It’s the economy (again), stupid

The significance of metropolitan areas was outlined in a recent CLG consultation paper which noted: “The economic success of our cities… is vital to our ability to compete in an increasingly open 21st century global economy.” It couldn’t be put any simpler.

The report, The Role of City Development Companies in English Cities and City-Regions, outlined a new initiative to encourage “a greater alignment of economic opportunity with coordinated initiatives addressing regeneration needs… and the use of public finance and intervention to leverage private-led economic growth.”

The idea outlined by CLG was for cities to use city development companies (CDCs) – described in the study as city or city/region-wide economic development companies – to clearly define responsibility for economic development, pursue longer-term objectives and draw together the energies and resources of a range of public and private sector partners. These would include local authorities, regional development agencies, English Partnerships/Homes and Communities Agency, and other partners.

The government, it would seem, wanted local authorities to make their assets work harder in the light of public expenditure constraints and prevailing market conditions. The prescribed effect would be to shore up business confidence and speed decision-making to encourage better and higher levels of investments.

Unsurprisingly, a number of local authorities have signed up to the CDC model including Plymouth and Hull council. Newcastle and Gateshead councils are considering a collaborative approach while Sheffield council has gone live with its CDC, Creative Sheffield.

The CDC model

The framework around which the CDC is based is usually driven by the local authority and is typically geared towards the city-region agenda. It takes the form of an independent company, usually limited by guarantee, but a subsidiary of the local authority which remains the accountable body.

Members normally include local authorities, RDAs and other partners, such as EP, usually with founder member status.

The principle builds on work done by urban regeneration companies but the focus is on a wider agenda of driving economic growth across entire cities. This could involve higher levels of autonomy, greater geographical coverage, a broader range of functions, increased profiles or increased leverage over funds. It could also encompass the use of specialist vehicles such as local asset backed vehicles which combine locally-owned public sector assets with equity from institutional investors to finance the delivery of major projects.

Principles of success

The key to an effective CDC is establishing a clear remit and rationale for the company – for instance, focusing on specific economic goals existing agencies failed to deliver. For example, the CDC could focus on multi-area or multi-agency collaboration and therefore be better positioned to engage with the private sector. More generally, objectives should be explicit, measurable and communicated.

Similarly, governance structures should be unambiguous but free to enjoy a degree of operational independence so that they don’t become political hot potatoes. Priorities and tasks should be set out, but the company should be left to its entrepreneurial devices. For instance, the company should be chaired by a representative from the private sector, which should in turn provide half the board.

Leaders should be appointed who are pragmatic, commercially astute and skilled political operators. After all, they need to make tough decisions and be capable of building political capital with all stakeholders.

CDCs are about delivering results, and accountability is key. A clear and effective performance management system should be put in place based around the business processes that will affect all partners and link to the release of public funding. CDCs should be allowed to retain surpluses and build assets from non-profit use so that when public revenue support expires or is cut, an asset base provides an income stream that allows further diversification and growth.

Expectations should be managed carefully.

It takes time for new organisations to bed in, engage and train staff and forge the right relationships. CDCs will face many challenges for which there isn’t an instruction manual. Consequently, results should be evaluated after two or three years, not before.

By Jim White, director of Turner & Townsend