How will the government's "city deals" work?

A tale of eight cities.

The Government’s announcement about "City Deals" has thrown open debate about the balance of power between central, regional and local government. Nick Clegg and Greg Clark have signalled that these "ground breaking deals represent a dramatic power shift, freeing cities from Whitehall control". 

The Coalition has set out a challenge for eight of England’s cities – if they can deliver more effective and accountable local government, then central government will transfer more powers and provide incentives for cities to apply their own solutions. Cities are keen to be in control of their own growth agendas and these deals represent the government’s biggest commitment yet to fulfilling its localism policy.

The proposals put forward by the eight cities show interesting differences in definition and priority. Alongside the areas you’d expect cities to focus on, such as housing and regeneration of specific districts, several cities propose focusing on areas such as physical and virtual connectivity, with powers on transport and superfast broadband. Birmingham has identified life sciences as a potential and exciting growth opportunity. 

The role of the private sector also varies from city to city. For example, Birmingham’s Local Education Partnership (LEP) looks set to play a significant role. In Liverpool, the city has looked at the transition from Council leader to mayor and how this can effectively engage the private sector. There are a number of major corporate players involved in the development of Liverpool’s future and, if successful, this could become a model for other locations. 

Each city has defined the geographical boundary between the city and surrounding region differently.  Manchester, Leeds and Bristol have taken the most regional strategies, with Greater Manchester in particular having the benefit of building on a number of years of collaborative working with different agencies and groups within the area.  Bristol’s deal also establishes "enterprise areas" outside the city boundaries and areas such as Bath, where full retention of business rate growth will apply. 

There is also considerable variation in how the low carbon agenda is incorporated. Six cities refer to it, with Manchester, Liverpool, Birmingham and Newcastle placing it prominently in their proposals.

These variations will help trial different models for devolving authority to regional, city and local authorities and it will be interesting to see how they progress. 

Despite the variations in approach, there are two factors which will shape the practical and commercial success of these schemes. For the City Deals policy to be transformative, the detailed powers transferred must be embedded in a robust governance framework, underpinned by access to sustainable finance for investment in projects.  These two key pillars are critical determinants of success or failure. 

As well as providing governance, the city authority should 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 clear space to be created where trust can be nurtured and the alignment of objectives achieved.

Delivery should be at arms' length from policy, so cities will need robust region-wide economic and financial assessment frameworks to appraise and prioritise projects.

Considering both governance and financing frameworks, Manchester's deal is particularly distinctive. Founded on the long-established governance framework of AGMA (Association of Greater Manchester Authorities) its 'earn-back model' aligns investment resources and economic development returns for reinvestment in strategic priorities. The model allows retention of additional business rates over and above that allowed by the forthcoming reform of local government finance, benefiting the city region to the tune of £30m per year. Not that substantial in isolation, but bigger ambitions underpin this and, used effectively as enabling finance, this could unlock substantially more private investment.

The "earn-back model" could offer a genuinely sustainable source of finance through which Greater Manchester is rewarded for good investment decisions made locally. Being region wide and non-sector specific, it is broader in scope and potential than those funding elements more narrowly defined and tied to specific spatial (enterprise zones) or economic policy areas such as skills or apprenticeships, and to that end it marks a more substantive devolution of powers and resource.

UK cities are at the beginning of the journey towards devolution and there is potential for significant change.  Could cities take a share of local collected corporation tax or secure powers to vary national policy in other areas of the public sector? This is an exciting opportunity, but to capitalise on it cities need to think, plan and govern differently and, for the long term, sustainability and flexibility needs to be built in at the outset.

Philip Woolley is a partner in Grant Thornton’s Government & Infrastructure Advisory team.

The city deals will

Philip Woolley is a partner in Grant Thornton’s Government & Infrastructure Advisory team.

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.