The second City Deal is signed and it’s a humdinger. Greater Manchester has agreed a Deal that means, for the first time, a city has the potential to ‘earn back’ some of the extra national tax revenue generated in the area.
My understanding of the Deal – although there is not much detail available yet - is that Manchester is setting up a £1.2bn infrastructure fund, to which Government is contributing revenue amounting to around £30m a year. The money being invested by both Government and Manchester means the city can borrow and create a substantial capital pot to invest in the next phase of big infrastructure projects. The plan is that these infrastructure projects will deliver extra growth. Manchester will then be able to keep the additional revenue it generates – ‘earning the money back’ – and recycle the money to invest further in growth. Other key elements of the Deal are here.
The Deal is bound to have its critics, concerned that the money from Government will set a precedent that all other cities will seek to follow. But Manchester is in an unusual position. Its Combined Authority gives it strong governance credentials, it has an Integrated Transport Authority dealing with transport across the wider city region, and it has already agreed a 3% levy on council tax to fund infrastructure projects in Greater Manchester. The combination means that Manchester is willing to bet its own money that the city can generate extra economic growth.
The Deal also paves the way for Greater Manchester to consider other options for raising finance over the long term – as financial services experts and those short of money at pay day know only too well, it’s much cheaper to borrow millions over a period of 10 or 20 years than it is to get £1000 for a week.
Without more details, it’s hard to know exactly how it will work and it will be years before we know how successful it has been. But this Deal does what the Centre always thought City Deals should do: it’s bespoke, innovative, and paves the way to cities being able to manage their own destiny. That’s exactly the kind of kickstart that the UK economy needs.