Centre for Cities

Deprivation - an urban issue?

There are almost 122,200 very deprived households in England and Wales.

Yesterday, another slew of Census data was released. This included statistics on deprived households measured across four different factors: levels employment, education, and health and disability as well as quality of housing.  

To some extent the data tells us what we already knew; a disproportionate number of England and Wales’ very deprived households – those counted as deprived on all four of the factors listed above – can be found in cities.

But levels of deprivation do vary across cities. As the map below shows Hastings, Liverpool and Bradford have the highest share of people in very deprived households. But, naturally, it is England and Wales’ largest cities that house the largest number of very deprived households – London and Birmingham together account for almost one third (or 38,500 households) of all very deprived households.

At the opposite end of the spectrum in places such as York, Aldershot and Crawley only a very small proportion of households are very deprived. In York, for example, only 211 households (0.2 per cent of the total number of households in the city) are very deprived.

Figure 1: Share of households that are very deprived

Source: Contains Ordnance Survey data © Crown copyright and database right 2013, Census 2011

Urban deprivation is of course a bad thing and is, quite rightly, being tackled through initiatives such as the Work Programme and Troubled Families programme.

Yet, as Ed Glaeser reminds us, although cities house lots of poor people, they don’t make people poor. As we showed in Cities Outlook, cities cover nine per cent of landmass but house 53 per cent of businesses and 58 per cent of jobs. Because of this, helping those living in deprived households access these job opportunities is critical. And to do this policy makers should focus on things like improving skill levels and making transport to and from employment nodes more affordable.

Introducing Private Finance 2: Son of PFI

As part of his Autumn Statement, Chancellor George Osborne is tomorrow expected to unveil a wave of infrastructure projects including new schools, hospitals and roads, to go forward under a revamped version of the Private Finance Initiative, to be known as Private Finance 2 (PF2).

When in opposition, both Coalition parties were often critical of the last Labour Government’s use of PFI to fund long term infrastructure investment across the country, insisting that the details underpinning PFI contracts left the taxpayer exposed to higher costs over the long-term.

More recently, a 2011 Treasury Select Committee report deemed the benefits of PFI “illusory” and noted that, despite often incurring a higher cost of borrowing than traditional routes, Government departments had become “addicted” to PFI as a means of reducing up-front cost and moving expenditure off the public balance sheet. This prompted the Government to scale back new PFI investments and announce a review of existing PFI contracts in an attempt to renegotiate the terms upon which they were based.

However, since this announcement and against a backdrop of a faltering economy, the Government has been under mounting pressure to set out how it intends to reform PFI to support major public sector building works in the years ahead.

Details emerging today suggest we will soon know the answer. So, what do we expect to be new about PF2?

• Profit sharing – Under the revamped PFI, the Government will become a minority stakeholder in project companies, giving it a seat on the board and a share of profits. Reports suggest that this will typically equate to a stake of around 20%, but it could be as high as 49%.
• Transparency – It is thought that project companies will be made to publish details of profits and also make future taxpayer liabilities transparent.
• Tighter timelines – In order to speed up the assembly of a project pipeline and avoid a re-run of the PFI process where projects could take up to five years to reach financial close, it appears there will now be an 18-month limit on project negotiations.
• Room to re-negotiate – The Government is also expected to introduce new contract clauses to allow hospitals and local authorities room to renegotiate service agreements with other providers, if they are more cost effective.

The Government will hope that PF2 is capable of kick-starting major investment programmes across the country, but that reforms ensure the taxpayer is able to share in any returns made on projects, as well as underpinning delivery risk. However, until we know more about how these measures will work in practice as part of a broad programme of investment, it is impossible to know whether the flaws of the previous regime will re-surface.

As always, the devil remains in the detail.

Follow Ben on twitter: @BenCities

City Matters - my weekly cities reading list

I hope you enjoyed some, if not all, of my reading suggestions from last week.  I received some great suggestions via Twitter and email from fellow city geeks, which are much appreciated.

This week I’ve gone for a mix of the current, the old and the classic.  I hope you enjoy these and please continue to suggest others that I should read and recommend. 

• ‘Homeownership and Entrepreneurship’ by Philippe Bracke, Christian Hilber & Olmo Silva (2012) - highly relevant analysis of how buying a house influences whether someone is likely to start their own business.
• ‘Regional Economic Resilience, Hysteresis and Recessionary Shocks’ by Ron Martin (2011) - provides substance to the widely used notion of resilience and explores how places can and do respond to economic shocks and what this means for their long-term success.  
• ‘Abundance of land, shortage of housing’ by Kristian Niemitz (2012) – critiques some of the reasons offered to explain why UK housing costs have increased over the last decade before calling for a more ‘liberal’ planning system.  
• ‘Contrasts in Agglomeration: New York and Pittsburgh’ by Benjamin Chinitz (1961) - all I can say is read this and enjoy.  10 pages of great insight into how industry dynamics affect city success.
• ‘Soft City’ by Jonathan Raban (1974) – a travel writer’s perspective on what makes cities so appealing and revolting.  Includes a great chapter on anonymity in crowds that reminds me of travelling on the tube every day.

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Stalled Site Survey: Tell us where your local developments are at a standstill

Is there a stalled development you walk by daily? Whether it’s a ‘hole in the ground’ or a half-finished structure, part-finished homes and offices are a symbol of the sluggish economy.

 

Source: http://www.thetelegraphandargus.co.uk/news/4704148._No_talks_to_buy_back_Broadway_site_/?action=complain&cid=8066048

Developments are stalled around the country. As the economic downturn has made housing and commercial projects less viable, many developments have been held up. Sometimes, third parties can step in to provide temporary funding, equity, or rental guarantees to make completing the project profitable again.

The Centre for Cities is working with the European Investment Bank and DCLG to evaluate the feasibility of Urban Development Funds (UDF) across the UK. As a part of our research, we want to find out where development is stalled in order to gauge the potential for UDFs to invest in projects in UK cities. That’s where you come in.

There’s only one way to know how many developments are at a standstill and where they are: ask. We are calling on the power of our blog, mailing list and social media to collect data on stalled developments. The next time you pass by that stalled site, please take a picture and/or send us the location. You can do this via

Twitter: @urbantweetuk #stalledsites

Short Survey: http://www.surveymonkey.com/s/G6S939N

Email: [email protected], subject line: 'Stalled Sites' 

We are collecting information through 10 October, so please submit at your earliest convenience.

By telling us where stalled sites are, we can let Government and banks know where there is potential to invest and get Britain building again.

Thank you for your support.

Finance and Growth: Two new developments

 

HMT offers lower borrowing rates to local government

Certainty is one of the most valuable assets financial planners can have, sometimes more valuable than money in the bank. And, to be honest, there is not much one can be certain about in the financial markets these days. 

HM Treasury has shown just how valuable certainty is in the current lending and borrowing climate. On 2 August, HMT sent an open letter to local government Financial Officers setting out the terms of the offer they first made in the Budget five months ago.

       The offer: 20 basis points discount on loans from PWLB.

       The catch: local authorities must ‘provide improved information and transparency on their                    locally-determined long-term borrowing and associated capital spending plans.’

In other words, local government can access debt more cheaply (in a time when they need to be investing in more capital programmes) in exchange for government having more certainty about the pipeline of borrowing coming their way. Overall, this is a win-win scheme for local government.

But, as we have argued in Banking on Growth, central Government’s control over local government funding affects their ability to borrow. Better borrowing rates should be accompanied by localised funding streams. That would be a really big step towards helping local government fund capital projects that support economic growth.

 

Devolved Transport Funding

Government took a small but positive step towards localism with their commitment to devolve major local transport funding. This consultation means that allocation of funding for new local roads, public transport schemes and local rail station decisions could be made at the local level.

Currently, decisions on capital funding for transport schemes are overly centralised: Government must approve all schemes over £5 million. 

Now, the government is proposing that ‘from 2015, local transport bodies will be able to decide for themselves how to spend their money on priorities best suited to their local needs without Whitehall approval.’   

The new Local Transport Bodies will also define their own boundaries, likely aligning with those of LEPs. Doing so will facilitate decision making at the level of the local economy and give LEPs more teeth. 

However, there is still a long way to go before local government has more influence than central government over local projects.

• The allocation of the £1.7 billion in local transport funds will be decided by formula rather than competitive bidding, so projects which may have high impacts in an authority may not get funded if resources are distributed based on population or the area’s contribution to GVA, for example, rather than transport need or return on investment.
• Local government lacks the ability to raise new finance to fund infrastructure projects, keeping the real power (money) in the hands of central Government.
• The transition comes with many strings attached, including the need for strong governance and finance arrangements, accountability and value for money.

More local decision making and less red tape for local transport bodies is very good news. But, the degree of control Government maintains over projects that affect and drive local economic growth should not be lost in the equation. What is being presented now continues to be devolution-lite. 

 

Capital Accounts: How will local government fund infrastructure in an age of austerity?

Wednesday, we received news that UK GDP contracted by 0.7 percent. David Cameron has said that more needs to be done. I agree – and much of that should be done in cities to respond to the local economic conditions.  However, despite the rhetoric around the localism agenda, central government still retains its firm grip on the purse strings. Shrinking budgets and limited flexibility leave local authorities with much to do but few resources to do it.

The Centre for Cities’ latest report, Banking on Growth, highlights a key challenge to supporting growth: how will local government pay for capital projects that can unlock economic growth during this age of austerity and with limited financial powers.

Capital projects managed by councils include roads, schools, housing, and waste infrastructure—the very things that help our cities run effectively. About 80 percent of local government’s capital spending is in these areas, putting them in charge of investments that can support economic growth.

But, the spending cuts and recession have brought significant budget challenges to many councils across England. Councils’ revenues are declining year-on-year due to lower capital receipts and shrinking government funding, but capital spending cannot fall as quickly due to the long-term nature of capital finance commitments.

The gap between how much central government gives to local authorities for capital projects and how much authorities spend has more than doubled since 2006/07 from £4 billion to £9.3 billion. This makes paying off existing loans an increasing challenge for authorities before they even think about borrowing for new capital projects. 

New borrowing by local government has fallen since the recession. Public Works Loan Board advances dropped by more than half from 2007/08 to 2010/11. So, local authorities are having to be especially prudent given their lack of control over funding, and this will have an effect on their ability and appetite to invest in future projects that will create jobs and contribute to the economic recovery.

So what needs to change?  While there are limits to devolving funding in the short term, our work highlights two things that need to be done now:

• First, local government needs to continue to explore new funding and finance mechanisms that don’t require central government funding or underwriting of debt (e.g., bundling budgets within local government, pooling across authorities or bringing forward pension fund investment).
• Second, local and central governments must work together to find ways to fund local infrastructure projects while operating under deficit reduction targets.

Our work, as always, is ongoing.  Next we’ll be looking at the advantages, pitfalls and barriers to the range of financing mechanisms local government can use to support economic growth.

The UK needs investment now: Plan C for cities?

Yesterday’s GDP figures showed the national economy shrank by 0.7 percent in the last quarter, largely due to a sharp slowdown in the construction sector. Although the latest labour market figures show that employment has been growing modestly and there are always questions about the accuracy of such rapidly produced GDP figures, it seems undeniable that at best the UK economy is stagnating. At worst, the figures are right and we’re in the longest recession since the Second World War.

If ever there was a time for Government to invest, surely it’s now.

The Government is clinging on to Plan A for the moment but now is the time to step up with new policies – whether they’re Plan A Plus, Plan B or even Plan C for Cities - to ensure that this recession does not extend into decades of no growth.

Our retrospective Cities Outlook 1901, launched earlier this month, showed how cities and industries have risen and declined over the course of the twentieth century. It found that failure to invest in skills and in physical infrastructure has negative impacts that can last for decades or longer, for both people and places. Getting this right matters not just for the short term – improved productivity through skills or construction jobs through infrastructure projects – but for the medium and longer term competitiveness of the UK.

Last week’s announcement that Government would underwrite up to £40bn of infrastructure investment plus give up to £10bn to support struggling exporters is a start, and the Chancellor has referred back to this repeatedly over the last 24 hours. But a scheme of this sort can only ever have limited impact, partly because of the tight qualification criteria. Conditions of funding include: being a big project; being a project put on hold because of difficulties raising private finance; being able to get started within 12 months; having a demonstrable impact on economic growth; and being good value for taxpayers. As the BBC’s Stephanie Flanders put it, “…it has to be a perfect project in every possible respect, but somehow not quite perfect enough to get up and running entirely on its own.”

If the Government is to kickstart growth, making some of the smaller-but-high-impact infrastructure projects happen is vital, from unlocking road junctions to improving rail connections between northern cities.

For this to happen requires a 'Plan C' - and that means more local autonomy to make things happen. As Greg Clark said in January when he launched our annual Cities Outlook report, the battle for growth will be won or lost in our cities. More autonomy and incentives to pool pots of public money in order to access private sector funding (see our report published today talking about local authorities and capital expenditure for more on this) and more power to flex skills and welfare budgets to respond to distinctive local circumstances. These are not expensive changes that could damage the deficit, but they are changes that could make a big difference to growth. Three quarters into a double-dip recession, it’s time for Government to step up a gear and deliver for our cities and their residents.

HS2 plans are still on track

The Rt Hon Justine Greening MP, Secretary of State for Transport, announced this week the Government’s decision to go ahead with the High Speed Rail proposal, HS2. Phase one of the route between London and Birmingham should be up and running by 2026 with the routes to Manchester and Leeds ready for 2032/3.

The capital cost of these sections will be £32.7 billion with current estimates stating it will generate benefits of up to £47 billion and fare revenues of up to £34 billion over a 60-year period.

But is the time right for this initiative?

On the whole, budgets have become limited and funding more scarce. As our report, Access All Areas, shows, in such difficult economic times it is imperative that city centres can attract high value employment and overcome labour market spatial mismatches through a coordinated, integrated and improved transport infrastructure.

Unfortunately, many cities still need to vastly improve its local infrastructure to ensure efficiency and efficacy.

As a result, the largest benefit to people who live in cities and their hinterlands would come from local infrastructure improvements. This would fit nicely with the City Deals agenda in boosting cities’ economic growth and should, therefore, be the Government’s priority.

Furthermore, consistently delaying the decision on HS2 has led to budgetary uncertainty. By moving the HS2 decision back other much needed local infrastructure projects have lacked full government support and have been unable to begin. Now the decision has been made, will this financial commitment over the coming decades hamper arguably more beneficial local projects?

With this in mind, a faster rail link between London and the core cities should certainly be considered in the long term but only once local and regional infrastructure issues have first been resolved.

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Hammering TIF Home: Where is TIF a year from its announcement?

One year ago, the Government made the latest in a long line of announcements spanning more than a decade that local authorities would have a new tool at their disposal to unlock economic growth - Tax Increment Financing, or TIF.  Our new research, A Taxing Journey­, looks at what this Government is doing to bring TIF into practice.

Nick Clegg, in making the announcement on TIF, stated that it would be “the first step to breathing life back into our greatest cities.” Since then, TIF has become entangled in a much wider and more complicated debate concerning the future of local government finance – the Local Government Resource Review (LGRR). Because of the competing objectives with the LGRR about how to reconcile a more inventive-based system with the current redistributive system, the future for TIF remains uncertain. Currently, Government is deciding how business property taxes will be retained locally, and it is likely to introduce a complex system of top-ups, tariffs, rebasing and resetting. All of this adds up to a lot of uncertainty that could render TIF useless in some cases.

To make TIF work, Government needs to keep it as simple as possible. If they make the system in which TIF will operate too complicated, it will create uncertainty and confusion that will deter investors and developers.

Our research also points out that TIF will not be the answer to growth for all places. It will only work in buoyant property markets and places which need new infrastructure to unlock demand. TIF requires adequate long-term demand for business property, so local authorities and investors need to be relatively certain that property tax revenues will come in to pay back the loan.  TIF works when there is a real need for infrastructure to unlock economic potential. Not all places lack the infrastructure to grow.

With this in mind, Government needs to design TIF in a way that introduces as much certainty and clarity as possible so that each city is able to determine whether it’s right for them.  Failure to do this will result in a very useful new tool becoming a rusty lever at the bottom of the policy toolbox.

Ignoring transport leaves jobseekers disconnected

Wednesday’s labour market figures have fuelled concerns about the fragile nature of the UK’s economy – with unemployment now above the 2.5 million mark.

Employment support providers face some serious challenges ahead and in the immediate future they need to ensure individuals are best placed to access the jobs available.

Centre for Cities’ new report, Access All Areas, explores the role transport plays in improving access to work – not only by connecting people to employment sites but by also widening individuals’ job search areas and facilitating economic growth in cities (the latter a focus in Nick Clegg’s ‘Plan A Plus’ speech this week at the LSE).

The recession has accelerated job loss in some of the more deprived parts of the UK and many of these same areas are now feeling the bite of public sector spending cuts – creating a mismatch between where people live and where the job opportunities are. Compounding this is the longer term shift in the geography of higher and lower skilled employment.

While workers across all skills levels need to travel further to work, this is often more of a challenge for people on lower incomes: over two-thirds of JSA claimants do not own a car, and bus and rail fares in many parts of the country have increased well above average wages.

Clearly transport is just one factor influencing individuals’ access to jobs but in order to maximise its potential impacts decision makers across government need to work together. Transport needs to be seen as a tool in tackling unemployment.

It is also in the interest of Work Programme providers to address transport problems if it means clients are more likely to access and stay in work. Providers should consider assisting with travel costs to interviews or working with transport operators to design reduced tickets in order to make transport more affordable for jobseekers.  

Journeys are also made longer and more costly by the fragmented nature of local transport systems. Here the Government needs to support local transport authorities to better integrate local transport provision and ultimately authorities should seek to move towards the TfL-style model of governance – allowing them to integrate across different modes of transport and cross-subsidise services.