STAFFORDSHIRE MOORLANDS DISTRICT COUNCIL. Report to Cabinet. 9 th January 2007

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1 AGENDA ITEM 9.3 STAFFORDSHIRE MOORLANDS DISTRICT COUNCIL Report to Cabinet 9 th January 2007 TITLE: The Role of City Development Companies in English Cities and City-Regions A Consultation PORTFOLIO: OFFICER: Leader Chief Executive WARD: N/A 1. Recommendation 1.1 That Members note the contents of the Department of Communities and Local Government (DCLG) Consultation Paper The Role of City Development Companies in English Cities and City-Regions, which follows up the Government s intention, as stated in the recent Local Government White Paper, of promoting the concept of city development companies for English cities and city-regions. 1.2 That Members offer views on the proposals set out in the consultation paper, and any points they may wish to raise in response to the questions set out in this report. 1.3 That Cabinet requests that the Better Staffordshire Moorlands Overview and Scrutiny Panel considers the report and offers their views on the proposals, with the paper also sent out to all Members of the Council in order to include their views in the overall SMDC response. 1.4 That Cabinet also requests that a Cabinet response to submitted to the DCLG on the consultation paper by the closing date of 7 th March Reason: The Government s proposals for the creation of city development companies forms a significant part of the 2006 Local Government White Paper, and develops the proposals for both city regions and 1

2 Multi-Area Agreements. SMDC needs to develop a response to these proposals, as the creation of a city development company in the sub-regional area would potentially have an impact on the economic development of the Staffordshire Moorlands district. 2. Executive Summary 2.1City development companies are city or city-region wide economic development companies formed to drive economic growth and regeneration. 2.2The 2006 Local Government White Paper announced the intention of the DCLG to promote the concept of city development companies for English cities and city regions. 2.3The consultation paper The Role of City Development Companies in English Cities and City-Regions is part of this process, and is being carried out in conjunction with the Government s review of sub-national economic development and regeneration. 2.4The consultation paper sets out a range of issues in connection with the proposed development of city development companies in cities and city regions and asks local authorities and other interested bodies for their views on the proposals. 2.5Responses to the consultation will be fed into the Government s continuing consideration about the role of city development companies, support to those interested in taking forward this approach and final guidance material. 2.6Responses to the consultation will be received up 7 March 2007, with a summary of responses published on 31 May 2007 on the DCLG website (paper copies are available upon request). 2.7The approach builds on the Urban Regeneration Company model, is advocated to encourage the involvement of the private sector, and interacting with the private sector in pursuance of enhancing economic development. 2.8The consultation paper focuses on issues such as the rationale for the approach, basic principles for the establishment of the companies (including focusing on areas where economic development is most needed), governance and funding issues. 2.9The consultation paper asks ten specific questions in all, focusing the above areas. These are: 2

3 i. What are the advantages and risks in moving towards a more unified approach to economic development at the city or cityregional level? ii. iii. iv. Should Government seek to develop a city development company brand, with formal approval needed for city development company status to be granted? Is a variation on the URC model the best approach for city development companies to adopt? Are other existing models suitable for city development companies? v. Do you agree with the suggested basic principles (as set out in paragraph 8.1 of this report) for city development companies as set out in this paper? vi. vii. viii. ix. Will city development companies be more effective when operating at the city-region scale? What are the functions that city development companies could most usefully perform? What role could city development companies play in supporting public-private regeneration vehicles? Do you agree with the suggested governance criteria? Are other forms of ownership appropriate? x. How could city development companies pursue innovative but reliable approaches to meeting running costs whilst avoiding conflicts of interest? 2.10 Responses to the consultation will be received up 7 March 2007, with a summary of responses published on 31 May 2007 on the DCLG website (paper copies are available upon request). 3. Options and Risk Assessment 3.1 Option A - That Members consider the questions and points set out in the consultation paper (summarised in this report) and forward on comments and responses before the Government-established deadline of 7 th March Recommended. 3.2 Option B that Members choose not to participate in the consultation process and therefore risk not having an input into a development that may impact on the Staffordshire Moorlands and, in particular, the economic development of the area. Not recommended. 3

4 4. Implications 4.1 Community Safety - (Crime and Disorder Act 1998) No direct implications at this stage. 4.2 Employees The Policy Office of the Council will coordinate and prepare a response on behalf of the Authority to the consultation paper. 4.3 Diversity This report has been prepared in accordance with the Council's Diversity and Equality Policies. 4.4 Financial No direct implications at this stage. 4.5 Legal The Authority will consult with its elected Members and submit a response to the consultation paper within the conditions set by the Government. 4.6 Sustainability No direct implications at this stage. SIMON W BAKER Chief Executive Background Papers Location Contact The Role of City Development Companies in English Cities and City-Regions A Consultation (DCLG, 2006) Policy Office Mark Bailey Policy Manager (01538) Decision: Reason: Interests Declared: Background and Detail 5. Introduction 4

5 5.1 City development companies are city or city-region wide economic development companies formed to drive economic growth and regeneration. 5.2 The 2006 Local Government White Paper announced the intention of the DCLG to promote the concept of city development companies for English cities and city regions. 5.3 The consultation paper The Role of City Development Companies in English Cities and City-Regions is part of this process, and is being carried out in conjunction with the Government s review of sub-national economic development and regeneration. 5.4 This review is looking at the opportunities for further releasing the economic potential of English regions, cities and localities, and to effectively respond to the ongoing challenges of tackling pockets of deprivation. 5.5 The Government states that it wishes to encourage a bottom-up development of city development companies, led by local government and its partners within frameworks set by central government. 5.6 Responses to the consultation will be fed into the Government s continuing consideration about the role of city development companies, support to those interested in taking forward this approach and final guidance material. 5.7 Responses to the consultation will be received up 7 March 2007, with a summary of responses published on 31 May 2007 on the DCLG website (paper copies are available upon request). 6. Background The Importance of City and City-Regional Economies 6.1 English cities and city regions are important because the majority of people live in them. 6.2 Also, the response of England to issues of globalisation, through the knowledge-intensive and service-focused sectors, relies heavily on cities due to the benefits of physical proximity, knowledge transfer and specialised labour markets all located primarily in city areas. 6.3 The report on The State of the English Cities, produced by the ODPM earlier this year highlighted the progress made by English cities in reversing decades of industrial decline through the development of new economies. 6.4 Despite these improvements, however, the State of the Cities report also demonstrated that most English cities still need to make further progress, 5

6 7. Policy Rationale and still have more to do to achieve the economic transformation that will make them truly competitive on a global stage. 7.1 In recent years, economic interventions have increasingly been delivered through a variety of special purpose vehicles, designed to act as a catalyst for the revival of urban areas and local economies, particularly through improving the physical platform from which cities can attract greater levels of investment and growth. 7.2 The Local Government Association has argued that the use of such local delivery vehicles can unlock resources, increase the legitimacy of and support for actions, bring in new skills for specific tasks, and embrace an entrepreneurial and less risk-adverse culture. 7.3 The approach is also advocated, as it arguably encourages the involvement of the private sector, and interacting with the private sector in pursuance of enhancing economic development is a major task for the vehicle. 7.4 A number of local authorities (including Stoke Council) are seeking to combine and aggregate existing vehicles in order to make best use of resources and deliver a more integrated and streamlined approach to economic development issues. 7.5 Economic development companies operating at the city or city-regional level are a well-established concept in countries including the USA, Canada, the Netherlands and Germany. 7.6 The Government does not intend to establish city development companies on a statutory basis or vest them with statutory powers such as planning or compulsory purchase. The companies will not be imposed either, nor will there be a single uniform model. The implementation of the approach internationally shows that there is no uniform approach to this issue. 7.7 It is therefore intended that the structure and activity of city development companies will depend on the issues faced by individual locations, and, therefore, the Government wants the evolution of the companies to be RDA and local authority led. 7.8 The Government is keen that city development companies adopt a similar model to that developed for Urban Regeneration Companies (URCs), which it argues have been successful in attracting private investment and co-ordinating economic development and funding. City development companies, it is envisaged, could secure a greater impact through an expanded scale, higher profile, and greater leverage over budgets. 6

7 7.9 Partners will decide on the direction and remit of city development companies, but members should understand the level of financial and practical commitment required in supporting such a company It should also be recognised that city development companies are likely to take a long time to evolve, and will include processes such as recruiting staff, and developing key strategic documents The Government has argued for a number of advantages in establishing city development companies for English cities and city regions. These include: Companies acting as corporate bodies therefore mirroring the entrepreneurial approach and timescales of the private sector, and thereby facilitating a more responsive interaction with businesses, developers and investors than that offered by government Providing an economic leadership role, setting out and coordinating delivery around an economic vision, and focusing investment in areas of greatest need Reducing the number of players in the economic development arena, aggregating currently disparate roles and improving the efficiency of economic interventions, through the succession, transition or integration of existing bodies functions Focus on the implementation of Regional Economic Strategies and other regional strategies at the city or city-region level Attract the specialist talent and skills that are key to economic development, including in corporate finance, marketing, project management and physical regeneration and property development Improve the quality of investment propositions generated by the city or city-region for external third party, public-private, and commercial financing Increase the capacity of cities and city regions to bid for major projects that can have catalytic effects on economic performance Increase the fit between economic development delivery and economic reality, by operating across local authority boundaries Champion economic development needs in the development of other strategies 7.12 The consultation paper asks the following questions, in terms of this area of work: 7

8 i. What are the advantages and risks in moving towards a more unified approach to economic development at the city or cityregional level? ii. iii. iv. Should Government seek to develop a city development company brand, with formal approval needed for city development company status to be granted? Is a variation on the URC model the best approach for city development companies to adopt? Are other existing models suitable for city development companies? City Development Company Proposals 8. Basic Principles 8.1 The consultation does not propose a single model or prescribe certain activities for city development companies. The Government does recommend, however, that certain basic principles be followed: Complementarity between city development companies and the strategic and delivery roles of other bodies, developed through a partnership approach between local authorities and RDAs in particular Support from relevant LSPs and a clear role in delivering Sustainable Community Strategies and LAAs An evidence-based, selective approach, focusing on where there is potential for the greatest levels of sustainable economic growth 8.2 In promoting the concept of the city development companies, the Government expects that they should complement the strategic and delivery roles of other bodies, and these companies should have a clearly defined role within the context of Regional Economic Strategies. RDAs will have a critical role to play in ensuring that this complementarity is achieved and that city or city-region approaches are integrated with regional approaches. 8.3 It is envisaged that local authorities and RDAs should work together in the formation of city development companies from the outset, as well as other partners relevant to the intended agenda, such as English Partnerships. It is argued, therefore, that city development companies could add value to the work of such partners by: Developing place-focused implementation or action plans for public investment in line with Regional Economic Strategies and other regional strategies as relevant, e.g. the Regional Spatial Strategy 8

9 Using evidence, economic analysis and evaluation to influence regional and local strategy formulation Acting as a focal point for private sector engagement within cities and city-regions, increasing the potential for public funds to attract private investment Working with delivery partners such as English Partnerships to ensure delivery is aligned with an overall strategic vision for cities and city-regions, and ensuring an appropriate mixture of expertise is utilised 8.4 LSPs set the agenda for delivery at the local level through agreeing Sustainable Community Strategies and LAAs. Local authorities and LSPs can seek to ensure that: City development companies have clearly articulated roles in delivering relevant parts of Sustainable Community Strategies City development companies complement the full range of priorities set out in Sustainable Community Strategies, such as on environmental sustainability or social equity There is an appropriate and clear division of responsibilities between city development companies and other bodies operating at the city level Overall economic development delivery is aligned with economic development elements of LAAs. Where local authorities and LSPs wished, city development companies might be tasked with developing proposals for economic development elements of LAAs 8.5 The experience of Urban Regeneration Companies indicates that there is merit in Government setting out a broad policy agenda and framework for regeneration and development vehicles. 8.6 It is also clear that URCs and other special purpose vehicles benefit from having a partnership with a clear set of agreed objectives and focusing on the delivery of a consultation-approved masterplan. This is particularly important in terms of giving the private sector confidence in the whole system. 8.7 The Government envisages that city development companies will adopt a similar approach, focusing on aspects of the economy where there is greatest potential for sustainable growth and setting out a clear vision for doing so. The Government therefore argues that there needs to be robust economic analysis underpinning consideration of the appropriate approach, and that this is a fundamental starting point. 9. City Development Company Functions 9

10 9.1 The members of the companies will need to agree the nature of activities, and these should be in line with Regional Economic Strategies and other relevant strategies, including Local Development Frameworks. 9.2 It is intended that city development companies can have a key role to play in ensuring the coordination and optimum targeting of public programmes and funding. 9.3 Through this role, the Government believes city development companies can enhance the capacity of LAAs to increase the alignment of public funding at the city or city-regional level. 9.4 For example, the Government is seeking to simplify the support business receives from the public sector, and sees the city development company as a possible mechanism to achieve this. 9.5 The Government envisages that city development companies should be selective about the nature of activities to be pursued. They should not recreate entirely the economic development roles of local authorities or RDAs. 9.6 Potential functions might include: Acting as a coordinating vehicle between neighbouring local authorities that may want to work together on economic development activities providing them with mechanisms to interface with RDAs, English Partnerships with other strategic and delivery bodies; to develop shared plans and strategies across multiple areas; to develop and negotiate Multi-Area Agreements (MAAs) for economic development; and to coordinate procurement of specialist services from the private sector Providing a smart client function for public sector led development planning acting as the lead public client for economic masterplanning, and coordinating the work of public sector investors Coordinating and overseeing major physical development projects across cities and city-regions, seeking to ensure projects are delivered on time and within budget. This role could include procuring private sector participation in the development process; aligning programmes with wider investment strategies and determining the phasing of land release Developing and coordinating integrated implementation plans for otherwise disparate public sector investment programmes within cities and city-regions, such as Local Authority Capital Funds; ERDF; RDA Single Pot; and wider investments by agreement with the parties concerned, using the LAA framework 10

11 Coordinating the delivery of housing market renewal or targeted housing growth Coordinating otherwise disparate promotion, marketing and branding of cities and city-regions to aggregate efforts and ensure effective partnership with local, regional and national players and with private and civic institutions Coordination of the bidding for major investments, events and projects where these are deemed by local and regional authorities to be important catalysts for achieving long term economic development plans for the city or city-region Advising city and regional authorities on desirable additions to the suite of investment funds and financial vehicles that might be available to meet the investment requirements of the city or region Improving the quality of investment propositions generated by the city or city-region for external third party, public-private, and commercial financing by increasing the growth in awareness and understanding of how such investment streams operate Where required, city development companies should work with RDAs and Business Link Operators to coordinate the delivery of services to businesses within a city or city-region, within the shared framework being developed through the Business Simplification Programme. This role would be to ensure that the delivery of business support services is aligned with other economic development activity 9.7 In all these roles, the city development company could act to improve the public sector co-ordination of economic development within the city or city-region. 9.8 City development companies may also be able to play important roles in the development of public-private joint ventures, including providing an interface between the sectors through the city development company board. The Government is looking closely at this, in order to avoid possible conflicts of interest and to ensure democratic accountability where possible. 9.9 A number of local authorities are looking at the creation of Local Asset Backed Vehicles (LABVs). These are funds, combining locally-owned public sector assets and equity from institutional investors, established to finance the delivery of major regeneration outcomes It is envisaged that these vehicles, with their own boards and management teams, are constituted as limited partnerships Property development and regeneration projects are delivered according to an agreed business plan established at the outset of the vehicle s life, 11

12 and returns made by the vehicle are directed back into the LABV and shared on an equal basis between the partners The Government is currently looking at ways in which city development companies and LABVs might interrelate The consultation paper asks the following questions, in terms of this area of work: v. Do you agree with the suggested basic principles (as set out in paragraph 8.1) for city development companies as set out in this paper? vi. vii. viii. Will city development companies be more effective when operating at the city-region scale? What are the functions that city development companies could most usefully perform? What role could city development companies play in supporting public-private regeneration vehicles? 10. Governance 10.1 In establishing city development companies, partners will want to strike the right balance between having clear lines of democratic accountability and ensuring the freedom to deliver away from day to day political involvement The consultation paper envisages that city development companies could generally be established as companies limited by guarantee and will not operate on a profit making or dividend issuing basis. They would act more as the business facing arm in coordinating inputs from local and regional public sector bodies There are options, however, about how ownership of city development companies is structured. This could include by share or through other partnership agreements The following criteria is based on the key criteria for Urban Regeneration Companies: Membership should include relevant local authorities alongside the relevant RDA and English Partnerships or other partners The company board, appointed by company members, should be chaired by a representative of the private sector, with private representation on the board compromising around half the total representation 12

13 LSP and other community representation on the board is encouraged The Nolan principles of good governance for public companies should be followed 11. Funding 11.1 A city development company is likely to be resource intensive, requiring considerable investment in its running. Commitment to ensure a city development company has certainty over its running costs is essential In many instances, the Government envisages that running costs will be met by member organisations. One of the potential advantages of an MAA approach could be to spread the cost amongst partners The adoption of three year rolling contracts for other special purpose vehicles in line with business plans has proved effective. It is recommended that there should also be a commitment in principle to support the company over the longer term and that this should be maintained on a rolling basis in line with the business plan It is essential when establishing a city development company that partners consider the potential State aid implications of doing so, particularly in regard to the activities to be undertaken. State aid rules apply to aid granted in any form by central Government or through State resources in favour of certain undertakings. It is therefore strongly advised that legal advice is sought on this matter Discussions with some parties interested in the city development company approach indicate that other innovative approaches to meeting running costs are being considered. These include the potential use of revenue generated through public-private joint ventures and other means of attracting private finance. The Government believes that these approaches should be encouraged, but the inherent risks involved should be recognised Capital or project expenditure will be less easy to predict than running costs The consultation paper asks the following questions, in terms of this area of work: ix. Do you agree with the suggested governance criteria? Are other forms of ownership appropriate? x. How could city development companies pursue innovative but reliable approaches to meeting running costs whilst avoiding conflicts of interest? 13

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