COUNTY BOROUGH OF BLAENAU GWENT

REPORT TO: THE LEADER AND MEMBERS OF EXECUTIVE COMMITTEE

REPORT SUBJECT: REGIONAL ECONOMIC DEVELOPMENT ISSUES

REPORT AUTHOR: RICHARD CROOK - CORPORATE DIRECTOR ENVIRONMENT AND REGENERATION

LEAD OFFICER/ RICHARD CROOK - CORPORATE DIRECTOR DEPARTMENT ENVIRONMENT AND REGENERATION

Summary Report

1.0 PURPOSE OF REPORT

1.1 To inform Members of the recent report from the Capital Regional Board entitled Cardiff Capital Region: Powering the Welsh Economy

1.2 To inform Members of the recently proposed Cardiff Capital Region City Deal from Cardiff City Council and to seek agreement for a Council contribution to the development of a bid to secure City Deal funds.

1.3 To inform Members of the Great Western Cities initiative.

1.4 To support the updating of the South East Regional Framework to provide the basis of a ‘Growth Plan’ for the region.

2.0 BACKGROUND

2.1 There have been a series of reports and initiatives which look to develop the economic prospects of South East Wales by taking forward the concept of cities working with their region to drive growth by harnessing all of the assets and opportunities. The reports/initiatives referred to are:

Cardiff Capital Region – Powering the Welsh Economy Cardiff County Council – City Deal Great Western Cities

3 SUMMARY

3.1 The changing global economy requires local authorities and other stakeholders to change the way they respond to supporting the local economy. The growth of the City Region concept provides an approach which is being used elsewhere in the UK and Europe, and if the South East Wales Councils do not respond then they risk being left further behind in terms of economic growth and opportunity.

3.2 The participation by Blaenau Gwent in the city region discussion and development will ensure that benefits derived by the approach will be secured for the community of the County borough and for the other communities in the region.

4 RECOMMENDATION

4.1 That the Executive supports and participates in discussions that take forward the City Region concept and the Great Western Cities initiatives.

4.2 That the Executive supports and participates in the development of the city Deal Initiative including the contribution of upto £23,000 towards the preparation of a City Deal bid.

4.3 That the Executive supports the preparation of a Regional Growth Plan.

1.0 Detailed Report

1.1 Across the UK there has been a move towards an economic concept based on the notion that cities are drivers of economic growth such as the “Northern Powerhouse” and regional devolution to Greater Manchester. This concept is based on linking the city to the region, and therefore cities being highly inter-dependent with their regions, growth being driven by collaborative action. There are academics, and economic development practioners, that argue for the City Region as a solution to regional economic variance and to drive economic growth outside London. In South Wales links have been drawn with the Stuttgart region in Germany as part of the development of the City Region concept. The evidence as to whether the concept is valid is emerging as, where there has been significant growth in cities in the UK, they are growing from a low base given the years of decline.

1.2 As part of this City Region discussion in Wales the Welsh Government announced the two city regional boards to take the concept forward, the Cardiff Capital Region and the Swansea Bay Region.

1.3 The Cardiff Capital Region: Powering the Welsh Economy report has been published by the Cardiff Capital Region Board. The Board’s report provides a wide-ranging view of how the region might develop in the future and concentrates on three main policy themes; connectivity; skills; and innovation and growth. The report provides a useful present-day economic context which, significantly, gives a geographical dimension to the policy challenges, and provides a brief account of some of the main issues emerging from the Board’s statement.

1.4 Economic Context: The Region is described as being economically significant for Wales, generating more than half of the total Gross Value Added (GVA) in Wales in 2012. However, on a per-head basis, the Region lags behind the UK average, (generating only 80% of the UK average GVA per head), meaning that the Region is less productive on average than the rest of the UK, the gap has widened over the last 8 years, which is a cause for concern in the region. This has of course led to the area being eligible for further rounds of European funding.

1.5 The report also highlights the well documented disparity in economic performance between the more prosperous coastal areas and the less developed Heads of the Valleys Region, with a wide variation in unemployment rates and average wages which has been a long running challenge for Blaenau Gwent. Unemployment in the Region as a whole is 8%, slightly higher than the rest of Wales and the UK. Within the Region there is significant disparity between 5% in Monmouthshire and 13% in Blaenau Gwent. Unemployment for those under 25 is 15%, compared to a UK average of 14%. This is driven by very high youth unemployment rates in Blaenau Gwent (26%), Rhondda Cynon Taf (22%) and Torfaen (20%). Average wages also show a wide variation across the Region. Monmouthshire residents earn on average £578 a week, whereas in Blaenau Gwent the average wages is only £398, compared with a UK average of £518 per week. In this respect, the report states that the “Cardiff Capital Region must be as meaningful to the Heads of the Valleys as it is to the City of Cardiff itself”.

1.6 The report acknowledges the importance of manufacturing in the South as well as the Heads of the Valley which supports initiatives such as the Enterprise Zones in both Ebbw Vale and St Athan. Reference is made to the region’s well-known anchor manufacturing businesses, but the overall conclusion is that in many sectors there is a lack of critical mass in the private sector to retain the talent being developed in the Region. With a shortage of large, locally headquartered businesses into the region, employing in excess of 1,000 staff the report calls for an increase in the size of the private sector to help rebalance the economy.

1.7 Connectivity: The development of an integrated transport system is seen as key to delivering the vision for the Cardiff Capital Region, with the proposed metro being at the heart of any strategy. Investment in digital networks is also identified as a priority. Specifically, the strategy identifies the following opportunities:

Transport:

 Augment the Valley Lines Electrification programme to deliver more frequent, reliable and affordable rapid transit service across the Region – regular sub-45 minute journeys from the valleys. This is an issue on which the Council has lobbied on for some time;  Build on the electrification of the GWML to provided services to London with journey times of ninety minutes or less and a direct rail link to Heathrow from Reading;  Strategic road improvements to address known “bottlenecks”, for example M4, A470 and the Heads of the Valley road;  A public transport system, including cycleways and cycle facilities, that encourages their greater patronage as a preferred mode of day-to-day transport;  Work with other regions to leverage the demand to improve train access between Wales, , London and the Midlands;  Establish a seamless, multi-modal transport system that allows the user to travel on public transport anywhere across the Region using a single smart ticket;  Encourage the airport to develop its commercial propositions to airlines serving major business destinations.

Digital:

 A direct link between the Cardiff Internet Exchange and the transatlantic telecommunications cables landing in the South west of the UK;

 Consistent and reliable mobile and Wi-Fi service on all public

transport into and throughout the region;

 European leading broadband and mobile services;

 Consistent data access in all our major towns and cities;  Actively leverage the Region’s digital strengths, for example the Cardiff Internet Exchange – one of only 5 in the UK and the closet to the major centres in the US. 1.8 Skills – the aim of the strategy is to develop a globally- recognised, responsive education and training system which is closely aligned with the needs of local and inward investing businesses; it will focus on key industry sectors such as bioscience, advanced manufacturing (and newer ventures in the creative industrial and financial and professional services sectors). The report acknowledges that whilst high levels of youth unemployment and deprivation present particular challenges, upskilling the local workforce and matching skills with opportunities, will bring numerous benefits for both individuals and the local economy. Reference is also made to the fact that the region has a high density of HE institutions catering for 70,000 students with a further 100,000 attending FE college. In addition the following opportunities are identified:

 A role for regional oversight of priorities in continuing to develop an educational and training system that is recognised globally for its excellence and innovation;  Public and private sector to work together to determine current and future business needs, supported by the Employment and Skills Regional Board.  A more active role for the private sector to engage with education and training providers to prioritise funding, explore co-investment models and deliver quality improvements;  Retain the existing knowledge and skills base more effectively within the Region by actively promoting opportunities and by exploring incentive schemes, such as bursaries for graduates choosing to remain to work in the Region;  The Region has the educated and qualified workforce to take an active role in the building of the proposed major infrastructure projects.

1.9 Innovation and Growth – this section takes as its starting point the assertion that successful regions are increasingly focused on core sectors where they develop national and international recognition and create a virtuous circle of growth and entrepreneurship. There is a brief analysis of priority and emerging sectors relevant to the region, which draws in part on those being promoted by the Welsh Government; advanced manufacturing; digital, ICT and creative industries, energy and environment; entertainment, leisure and retail, life sciences; professional and financial services. Potential opportunities include:

 The identification, marketing and exploitation of industry and sector – based agglomeration of businesses across the Region, investment and employment growth focused around the sectors and enterprise zones;  Create an environment that allows private sector enterprises to prosper and is conducive for entrepreneurship;

 Continue to attract high-quality UK and international

businesses to Wales;

 Capitalise on the leading academic research undertaken at the

region’s universities to incubate and grow new businesses

housed in the region;

 Ensure continued growth of SMEs by co-ordinated and targeted support that meets their needs, such as infrastructure, skills and financial;  Delivery of balanced portfolio of premises that supports our existing businesses and inward investors, including the development of key strategic sites and premises focused on areas of greatest impact for the Region and the Welsh economy;  Development of an economic baseline for the region so that progress and outcomes can be consistently measured;  Establish the region as a recognised renewable region and capitalise on the energy opportunities offered by the Severn tidal flows.

1.10 City Deals

1.11 Running in parallel with the Cardiff Capital Region board development has been an initiative led by Cardiff County Council which was reported to their cabinet in April 2015 to develop a “City Deal” for the region.

1.12 The ‘City Deal’ process was initiated in late 2011 as part of the UK Government’s broader devolution and growth agenda. City deals provide bespoke agreements between government and cities that seek to empower localities to drive economic growth by providing additional freedoms and resources. In return the government has sought new local governance arrangements, which have taken a variety of forms including combined authorities, city mayors, and other forms of local government led partnerships.

1.13 The Government’s stated aim of the City Deal programme is to devolve control to cities to:

 Take charge and responsibility of decisions that affect their area  Do what they think is best to help businesses grow  Create economic growth  Decide how public money should be spent

1.14 A common theme in the larger deals has been a ‘payment by results’ approach. The ‘payment by results’ approach is in effect a new form of Tax Increment Finance. Tax Increment Finance is based on retaining a share of business rate uplift which is typically around 2% of total Gross Value Added (GVA) uplift to pay back finance raised for infrastructure investment. A ‘Payment by Results’ approach provides access to a share of the total tax receipt from GVA uplift resulting from infrastructure investment, typically equating to circa 40%.

1.15 The development of a successful proposal relies on agreement of a set of minimum objectives for participating areas. This means that there must be a minimum guaranteed outcome for all participant areas, typically in terms of access to job opportunities. To that end, the Infrastructure Fund created by a City Deal is required to invest according to a strict set of criteria. Essentially, eligible projects are evaluated against the net economic impact they would have on the City Deal areas and also the contribution they would make towards meeting the agreed minimum objectives. The crucial requirements of city leaders and in our case Region Council Leaders therefore is to set, and agree with UK Government, the ‘rules’ by which the Infrastructure Fund invests. In many areas this has led to a drastic change to the order priority for capital investment, and typically it has seen transport investment focus on projects that bring people and jobs closer together.

1.16 Overall the effective building blocks required by local authorities to deliver a coherent City Deal proposal include:

 Agreeing appropriate and sound objectives and minimum outcomes  Identification of resources to support the development of the City Deal as well as to contribute to the overall fund and cover the cost of financing requirements  Operationally effective governance that also fits in with the UK Government’s agenda in terms of the devolution of powers to city-regions  Effective tools for prioritisation that provide rigour to the expected levels of impact in terms of jobs and GVA, as well as reducing the risk that local authorities are exposed to in terms of meeting the required objectives to trigger payments from the UK Government  Functional economic geography consistent with effective decision making and ensuring that a scale where net impact can be maximised  An element of local financial risk taking that shows the commitment of partners

1.17 The scale of impact anticipated from some of the largest deals is significant;

 Greater Manchester’s £2.75bn Transport Fund is expected to deliver up to £3.6bn in annual GVA and 37,000 jobs;

 Leeds City Region’s £1.45bn Transport Fund is expected to deliver up to £2.6bn in annual GVA and 23,000 jobs;  Glasgow /city region’s £1.13bn fund is expected to deliver up to £2.2bn in annual GVA and 28,000 jobs

1.18 Greater Manchester’s latest agreement has introduced some new and innovative opportunities including the potential to share in ‘bottom-line’ savings such as savings to the current circa £20bn per annum dependence costs by helping more people back to work.

1.19 There have been a series of meetings with Leaders and Senior Officers across the South East Wales region and are referred to as the Cardiff Capital Region, to discuss the City Deal proposals with in principle support being offered by all Councils, subject to discussion in respective Cabinets/Executives.

1.20 Great Western Cities

Alongside the release of the previously mentioned Cardiff Capital region report was an initiative driven by the cities of Bristol, Cardiff and Newport. This takes the current city regional discussion in South Wales onto a UK level as the report states.

“It’s now accepted that for the UK economy to thrive there can no longer be a reliance solely on the economic power of London and the South east alone. The economic potential of Britain’s major cities needs to be released. To do so will require investment in to cities themselves; to make them better connected to their own regions and, crucially, to each other. As the City Growth commission recently argued, Britain will increasingly need to rely on the prosperity of a small number of ‘ power-house super city regions’, including the Great Western city-regions across the Severn”.

“The Great Western Cities are already amongst the most successful in Britain. They are highly productive and highly skilled economies that offer high levels of tax returns”.

“They are also projected to be amongst the fastest growing cities in terms of population, hardly surprising considering their quality of life credentials. Cardiff and Bristol are consistently ranked as the UK’s best cities in which to live and Newport has been ranked one of the top town and cities in the UK with the largest proportion of high-growth businesses:

“In short, the Great Western Cities are a national economic asset, but they can do better”.

“With the right investment, they can deliver higher economic output and tax receipts for the Exchequer and make an even greater contribution to the UK economy. The nature of this investment must focus on improving connectivity, realising the energy potential of the Bristol Channel – and promoting South Wales and the West as a high quality destination for internal business”.

2.0 FINANCIAL IMPLICATIONS

2.1 There are no financial implications in terms of the Council engaging in the City region or Great Western Cities discussion.

2.2 The development of the city deal led by Cardiff County Council will have immediate financial implications in terms of a contribution to the costs of developing the bid. The contribution would be on a pro rata population basis for each Council with Blaenau Gwent needing to contribute £23k.

2.3 If the city deal submission is successful then there will be longer term capital commitment for each of the Authorities involved. This would be the subject of further reports.

3.0 PERSONNEL IMPLICATIONS

There are no implications outside of staff time

4.0 CONCLUSION

4.1 In terms of the Cardiff capital Region report The overall strategy draws heavily on the Welsh Government’s own economic framework, with the emphasis on supporting priority growth sectors. However, I am also conscious that in the Region approximately 60% of employment is outside of the priority growth sectors. I would also suggest in the wider region, we have to be mindful to support all employment sectors to reflect our local economy. At the same time, the implementation of the Metro’s integrated transport strategy, which is reflected in the priorities set out in the draft National Transport Plan for 2015. The Metro could bring many benefits for the region, however, unless the total number of accessible jobs increases in the region, there will be limited economic gains for the significant investment. Skills development will also have a significant impact on whether the plans to secure a critical mass of good quality and sustainable jobs are realised as the availability of a highly skilled workforce is a key consideration for investment rather than simply the availability of financial support. The recognition of the importance of manufacturing, particularly in the Heads of the Valleys area, is especially welcome as is the assertion that the Cardiff Capital Region should be meaningful to all areas encompassed by the initiative.

4.2 Whilst there is evidence of successful city regions across Europe, there is currently a drive across England and Scotland to develop the City Region concept to harness economic growth, which is successful, will assist in rebalancing the UK economy.

4.3 If the model delivers the expected growth elsewhere in the UK then areas such as South Wales will have to work even harder to close the economic gap with the rest of the UK. The relative decline in the economic competitiveness of the region suggests that a more radical and bolder approach is required.

4.4 The Cardiff Capital Region initiative can provide the basis for this approach, when harnessed within wider initiatives such as the Great Western cities. A “City Deal” operating within the above imitative would provide a bold, local government led approach to fund and deliver significant capital investments in infrastructure for the benefit of the region. Therefore, at this stage there is a compelling economic argument for the Council to engage with and support the Cardiff capital region. Great Western Cities discussion, whilst actively developing the “City Deal” proposal with the other councils in the region. The contribution of £40,000 towards developing a bid which could secure up to £1Billion for the region appears an appropriate investment.

4.5 However it is clear with the range of initiatives that the region needs a “Growth Plan” which can provide the strategic framework for co-ordinating the range of initiatives coming forward with Local government best placed to lead this development. The 10 councils in the region have previously prepared and agreed the South East Wales Strategic Framework and this now needs developing with partners to produce a ‘Growth Plan’.

5 RISK

5.1 The static or declining economic performance of the region poses a risk which requires innovative approaches. Therefore, the greater risk at this stage is to not participate in new approaches such as the City Deal and wider regional common collaboration.

May 2015