Centre for Cities

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.   

Room for improvement: bold financial incentives are needed to support city economies

There are few things in life quite as exciting as the world of local government finance. But before you exit this webpage wait!

Decisions currently being taken in the Local Government Resource Review will have a really important impact on the future of cities and potentially for the national economy. 

Our new report released today, Room for Improvement, looks at the current reforms and finds that while Government is moving in the right direction there is a danger that it will fail to be bold enough. 

Alongside the New Homes Bonus, the Government is using the resource review to introduce new financial incentives for growth. The review will allow local authorities to retain some of the future growth in their business rates - which raised almost £24 billion in 2010-11 - restoring the link between local government and the local business base.

The big idea is that these incentives are needed to reward a more positive attitude to development, thereby helping tackle the UK’s high house prices and office rents. Six of the thirty most expensive office markets in the world are in the UK. Incentives should also encourage buoyant cities expand to meet demand and facilitate job creation.

We think the Government is on the right track. Our analysis suggests that allowing the retention of business rates could be a strong incentive for growth. Since the nationalisation of business rates in 1990, the growth rate of commercial space has declined and business occupancy costs have increased. 

To be effective the new incentives need to be large, simple and transparent, targeted at the appropriate people and long-term. We’ve recommended allowing local authorities to retain between 40 and 60 percent of their future business rates growth, indefinitely. 

Inescapably, introducing incentives will create winners and losers - by rewarding places that are able to expand their business base you take away some money from those that cannot. Yet in the long run most cities see their business rates revenues grow, if only by small amounts - 55 out of the 56 English cities saw their business rates tax bases increase between 1999 and 2010. 

The findings are potentially challenging for those cities that find it more difficult to attract investment and development. But this doesn’t have to be an either or choice. The report recommends a balance between locally and nationally retained business rates revenues, enabling need to continue to be addressed. 

And, if the new incentives do reduce the cost of housing and commercial property, these changes have the potential to generate a national economic benefit. This prize might justify having a little less redistribution. 

The main danger is that the Government will decide to overcomplicate the reforms or create an incentive that is just too small. The last Government came up against this problem with LABGI - an incentive that failed to radically change local behaviour. 

But with the right design, financial incentives for growth can benefit both the residential and business communities of Britain’s cities and the UK economy as a whole. Now is not the time for timid amendments.

To be or not to be? A question for local enterprise partnerships

Do LEPs need to be formally constituted bodies or can they exist as an informal entity?  This was one of several interesting questions discussed at the roundtable we held yesterday in Leeds looking at the progress and future of LEPs.  With the participants in the room holding different perspectives. 

To be: Some in the room held the opinion that the role of LEPs should include being statutory consultees in the planning process, being direct recipients of government funding, and being able to borrow and spend money.  These roles it was argued would need LEPs to be formally constituted bodies. 

Not to be: Others argued that the role for LEPs should be to act as facilitators providing forums for discussion and agreement, and as strategy setters and overseers.  All of which could be done without being a formally constituted body.

Clearly different LEPs will make different choices based on their particular circumstances – this after all is the purpose of encouraging greater decentralisation and devolution (a trend that our recent paper on LEPs highlighted).  However, as one participant reminded the room – if LEPs want greater devolution of powers and resources from central government then central government will need ‘something’ to devolve to.  An issue that more than one central government department is currently grappling with.

Whether they choose ‘to be or not to be’ LEPs will need to carefully weigh up the pros and cons of the different options before they begin knocking on the door of central government asking for more powers and resources.   

Choosing the right suitor: finding the best match for Enterprise Zones

DCLG announced they have 22 bids for the last coveted 10 Enterprise Zones (EZs). With more than twice as many bids as there are spots for the new EZs, Government will need to be particularly picky in choosing the sites.

How to choose the final 10

Learning from the past, a few lessons should be considered in the selection process (outlined in our paper What Would Maggie Do?):

• EZs should be in urban areas or provide easy access to them—this better links jobs to people and helps businesses create links with each other
• Choose EZs with realistic growth potential rather than unrealistic aspirations
• Be clear how the EZ fits within a wider economic strategy—the Local Enterprise Partnership (LEP) should have done this as part of their application
• Avoid sector-based EZ schemes which can try to create advantages where they don’t naturally exist

Managing expectations

The 38 EZs during the 1980s-90s created 58,000 jobs; to date, 12 published bids for new EZs state they can create a total 160,000 jobs. We must be realistic about how EZs can benefit local economies and what they simply cannot do. Without incentives to expand employment, skills or innovation, they may not focus on fixing the root of some of the UK's most difficult economic challenges.

The real opportunity for EZs lies in how their LEPs invest business rate revenues. By allowing LEPs to pool money and fund specific projects, LEPs can target the issues which have held back their economic growth such as improving skills, linking people to jobs, and innovation support.

Enterprise Zones will not be the spark that jumpstarts the UK economy. If selected and managed correctly, though, they can be used to support economic growth in the UK’s cities.

The mayoral debate continues

I chaired the launch event for our report on elected mayors this morning, and we got #electedmayors trending in Birmingham.  We were hosted by KPMG and speaking on the panel were Lord Adonis, Jerry Blackett, Jim Hancock and KPMG’s John Atkinson. 

A number of interesting points came out of the discussion:

• There is a strong case for Metro Mayors, operating at the functional economic area of a city – although Lord Adonis warned of the “best being the enemy of the good” and gave the examples of schools and buses as two areas where a local authority mayor could make a big difference to a city.
• The idea of shadow mayors was given short shrift– with Lord Adonis describing the idea as a “democratic nonsense”, that he thought was unlikely to get through the Lords.
• Jim Hancock, reflecting on his 35 year career as a political commentator, welcomed the potential of elected mayors to raise the profile of local government and the important functions it serves.  But he warned of the potential “dead hand” of local council opposition being a threat to a “Yes” vote in May 2012.
• Jerry Blackett was concerned about how the relationship between LEPs, which are only just now finding their feet in the institutional landscape, and elected mayors would work – with a local authority mayor being potentially destabilising, and a LEP mayor perhaps being an undeliverable outcome.  He was clear that leadership relies on partnership and “followership”, however, saying, “Strong city leadership doesn’t have to take the form of a 'big man'."
• Jerry also called for more clarity from central government on what additional powers an elected mayor in Birmingham would have.  A survey of Birmingham Chamber of Commerce members revealed that while 36% of those surveyed were supportive of the idea of an elected mayor, compared to 22% against, 42% didn’t know or hadn’t decided.  His question – and I’m sure it’s one being asked across the 11 cities - was “What could we do tomorrow with a mayor that we can’t do today?”  It’s clear that there is more still to be done to make the case for elected mayors in the cities that will be voting next May.

The mayoral debate is one that will continue to be high on the agenda in the coming months as the Localism Bill progresses, and it’s important that these outstanding issues and concerns are addressed if cities are to get the opportunity to make the most of mayors’ potential.  

See more photos from this morning's event on flickr: ttp://www.flickr.com/photos/52038120@N03/sets/72157626835223135/