Poms outsmart Aussies

The Poms are drawing inspiration from adversity.

The UK is skint and hocked to the eyebrows. Economic growth is miniscule. Business sentiment is at subterranean levels. Even the French score higher on productivity, despite their sclerotic labour markets.

Old Blighty’s prospects are so dire that even buttoned-down Treasury boffins are shedding their dog-eared textbooks to embrace innovation.

The UK’s killer app for economic recovery isn’t the hundredth redux of “education revolutions”, “R&D hubs”, “regional development” blah blah, administered by siloed government departments.

Astonishingly, it’s a new deal for cities.

The Cameron Government is convinced that a national campaign to boost urban productivity will lift UK prosperity for several generations. And Cameron is willing to up-end a century of urban planning nostrums and Treasury rules to achieve his objective.

Critical to the Cameron Government’s scheme are customised contracts between the central government and 28 major UK cities—these contracts are called “City Deals”. Each city is to establish Local Enterprise Partnerships, which co-opt government, business and community representatives to forge economic growth plans for the enterprise zones they represent.

The plans must include long-term programs for building infrastructure that improves economic productivity and community well-being.

Cameron’s goal is to reward cities that are willing to make bold decisions to invest in growth. Whingers and begging-bowl merchants who revel in stagnation can join the far queue. The government offers an extensive menu of benefits and powers to improve the prospect of delivering on a City Deal. This includes access to growth funds, tax relief and rate holidays for businesses.

One novel feature of the City Deal initiative is the right to implement tax increment financing—a scheme for using expected increases in future municipal rates to finance smart infrastructure investment priorities. This is identical to the growth area bond scheme advocated in Australia by the Property Council.

The good news on City Deals doesn’t end there. The UK Treasury has reversed its historical animosity to applying specific taxes to fix specific problems, which the technocrats call “hypothecation”.

In its recent UK Budget, the Cameron Government acknowledged that Greater Manchester’s multi-billion pound investment in transport infrastructure would deliver huge dividends over many years.

One of the biggest beneficiaries of local investment would be the central government itself, as economic growth will boost central tax revenues.

In an historic move, the government said Manchester can “earn back” a portion of the additional tax it generates on a “payment by results basis” for the next 30 years.

The UK Treasury not only agreed to “earn back”, it has established a unit to extend the concept to other cities.

Of course, the “earn back” approach assumes we possess the wit to calculate the wider benefits unlocked by infrastructure investment.

The City Deal initiative is a version of Australia’s national competition policy customised to urban growth.

It’s a sensible carrot and stick approach that encourages collaboration and policy innovation.

It’s also politically smart to implement productivity-boosting policies for cities, as 71 per cent of Britons (and 82 per cent of Australians) live in urban communities.

People see themselves as inhabitants of cities, not as ‘customers’ of monolithic government bureaucracies. It makes plain sense to design policies packaged at the city level.

The Cameron Government is determined to make the City Deal contracts work, which is why it’s appointed a Minister for Cities, who is also Financial Secretary to the Treasury.

There’s plenty to learn from the British approach and no need to wait until our economy is buggered before we do so.