City Deals represent a positive new era for economic development

The new City Deals are genuinely exciting for economic development. The core cities have negotiated new powers from Whitehall, and agreed a set of ‘deals’ whereby they gain powers over new policy areas. There is a sense of innovation, creativity and a willingness to try new things.

There are some notable highlights. Business growth hubs – one-stop shops for business-related services – in Manchester and Bristol make sense. As do the city apprenticeship hubs to be set up in five of the cities. These are aimed at addressing the administrative difficulties many small businesses face when recruiting apprentices. They will also involve incentive schemes, though detail on how these schemes will work is as yet light.

Three cities will be given the power to establish ‘localised youth contracts’. This is good provided it leads to more locally responsive and tailored services – and, crucially, better coordination of existing services. Recent research by The Work Foundation found the fragmented nature of services for young people to be a particular problem.

Most of the core cities have negotiated freedom around borrowing money to invest in growth-supporting infrastructure. In the case of tax increment financing, this involves borrowing against future expected rises in business tax receipts (for example, following the building of a new transport link) to pay for infrastructure improvements upfront.

There is a risk element attached to such schemes – delivering infrastructure-backed growth as the national economy continues to slump may be difficult. The cities involved – currently Nottingham, Sheffield and Newcastle – could end up facing tough repayment schedules in addition to the deep cuts already faced by local government (7% every year for four years).

Another risky plan is the £45m venture capital fund for Nottingham, intended to ‘provide equity in high-tech businesses’. An investment fund limited both by sector and locality will surely have trouble finding enough profitable investments.

Of course, some of the ideas are better than others. Some look precarious for the cities involved and may well prove to be unsuccessful. But this ‘unevenness’ is the inevitable outcome of giving places more power. The right solutions will differ from place to place.

The challenge is where the City Deals progress from here. The government will probably go through a similar process with smaller cities, and these places – of different scale, and facing a different set of challenges – will have to be creative all over again to find initiatives and settlements that work for them (and for the government). They will, however, be able to benefit from the experiences of the core cities, and no doubt they will be watching with interest to see which initiatives prove successful.

Overall this is a positive new era for economic development. Not everything done in the name of localism will work, but this is what devolving power should be about: giving places the freedom to come up with creative ways to address the challenges they face. Localism should lead to innovation.