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The Vale of Glamorgan Council

Cabinet Meeting: 27 July, 2015

Report of the Leader

Cardiff Capital Region - City Deal Proposal

Purpose of the Report

1.    To provide an outline of the concept of  City Deals and to summarise the work undertaken to date in the Cardiff Capital Region with reference to a potential City Deal.  The report also considers and makes recommendations in relation to potential collaborative working in relation to a Cardiff Capital Region City Deal.

Recommendations

1.    That Cabinet agree that the Council contributes to work on a Cardiff Capital region basis to develop an initial business case on a City Deal proposal.

 

2.    That Cabinet agree this Council contributes up to £42,582 to the development of a business case for a City Deal proposal, and that this contribution be funded from within the existing Policy budget.

 

3.    That a further report be brought back to Cabinet in due course following the conclusion of the Business Case.

Reasons for the Recommendations

1.    To enable the Council to participate in the development of a Business Case for a City Deal for the Cardiff Capital Region.

 

2.    To allow the Council to financially contribute to the City Deal proposal.

 

3.    To allow further consideration of the issues relating to the progression of the City Deal and the implications to this Council.

Background

2.    Cabinet will be aware of the ongoing work towards Welsh Government's Cardiff Capital Region, which includes the 10 local authority areas of South East Wales.  Governance of the Cardiff Capital Region has to date been achieved through a Board appointed by the Minister for Economy, Science and Transport.  That arrangement is drawing to a close and to date no specific decisions have been taken as to the new arrangements for governance of the Cardiff Capital Region.

 

3.    Cabinet will also be aware that a key proposal for the region relates to a Metro System based on improvements to the region's public transport system.  It was recently announced by the Minister that the Metro remains a priority for Welsh Government and that a Transport Company approach is favoured in terms of delivering Metro related schemes (Appendix A).

 

4.    Alongside the above, negotiations and discussions at a local authority and regional level have resulted in the consideration of a City Deal approach for the Cardiff Capital Region.  Much of the early investigatory work has been led by Cardiff Council and this report considers the appropriateness of a collaborative approach to investigating the potential merits or otherwise of a City Deal to secure investment in the region.   Cabinet is advised that similar reports have been considered by other local authorities in the South East Wales region.

Relevant Issues and Options

5.    City Deals have been introduced in a number of city regions across the UK.  The City Deal approach was initiated in late 2011 as part of the then UK Government's Growth Agenda.  City Deals provide for specific or bespoke agreements between Government and Cities or City Regions to secure economic growth through investment and job creation.  In this regard the UK Government's stated aim of the City Deal programme is to devolve control to cities in order that they take control and responsibility for decisions that affect their area, to devise policies and plans that help business and economic growth and to determine how resources are best used.

 

6.    To date there have been approximately 30 City Deals across the UK, the aim being to support the local economy, which in turn supports the national economy through tax returns and lowering costs of supporting those out of work.  A regularly quoted example relates to Manchester.  The first City Deal involving a devolved government is that relating to Glasgow.  In both cases the key to the success of the City Deal relates to the growth in employment and an increase in economic output.

 

7.    In terms of the City Deal mechanism, this relates to an agreement where national government provides money to a city or city region for investment in return for a guarantee of economic growth, the aim being to boost infrastructure investment, support employment growth and deliver economic growth.  The areas of intervention and priorities to be covered by a City Deal are to be determined by the areas themselves.

 

8.    A key element of the larger City Deals involves payment by results.  This approach carries with it a significant risk as it does potentially bring with it consequences in terms of cash flow given that upfront local costs are funded in advance of any government contribution.  This is an element that will require very detailed consideration in due course and follows the preparation of a business case.

 

9.    In summary, a City Deal proposal requires partner authorities to:

  • Agree appropriate and sound objectives and outcomes
  • Identify resources to support the development of a City Deal, contribute to the overall fund and cover the cost of financing requirements
  • Have effective governance that also fits in with the UK Government's agenda in terms of the devolution of powers to city regions
  • Have an effective method of project prioritisation which accurately measures the impact in terms of jobs and GVA (Gross Value Added - a measure of the contribution to the economy of each individual producer, industry or sector in the UK), so reducing the risk that local authorities are exposed to in terms of meeting the required objectives to trigger payments from the UK Government
  • Have a functional economic geography consistent with effective decision making and ensuring the net impact can be optimised to reach its maximum potential
  • Have an approach to risk which shows the commitment of partners

10.    As stated above, the City Deal for Glasgow was the first deal with a city in a devolved nation.  Up until that point, the first round saw City Deals established for 8 of the largest English cities outside London, with the second round including a further 14 cities and an additional 6 cities with the highest recent population growth.  From evidence, what is clear is that each city deal is bespoke with the size and scope of the city deal depending on local factors, priorities and specific projects.

 

11.    In a South East Wales context, Cardiff Council has already investigated the potential for a City Deal proposal and has sought specialist advice in relation to the same.  At this stage, there are no specific projects as this will require further consideration alongside a full analysis of the economic impact.  To date the focus has been on the more general areas for investment such as transport, housing, skills, energy and regeneration.

 

12.    On 21 May 2015 the Chief Executive of Cardiff County Council wrote to the Heads of Paid Service of South East Wales Local Authorities (Rhondda Cynon Taff, Vale of Glamorgan, Merthyr, Bridgend, Caerphilly, Blaenau Gwent, Newport, Torfaen and Monmouthshire) requesting that consideration be given to a proposal to undertake the work necessary to formulate a City Deal proposal that would be submitted to the UK Government.  This followed two meetings involving Chief Executives and Leaders of the various Councils at which the work undertaken by Cardiff City Council to date was considered and discussed.  The letter of 21 May is attached.  (Appendix B)

 

13.    Cardiff Council has already reported on the issue to Cabinet on 2 April when it was resolved that officers proceed with the negotiation of a City Deal for Cardiff with UK Government, Welsh Government and surrounding authorities.

 

14.    On 18 March 2015 the Chancellor of the Exchequer announced in his Budget Statement that 'We're giving more power to Wales.  We're working on a City Deal'.  The announcement effectively moves the current discussion about a potential City Deal for South East Wales on to the next stage where the Westminster Government has now offered to begin the formal process of negotiation.

 

15.    On 2 April the Leader of Cardiff Council wrote to all Leaders in the South East Wales region drawing attention to the Chancellor's comments in the Budget Statement.  A copy of that letter is attached (Appendix C).

 

16.    Subsequent to the above, the Secretary of State for Wales has also corresponded with Leaders and his letter of 5 June is attached (Appendix D).  The letter refers to initial discussions held with Cardiff Council and refers to the need to ensure the commitment of local partners and Welsh Government in terms of moving the proposal forward.

 

17.    Finally, and with reference to the role of Welsh Government, attached at Appendix E is an exchange of correspondence between the Leader of Cardiff Council and the Minister for Finance and Government Business during June of this year.  The Minister states in her letter that she welcomes the collaborative approach being taken and that she is committed to building an early engagement, with a Welsh Government representative attending the project board in an observer capacity.  She states that her officials will work closely with the project team as well as internally within Welsh Government, albeit that Welsh Government is not in a position to make a financial contribution to a development fund that is set aside to work on a business case.

 

18.    The above outline of recent involvement is important as the Council has been concerned to seek clarity in terms of the roles of respective stakeholders, namely local authorities, the UK Government and the Welsh Government in terms of the City Deal.  Whilst the various issues surrounding governance and funding are vital considerations in terms of future proposals this report concerns itself with arrangements for preparing a business case and developing the case for a City Deal.

 

19.    Effective local partnership/governance arrangements are at the heart of successful City Deals and will determine the extent to which Government is prepared to invest in a locality.  The deals agreed by Government to date have been based on a variety of approaches reflecting local circumstances.  The largest deals have clearly been achieved where the strongest local partnership arrangements exist and in most cases these have been Local Authority led.

 

20.    As part of the recent work undertaken by Cardiff's Specialist Advisors a review of partnership arrangements involved in existing City Deals has been provided and this will form the basis for considering an appropriate model.

 

21.    In all cases, the private sector has had an important role to play.  Inherently, local business is at the heart of the concept of a City Deal.  City Deals are intended to grow the local economy, to increase GVA, by providing the infrastructure for business to flourish.  It is therefore imperative to engage with local business in shaping priorities and supporting delivery.  The public sector funding provides direct support for this growth, and this is an issue which will require further consideration in taking forward proposals.

 

22.    Cardiff has procured specialist advice to develop an initial high-level proposal for a City Deal.  At this stage in the process there is no description of projects, as a full analysis of economic impact will need to be undertaken before projects are properly identified and prioritised.  Instead the focus is on a number of key areas for investment such as transport, housing, regeneration, skills and energy.  Transport in particular has been a central theme of most City Deals to date.

 

23.    The potential scale of the deal will rely on many factors including the extent of match funding contributions available from local sources and the appetite for taking risk.  In terms of potential, based on a pro-rata calculation of the Glasgow deal, to achieve the same percentage of GVA uplift (5%) it would require an infrastructure fund in the region of £800m.

 

24.    Cardiff's Specialist Advisors have provided an outline gateway process that has been used by the agreed "DEALS"  both to drive the process and secure the necessary agreements at key milestones.

 

25.    Gateway 1 involves:

  • Agree the types of investments/sectors for inclusion in the infrastructure Fund/City Growth Deal plus interventions aimed at dependency reduction.
  • Agree objectives (including programme minima) and metrics for appraising performance of investments/interventions.
  • Sign-off on the economic modelling approach to be used.
  • Begin to develop the proposed governance and joint working arrangements.
  • Agree instructions for working up individual investments/interventions.
  • Define local funding sources 'in play' (but not decisions on the level).

26.    Gateway 2 involves:

  • Test/demonstrate the preferred economic modelling suite and sign-off that it is fit for purpose.
  • Initial sift of long list and sign-off on medium list of investments/interventions.
  • Agree funding scenarios to be developed.
  • Engage with potential partners including the Westminster Government and the Welsh Government's on the scale of contribution/funding devolution available and scope for Payment by Results (PbR).

27.    In terms of the current position it is recommended that having regard to all potential factors, it is appropriate that this Council contributes to the development of a Business Case and continues to play an active part in the investigation of the appropriateness or otherwise of a City Deal for the Cardiff Capital Region.  Clearly a further report will be necessary in due course once the business case has been progressed.  That report will further consider, in more detail, issues relating to longer term capital input, the commitment of Welsh Government to the process, how money will be spent within the region and on what projects as well as how decisions will be taken.  That report will also be able to inform the degree of risk to this Council.  It is proposed that this preparatory work will answer these specific questions.  It is only when these questions have been answered that Cabinet can further consider the longer term position of moving forward beyond the Business Case.

Resource Implications (Financial and Employment)

28.    As stated in the report, there is a cost contribution to the Council if it is determined that it is appropriate to work in collaboration on a City Deal Business Case.  Cardiff Council has indicated that, based on evidence from other 'City Deals', developing a proposal and business case would cost in the region of £500k.

 

29.    It is proposed that this be shared across the 10 Councils in the South East Wales or Cardiff Capital Region, and that those costs are apportioned based upon population.  Accordingly, the cost to the Vale of Glamorgan would amount to £42,582 given it is home to 9% of the region's population.  

 

30.    By way of comparison, the cost of Cardiff, with 24% of the population stands at £117,736 and the cost to Rhondda Cynon Taff with 16% of the population stands at £79,037.  The smallest contributor would be Merthyr Tydfil Borough Council with 4% of the population at £19,751.

 

31.    It is recommended that funding for this contribution be found from the Council's Policy budget.  Clearly, following the development of a business case, further consideration will need to be given to the merits or otherwise of progressing a City Deal, and specifically its relevance to the Vale of Glamorgan and how it is to be financed.

Sustainability and Climate Change Implications

32.    None directly arising at this stage, although specific proposals will have sustainability and climate change implications that will need to be carefully considered in due course.  This will be particularly the case with regard to transport and new development.

Legal Implications (to Include Human Rights Implications)

33.    There are no specific legal issues arising at this current time, as the report only seeks an agreement in principle to progress negotiations and work collaboratively across the region on developing a business case.  Further consideration will need to be given to specific legal and governance issues in due course.

Crime and Disorder Implications

34.    There are no specific crime and disorder implications arising from this report.

Equal Opportunities Implications (to include Welsh Language issues)

35.    None arising directly out of this report.  Equal Opportunity implications will need to be considered in due course as a consequence of the consideration of specific proposals in relation to a City Deal.

Corporate/Service Objectives

36.    Work in relation to how a possible City Deal will link  to the corporate objective of regeneration.

Policy Framework and Budget

37.    This report is a matter for Executive decision.

Consultation (including Ward Member Consultation)

38.    As this is a matter that is Council-wide, no specific consultations have been undertaken.

Relevant Scrutiny Committee

39.    Economy and Environment.

Background Papers

As appended.

Contact Officer

Rob Thomas, Managing Director

Officers Consulted

Corporate Management Team

Legal

Finance

Responsible Officer:

Rob Thomas, Managing Director

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