City deals: the key to UK growth?

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The recently announced investment deals for cities in Scotland, Wales and Northern Ireland are the latest in a series of government measures to stimulate economic growth across the UK. How will the newly granted funds be allocated – and how successful have the existing deals been so far? The IoD’s interim director general, Edwin Morgan, reports

December marked the first anniversary of the publication of the Industrial Strategy white paper – the government’s attempt to look beyond one Parliament and set the conditions for long-term growth.

While business leaders may normally be sceptical of political grand plans, IoD members welcomed the government’s far-sighted focus on challenges and opportunities to which the economy will have to adapt.

In a time of great political conflict, this document received remarkably broad support. Across political divides, sectors and regions of the UK, there was plenty of agreement that the strategy had hit on the right areas with its five foundations: ideas, people, infrastructure, business environment and place.

But it’s one thing to identify the problems; quite another to come up with the solutions. This is particularly true in the case of the strategy’s fifth foundation: place. This highlights the fact that we have bigger regional disparities in productivity than our European competitors, both caused and exacerbated by problems such as poor infrastructure and skills shortages.

As is often the case with government, there are many initiatives aiming at the same goal. In the November/December 2017 issue of Director I reported on England’s metro mayors – one of the ways in which the government is trying to boost growth outside the south-east.

In some ways, England’s regions had been left behind in the devolution stakes while Scotland, Wales and Northern Ireland were afforded decision-making powers. This has not always gone smoothly, of course. In particular, the long-running political gridlock in Northern Ireland has left businesses deeply frustrated.

The metro mayors have largely been welcomed by IoD members as champions for their cities and regions. With budgetary control and authority over areas such as training, they represent a genuine start in terms of empowering local economies.

But, having spoken with IoD members across the country, I think it’s fair to say that most businesses still find it hard to see how the industrial strategy; local enterprise partnerships (LEPs); and other key devolutionary initiatives, such as the Northern Powerhouse and the Midlands Engine, all fit together.

Box fresh: the chancellor announced funding for a new wave of city deals in his 2018 budget (Photo credit: Wiktor Szymanowicz / Barcroft Media via Getty Images)

The new city deals

In his October 2018 budget – which contained a range of spending commitments representing the biggest fiscal loosening in a decade – Philip Hammond announced that he was releasing funds for a new set of city deals.

This included £150 million for Dundee, Perth, Angus and north Fife; £350 million for Belfast; and £120 million for north Wales. Other deals in the pipeline include ones for Moray and for Ayrshire in Scotland; five local authorities either side of Scotland’s border with England; mid-Wales; and the Derry/Londonderry-Strabane region of Northern Ireland.

City deals actually pre-date the industrial strategy, having started under the coalition government in 2012. The first were for the eight largest English cities outside London and were, in a sense, precursors to the political devolution that came later.

To date, little work has been done to gauge the impact of these initiatives. The National Audit Office (NAO) published its most recent analysis in 2015. It found that, “while some programmes have had early impacts, evaluating the effect of longer-term programmes in the city deals on local economic growth is challenging”.

This is partly because the government has no consistent method for measuring progress and the fact that it’s impossible to know what would have happened without the deals anyway.

Those that have been in place the longest have also morphed into a much wider package of devolution, which hasn’t made the NAO’s job any easier. In 2016 Sir Amyas Morse, auditor general at the spending watchdog, said: “The government’s approach to English devolution still has an air of charting undiscovered territory. It is in explorer mode, drawing the map as it goes along.”

If IoD members feel that there is something improvised about Westminster’s approach to devolving economic powers, they clearly aren’t alone, then. There is nothing necessarily wrong with trying different methods, of course. The whole point of localism is that different parts of the UK have different economies and a one-size-fits-all approach has certainly not solved the nation’s regional disparities.

The path for English city deals is a clear one towards political devolution. Westminster hopes that the development of local industrial strategies will be able to bring together the mayoral combined authorities and the LEPs.

For Scotland, Wales and Northern Ireland, the political devolution came first and is only now being followed by extensive city deals. Scotland was the first to secure a deal – for Glasgow in 2014 (see panel, next page) – and has many investments planned.

David Watt, executive director of IoD Scotland, says that businesses north of the border have welcomed the extension of the devolution programme but want to see a joined-up approach. He is clear that the city deals need to be integrated and be seen as part of the UK’s wider industrial strategy.

Castlefield in Manchester

Building bridges: Manchester was one of eight beneficiaries in the first wave of city deals in 2012

“Business is all about making connections, between firms and across geographical boundaries,” Watt says. “Companies want these deals to boost local growth, but they want them to be outward-looking too.”

Robert Lloyd Griffiths, director of IoD Wales, also backs the initiative, but observes that business leaders naturally “focus on getting on with their day jobs” and won’t necessarily engage with it unless they can see the practical benefit.

This meant that the Cardiff Capital Region City Deal was “a bit of slow burn to start with”. It has caught on, however, since the appointment of a new programme director and the establishment of a new office to act as a focal point.

One thing that can help city deals gain traction is to engage eminent business leaders – as the Swansea Bay City Region did by appointing Sir Terry Matthews, tech entrepreneur and owner of the Celtic Manor Resort, as its chairman. Such a prominent figure can help to galvanise support for the project among local businesses, Lloyd Griffiths says.

Northern Ireland will be the last part of the UK to secure a city deal. Firms here are keen to see the councils covered by the Belfast Region City Deal “coming together and engaging with local businesses to get an agreement up and running as soon as possible”, says Kirsty McManus, director of IoD Northern Ireland.

A key concern for them, she notes, is the continuing lack of a Northern Ireland Executive, as the deals require funding from devolved governments.

This question mark also hangs over the proposed deal for Derry/Londonderry and Strabane, because key powers relevant to boosting growth are devolved. Infrastructure investments, for instance, are a core part of any growth deal, but key funding decisions are being delayed by the fact there has been no minister in place at Stormont since March 2017.

IoD members are eligible to join the Policy Voice group. Visit iod.com/policyvoice and have your say

The Cardiff Capital Region City Deal covers 10 councils in south-east Wales

Regeneration nation

A closer look at city deals at three varying stages in Scotland, Wales and Northern Ireland

Glasgow

In 2014 Glasgow was the first city outside England to secure a deal. As well as improving infrastructure, for which there is a £1.13 billion fund, the Glasgow City Region City Deal aims to support business innovation, stimulate growth in the life sciences sector and reduce unemployment.

The deal, which covers eight local authorities in and around Glasgow, is expected to create 15,000 construction jobs initially and 29,000 permanent jobs after the construction phase ends. It is forecast to add £2.2 billion annually to the region’s gross value added and to unlock £3.3 billion of investment from the private sector. glasgowcityregion.co.uk

Cardiff

Agreed in 2016, the Cardiff Capital Region City Deal covers 10 councils in south-east Wales. With a £1.2 billion budget, the programme aims to deliver up to 25,000 new jobs and attract an extra £4 billion of private-sector investment. Both the UK and Welsh governments are contributing £500 million to the region’s investment fund, while the local authorities will contribute a minimum of £120 million over the project’s 20-year duration. More than £730 million has been earmarked for a proposed new metro network for the region. cardiffcapitalregion.wales

Belfast

Announced by the chancellor in his October 2018 budget, the Belfast Region City Deal covers six local authorities, which have made a collective bid for funds totalling £1 billion. They are seeking co-investment – from Westminster, local government, universities and the private sector – to support a 10-year “inclusive growth” programme. Their aim is to create up to 20,000 better jobs, accessible to people from all communities. The funds will be allocated to a number of areas, including innovation and education; infrastructure (transport and digital networks); and tourism. belfastcity.gov.uk

Unlike so many things in politics at present, this devolution programme looks set to last the course. Clearly, city deals, combined-authority mayors, local enterprise partnerships and local industrial strategies are no silver bullet. Interacting with this web of initiatives and organisations will surely be confusing for many firms. But one thing is certain: none of the opportunities on offer will be realised without private-sector involvement. The IoD will continue to engage with government on your behalf and ensure that the local growth agenda has business at its heart.

Become a member of the IoD

The IoD has a range of memberships for directors, founders and co-founders, providing all the resources and facilities needed to enhance your business. To find out more about membership offerings and to join today, visit iod.com/membership

 

About author

Edwin Morgan

Edwin Morgan

Edwin Morgan is interim director general at the Institute of Directors. His team of policy experts covers issues ranging from tax and regulation to trade and infrastructure.

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