Australia’s infrastructure priority-setting, funding and financing approach could be substantially strengthened by adapting a radical economic strategy originally designed to lift the United Kingdom from its post-GFC malaise, a major urban development summit has heard.

Speaking at the Built Environment Meets Parliament Summit held in Canberra on July 15, KPMG partner Paul Low said that the United Kingdom’s City Deal model offers an innovative strategy for building stronger urban and regional growth through smarter strategic planning, infrastructure investment and local governance.

“The model has enabled relevant governments to come together and agree on infrastructure priorities for a city or region, initiated a dramatic increase in local investment, and cut through political discourse to focus on ensuring investment maximises economic growth,” Low said.

“More than 20 City Deals have now been signed in the United Kingdom for regions including Greater Manchester, Cambridge, Leeds, West Yorkshire and Glasgow.”

Low noted that the Property Council of Australia is working with partners such as the Urban Coalition and the Australian Sustainable Built Environment Council, and all spheres of government to adapt the City Deal approach to Australia’s strategic needs. In his presentation to the summit, Low put forward nine reasons why the United Kingdom’s approach to urban and regional growth provides a model for Australia …

1. A City Deal is a contract — the deal is a deal!

Each City Deal is codified as a contract between an economic region and the central government. Each identifies a list of priority infrastructure projects to be delivered, along with economic performance benchmarks.

2. The focus is on productivity and growth

The UK City Deal model explicitly targets a package of infrastructure projects that lift a region’s economic capacity over a long-term timeframe. This helps focus competing priorities into a coherent set of goals that can be communicated to business and the community.

3. City Deals encourage local leadership and good governance

The UK approach revolves around City Deal partners. In Manchester, the 10 existing local government authorities combined to form the Greater Manchester Combined Authority while Local Enterprise Partnerships link key stakeholders – government, business and community groups – based on logical economic regions. This encourages a more strategic approach to growth and self-reliance as well as the growth of social capital and local resilience.

4. City Deals use smarter tools for determining infrastructure investment priorities

The City Deals approach moves from narrow benefit–cost analysis to an agreed measure of gross value added for a region (a local “GDP”). This shifts the fiscal focus from isolated project evaluations to metrics that capture broader benefits – this includes welfare, housing and regeneration dividends.

5. City Deals unlock access to innovative financing

The UK City Deal model allows deal partners to “earn back” a share of the additional taxation dividend generated by faster economic development. City Deal partners are also provided with access to innovative financing options such as public-private partnerships (PPPs), local asset backed vehicles and tax increment financing to complement traditional forms of capital raising.

6. City Deals help join up economic, social and sustainability goals

A feature of UK City Deal contracts is the inclusion of complementary programs relevant to a region. The Greater Manchester City Deal includes a growth hub program; a plan to skill-up 6,000 apprentices; an innovative funding model to reduce emissions; a program for attracting international and patient capital to local projects; and a housing program that aims to deliver 7,000 new homes by 2017.

7. City Deals promote powerful political leadership that boosts economic productivity

This approach recognises that cities are economic assets which drive productivity and growth. To broker the deals across central government departments including the Treasury, there is a central unit that helps City Deal partners assess infrastructure priorities and set GVA growth benchmarks.

8. City Deals promote financial literacy and skills at a local level

The Birmingham and Solihull City Deal partners established GBS Capital, which aims to leverage $2.5 billion of seed funding into $25 billion of private capital. The Greater Manchester Combined Authority established a $2.5 billion “revolving infrastructure fund”. These special purpose financing vehicles are monitored and advised by the UK Treasury and operate under strict governance arrangements.

9. There is less need to rely on inefficient taxes when efficient alternatives are available

Australia’s panoply of taxes exists because of cost-shifting between governments, poor access to capital and policy conservatism. A secure stream of capital for infrastructure projects (within a disciplined framework) will not only reduce reliance on inefficient taxes but may also provide the basis for phasing them out.