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City Deal - A Winning Hand

City Deal - A Winning Hand

The recent announcement of the specific projects supported by City Deal which are to be taken forward in Glasgow has demonstrated the value of accessing a new funding approach - allowing the city to continue to raise its game in an environment where capital funding for public infrastructure remains very tight.  That is certainly something to be welcomed - but the benefits go deeper than that, grounded in the fundamental principles of the City Deal model itself.

The principles of a City Deal are - at least at high level - quite simple. A case is made to the government to demonstrate the additional economic activity, and thus tax revenues, that will be generated by carrying out particular public infrastructure works - and on the basis of that assessment, the government provides funding to enable the public infrastructure works to proceed. Essentially, the government is taking a view that its investment will be more than repaid through the additional tax revenues. The sums are substantial - the infrastructure elements of the Glasgow and Clyde Valley City Deal (the overall package also includes an employability strand and an innovation strand) involve funding from the UK Government and the Scottish Government of £500m each, and with a further £130m being contributed by the participating local authorities.

The focus on additional economic activity is important. The current list of 20 projects which are being progressed under the Glasgow and Clyde Valley City deal were selected from a long list of "pet projects" put forward by the participating local authorities - applying an objective process (supported by external consultants) which assessed the economic development impact of each project. The effect, therefore, has been to give priority to projects that are most likely to generate investment from the private sector - ensuring that each pound of public sector spend unlocks the maximum economic impact.

It does, however, also raise a major challenge for the local authorities participating in City Deal - they need to raise awareness rapidly among the business community, and particularly among property investors and developers, of what is emerging through the City Deal; and they need to create a climate of confidence, to encourage private sector players to take a medium to long-term view on the opportunities which will unfold, particularly in some of the more challenging areas. An additional £3.3bn of private sector investment will be sought over the 20 year term of the City Deal to complement the public sector contribution.

Our experience in working with the Urban Regeneration Companies (URCs) has demonstrated that creating a climate for major private sector investment can be challenging, particularly within a relatively short timescale; and it has also shown that the appetite of the private sector to engage in speculative investment on the basis of a longer-term prospect of uplift in values can fall away rapidly if there is a downturn in the wider economic environment. Having said that, the framework developed for the Glasgow and Clyde Valley City Deal takes account of the need for flexibility, allowing the substitution of alternative projects if it becomes evident that implementation of a given project is likely to be delayed, whether as a result of difficulties in attracting private sector investment or otherwise.

The assurance framework for the Glasgow and Clyde Valley City Deal has a number of other strengths. The framework includes explicit reference to a Regeneration and Economy Consultative Group, drawn from major public sector agencies (including Scottish Enterprise, Skills Development Scotland, SPT, Police Scotland, Scottish Fire and Rescue Services, NHS and Transport Scotland) as well as the further education sector - which should help to align the agencies and the further education sector in a common effort to maximise the impact of the City Deal, as well as potentially stimulating collaboration on other projects. The importance of engagement with the private sector is also recognised - with an Economic Leadership Board which reflects industry across all of the local authority areas within City Deal.

One of the stand-out features of the Glasgow and Clyde Valley City Deal, however, is the degree of collaboration and joint working among the participating authorities. It would be fair to say that progress with the shared services initiative involving Glasgow and Clyde Valley local authorities has been patchy. We were involved in supporting the in-house legal teams in analysing potential options for the governance structure for the City Deal - and it was evident even at that early stage that the City Deal initiative had captured the imagination of all the local authorities, with political differences and localised issues being set aside in an effort not to lose out on the prize. That, along with careful management of the process at political and officer level, has enabled a joint governance framework to be put in place within a short timescale and (on the face of it) minimal friction. There are already suggestions that the City Deal governance framework might be used as a platform for other initiatives (including joint procurements, and potentially shared services) across a much broader spectrum - and the potential unlocked by that could outshadow the already exciting opportunities opened up by City Deal itself.

Stephen Phillips
Partner

This article was published in The Herald on Monday 15 June 2015.  A link to the article can be found here.

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