City Deals: Supercharging Australia’s economic growth and productivity

City Deals: Supercharging Australia’s economic growth

Urban and economic policy merged as one, the City Deals approach has transformed how governments plan, build, fund and finance infrastructure in the United Kingdom. Australia must adapt the approach to meet our needs.

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Introducing City Deals

More than 20 City Deals have now been signed for regions including Greater Manchester, Cambridge, Leeds, West Yorkshire and Glasgow.

Read more about the City Deals model in this joint report from KPMG and the Property Council of Australia.

Applying City Deals in Australia

Australia now stands ready to adopt this approach for our cities and drive our economic growth and productivity.

 

"The model enables a range of local governments to come together and agree on infrastructure priorities. This has initiated a dramatic increase in local investment and cut through political discourse to focus on ensuring investment maximises economic growth. That's why the Property Council of Australia is working with partners and all spheres of government to adapt the approach to Australia’s strategic needs."

– Paul Low

Why the UK approach could work in Australia

Here are nine reasons why the UK approach to urban and regional growth provides a model for Australia.

1. A City Deal is a contract – the deal is a deal!
Each City Deal is codified as a contract between an economic region and the central government. Each identifies a list of priority infrastructure projects to be delivered, along with economic performance benchmarks.

2. The focus is on productivity and growth
The UK City Deal model explicitly targets a package of infrastructure projects that lift a region’s economic capacity over a long-term timeframe. This helps focus competing priorities into a coherent set of goals that can be communicated to business and the community.

3. City Deals encourage local leadership and good governance
The UK approach revolves around City Deal partners. In Manchester, the 10 existing local government authorities combined to form the Greater Manchester Combined Authority while Local Enterprise Partnerships link key stakeholders – government, business and community groups – based on logical economic regions. This encourages a more strategic approach to growth and self-reliance as well as the growth of social capital and local resilience.

4. City Deals use smarter tools for determining infrastructure investment priorities
The City Deals approach moves from narrow cost-benefit analysis to an agreed measure of gross value added for a region (a local ‘GDP’). This shifts the fiscal focus from isolated project evaluations to metrics that capture broader benefits – including welfare, housing and regeneration dividends.

5. City Deals unlock access to innovative financing
The UK City Deal model allows deal partners to ‘earn back’ a share of the additional taxation dividend generated by faster economic development. City Deal partners are also provided with access to innovative financing options such as public-private partnerships (PPPs), local asset backed vehicles and tax increment financing to complement traditional forms of capital raising.

6. City Deals help join up economic, social and sustainability goals
A feature of UK City Deal contracts is the inclusion of complementary programs relevant to a region. The Greater Manchester City Deal includes a growth hub program; a plan to skill-up 6,000 apprentices; an innovative funding model to reduce emissions; a program for attracting international and patient capital to local projects; and a housing program that aims to deliver 7,000 new homes by 2017.

7. City Deals promote powerful political leadership that boosts economic productivity
This approach recognises that cities are economic assets which drive productivity and growth. To broker the deals across central government departments including the Treasury, there is a central unit that helps City Deal partners assess infrastructure priorities and set gross value added growth benchmarks.

8. City Deals promote financial literacy and skills at a local level
The Birmingham and Solihull City Deal partners established GBS Capital, which aims to leverage $2.5 billion of seed funding into $25 billion of private capital. The Greater Manchester Combined Authority established a $2.5 billion ‘revolving infrastructure fund’. These special purpose financing vehicles are monitored and advised by the Treasury and operate under strict governance arrangements.

9. There is less need to rely on inefficient taxes when efficient alternatives are available
Australia’s panoply of taxes exists because of cost-shifting between governments, poor access to capital and policy conservatism. A secure stream of capital for infrastructure projects (within a disciplined framework) may also reduce reliance on inefficient taxes.

The art of the City Deal: Building a shared vision

The framework for Australian City Deals is now in place. Leaders must build consensus and a shared vision for their regions and communities.

 
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