IT TAKES TWO TO MAKE A (CITY) DEAL

Drawing on her experience of Devolution Deals with local areas in the UK, MartinJenkins Director Victoria Bowes considers what could help our central government here in Aotearoa to get the most out of a City Deal approach

As the new coalition government gets properly underway with its agenda, most of the talk about City and Regional Deals has rightly focussed on local government. For example my colleague Patrick McVeigh has written several times about the opportunities here for councils, emphasising the need to see these Deals as a partnership.

The discussion so far hasn’t focussed much on the opportunities and challenges that City and Regional Deals might present for central government. There's also a slew of work that needs to be done by government behind the scenes to get ready to field proposals from local councils.

We can learn from others

I was working in HM Treasury in the UK over 2014 and 2015, just after the first set of City Deals were implemented there, and my team was focussed on further devolution to city-regions. I saw firsthand some of the challenges involved in agreeing multiple bespoke Deals.

City Deals were seen in the UK as a step towards a broader goal of localism and devolution to the regions, which was high on the agenda for the Tory–Liberal Democrat coalition government of 2010–2015. The largest-scale Deals, like that for the Greater Manchester Combined Authority (GMCA), were part of a wider picture of collaboration and investment across local boundaries.

Unlike New Zealand today, the UK had some blueprints of sorts – it had taken various steps over previous decades to give more control and accountability to London and to devolve substantial power to Scotland, Wales, and Northern Ireland. The later Deals with UK cities and city-regions were not on the same large scale, but central and local government were still able to tackle them with some sense of familiarity.

The Deals became part of a broader suite of approaches, including Enterprise Zones, Local Economic Partnerships, and access to a sizeable Local Growth Fund.

It goes without saying that the UK landscape is significantly different from Aotearoa New Zealand. For one thing, we don’t have the UK’s recent history of devolution. Also, cities in the UK are far larger than here (Auckland aside), and so arguably that puts more aspects of governance, the economy, and infrastructure on the table.

One example of the implications of greater scale is in transport. Throughout successive Deals over the last decade, Greater Manchester has been pursuing increased control of local transport. With the creation of a new local-government body, Transport for Greater Manchester, the city-region is on the way to a locally controlled, integrated travel network. Part of the rationale is the scale: 5.6 million journeys are taken on the transport network across the city-region every day.

But despite the differences from Aotearoa, the UK experience still offers some valuable insights that can help us lay the right foundational building blocks for City and Regional Deals here.

And while they might not translate exactly to a New Zealand context, there could still be scope to adapt specific mechanisms like funding instruments – for example, a Regional Deal with an area where infrastructure is heavily affected by international tourism could allow the region to retain a share of GST.

First, get clear on the why

City Deals are a means to an end. It’s well worth central government investing the time to get very clear on what the desired end is, as that will serve as the yardstick to measure options against.

For the UK, the guiding principles were to support economic growth, encourage public-service reform, and improve accountability. This was underpinned by a belief in localism as a sustainable way to achieve this. Cities and regions then had broad freedom to put forward proposals demonstrating what they thought was the best way to achieve those goals.

As well as more classic methods like large-scale infrastructure projects, proposals focussed on, for example, matching local skills development to local growth industries – both to make sure businesses had access to the right skills, and to support retention of talent.

For central government, agreeing on secondary objectives beyond that fundamental goal is also valuable. For example, is the priority to try new and innovative approaches, to deliver projects and programmes efficiently, or to secure the best outcomes for citizens? Different answers here might lead to different responses.

Think about how you’ll know if you’ve succeeded

One of the challenges in the UK was agreeing on how to measure success. If you’re inviting innovative proposals, there won’t always be tried-and-tested ways to assess impact. This difficulty becomes even more acute when the overarching goal is as broad as increasing economic growth or reforming the public service.

For example, the Greater Manchester Deal included an “earn back” mechanism: essentially, the region could retain and reinvest any increases in Gross Value Added (a measure for regional economic growth based on productivity), creating a revolving fund. Agreeing on the metric and the baseline for an arrangement like this is just one issue in a series of complex negotiations, which require an open mind on both sides of the table.

In 2016 the House of Commons Committee of Public Accounts, which looks at the value for money of government projects, programmes, and service delivery, criticised the UK government for not being clear enough about what it was trying to achieve with local devolution through initiatives like City Deals. But the Committee also highlighted the challenges – particularly where more innovative mechanisms were used – of knowing when the desired change was being achieved and when things might be going off track.

Be aware of unintended consequences

One of the core challenges for the City and Regional Deals approach is encouraging the right activities and behaviours.

For example, in 2016 the Greater Manchester Deal was extended to pilot 100% retention of business rates. “Business rates” are basically a tax on occupation of a non-residential property; set by central government and collected by local councils, this is one of the UK’s oldest taxes. The idea behind the 100% retention pilot was that local authorities would be given an incentive to increase their local tax bases and would have a more predictable income stream for long-term investments.

But an obvious difficulty here is avoiding displacement from elsewhere. If Greater Manchester increases its business rate revenue at the expense of a neighbouring region – for example, through businesses relocating to Manchester – is this still a win for economic growth for the country as a whole?

Although not all consequences can be mitigated, an understanding of what they might be can at least help in informing decision making about trade-offs.

Get set up to negotiate with local government, not with other central agencies

It’s the nature of place-based Deals that no single government agency controls all the funding and all the policy and other levers needed to deliver a complete Deal. But being clear from the start who plays what role in assessing and agreeing Deals for central government will pay dividends once negotiations begin.

In the UK, this felt murky at times. A lot of effort went into negotiations between government departments about what could be included in a Deal. A dedicated Cities and Local Growth Unit led the process, reporting in through two departments, which were responsible to two different ministers. HM Treasury, holder of the purse strings, had a key role in developing the detail, especially proposals around alternative funding mechanisms.

This arrangement had benefits and drawbacks. Having a specific Unit to lead the Deals, and particularly one not in the sole purview of a single department or minister, gave it some genuine objectivity. HM Treasury’s close involvement brought heft to the inter-department negotiations. However, in any arrangement that involves multiple ministers, accountabilities can be confusing and conflicting agendas can easily come into play. There isn’t necessarily a “right” way to do this, but designing an operating model with clear roles and responsibilities will at least cut down on confusion along the way.

The UK Deals also shone a light on some entrenched behaviours in government that worked against a place-based approach. For example, it challenged central government to transcend and work across its longstanding departmental boundaries.

Consider the implications for both central and local government

A key factor in determining the sequencing of City Deals in Aotearoa, as well as the scale of a Deal for a specific area, is the local area’s capability and capacity to deliver.

In England, Greater Manchester achieved arguably the most ambitious Devolution Deal outside of London, and the Deal has been extended several times in the following decade. The GMCA was able to demonstrate that it had the scale and the skills to deliver an ambitious Deal, and this lessened the risk for central government.

However, there are also questions for central government and its capability and capacity. It could be that a permanent function is needed to monitor the implementing of deals, to assess risk, and to evaluate impact. On the other hand, perhaps less resource will be needed in some areas of central government if funding or functions currently managed nationally are devolved to a local level.

In the extreme, if City Deals signal a philosophical shift towards place-based policy and delivery, agency boundaries could potentially become less relevant than they’ve traditionally been.

City Deals are an opportunity for central government

We know that many cities and regions across Aotearoa are shaping up their priorities, and working on proposals to help them secure a Deal. Done well, these Deals have the potential for qualitative positive change for our cities and regions.

But for central government too the City Deals approach creates opportunities. As well as opening the door to innovative approaches to funding and service delivery, it also creates an opening for government to further its own agenda.

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