Devolution: Something for everyone
Rebalancing the UK economy and developing the regional cities, particularly in the North, Midlands and South West, has been high on the government agenda for nearly 20 years, but the government’s decision to create a series of Combined Authorities (CAs) to devolve a large proportion of government spending to the regions is probably the boldest overt policy to date.
The first of the Combined Authorities elects its first mayor in April next year, kicking off a radical economic experiment with one clear aim.
"The idea is that this is very much localism in practice,” says Tonia Secker, regeneration specialist partner at Trowers & Hamlins. “But the message from government is clear: this is all about economic growth.”
Ahead of the pack in terms of regional devolution is Manchester, where the Greater Manchester Combined Authority (GMCA) will take charge of specific functions currently provided by ten local authorities. It will also determine how the £6bn North West health budget will be spent, together with overseeing transport, police, fire services with potential for greater engagement in the employment and skills agenda.
David Vayro, a partner in Trowers & Hamlins’ Manchester office who leads the Projects and Construction team in the North West, explains the central importance of the funding calculations behind devolution.
“The current cost to the government of funding what we might call Greater Manchester plc is about £22bn,” he says. “Contrast that with the £17bn it gets in revenue, and you have a £5bn funding gap. That’s the gap which has to be made up for the North West to be a net contributor to the UK economy. The whole drive is towards realistic cost savings, creating efficiencies and yearly productivity with integrated planning and a strong regional focus to ensure that gap is eliminated and the GMCA starts to become a net contributor to the UK economy.”
So far, so logical, and even the casual observer can tell this is going to have a major impact on the real estate sector in the region.
“The primary effect as regards real estate will be in relation to housing and to transport infrastructure,” Vayro confirms. “Commercial, retail and leisure development will be a spin- off from increased economic activity rather than a direct product of devolution itself.”
Amardeep Gill, partner and head of Trowers & Hamlins’ Birmingham office, thinks that the West Midlands Combined Authority (WMCA) – which has signed its devolution agreement, but is slightly behind Manchester will be “transformative” for the region, despite the narrower range of new powers in the governance package (essentially pan- regional transport, economic development and regeneration).
“In contrast to the North West, which already enjoys a high degree of political cohesion, the West Midlands has never had a coherent regional strategy, due in part to the more varied nature of the political landscape,” he says. “In a sense that’s the opportunity and the challenge. The election of the first- ever metro mayor is a historic chance for everyone in the region to come together and back a democratically-elected single figure with a regional mandate. We’ve never had that degree of power passing from the centre to the regions before, and it’s very exciting.”
Gill points out the potentially much greater opportunity in the WMCA, which accounts for an estimated £80bn GVA and 1.3m private sector jobs. “One potential difficulty I could see is competition between regions to attract investment, if authorities decide to compete by lowering business rates to influence inward investors and SMEs,” he says, but he remains optimistic. “Devolution can’t be a missed opportunity, there is such great potential for everyone if we get the structures and policies right.”
The WMCA, of course, will be first to benefit from the high-speed rail network, HS2, which is also set out as a key driver of the Government’s ‘Northern Powerhouse’ strategy, focusing on increasing economic activity centred on Manchester, Leeds and Newcastle.
The initial concentration on transport infrastructure will please major contractors, but David Vayro feels the real benefits of devolution will take time to reach other parts of the market.
"One of the concerns at the SME level of construction, and general real estate participants, is that they don’t necessarily see a way into the primary fruits of devolution,” he says.
Tonia Secker thinks there will be pressure on the new combined authorities, and on central government, to make sure that devolution works to generate local economic growth.
“Key to all of this will be the investment funds established to channel structural funding to these authorities,” she explains. “We’ve been doing a lot of work in this area, for instance for the Homes and Communities Agency (HCA) and the Greater London Authority (GLA). Of course public authorities need to take care to follow the rules on procurement and State Aid, but encouraging greater SME participation in delivering growth has been a central plank of policy.
The whole point of devolution is to encourage local growth and to ensure that locally-generated revenues go into further growth in the region.” An investment fund structure will (subject to gateway reviews) give a measure of reliable funding to the new authorities, – for instance the Tees Valley CA has been promised £15m a year for 30 years – but Secker points out that this is not ring-fenced, and is intended more as a ‘pump-primer’ to attract private sector funding, requiring a degree of effort and creativity on the part of the authorities.
Does that mean those funds might be at risk if central government decides on further spending cuts? “Yes,” she admits. “Reading between the lines, devolution deals will be influenced by future spending reviews.”
Vayro agrees but points back to the underlying social and economic rationale for devolution. “The picture that will be drawn by the various stakeholders in Manchester is that we are currently in a very fragmented economy with a lot of relevant decisions made, inefficiently, in Westminster.”
There is a want and need for good quality housing where people can live well, close to social, leisure and commercial amenities. Where they live needs to be connected to where they work by effective integrated transport networks. It also needs to be close to good schools and other educational facilities which are equipped to teach them the skills they will need to be productive in tomorrow’s economy rather than today’s. They must be enabled to be healthy enough to do so by an integrated and focused local health and social care system. Planned and joined up infrastructure and real estate including appropriate real estate for those good schools, hospitals and care homes, is a vital part of that.
"This is about offering better life chances for the people of the regions which, in turn, generates the crucial economic efficiency and productivity growth. If it’s an experiment, it’s one that can’t be allowed to fail.”
With new deals such as West of England hot on the heels, the scope for regional opportunities is widening. Devolution Deals secured to date out of the 38 bids submitted last year:
• Greater Manchester
• Liverpool City Region
• North East Combined Authority
• Sheffield City Region
• Tees Valley
• West Midlands Combined Authority