What the UK can teach Australia about City Deals

Manchester city centre, UK.



Three Australian cities will replicate a UK initiative designed to deliver economic growth, affordable housing and new infrastructure while devolve decisions away from federal government towards state and local government.

City Deals is a UK initiative which began in 2012 with eight deals for cities outside London, including Manchester, Bristol, Liverpool and Leeds and covering a population of 12.7 million. They have now been introduced across 38 UK city-regions.

Under City Deals, state government and local councils decide what needs to be done to lift economic growth locally and they set targets in areas such as jobs, affordable housing and emissions reduction. The deals also include the regional areas around cities.

The scheme emphasises building infrastructure and aims to deliver long-term benefits, such as higher land values, bigger tax receipts, more jobs and increased productivity.

In the UK, most contracts are for ten years and funding often comes from all three levels of government. Local councils’ contributions tend to be lower than that from the other tiers of government, around 10 to 20 per cent, and often includes contributions in kind, such as land transfers and council officers’ time.

Prime Minister Malcolm Turnbull is known to be a fan of City Deals for Australia and he has committed to early deals for Townsville, Launceston and Western Sydney. The process for future deals will be announced later.

The Launceston City Deal, signed in September last year, promises to support education, employment and investment and this will include a new university campus in the city centre; revitalising the historic CBD and a new National Institute for Forest Products Innovation Hub.

Under the Launceston deal, $140 million comes from the federal government and $60 million from the Tasmanian government.

The Western Sydney City Deal, which includes the local government areas of the Blue Mountains, Camden, Campbelltown, Fairfield, Hawkesbury, Liverpool, Penrith and Wollondilly, seems to have a pretty broad remit.

It will focus on public transport, employment and investment (particularly youth and indigenous employment); more affordable housing by boosting supply and diversity; biodiversity and conservation and arts and culture.

There is no mention of who is paying what under the Western Sydney deal, which is up on the Department of Premier and Cabinet’s website.

To find out more about the UK experience and what it could mean for Australia, Government News caught up with Scottish urban economist and affordable housing specialist Professor Duncan MacLennan, who has been involved with the Glasgow City Deal.

What City Deals can do 

But first, let’s start off with what City Deals could do for Australia. Prof MacLennan explains that cities are ‘core areas driving national productivity’ and he says City Deals have been valuable because they have placed infrastructure at the centre of city thinking and coherent investment strategies.  

While cities drive growth, the income and tax receipts from this goes mainly to state or federate government – there is a disproportionate flow back – while cities are stuck with the problems stemming from growth, like congestion, pollution and a shortage of affordable housing.

Indeed, Prof MacLennan says there is some evidence to suggest that some skilled workers are fleeing cities, fed up with long commutes and expensive housing.

City Deals attempt to reverse this situation by channelling some of the money back into city-regional areas.

Prof MacLennan says: “In the absence of changing the fiscal system, it’s a reasonably appropriate mechanism for getting money where it needs to be.

“The main benefit to City Deals is the new focus on infrastructure [that has] raised local capacity to deal with it and more coherent investment strategies.”

What they the deals don’t do, he says, is lead to a better system of sub-national government because they are uneven in their impact. In the UK, the deals are not open to everyone and they have not been rolled out evenly.

Since City Deals began, Prof MacLennan says that metropolitan authorities have strengthened their capacity to do big infrastructure planning and they have got much better at making the economic case for infrastructure investment.

“Big City Deals now know much more about infrastructure planning and how to do it well than central government,” he says. “There is work being done that wasn’t being done three or four years’ ago.”

This point was picked up in the UK National Audit Office’s (NAO) report on the first wave of eight City Deals, calling them a ‘catalyst to manage devolved funding and responsibilities’.

The report also commended the deals for cutting through funding complexities and giving cities direct access to central government decision makers, which in turn helped them secure funding and support from other government departments.

“This helped cities agree deals aligned to their ambitions and local priorities,” said the NAO’s report.

But the process is not without its problems.

Resources, as ever, have not been there to help cities build their capacity locally. Local government was expected to pool its resources and given no funding to support additional management capacity. This can lead to skills shortages, for example in forecasting and modelling.

“It is not clear, however, whether this approach is sustainable in the context of wider reductions in the government’s funding for local authorities. Departments’’ resource constraints have impacted on the government’s capacity to make bespoke, wide-ranging deals with more places,” The NAO noted.

Other criticisms of the UK model have included the inherent difficulty of uneven power relations between the three levels of government; the centralised control exerted when deals are negotiated; the lack of transparency around the criteria for cities to be selected for a new; vagueness around the aims, monitoring and evaluation of some City Deals and extra pressure on the already highly constrained budgets of local councils.

Another downside of the City Deals, says Prof MacLennan, is raising expectations.

“People think this is going to solve all their problems and don’t pay attention to other programs that are reducing and changing.”

It can also open up gaps between the haves and the have nots: those areas which have City Deals and those that do not.

Prof MacLennan says: “The differences may become so great that the government may have to come in and think about what it does for lagging cities.”

But the neediest areas are often those where councils that may not have the organisation or the skilled workforce to make their case for a City Deal.

Recommendations for Australian City Deals

Good economic modelling is important from the get go, says Prof MacLennan, because it helps predict how infrastructure investment decisions affect the behaviour of individual households and businesses over several years.

This can involve leveraging expertise from the university sector.

For example, northern English City Deals for cities like Greater Manchester and Newcastle saw local government teaming up with universities for economic modelling and analysis.

But Prof MacLennan says Sydney does not appear to have any economic metropolitan modelling ready to use.

“You need to pay more attention to what you need to know before you start,” he says. “Otherwise you rely on consultants’ reports that are rarely ever in the public domain and never peer reviewed so that nobody knows what’s in them other than the government.”

Once projects are up and running, it is essential to monitor their progress against targets and evaluate them effectively, although it is not always easy to know what would have happened were a City Deal not in place.

“What matters is the monitoring and the learning from good monitoring,” he says.

Some benefits are fiendishly tricky to quantify. For example, gauging economic gains from sustainability initiatives is difficult when there is no carbon price in Australia.

Milestones are part of funding deals and if they are not met it means the next tranche of cash could be held back. The UK now has its own dedicated evaluation panel for City Deals.

Putting in enough capital initially is important. Prof MacLennan says the volume of capital going into growing cities like Edinburgh, London and Manchester is not currently enough to resolve the issues these cities face.

Exploring innovative methods of finance or making use of old ones could prove useful for Australian City Deals.

The Scottish city of Aberdeen recently launched its own government bond but Prof MacLennan points out that cities have limited control over their tax affairs (the key to paying back bonds) and says further fiscal reform would be needed. If this is fixed, he anticipates other major cities could follow suit.

In general, he says the UK has not come up with very exciting alternative methods of funding under City Deals.  

On the whole, Australia is in a good position to implement City Deals and make them work.

Prof MacLennan says that the Australian federal government and the states and territories have been much better at making infrastructure decisions than the UK.

“I think there is a track record here off trying to think coherently about infrastructure … but the better City Deals, like Manchester, would have relevance to what happens in metropolitan Sydney.”

“The images of Australia aren’t about the bush any more, it’s the cities.”

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