Deal or no deal: are UK-style City Deals a good bet for Australia?

The Property Council heralded the federal government’s proposal to introduce UK-style City Deals as part of a new Smart Cities Plan as:

… a real innovation in policy [that will] break down the barriers between federal, state and local government – and make all of them partners in economic growth.

Our evidence from the UK experience suggests there are pros and cons in both City Deals and Devolution Deals.

The pros and cons

These deals have emerged as the preferred methods of formulating public policy and resource allocation in UK decentralisation. This kind of explicitly “informal governance” is novel and innovative.

“Deal-making” is good at providing a channel for local authorities to talk to central government. It empowers local actors, encourages strategic thinking, promotes innovation and stimulates governance reform.

But the process is marked by problems. These include:

• uneven information and power between central and local actors;

• the ambiguous role of the centre as supporter and appraiser of the plans of local actors;

• capacity nationally and centrally limited by budget austerity;

• lack of transparency;

• highly uneven resource allocation;

• slippage from announcement to implementation; and

• limited evaluation of progress to date.

As the process has matured with each new round of deal-making, common elements have emerged alongside more bespoke and particular dimensions. But participants are fatigued by the centrally orchestrated deal-making process and episodic timetable, are unclear about the criteria for assessing proposals and uncertain about where it is heading next – and to what ends.

Those negotiating the deals have experienced the paradox that central government is dominating this chapter of decentralisation.

What Australia might expect

Unpacking some of these issues may help us understand the rationale behind Australia’s interest in City Deals.

First, against a background of rising public debt, City Deals are said to represent an attempt by the federal government to introduce a new approach to investing in urban infrastructure. However, Australia’s net debt-to-GDP ratio (19%) remains a fraction of the UK’s, which is nearly 83%.

Clues as to what is expected of City Deals were evident in the press release launching the Smart Cities Plan. The government said the plan will:

… draw on the Commonwealth’s co-ordination capacity and the strength of its balance sheet at a time of historically low interest rates, to get the best infrastructure projects off the ground.

The government’s fiscal position can be used in various ways – either through direct borrowing or de-risking private investment. The City Deal approach’s logic suggests that, in return for “drawing upon” federal capacity, states and local government will be asked to agree mechanisms that ensure local areas prioritise infrastructure projects that deliver growth.

Despite the rhetoric surrounding innovative funding and financing, such concepts have proved difficult to implement in the UK. Instead, emasculated local authorities, facing continued budgetary pressures, have sought long-term (up to 30 years) grant funding from the national government.

For its part, the UK government has also found grants easier to manage than complex earn-back arrangements of the kind devised initially in the Greater Manchester City Deal.

Second, if City Deals are introduced in Australia, then individual agreements will be negotiated between three tiers of government. The experience of the newer City Deals in Scotland (Glasgow, Aberdeen and Inverness) and Wales (Cardiff) – involving UK government, devolved administrations and local authorities more akin to a federal-type situation – may be more instructive for Australian policymakers.

Like the UK, Australia’s national government is proposing to incentivise actions and accountabilities at the sub-national level.

The UK government has dangled the carrot of long-term grant funding to “encourage” local authorities to establish statutory governance partnerships across city regions.

City Deals in Australia may be part of a similar drive for local government reform. This reflects arguments that direct funding of local government by federal government creates efficiencies, and that new investment in local infrastructure requires effective cross-border local government collaboration.

Finally, statements that the City Deals have been instrumental in the “renaissance of Greater Manchester and Glasgow” should be treated with great caution. UK City Deals and Devolution Deals are still at an early stage. Monitoring and evaluation of their impact remains in its infancy.

Ultimately, City Deals may prove successful in Australia and the UK. But, at this initial stage, adopting the model without careful scrutiny and analysis feels more like taking a punt than backing a certainty.