Greater Birmingham and Solihull LEP Birmingham City Centre Enterprise Zone Governance and Financial Strategy

Greater Birmingham and Solihull LEP Birmingham City Centre Enterprise Zone Governance and financial strategy

September 2016 Contact

Economy Directorate Birmingham City Council

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Plans contained within this document are based upon Ordnance Survey material with the permission of Ordnance Survey on behalf of the Controller of Her Majesty’s Stationery Office.

Introduction 2

Governance 4

Financial strategy 8

contents / birmingham city centre enterprise zone 2 Introduction

The Birmingham City Centre Enterprise Zone was founded in in 2011 to encourage business growth, investment and the creation of jobs. It will provide uplift in business rate income which the Greater Birmingham and Solihull Local Enterprise Partnership (GBSLEP) can use to invest in further EZ projects and wider economic priorities.

The original City Centre EZ Over its lifetime the Birmingham comprises 26 sites across the city City Centre EZ, including the centre, in seven clusters including Curzon extension, will have those identified in the Big City invested over £900m for capital Plan - the city’s strategic vision for infrastructure, delivered 2.3m sq.m the future of the City Centre - as of new floorspace, created over offering the greatest opportunities 76,000 new jobs, contributed nearly for growth. £4bn to the economy in GVA per annum and generated in excess of Investment totalling £275m is £2bn in additional business rates. planned for these sites up until March 2023, as set out in the EZ In order to manage the new Investment Plan (EZIP 2014). As extended EZ an updated financial part of this £275m, the EZIP also model and strategy is required, includes £50m for projects outside as well as a strong governance the city centre. framework by which the EZ and it’s investment decisions will In 2015 the government approved be managed. The governace an extension of the EZ to include framework sets out the structure the Curzon Masterplan Area. The and hierarchy of decisions that extension comprises 13 further sites will be required by the various across the Curzon/High Speed 2 boards governing investment and growth area. The extended EZ now decision making. The financial covers an area of 113.5ha and the strategy provides the parameters time period for the retention of by which the EZ will be financially business rate growth for the whole managed. It reflects both expected EZ has been extended to 31st business rates income (revenue) March 2046. A separate Investment and expenditure associated with Plan has been produced for the the delivery of the investment Curzon area which allocates programmes. The strategy is £556.8m of EZ resources to complemented by a set of financial maximising the economic impact principles which govern its of HS2 across the Curzon area. A management. further £183m of EZ resources are ringfenced for the East Birmingham North Solihull Midland Metro Extension.

birmingham city centre enterprise zone / introduction 3

KEY

EZ sites

Curzon extension sites n NORTH

The Birmingham City Centre Enterprise Zone

introduction / birmingham city centre enterprise zone 4 Governance framework

Purpose of the Governance The document is to be used by Specifically the Board will ensure Framework the GBSLEP and Birmingham City that: The first part of this document sets Council (BCC) when approving out the governance framework funding requests and monitoring • There is an approved Investment for the Greater Birmingham project progress. This includes Plan (2014) in place for the period and Solihull Local Enterprise consideration of any business rates up to 2022/2023 that will help Partnership (GBSLEP) in respect uplift and how investment of EZ unlock sites for development and of the Enterprise Zone (EZ).This funding is managed. enable the delivery of growth, governance regime will facilitate jobs and uplift in business rates. better decision making and assist in the effective use of and stewardship Roles and responsibilities • There is an approved Investment of finite resources. Plan for the Curzon area (2016) Greater Birmingham and Solihull in place for the period up to The document provides a Local Enterprise Partnership 2037/38 that will maximise the framework within which the (GBSLEP) Board economic impact of HS2, unlock GBSLEP approves and monitors The GBSLEP Board takes overall sites for development and enable the programme of projects, which responsibility for the delivery of the the delivery of growth, jobs and have been confirmed for funding EZ investment plans. It does this by uplift in business rates. allocation in the Enterprise Zone setting an overarching investment Investment Plan (EZIP) (2014) and strategy and ensuring that there the Curzon Investment Plan (EZCIP) are clear governance, management (2016). and delivery arrangements in place.

Local Enterprise Partnership Strategic direction

CLG EZ Executive Board BCC Cabinet Accountable body

Curzon Delivery Board

EZ Directors Board

EZ Programme Manager, Delivery Team and support functions

EZ Projects

Figure 1 Entrerprise Zone Governance Structure

birmingham city centre enterprise zone / governance framework 5

• It receives and considers regular The board meets every 6-8 weeks • Monitoring arrangements are reports (from the EZ Executive or by exception if required. in place that allow a review Board (EZ/EB) on the financial of performance of Delivery/ position and performance of the The EZEB has powers delegated Implementation Strategy Investment Plans. from the GBSLEP to approve including on both quantitative projects and will make decisions on and qualitative aspects of • It nominates a Board Member the priority order for the additional performance. to be the ‘EZ Champion’ for pipeline projects, allocated in the GBSLEP. The EZ Champion will 2014 EZIP and the 2016 Curzon • Key issues and risks are either keep the LEP Board informed of EZIP. The EZEB will oversee addressed or escalated to the progress on a regular basis and delivery and implementation of the LEP Board. will escalate any significant risks Investment Plans, the associated and issues related to the delivery Governance Strategy and EZ • It approves/rejects/makes of the Investment Plan(s) as project performance reporting. recommendations on applications recommended by the EZEB. for funding from the Enterprise The GBSLEP will be represented on Zone in accordance with the the EZEB by at least two nominated existing 2014 EZIP and the 2016 Birmingham City Council as the GBSLEP Board Directors with one Curzon IP. Accountable Body acting as Chair and ‘EZ Champion’. Management and redistribution of A further GBSLEP officer will also • A financial limit on the financial the business rate growth from the be represented on the Board. model for EZ funding purposes EZ requires a single statutory body These are voting roles with the is set. from the GBSLEP Partnership to chairperson having the casting take on the role of ‘Accountable vote. • Any decision made by EZEB in Body’. This Body must be a legal the knowledge that the decision entity, nominated to act on behalf BCC will be represented on does not compromise compliance of the GBSLEP for the receipt the EZEB by a maximum of 3 with BCC’s own Financial and investment of business rate senior officers who have overall Regulations and any financial growth and uplift within the EZ responsibility for the day to day decisions that BCC as the designation. Birmingham City delivery of the EZ Investment Plan. Accountable Body may require. Council (BCC) accepted this role These are voting roles. Variations to projects submitted in respect of the Birmingham for a funding request (for example City Centre EZ with BCC Cabinet The quorum for the meeting is 2 spend profile, amount awarded) approval on 30 July 2012. from GBSLEP and 1 from BCC. may be set out in the funding agreement or in the conditions of BCC as the Accountable Body is This representation of officers will any decision is given by the EZEB. obliged to manage any investments be added to from other LEP’s and and their financing. local authority partners based on a • Monitoring arrangements and commensurate basis to be agreed subsequent performance reports if investment in undertaken outside are adequate and appropriate, Enterprise Zone Executive Board of the City Centre EZ boundaries. considering both quantative and (EZEB) qualitative aspects of project The EZEB is made up of members Specifically the EZEB will oversee performance and programme and officers from GBSLEP and that: delivery. BCC. Both GBSLEP and BCC are decision makers, on the basis of • The Investment Strategy/Plans • Appropriate resources are strategic ownership (GBSLEP) and are delivered in accordance with available to manage the EZ and Accountable Body (BCC). It is an agreed milestones and targets. enable delivery of the Investment appropriately constituted decision Plans. making board for which evidence • Regular reports are received is provided through minutes, on the Governance Strategy quorum and declarations of interest including performance against to support its decision making the Financial Plan and key risks or procedures. issues with implementation.

governance framework / birmingham city centre enterprise zone EZ Directors’ Board (EZDB) The quorum for the meeting is • Key issues and risks are either 6 A separate Directors’ Board has 3, in addition to the Chair. The managed or escalated to the been established in order to Chairperson will have the casting EZEB. provide coordinated management vote. of the EZ, linked to the provision GBSLEP approval process of resources and wider project Specifically the Director’s Board will The EZEB and EZDB will work on delivery. It is Chaired by BCC’s oversee that: behalf of the GBSLEP Board and nominated officer and includes ensure that the release of EZ funds representation from senior level • The Investment Plans are for projects contained within the BCC officers responsible for effectively implemented in terms Investment Plans are authorised delivering the EZEB approved of delivery and resource. through an approved process projects through their teams and which aligns to the stages in BCC officer from GBSLEP. The approved • Regular reports are received governance process. projects will be managed and on the financial position and monitored through the Directors performance of the Investment In order to gain EZEB approval Board, with regular reporting to the Plans. project sponsors are required to EZEB as required. complete: • Any key issues on EZ project When EZ funding becomes delivery are either addressed • Either: An EZ project available for other GBSLEP and/or escalated to the EZEB. Development Application form. projects outside the Birmingham City Centre EZ then the Local • It manages the EZ financial Or: An EZ project Full Application Authorities affected will form their position in accordance with Form (with associated Annex) own EZDB (or use an equivalent the EZ financial management (Which application is required is existing structure such as the principles. dependent on the stage of the Growth Team, if appropriate) project, a flow chart and guidance with the GBSLEP for decision • It endorses and/or rejects notes are provided with the making in their locality. BCC, as applications for funding for the application process). the Accountable Body, should use of EZ Resources based on the also have a role on any board relevant defined EZ Investment Applicant approval process to ensure that all investments Plans. Recommendations to Following the granting of are in accordance with the EZ approve or reject an application approval from GBSLEP, scheme financial model and to discharge are then made to the EZEB. promoters will be required to seek accountable body functions. full approval through their own governance process.

Once this has been authorised a funding agreement can be entered into.

EZ Delivery Team Enterprise Zone Programme Manager The EZ Programme Manager will oversee the general management of the EZ and any programme of projects within the approved allocation of EZ funding.

The EZ Programme Manager will receive financial and delivery information as part of regular monitoring reports from each project manager. The information contained in these reports will support financial management and performance.

Eastside development

birmingham city centre enterprise zone / governance framework The Project Manager reports will include: 7 • Overall financial progress for the month, quarter and year.

• Project update.

• Overall position on key milestones.

• Milestones and actions for the next three months.

• Key risks and issues.

• Any decisions required by the Board.

Programme management decisions will be designed to maximise the benefits of and minimise the impact of risk to the EZ, and to ensure that the per annum allocation can be spent and the key outputs delivered.

EZ project managers who are BCC officers are required to adhere to a guidance note entitled ‘Birmingham City Council Accountability Responsibilities for Enterprise Zone Funded Projects’.

All EZ project managers (BCC and non-BCC) will be required to adhere to a Performance Management Framework, which is provided as a separate document.

103 Colmore Row

governance framework / birmingham city centre enterprise zone 8 Financial strategy

The Financial Strategy for the EZ is predicated on a Programme which contains projections for major capital investment, revenue project support and the capital financing implications arising from debt repayment and also projections for an uplift in Business Rate income across the Programme’s lifetime.

Key to this strategy is the Within the EZ, where capital resources generated from the development of a detailed expenditure is to be financed, additional business rates. financial model which is updated Birmingham City Council (BCC) on a monthly basis. The detailed as the Accountable Body, will To ensure that the financial financial model for the EZ has been facilitate the borrowing. BCC will management of the EZ is robust, updated to include the extended calculate the borrowing costs and that projected expenditure geography for the Curzon area and using its existing arrangements for including borrowing and other extended programme timeframe recharging costs (i.e. interest and revenue based programme through to 2045/46. It reflects the statutory requirements for debt expenditure is affordable, a series both expected business rates repayment). These borrowing costs of financial principles have been income (revenue) and expenditure will be funded from EZ revenue developed: associated with the delivery of the investment programmes. The strategy is complemented by a set of financial principles which govern its management.

Financial principles High level risks associated with the management of EZ resources have been identified, and modelled out through sensitivity testing. The assumed level of business rates income for the EZ is highly sensitive to anticipated levels of development activity especially if developments fail to materialise in line with projections. Similarly, increased project costs or increases in interest rates on the cost of borrowing would be detrimental to affordability and impact on the overall programme. As such, robust principles for financial and project management are required.

The capital investment set out in the 2014 EZIP and 2016 EZCIP will be funded though Local Authority Prudential Borrowing. The financial implications of this borrowing, as well as the costs of administrating the EZ, and other revenue based projects, will be funded through the revenue income stream generated through the additional ‘uplift’ in business rates.

Paradise development

birmingham city centre enterprise zone / financial strategy 9

1. Income safety margins with any decision to release such level of future capital investments For reasons of affordability, funding to fund new investment that the EZ can support in later particularly during the early years being done so only with the BCC’s Investment Plan periods. All of EZ, only a prudent proportion Director of Finance’s approval. EZ investment decisions are of net business rate income will be considered and only endorsed by taken into account in determining the Accountable Body/EZ Boards expenditure commitments, 2. Borrowing repaid within life of subject to them being affordable. including borrowing and operating the Enterprise Zone costs. The intention is to provide Following the extension of the EZ a safety margin due to the risk funding term, the business rates 3. Utilising Assets under of business rate income not income stream will now cease Construction Policy matching the profiled income levels after 31st March 2046 (previously In accordance with the Chartered contained in the financial model. by 31st March 2038). This allows Institute of Public Finance and for new borrowing on the existing Accountancy (CIPFA) who regulate In order to ensure that there are EZ sites to have their borrowing Local Authority accounting sufficient reserves to meet short extended to 2045/46. All associated guidelines. term falls in income or increased borrowing must therefore be costs, a sum equivalent to 15% repaid within this EZ term. The Local Authorities can roll up of the annual EZ income will be later capital expenditure is incurred interest charges for assets under set aside on a cumulative basis to in the programme the lesser the construction. For infrastructure and meet uncertainties. Having already repayment term for borrowing. other capital projects this offers allowed for 15% contingency Capital projects commencing in the advantage to smooth out cost sum based on the amount of 2016/17 of the Programme will be and income cashflows so that anticipated Business Rate income borrowed using an annuity which income from business rates arises as a financial principle ‘test’, allows the capital sum borrowed in the same financial period as the financial commitments through to be repaid over a 30 year term, revenue costs of the project which borrowing will be monitored to whilst projects commencing in BCC has to account for. ensure they are no greater than 2017/18 will effectively be borrowed 65% of the Business Rates income and repaid over a 29 year term and anticipated in any given year, so on. 4. Site-by-site and infrastructure effectively 65% of 85% Business business cases as well as LEP- Rates. New investment decisions This means that capital intensive wide business cases will need to ‘Pass’ before approval investments which are approved Proposed expenditure will be sanctioned. A test ‘Fail’ will and borrowed over a longer time commitments for individual require a financial risk review to frame will have a smaller annual developments will be financially determine the precise impact and repayment sum and therefore appraised against the expected risk on overall affordability of the less financial impact in terms of business rates impact arising proposed project, acknowledging affordability against the annual from that development through contingency sums held on account, EZ Programme than if they were individual business cases. Proposed before approval is awarded. Once undertaken over a shorter period commitments will also be financially EZ business rate income levels (i.e. the longer the borrowing appraised in a LEP-wide appraisal start to materialise in line with term the smaller the annuity to ensure the proposal is affordable their forecasts, then consideration charge to the revenue account). for the EZ or LEP as a whole on will be given to releasing the On-going monitoring of the EZ a year by year basis, including surplus reserve generated from Programme resources and the reporting on the financial tests the application of this approach financial implications resulting in section 1 above. Where wider to support further LEP investment from approved projects in the infrastructure investments are being proposals. On-going management investment programme will provide proposed individual/programme of the EZ will continually review the a valuable tool against which an based business cases will be cumulative contingency sum held assessment can be made as to the required.

financial strategy / birmingham city centre enterprise zone 5. Financial commitments aligned 8. Management and monitoring commence to formulate Full 10 to development commitments of resources Business Case to authorise the For EZ developments and wherever The delivery of the Investment release of funds and formal feasible, financial commitments Programmes will depend on project approval. Consequently it will only be made following legal having robust processes in place to may be necessary for BCC, in its agreement with the developer/ manage and monitor income and Accountable Body role: landowner once development expenditure for the EZ. This will be projects have been committed to. undertaken as part of the regular a) To seek a re-profiling of This will provide assurance that the reporting to the LEP through the proposed expenditure levels so business rates income stream is Governance arrangements to that they accord with available reasonably secure. provide ongoing updates to the resources, or; financial model and to ensure risks to delivery are highlighted. b) To defer endorsing projects for 6. Prudential borrowing EZ funding until such time that In borrowing for EZ funded Whilst the LEP approves individual there is sufficient secured levels projects, BCC is subject to legal capital investment and revenue of business rate income in place constraints and statutory guidance proposals for EZ support, the which ensure affordability. in relation to the borrowing. This Accountable Body will ultimately includes compliance with the endorse these projects going Authority’s accounting and debt forward subject to the viability of Income repayment policies. BCC will the investment proposal in terms The delivery of new business consider the financial implications of overall affordability based on accommodation on EZ sites is of any LEP EZ proposals, as the future availability of secured expected to result in a significant part of its overall budget (for business rate income. All projects increase in business rates income example, in setting its Prudential to deliver the EZ are subject to for the LEP to invest. The phasing Borrowing indicators and limits) BCC Governance structures. and delivery of new developments, and in complying with the CIPFA This requires a Project Definition and consequently the business Prudential Code. Document (PDD) for approval to rates uplift, has been projected in authorise project development the updated financial model. The and feasibility. Once PDD approval business rates uplift income will be 7. Income provided to support has been reached, activity can retained locally until 31 March 2046. wider LEP Investments Whilst BCC will support and fund approved EZ investment decisions made by the LEP, both BCC and other Local Authority partners will ultimately be responsible for their own projects, associated cost control and other financial risks. In the event that project costs exceed those approved by the LEP, then any additional costs incurred or to be incurred above those supported through the EZ income will become the financial responsibility of the delivery partner and not the EZ or Birmingham City Council in its Accountable Body role. This is particularly relevant for the LEP Investment Fund and HS2 Growth Strategy investments which could fund projects outside of the EZ area and which would not be sponsored or directly project managed by Birmingham City Council.

Masshouse

birmingham city centre enterprise zone / financial strategy The business rates income from to the proposed phasing of the Expenditure the combined EZ, including the development (including losses of The EZ Programme has a planned 11 expanded area to cover Curzon, business rates income as sites are capital investment programme will fund both the original £275m demolished and cleared for future value of £929m and a revenue investment programme (capital investment), to allow for prudence programme of £89m to support and revenue projects) and around making decisions on the delivery over the remaining 30 year the additional £740m Curzon affordability of future investment time frame of the EZ. Included investment (£669m capital and decisions and the associated within these proposals is support to £71.6m revenue projects). This costs arising from prudential other key LEP priorities such as the includes the £183m for East borrowing charges. The income is HS2 Midlands Growth Strategy and Birmingham North Solihull Metro analysed according to the following the Strategic Economic Plan. Extension. categories, which help to ensure decisions on the investment The Curzon Area extension to programme are affordable: the EZ is anticipated to generate £1.1bn over the lifetime of the • Secured - Business rates paid or Programme. This is in addition legally due. to the £1.5bn from the existing EZ Programme providing a • Committed - Construction on total projected £2.6bn over the site or guaranteed via legal lifetime of the EZ. These figures agreement therefore business are anticipated levels based upon rates income reasonably secure. current projections but are subject to future market and economic • Other Committed - Paradise conditions. As such robust Circus Phase 1 and 2 business financial management principles rates income committed via Joint are required to manage risk and Venture agreement. affordability. • Not Committed - Development The income has been categorised not yet started therefore business by its degree of certainty, linked rates income not yet secured.

160,000,000

140,000,000

120,000,000

100,000,000

80,000,000 £ millions 60,000,000

Extended EZ model 2016

40,000,000

20,000,000

2013/142014/152015/162016/172017/182018/192019/202020/212021/222022/232023/242024/252025/262026/272027/282028/292029/302030/312031/322032/332033/342034/352035/362036/372037/382038/392039/402040/412041/422042/432043/442044/452045/46

Graph 1 Projected business rate uplift income (£m)

financial strategy / birmingham city centre enterprise zone 12 800,000

700,000

600,000

500,000

400,000 £ millions 300,000 Net revenue position

Net revenue position (cumulative) 200,000

100,000

Graph 2 Affordability net revenue position - annual and cumulative