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Four ways to fund regeneration

exhibtioncentre

The Chrysalis Fund in Liverpool provided an £8m loan towards the city’s new exhibition centre

As central government funds dry up, local areas are finding new ways to raise finance, says David Boyle

What with Trump and Brexit and city deals and inclusive growth, a new world appears to be opening up for local authorities, with more room for manoeuvre and a range of other possibilities.

But there is a flaw in the design, a gnawing nervousness and unfinished business that could leave the whole edifice more vulnerable than before, and could undermine the whole revolution.

The problem is simple and obvious. Where’s the money? Especially now that cities are increasingly responsible for their own budgets, it matters if they can’t raise the finance to improve the earning power of their business.

The trendy term ‘agglomeration’ suggests that cities like Manchester or Leeds will always be able to raise the regeneration money they need for city centre investment – but it looks likely that places outside the centres of those centres will struggle, even if they can keep their business rates and borrow on the strength of them.

As for the traditional sources of regeneration finance – the government – the prospect of Brexit looks in various ways as if it will drain them of resources for the foreseeable future.

And, if we’re honest, central government-funded regeneration may not have been that effective. It was formulaic and a little narrow in its imagination. New Deal for Communities, under the Blair administration, invested £2bn in 39 areas over 13 years, but the central problem remained unsolved. The main effect of three decades of regeneration has been to raise property prices that forced people away from the areas they had been brought up in.

So what are we going to do? How can we replace the investment into economic development – the crucial element in making devolution work?

Nigel Wilcock, executive director of the Institute for Economic Development is among those who are worried: ‘We do have serious concerns about how local authorities will access funding in the future,’ he says. But there are strategies emerging. Local authorities are approaching the problem in four broad ways:

  1. Local regeneration funds

The first is to ask local businesses to contribute into a regeneration fund, and to do so either because they are ‘good corporate citizens’, or perhaps because they will gain from investment because they have a local property portfolio. Liverpool City Region local enterprise partnership (Lep) is among those which have led the way to launching a regeneration fund.

This isn’t exactly a new idea but an extension of the successful business improvement districts or BIDs – and there are 129 of those in England alone. These ideas are not really straightforward, even so. The objectives of the fund may turn out to be subtly different from those of the investors. And the biggest companies may not exist in the places where investment is most needed.

  1. Local authorities investing

The second approach is for local authorities to invest themselves in key elements of the local infrastructure so that they can raise the value of their investments as a result of the success, and – one day, perhaps, – pay themselves back.

Sheffield is one place where they are investing in economic development projects and will eventually pay themselves back from the sale of publicly-owned land. Leeds city region local enterprise partnership is doing something similar and will recoup the original loan from future enterprise zone business receipts.

A version of this approach is happening much more widely, where local authorities are taking ownership of key assets so that they, in a sense, ‘skin in the game’ – and for the wider public benefit. Chorley has bought its local shopping centre. Barking is investing widely in local land and property, aware that their regeneration success will push up land values. Portsmouth even bought a large banana export company.

  1. Investing the pension fund

Where do they get the money? Well, the answer to that provides us with a clue about the future.

Because, theoretically at least, there is a source of investment which is close to home: the council’s pension fund. American cities invest their own pension money, alongside other outside resources, in local regeneration – especially in low-cost housing, where it is regarded as a safe investment.

This idea has been treated with great disapproval by conservative pension managers, but their failure to do so has undermined UK cities which seek out American investors: the first thing investors ask is often whether the city’s own pension fund is investing. If it isn’t, they smell a rat.

But it isn’t unknown for local authority pension funds in the UK, or local authority reserves, to use their money to invest in local success. Cambridgeshire famously set up the Cambridge and Counties Bank with Trinity Hall, to invest their own reserves in productive enterprise.

The state of North Dakota, one of the only US states in surplus, famously invests money in local enterprise through the Bank of North Dakota.

There are clearly dangers here if local authorities and pension funds fail to see that their interests are different – but, equally, they have failed for decades to see that, in some respects, their interests are also the same.

  1. Investing in local enterprise

The idea of using local resources to invest in local business points to a fourth approach, which – thanks to the successful Business Gateway programme – is emerging in Scotland. Unlike the old unlamented Business Link programme in England, the Gateway is a central government fund which is locally delivered in such a way as to encourage innovation.

The most successful region is Grampion, where the service is provided by an innovative social enterprise called Elevator. Chief executive Professor Gary McEwan travelled widely, especially in the USA, to look at successful models of enterprise support and concluded that three elements were absolutely critical – it has to be open access, without the need for appointments. Real advisors need to be available and on tap. And there needs to be an accelerator to train the entrepreneurs to scale up.

‘I don’t know if we have got the edge on England in many areas, but I think Scotland is pretty cutting edge when it comes to enterprise support,’ says Prof McEwan.

This kind of regeneration still depends on funds from national government, and there has been no national replacement for Business Link. But equally, if small scale enterprise is increasingly regarded as the future of regeneration, it may be that the more modest funding required will be provided.

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