suggesting that more S4C staff have left rather than fully commit to the new headquarters in Carmarthen.101 The building, built by the University of Wales Trinity St David’s, has also faced financial uncertainties.102 The proposed Llanelli Wellness Village has been the subject of critical media coverage. Reports have focused, in particular, on the suspensions of staff at Swansea University which have been linked to plans for the £200 million project.103
47.Actica Consulting completed the review in February 2019. Much of the report focused on the governance arrangements for the deal.104 The report made seven recommendations to improve the deliverability of the Deal’s outcomes.
Box 2: Recommendations of the Swansea Bay City Deal Independent Review
a)Pre-scrutiny should be encouraged but direct and regular face-to-face contact between those writing the Business Cases and those providing comment upon them and advising those who will grant approval is essential.
b)The Regional Office should be designated as a Portfolio Management Office, leavening their skills with experienced Portfolio/Programme/Project Management (P3M) specialists.
c)The City Team should (with the support of the Welsh Government Assurance Hub and IPA as necessary) put in place a best practice Integrated Assurance and Approval Plan (IAAP) for the Portfolio. All parties should specifically consider the OGC Gateway Review process as a key part of that plan.
d)Under the chair of the JSC each Swansea Bay City Deal board should consider the Terms of Reference and ways of working of each to ensure that they work as intended. In doing so they should take account of this review and of the outcome of the audits currently being undertaken.
e)A Portfolio Director should be appointed before May 2019 to ensure continuity of Swansea Bay City Deal leadership and independent authoritative advice to the Boards.
f)The Swansea Bay City Deal should be managed as a Portfolio not as a set of predetermined and immutable projects.
g)For Yr Egin and Swansea Waterfront, the two business cases which we consider are close to final approval, senior UK Government and Welsh Government and Local Authority officials should aim to reach a swift conclusion to ensure that funding can flow as needed.105
The UK Government’s written evidence to the Committee discussed the impact of the review arguing that the recommendations provided “a strong foundation” to move forward with the delivery of the City Deal.106 Ken Skates AM also welcomed the findings of the review on behalf of the Welsh Government.107 The Swansea Bay City Deal Joint Committee also carried out its own internal review into the City Deal to “provide reassurance that procedures and governance are robust”.108
48.The projects within the Deal itself are at different stages of planning with the Independent Review stating that none had then been submitted formally.109 Funding for Yr Egin and the Swansea City and Waterfront Digital District was, however, announced recently.110 Swansea Bay City Deal announced that the UK Government and Welsh Government had agreed to release initial funding for the overall programme. They stated that the funding was based on the approval of business cases for the Yr Egin and Swansea City and Waterfront Digital District projects. They argued that:
The £18 million funding provides an opportunity to deliver against the whole of the City Deal programme.
A further £18 million may also potentially be available this year for other projects within the deal, subject to the region meeting clear terms and conditions.111
Councillor Stewart confirmed that total amount of funding so far provided by the UK and Welsh Government was £36 million for the two above projects.112 He explained that these two projects were largely public sector funded and didn’t require much private sector investment. He added that “it is the other nine where the majority of the private sector money comes in, so of course that money will not be drawn down until those projects are signed off.”113
49.Councillor Stewart and Phil Roberts, the Chief Executive of the City and County of Swansea Council, explained the processes in place for the rest of the projects and said that they were confident that they would be delivered.114 Despite the warnings of the independent review that controversy over the Llanelli wellness village could “cause a loss of confidence”, Councillor Stewart reiterated his confidence that the £637 million target for private sector investment would be met.115 In the press, the Councillor claimed that the deal has “as strong a commitment” as possible from the private sector.116 Councillor Stewart did concede, however, that the Llanelli Wellness project might require significant amendment from the original bid proposals, following the controversies.117
50.We were concerned at the reports surrounding difficulties faced by the Swansea Bay City Deal. Following the Independent Review and reassurances from representatives of the City Deal, alongside those from the UK Government, we note that the recommendations have now been implemented and hope that the review represents a turning point for the Deal. We look forward to further updates on the Deal going forward.
Portfolio approach
51.The Swansea Bay Independent Review conducted by Actica consulting recommends that “The Swansea Bay City Deal should be managed as a Portfolio not as a set of predetermined and immutable projects.”118 In evidence, Robin Davis, the author of the review suggested that this recommendation was to ensure that spending and projects were most relevant and effective:
The idea of a portfolio is to in effect have an investment fund and let the joint or local committee decide if it needs to move projects in or take projects out if, for instance, they have been overtaken by events.119
52.Councillor Stewart explained that before this Independent Review and the internal review conducted by the City Deal there was “very little room for changing projects and that was one of the real issues”.120 However, since the reviews, they are moving to adopt this portfolio approach allowing greater flexibility.121
53.In order to ensure value for money, Councillor Stewart explained that there is a “huge amount of due diligence and governance that you need to go through”.122 He explained that they employ a five-case business model, the approach for developing business cases recommended by HM Treasury and the Welsh Government.123 Councillor Stewart outlined that the portfolio approach now allows the opportunity to amend a project or substitute it, if it is not meeting the original expectations.124
54.We were concerned that project-based deals did not allow for funds to be redistributed if a project was failing. The recommendation of the Independent Review, that the City Deal should be managed as a portfolio rather than a set of individual projects, is an important one. We are pleased to hear from the Swansea Bay City Deal that they are now implementing this recommendation and adopting a more flexible approach. The UK Government, Welsh Government and City Deal partners should continuously review projects to ensure that they provide value for money. If they do not, projects should be adjusted accordingly, and funds should be redistributed in order to provide the maximum positive impact. Those leading on the Swansea Bay City Deal should consider how public and private funding for the Tidal Lagoon can be incorporated within the portfolio work and how funding can be leveraged to deliver the project.
55.More widely the UK Government should allow all the City or Growth Deals to change over time in line with economic trends. If a project is no longer providing value for money, they should be prepared to reduce its funding and, similarly, if projects are doing well and further investment is required, the UK Government should be proactive in supporting them.
Release of funds
56.In evidence to the Committee, Councillor Rob Stewart suggested that the Swansea City Deal could benefit from an accelerated release of funds from the UK and Welsh Governments for certain projects. This, he said, would reduce the risk to the finances of the local councils who are intended to put forward much of the initial funding under the original bid in order to encourage private sector investment. He stated that this has been raised with the Ministers of both Governments.125 Explaining the benefit to the Councils, Councillor Stewart stated that:
If the money comes out of Government over a shorter period of time that reduces the amount of money that councils will have to borrow or provide from elsewhere in order to deliver its contribution to the City Deal.126
He explained that there were positive movements around the Pembroke Dock Marina on an accelerated release of funds but that he thought it was something that needed to be applied across the whole deal.127
57.It was suggested to Councillor Stewart that, with the councils having to put up much of the initial funding to city deal projects, there was a risk to frontline services should projects fail and have an impact on future council budgets.128 Swansea Council, for instance, are predicting a large deficit partly as a result of having to bear the costs of infrastructure projects upfront. The budget proposals for 2019/20 submitted for consultation on 14 December 2018 resulted in a projected funding deficit of £24.401 million.129 Councillor Stewart, however, asserted that council funding for the City Deal would not impact on services but that an accelerated release of Government funding could help mitigate the risk.130
58.The Secretary of State was reluctant to pledge to provide an accelerated release of funds for projects within the Swansea Bay City Deal, instead suggesting the Councils should honour the original agreement.131
59.The UK and Welsh Governments should accelerate the release of funds for certain projects, subject to due diligence, in order to minimise the risk to council finances and therefore council services.
Investment fund
60.The possibility of adding an investment fund similar to that of Cardiff Capital Region City Deal was raised with representatives of Swansea Bay City Deal. Councillor Stewart stated that he would welcome the opportunity to add extra projects and an investment fund. He explained that a change in Government policy away from fund-based deals and towards project-based deals was the reason that an Investment Fund wasn’t included in the initial proposals, as in the Cardiff Capital Region City Deal but that he would be willing to explore the possibility of setting one up. Additionally, a revised plan for the Swansea Bay Tidal Lagoon was suggested as a potential project to add to the City Deal at a later date. On the prospect of an investment fund, Councillor Stewart stated that they were “in principle, very interested” in setting up an investment fund and that he sought support from the Welsh Government.132 He argued that “we should certainly be looking to add to the City Deal and continue to use that as an ongoing way of delivering economic benefit to the region”.133
61.Once the entirety of the original City Deal bid is in place and operational, additional projects to be added to the Deal should be explored.
62.A tidal lagoon in Swansea could bring much needed economic regeneration to South Wales and could be a cost-effective source of renewable energy which would facilitate the transition to net-zero emissions by 2050. All parties to the Deal should continue to explore different funding models, which should demonstrate financial viability.
Transport
63.The Swansea Bay City Deal has also been criticised for not including proposals for a Swansea Bay Metro or improvements to railways or transport systems in the area.134 Professor Mark Barry, Professor of Practice in Connectivity at Cardiff University, has worked on proposals for the Swansea Bay Metro and has called for greater connectivity in the Swansea area.135 In particular he called for a £1 billion investment in rail links to and within Swansea Bay to deliver a major boost to the regional economy, focusing on:
- 30-minute journeys to Cardiff and 2 hour 15 minutes to London & Heathrow;
- The foundation of a rail-based Swansea Bay Metro; and
- New development and regeneration opportunities across the region.136
64.In evidence to the Committee, Professor Barry suggested that there was an opportunity for Swansea Bay to look at transport as something that could underpin the city deal.137 He described the public transport network in the area as “very poor” and said that the main developments in the past 30 years had been for car-based transport.138
65.We discussed the Swansea Bay Metro in our report on the cancellation of rail electrification in South Wales.139 The report concluded:
We were interested in the proposal by Professor Mark Barry for a Swansea Bay Metro, particularly in light of the increased demand that may result from the Swansea Bay City Deal. This idea is still at an early stage, but merits further exploration. We recommend that the Department for Transport and Network Rail engage with the Welsh Government and establish a working group to explore the options in more detail. This group should report back by the end of 2018. If the group considers the proposal viable, it should then seek to develop a business case for taking the work forward.140
66.Councillor Stewart advised that the Council has continued to work with Transport for Wales for a proposal for the south-west Wales metro. He explained that they are intending to go back to Welsh Government shortly to discuss this.141 Councillor Stewart stated that he would be willing to add the Metro proposals to the City Deal if such a development were possible.142
67.The Secretary of State argued that the UK Government had been proactive in supporting the railway infrastructure in the Swansea area, with the £20 million West Wales Parkway station.143 On the Swansea Bay Metro he said that was happy to look at proposals that come forward.144
68.The ultimate aim of the City Deal should be to create the conditions that attract businesses and stimulate economic growth. Given that poor transport infrastructure is a major issue in the Swansea Bay area, we are disappointed that it did not feature in the agreed City Deal. We received evidence that a Swansea Bay Metro could increase regional connectivity and diminish the need for cars in the area. We urge the UK Government, Welsh Government and partners to consider adding proposals for a Swansea Bay Metro to the Deal once detailed proposals for a Metro have been developed. We encourage the UK Government to reconsider proposals to electrify rail in Wales.
82 BBC News, 20 March 2017, Theresa May signs £1.3bn Swansea Bay City Deal
83 National Assembly for Wales, Economy, Infrastructure and Skills Committee, November 2017, City Deals and the Regional Economies of Wales, para 77
84 UK Government and Welsh Government, March 2017, Swansea Bay City Region City Deal, p3
85 UK Government and Welsh Government, March 2017, Swansea Bay City Region City Deal, p7
86 National Assembly for Wales, Economy, Infrastructure and Skills Committee, November 2017, City Deals and the Regional Economies of Wales, para 78
87 UK Government and Welsh Government, March 2017, Swansea Bay City Region City Deal, p10–14
88 National Assembly for Wales, Economy, Infrastructure and Skills Committee, November 2017, City Deals and the Regional Economies of Wales, para 79
89 National Assembly for Wales, Economy, Infrastructure and Skills Committee, November 2017, City Deals and the Regional Economies of Wales, para 80
90 Swansea Bay City Deal, 23 February 2016, Swansea Bay City Region: A City Deal 2016–2035
91 BBC News, 20 March 2017, Theresa May signs £1.3bn Swansea Bay City Deal
92 Wales Online, 14 March 2017, A senior academic has called for a major rethink of the £1.3bn Swansea Bay City Deal
93 Wales Online, 14 March 2017, A senior academic has called for a major rethink of the £1.3bn Swansea Bay City Deal
99 BBC News, 11 May 2019, Swansea Bay City Deal partners in row over £1.3bn deal; BBC News, 14 May 2019, Swansea Bay City Deal facing ‘selfish, petty’ opposition; BBC News, 15 March 2019, Swansea Bay City Deal: Wellness village ‘confidence’ warning; BBC News, 14 December 2017, Yr Egin S4C base set to be 60% occupied when it opens; BBC News, 6 June 2018, More S4C staff leave than fully commit to move to new HQ; BBC News, 8 February 2017, Yr Egin: ‘Fog’ around S4C-university relationship
100 BBC News, 14 December 2017, Yr Egin S4C base set to be 60% occupied when it opens
101 BBC News, 6 June 2018, More S4C staff leave than fully commit to move to new HQ
102 BBC News, 20 June 2019, University blames Welsh Government delays for financial pressure
103 BBC News, 25 February 2019, Fifth suspension in Swansea University inquiry
104 Actica Consulting, 26 February 2019, Swansea Bay City Deal Independent Review
105 Actica Consulting, 26 February 2019, Swansea Bay City Deal Independent Review, p.ii
108 Swansea Bay City Deal, February 2019, Swansea Bay City Deal - Update on the current position, p.1
109 Actica Consulting, 26 February 2019, Swansea Bay City Deal Independent Review, p.5
110 Swansea Bay City Deal, 15 July 2019, Multi-million pound Swansea Bay City Deal funding boost
111 Swansea Bay City Deal, 15 July 2019, Multi-million pound Swansea Bay City Deal funding boost
114 Councillor Rob Stewart, Leader of the City and County of Swansea Council; Phil Robert, Chief Executive, City and County of Swansea Council (Q148)
115 BBC News, 15 July 2019, Swansea Bay City Deal: Investors not walking away says council leader; Councillor Rob Stewart, Leader of the City and County of Swansea Council (Q135)
116 BBC News, 15 July 2019, Swansea Bay City Deal: Investors not walking away says council leader
117 Councillor Rob Stewart, Leader of the City and County of Swansea Council (Q148); BBC News, 1 August 2019, Llanelli Wellness Village at centre of uni bribery probe
118 Actica Consulting, 26 February 2019, Swansea Bay City Deal Independent Review, p.ii
129 Swansea Council, City and County of Swansea Revenue Budget 2019–20
135 Professor Mark Barry, 2018, Swansea Bay Metro
136 Professor Mark Barry, 2017, Swansea to Cardiff in 30 minutes and a Swansea Bay Metro
139 Welsh Affairs Committee, The cancellation of rail electrification in South Wales, First Report of Session 2017–19, HC 403, p.17
140 Welsh Affairs Committee, The cancellation of rail electrification in South Wales, First Report of Session 2017–19, HC 403, para 56
Published: 1 November 2019