Centre for Cities

Do City Deals need a shot in the arm?

The city devolution agenda is an increasing a focus for growth aspirations.  So far negotiations have only involved the eight Core Cities, but Cities Minister Greg Clark announced back in January that groups of mid-sized cities should begin to prepare their ideas. However, four months on Government is still debating how to deal with these places.  Are City Deals about to enter a new, exciting second phase or are they running out of steam?

As a timely letter to Clark from the "Growth Cities Network" group points out, the UK’s fastest growing cities are outside the core group, and in a better position to deliver increased growth at a lower cost.  Centre for Cities’ Investing in Growth Cities report analysed their potential earlier this year.  Nor is growth potential confined to the South East: cities across the country are queuing up to join the conversation.

Government is therefore coming under increasing pressure to deliver on its ambitious devolution agenda for cities, but some important questions remain unanswered.  Not least, there is the question of what next for the cities whose voters said no to a mayor.  Accountability through a mayor or a combined authority has so far proved the only acceptable currency for deal-making.  Now Greg Clark needs to show flexibility, and demonstrate that making deals that are right for each place is more important than political objectives driven by the centre. 

Willingness to engage is also a crucial factor.  The Core Cities group was self-defining and therefore theoretically easier to engage with, but the question of how Government will manage negotiations with other cities remains hanging.  Grown-up conversations rather than beauty contests should be the way forward.  Future city deal discussions must be triggered a simple process to determine the quality of ideas emerging from mid-sized cities, rather than by using complex or artificial qualifying criteria.

Getting conversations going is just the start, and there is wider uncertainty around crucial growth drivers. For example, can cities really influence the skills agenda through the funding and delivery structures now in place?  Does Government see housebuilding as part of the growth agenda? And what is the future of infrastructure funding when the regional growth fund pot runs out?  These matters of substance can only be addressed through detailed discussion, but someone needs to make the first move.  If Government is otherwise engaged, they should expect cities to start banging loudly on their door very soon.

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What does the 'Boris and Ken show' tell us about city mayors?

The London mayoral elections – or the Boris and Ken show, as they seem to have become – demonstrate quite how important it is for mayors to be seen as both part of their political party and independent of it at the same time.

Being part of national political parties matters hugely to mayoral candidates. Not only do they capture some of the ‘safe’ votes for these parties, but representing these main parties means that ‘the big four’ in London – Boris, Ken, Brian Paddick and Jenny Jones – are all included in all the official mayoral debates.

Independent candidates, such as Siobhan Benita, and candidates for other parties, such as UKIP, do not tend to be given the air time and so find it more difficult to generate coverage for their manifestos – although Siobhan Benita is benefiting from a wide range of endorsements and increasingly gaining coverage in the national press.

But it’s also striking that candidates’ popularity is different from the popularity of the parties they represent. This week’s Evening Standard / YouGov poll shows that both Boris is 10 points ahead of the Conservatives, having opened up a 6% lead on Ken, while Ken lags 6 points behind the Labour party.

This concept of the mayor as an independent insider is part of what attracts voters to the idea of a mayor – Boris has made a big show of the way that his advocacy of London has benefited the city through policies such as the Royal Docks Enterprise Zone.

But this also reinforces the importance of personality to mayoral politics. Although each candidate is putting forward different headline policies, the focus in the media has tended to be on tax returns or heated debates in a lift – not big policy issues for London, but details about the two main rivals for the job. And while it’s great news that local elections are generating the interest and conversation that they are, and that so many people are on first name terms with two candidates that most people have never met, it’s important that the campaign is about more than just swapping insults.

Mayors have huge potential to make a difference to the economy of their city, and there has rarely been a better time for a Mayor of London to showcase London to the world during the “Jubolympics” – (the fantastic BBC programme Twenty Twelve’s term for the Jubilee and then the Olympics). Policy details are never going to hit the headlines in the same way as details about the people going for the job, but they’re what will really make the difference to London’s economy and the people who live there.

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Liverpool’s ahead in the mayoral game

Last week, Liverpool’s councilors voted to bypass a referendum and go ahead with a May election for a Liverpool Mayor.  While it’s not the Mayor for Merseyside the Centre for Cities has advocated, Liverpool’s eagerness to embrace the mayoral model – as Leicester has also done – demonstrates that the benefits of a Mayor are being more seriously considered in the major cities than the “no” voices sometimes makes out.

So, will having an elected Mayor make a real difference in Liverpool?  Our joint report with the Institute for Government suggested that mayors had the potential to make it easier to be decisive on strategic economic issues, bring coherence to the actions of the public sector, collaborate with other partners and to represent their cities to the public and private sector.

A first positive sign that some of these benefits could be realised is that the city is also now the first to strike its “City Deal” with Whitehall – a deal which is set to come with £130 million funding.  

The Deal involves creating a new enterprise zone for the central business district and five mayoral development zones to target regeneration in other areas of the city. There will also be powers to help young unemployed people through welfare-to-work pilot schemes, oversee the development of city assets owned by the Homes and Communities Agency and, using DCLG funding, build six new secondary schools.

Our evidence still suggests that mayors have the greatest potential to be effective when they’re across a travel-to-work area, rather than simply a local authority. And Liverpool has already recognized the importance of ensuring the mayor works well with the Local Enterprise Partnership, which covers Merseyside.

But, grumbles about city-region mayors aside, what is clear is that Liverpool’s willingness to take this step has reaped dividends. While the Government has acknowledged that different structures of governance will be appropriate for different cities, it also seems that moving to an elected mayor was the clearest way for Liverpool to demonstrate that it has the strong and accountable leadership that all the City Deals will be conditional on.

We’ve been working closely with the Cabinet Office and cities currently brokering their City Deals – I’ll write more on how this process is working, and what Government is looking for, later this week.

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Cities at the heart of their regional economies

We know cities are important to the national economy, that’s why Greg Clark was appointed Minister for Cities in July last year. But cities are also important to their regional economies. And this is one of the things this year’s Cities Outlook highlights.

Cities are the heart of their regional economies. The 11 cities in the North West are home to 68 percent of the region’s businesses and 72 percent of employment – both large proportions considering they only cover 24 percent of landmass. Similarly, the 18 cities in the Greater South East cover just 16 percent of landmass yet generate 70 percent of wealth and account for 69 percent of those working in highly skilled occupations.

And it’s not just the most successful cities that support their regional economies. Cities like Hull and Doncaster despite having less dynamic private sectors housed, together, 8 percent of businesses located in Yorkshire & Humber, accounted for 10 percent of employment and generated 9 percent of wealth.

In addition, the influence of cities is not simply confined to their urban cores but extends out beyond their physical boundaries. People travel to cities to work – people living outside Bristol travel around 38km to work in the city – but also to shop and enjoy amenities like theatres and restaurants. Business supply chains also extend well beyond city boundaries and their customers are often located elsewhere too. 

For more stats and facts see Cities Outlook 2012 and our new data app.     

City leadership: the new view

The last few weeks have galvanised my thoughts about a new way to think about the economic, physical and social wellbeing of our cities. The most critical question seems to be how can city authorities proactively and positively manage cities in order to support their economic prosperity and the related job and business growth with the obvious positive impacts on the quality of life and opportunities for people? What is apparent is the need to understand and be able to strategise, act and lead within the context of different or emerging spatial geographies, institutions, power relationships and funding realities.

Last week we saw the announcement of the terms of reference for the “City Deals” with the publication of “Unlocking growth in cities”. In the deals with be struck between Whitehall and the core cities, it is apparent that the world of local government may be about to change, and potentially fundamentally. The devolution will need to relate to power and monies, but will have to be matched by the right style and qualities of leadership within local government and their private sector partners in the form of the LEPs.

Through conversations about the pros and cons of having a city mayor in Bristol, the final event of the Centre’s Cities Network programme discussing City Leadership and asking what forms of governance can help cities grow, and our event last night to launch our report on the buoyant cities of the Greater South East, city leadership emerges as a key thing to get right.

But what has changed and is it so different?

Throughout the sessions what came through most strongly both from speakers and attendees was that a “new view” of city leadership and city management does seem to be starting to take hold. In thinking and strategising about what to do to grow the economy and jobs, the city region is time and again being underlined as the right spatial scale at which to think, prioritise and lead. For example, if we are to have mayors, the logic of having city-region, rather that local authority based mayors has become ever more clear. Also, and as importantly, what is required is a sophisticated understanding of the interlinked nature of town and cities, where they compete and where they should collaborate, what the inherent strengths and weaknesses of places are and how to create policies and action that are place specific, while also recognising that the economy of places is very dynamic and needs to be constantly re-evaluated and understood.

This all sounds familiar but issues also emerge about how city leaders can build their confidence and ability to take on new powers which inevitably brings increased responsibility and risk. The diagram below which summarises the “old “and “new view “of how to manage cities seems to ring true with many in cities, business and Whitehall.

Empowering cities to define their needs and potential to grow and then to act and invest accordingly, will not result only in a transfer of monies and power, but also responsibilities and risk. What is needed is not simply a sophisticated understanding of what to do, but also how to do it, and for local government to develop a more savvy and informed approach to managing and investing monies in new ways.

While there is much in the “new view” to be welcomed, the onus is now on each city to properly realise their own vision for their future, and in hand with government work out the steps they need to take to get there. A new age of city autonomy begins here.

Deal or no deal?

As we eagerly await the "City deals" announcements of Nick Clegg and Greg Clark today the face of Noel Edmonds keeps popping up in my mind.  Not because I hanker for the return of Swap Shop (although I do) but because of his role as chief deal-maker in the popular show Deal or No Deal. 

Over the last few months there’s been a flurry of exchange between cities, LEPs and government to identify how cities can be set free to chart their own individual economic course  and  Greg Clark was clear last night at our parliamentary reception that 2012 will be a year for cities.  

The obvious and encouraging point is that although the Cities Team initially engaged with the Core Cities as a group they quickly realised that they are very different and therefore require very different responses.  We don’t need another grand cities policy that tries to be all things to all cities.  What Liverpool requires is very different to what Bristol requires.   

Liverpool, despite improvements, particularly to its city centre, is still dealing with its industrial legacies and has serious skills and employment participation challenges.  Bristol on the other had is having to deal with the challenges of growth.  Limited space and increasing demand means they need to work with their neighbourhing authorities to build more housing. These different challenges will require Government to be flexible and responsive in its deal-making and to resist the urge to set out a blanket cities policy that ultimately suits no place. 

So with Noel in my mind I wonder if the City deals announced this morning will be the banker’s best and only offer or will cities be encouraged to gamble for a bit more? Lets see what the DPM says this morning...

Autumn Statement: cities at the heart of our economy

There were some encouraging announcements for cities in the Chancellor’s statement today, including the welcomed commitment to the National Infrastructure Plan which will support the creation of 35 new rail and road schemes across the country.  Overall there is no new money flowing through the system.  In questions from the floor of the House, Osborne also confirmed that the £20bn pension fund money that he seeks to mobilise to support investment in infrastructure was not sought to be used in a PFI-style with government underwriting projects, but as direct investment.  It seems clear that there is more work to be done and detailed negotiations to realise this private sector investment. But importantly the announcement recognises the link between the share of Government expenditure spent on infrastructure and economic growth (an increase of 1 percentage point can increase the economic growth rate by between 0.05 and 0.2 percentage points per annum).

The Centre’s research has shown that 70% of lower skilled residents live in local authority districts with fewer jobs than there are residents either in or looking for work. So any policies that can link people to jobs are good news for both these individuals and employers, and for city economies. However, there also needs to be the right emphasis on building more accessible, integrated and efficient transport infrastructure at the local level to help people living in and around cities to get to jobs. 

The announcements seeks to tackle the availability of finance to SMEs.  While already widely trailed in the press, the government's loan guarantee scheme is expected to result in banks providing loans to SMEs at 1% less than current rates.  Also it is reassuring that the issue of state aid is being sorted out up front, to speed up the flow of this finance.  The confirmation that support will be provided to mid-sized companies with a £1bn fund through a Business Finance Partnership is welcome as an alternative source of funds from the banks.  Tackling the lack of finance available to businesses should help support much needed private sector jobs growth in some UK cities.

The Chancellor’s announcement regarding capital allowances for 6 Entreprise Zones appears to have recognised the issues previously raised by the Centre where "old-style" EZs incentivised investment in commercial and industrial premises, sometime without the jobs growth following.  On the contrary EZs need to take a realistic and focused approach on creating high-quality, sustainable employment and then the accommodation to match.  The indication is that the capital allowances for the "new-style" EZs will apply to plant and machinery, not premises.  This is alongside a £1bn increase in the Regional Growth Fund, but divided up over all of the UK not just England.  We will continue to watch the effectiveness of these policies and investment, judged by job creation, with interest.

Finally, it is interesting to see emphasis on Maths with the announcement of Maths Free Schools for 16-18 year olds as part of the 1000 new free schools. This recognises the poor GCSE Maths results reported  in “Learning Curve” by the Centre last week, and its relationship with youth unemployment and weaker economies in many English cities.  Learning Curve shows that 50% of young people in cities are leaving schools without A* to C grades in GCSE Maths and English, which reduces their potential to progress to A-levels and beyond, and therefore also their opportunity to develop the skills required by employers and a more knowledge-based economy. We would urge the Government to go further in its current plans to reform school league tables to ensure that the education system is aligned with the needs of businesses. Much greater weight should be attached to Maths and English attainment when measuring school performance in order to incentivise schools to focus on these core subjects. To pay for this the Pupil Premium can be used in struggling cities to help teachers that have the difficult job of helping their pupils to attain qualifications in Maths and English.

Look our for a full briefing on the Autumn Statement from our Economist, Paul Swinney later today. 

LEPs on the growth frontline?

Yesterday's announcement that the new Growing Places Fund will be allocated directly to Local Enterprise Partnerships (LEPs) completes another section of the LEP funding jigsaw.  Originally announced by Danny Alexander at the Lib Dem Conference in September, the Growing Places Fund will distribute £500m.  The key objective for Growing Places is explained as being “to achieve early economic growth, and maximise jobs and housing”.  It aims to do so through funding infrastructure investment where it is needed to allow housing developments to get off the ground, for example land decontamination work or a link road to provide access.

Growing Places money has been allocated indicatively to LEPs using population size and earned income as criteria.  On the whole, the larger the LEP the more money it is likely to receive.  Money has also been allocated to the few local authorities that still do not belong to a LEP.  Allocations range from a total of £39.4m for the Pan London LEP to £3.6m for the Worcestershire LEP, and from £12.84 per head in the Enterprise M3 LEP to £5.04 per head in London.

However, the Growing Places money has not yet been paid out, nor will it be until the LEPs can satisfy Government that they have viable plans to spend it.  Crucially, ministers want LEPs to use their Growing Places money to create revolving funds, reinvesting income to generate private sector investment and create a source of income in the medium and long-term.  The success of these funds will depend on the viability of the investments made by each LEP, so business cases must be sound. 

It is up to Government to ensure they demand and receive high quality proposals from each LEP before handing over the money.  As Centre for Cities highlighted recently in Cause Célèbre or Cause for Concern, progress made by the 24 original LEPs is mixed with only two having published their full strategies.  Growing Places requires all LEPs, including those established very recently, to step up to the mark.  £500m is not a bottomless pot when divided among 38 LEPs and required to fund hugely expensive, previously unaffordable infrastructure projects.

LEPs will need to submit pre-qualification questionnaire to receive their funds, including passing a test of their fitness for purpose.  However, the pre-qualification questions focus on governance and accounting arrangements.  The Growing Places prospectus states that if a LEP commits “to working to achieve the funds [sic] objectives then you will qualify for funding.”  This suggests that the quality and viability, as opposed to the mechanics of LEP proposals will only be assessed on a basic level.

Taxpayer value for money from Growing Places depends on a few key factors:

-          proposals underpinned by a coherent economic vision

-          viable plans to set up revolving funds to leverage private sector investment;

-          willingness among LEPs to band together to create joint infrastructure funds (as recommended in the prospectus) to invest across boundaries, rather than engaging in politically motivated competition.

The Government should not allow their stated objective to pay the funds out before the end of the current financial year to override the need for proposals that do more than tick the right boxes.

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Regional Growth Fund: Seconds out

Yesterday, Nick Clegg announced the second round of the Regional Growth Fund - £1billion will create 35,000 jobs directly, and 164,000 jobs indirectly through supply chains.  The fund has been touted as one of the answers to economic recovery and as a stimulus to growth.  Will it be cost effective, and how does it reflect the current job market in different industries?  

Henry Overman’s blog picked up on the "cost per job" of the Regional Selective Assistance (RSA) compared to the RGF.  Our table below shows that there are a number of ways to calculate cost per job - they’re all "right", it just depends on your viewpoint.   It illustrates how Round 2 of the RGF compares with Round 1, and the cost per job created:

The cost per job of the RGF Round 2, if you only take the direct jobs and the public funding, is comparable to other government funded job schemes such as Enterprise Zones (£26,000 per job, in 2010 prices). The number of directly created jobs stands at 18.6% of the total jobs figures quoted by the government - all of the 164,200 indirect jobs will need to be realised in order to create value for money for the taxpayer, and deliver private sector jobs in the numbers that our economy needs.  

There is also a question as to whether the proposals and outputs identified in bids are sustained through the due diligence.  To date there are four projects that we can comment on that have had their funding confirmed on completion of the due diligence process.  The data available does not make it clear whether the job numbers quoted are direct or indirect.  But it is clear that the gearing of private: public funding is lower that anticipated in yesterday’s announcement.  

*The Middleport project has also received funding from other public sources.

It is important to note that, of the over 150 organisations who are receiving RGF round 2 monies, this only represents four and should not be considered representative of the bids as a whole.

It is also interesting to see which sectors will benefit from additional jobs created.  We have compared employment by sector within England 2010 to RGF Round 2 recipients:

The key question here is how the RGF is acting to create jobs. Rather than necessarily investing in high-growth sectors, it appears the RGF is looking to unlock growth by giving businesses access to finance where this would normally prove more difficult.  In this way the  RGF is filling a gap and investing in manufacturing firms that lack access to capital for machinery and to add jobs. Lack of access to capital has been a significant challenge for capital-intensive businesses during the recession, and it may be that bridging that gap could give some firms the jumpstart they need to grow. Whether the RGF will create the jobs it hopes, though, is dependent on the specific firms which have received funds and how they invest them.  What is really important now is that the taxpayer gets value for money from their investment in the creation of new, lasting and high value jobs.  We will have to await more information before a conclusion can be made.   

LEPs give cause for concern

One year into the government’s flagship policy for growth and decentralisation and the Local Enterprise Partnerships are coming under increasing scrutiny from media, politicians and economic commentators. LEPs were always going to need to demonstrate some quick wins, to show critics they could do the job, but how are they really doing? 

Our short report, Cause célèbre or cause for concern?, published today shows that many LEPs still have a long way to go to become effective, strategic bodies capable of driving growth.  Of the 24 approved a year ago, eight do not yet have boards recognised by government, only two have produced a long-term strategic plan and five do not have a dedicated website.  

And beyond this lack of progress, there is a more fundamental problem facing many of the LEPs: their geography.  Some are too small to be effective, others are too big, with boundaries that ignore the economic footprints of the cities in their area.  These organisational, economic and political hurdles will make it very difficult for some LEPs to work effectively. 

Policymakers at the local and national level have a crucial role to play if they want LEPs to navigate these challenges.  If the government sees LEPs as an essential vehicle for growth it needs to support them.  This means giving financial assistance to capable LEPs, and devolving powers over skills and transport to give them some teeth.  Local authorities need to match the funding national government has provided towards administration costs, and ensure LEPs take a role in making the duty to co-operate on strategic planning work.

If the government wants LEPs to deliver the national agenda for growth, it cannot continue to treat LEPs as a blanket national growth policy.  Inevitably LEPs are progressing at different speeds.  Some, for example the Leeds City Region LEP, are ready and capable of taking forward strategic plans now.  Others will take longer to get off the ground and others are making slow progress.  The government should engage with the LEPs according to their needs, devolving powers and funding quickly to those that can manage it, and providing support, guidance and incentives to bring those lagging behind up to speed.  This will help to give the LEPs a better chance of improving growth prospects for their areas.