Analysis: City deals spawn new regeneration finance models

by Phil Woolley and Nathan Good Wed 11th July 2012, 9:48 am

The new raft of city deals announced for the UK's core cities provide new ways for private and public sector to work together. Grant Thornton's Phil Woolley and Nathan Good examine the landmark agreements.

Liverpool: One of the first to sign a city deal

Deputy prime minister Nick Clegg and cities minister Greg Clark have announced the devolution of new powers to England's largest cities in what could turn out to be a remarkable and transformative journey to drive local growth.

When 'Unlocking Growth in Cities' was published in December 2011, it threw wide open the debate about the balance of power between central, regional and local government, and issued a challenge to cities to take charge of their own destinies. It said that there was a deal to be done – if cities deliver more effective, accountable government, central government will hand back more powers and provide incentives to allow cities to work out their own solutions.

At the time, central government felt that the key to this was elected mayors, although this was not a view shared widely by electorates in the May 2012 local elections.

So, how have cities responded so far? And how does this compare to the landscape we mapped in our Sustainable Cities report last year? Although some cities may see city deals as just another process for getting money out of central government, indications so far are that most understand that this is a different kind of dialogue about the future of their regions.

This week details are emerging of the first wave of city deals focused around the eight core cities of Manchester, Birmingham, Bristol, Leeds, Liverpool, Sheffield, Newcastle and Nottingham. Liverpool and Manchester were first out of the starting blocks, with their city ceals agreed earlier in the year.

Each city has been in a long dialogue with government about the powers they see as being required to drive their economic vision forward. While each city deal will be bespoke, some interesting themes are starting to emerge, including:

Cities versus city regions: each city grasps the role of a city at the heart of a region, but each has tackled the question slightly differently. Regional integration is a dominant theme, but at different speeds. Greater Manchester appears well advanced, while the Leeds city region seems to gathering momentum rapidly.
In our Sustainable Cities report, we talked about the need for city-based funding mechanisms and investment strategies. This appears to be a core part of the strategy. Almost every city proposes a fund, or in Bristol's case, a pooling of financeable assets.
Alongside 'traditional' economic development initiatives, such as housing and place-based regeneration, is a major concern about physical connectivity, with seven proposals covering transport. Leeds, Bristol, Birmingham and Sheffield all see this as a core issue. Virtual connectivity proposals are more limited, and superfast broadband is only covered in two proposals.
The role of the private sector in taking forward the city deals remains to be clarified. Local enterprise partnerships are name-checked in five cases, but this may not reflect the current level of influence of the private sector. In Birmingham, for example, the LEP seems to have played a significant role, while in Liverpool, with the almost seamless transition from council leader to mayor, the city authority appears to have a firm grip on the process. However, there are some major corporate players currently involved in the development of Liverpool's future, so there is more of a public/private mix than at first appears.
So far, city deals don't all have a particularly futuristic or multi-generational feel to them, which suggests that cities are very much at the beginning of the journey. It is not clear yet how strong the appetite is for meeting with tomorrow's, as well as today's, challenges and opportunities.
There is also considerable variation in how the low-carbon agenda is incorporated into the agenda. Six make some reference to it. Liverpool, Birmingham, Manchester and Newcastle, in particular, place low carbon at the centre of their plans.

In order for city deals policy to have a real impact however, the powers transferred must be substantive, transformative and embedded in a robust governance framework that works for each place. But that is only part of the story. City deal initiatives need to be effectively integrated into other city strategies, for example on low-carbon investment.

The city authority must also be a catalyst for change and provide for an effective working relationship between local and national government, business and communities. It needs to allow the 'white space' to be created where trust can be created and alignment of objectives achieved. From this should come the realisation that delivery should be at arms' length from policy.

From the private sector's perspective, the city deal initiative should be monitored closely as strategic relationships at a city level will now be more important than ever. Embedded within each of the city deals are significant infrastructure and development projects, ranging from the potential for a region-wide local asset backed vehicle in Leeds city region to the low-carbon and smart city infrastructure requirements in Manchester, Birmingham, Liverpool and Bristol.

Delivering the ambition in each of the city deals will require the mobilisation of a significant amounts of private-sector finance, and the application of private-sector skills. It is a welcome development therefore, with the potential to remove some of the current inertia in the UK infrastructure development sector.

Nathan Goode is head of energy, environment and sustainability at Grant Thornton UK and author of Grant Thornton's Sustainable Cities report.
Phil Woolley is a Partner in Grant Thornton UK's government infrastructure and advisory team.

What does the city deal mean to Nottingham?

What does the city deal mean to Greater Birmingham?

What does the city deal mean to Sheffield?

What does the city deal mean to Newcastle?

What does the city deal mean to Liverpool?

What does the city deal mean to Leeds?

What does the City deal mean to Bristol?

What does the City Deal mean to Manchester?

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