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UTILITY WEEK | 23RD - 29TH OCTOBER 2015 | 15 Policy & Regulation growth rate of a local economy. This means a higher growth rate requires the step-up in investment to be sustained and the initial discipline on targeting every penny at growth to be maintained over time. In practice some City Deals (for example Greater Manches- ter) have created a rolling fund linked to the delivery of results to support achieving this goal. Payment by results is a way of rewarding success borne out of local risk taking. This provides the opportunity for cities to make a local claim on net increases in the national tax they generate through their "self help" investment. In practice, the Treasury receives up to 40 per cent of increased gross value added from cities in the form of tax revenues. Historically cities and local councils have only had control of business rates at a local level. The self-help element of these deals unlocks a city's right to some of the remain- ing 38 per cent. Greater Manchester, the largest of the deals awarded so far, secured its £2.75 billion deal (including unlocking access to some of its tax revenue) because it fulfilled some key criteria for the government. First, it offered a net measure of economic growth at a sufficiently large level of geog- raphy such that most of the displacement effects of individual schemes are netted out. Second, it has a programme that priori- tises net jobs and productivity (gross value added) at the appropriate level of geography. It also contains a commitment to reinvest all money earned back in further economically- prioritised schemes, which is necessary to deliver a rolling fund. Lastly it contains the provision of up- front money over and above central gov- ernment funding that earns the right to the fiscal gain share – the point being that this self-help generates national tax receipts that are genuinely additional for the Exchequer It is clear from this list that one of the interesting features of these City Deals is the extent to which the governance and meas- ures that they are subject to look very "com- mercial": they are measurable, objective, and outcome-focused. City Deal key steps In KPMG's experience, the most important issues that need to be addressed in the devel- opment of a deal are: • having clear agreed objectives, and mini- mum programme performance measures; • having a geography which is sufficiently large and diverse to offer opportunity for long-term return on investment. This is why a number of the deals are requested by a consortia of local authorities and cities; • robust economic modelling tools, which allow cities to baseline their economic position and measure results objectively; • being very clear about the types of inter- vention they intend to make – in which type of infrastructure and in which sector; • a clear structure and approach to fund- ing and financing, particularly securing sources and approaches to securing local top-up funding; • process and timetable so that both cen- tral government and the city know what results to expect when. City Deals and energy Energy features in some of the deals and applications for funding. Some applications are about energy infrastructure, and others more generally about taking local control of elements of energy policy to stimulate eco- nomic development or locally focused use of central energy scheme funding. Nottinghamshire and Derby called out investment in energy and telecoms infra- structure as a key ask in their application. Their proposal included calling for a local- ised energy strategy that would allow them to take control of energy efficiency funding and programmes to enable them to create a joined-up strategy for energy reduction. A key component of their strategy is also the development of the high-value low-carbon sector, including infrastructure development for electric vehicles. Energy is very much at the heart of Not- tingham's agenda – Nottingham City Council is also famous for being the first local author- ity to launch an energy company, Robin Hood Energy, earlier this year. And West Yorkshire (Leeds City Region Devolution) has indicated that it wants to take responsibility for local energy generation and efficiency. Meanwhile, City of York, North York- shire and East Riding's application includes granting them the power to set up an energy services company. This group suggests that creating a public-private partnership would allow them to enter the energy generation sector, and provide cost-effective and sus- tainable locally produced renewable energy to National Grid, local customers, and local businesses. They see this structure as a way of tackling the constraints on the local elec- tricity grid. The amount of money at stake for cities, and for citizens, is huge. Getting the process, governance and measures right is paramount to achieving the two in goals of economic growth and local empowerment. Energy is a key critical infrastructure for all of us and we welcome that this has been recognised in a number of cities' applications. Amy Marshall, director, power and utili- ties, KPMG; Jonathan Turton, director, infrastructure strategy team, KPMG Wave 2 City Deals Twenty cities were invited by the government to apply for City Deals, and 18 have been agreed: • the Black Country • Greater Brighton • Greater Cambridge • Coventry and Warwickshire • Hull and the Humber • Great Ipswich • Leicester and Leicestershire • Greater Norwich • Oxford and Oxfordshire • Plymouth and South West Peninsula • Preston, South Ribble and Lancashire • Southampton and Portsmouth • Southend-on-Sea • Stoke-on-Trent and Staffordshire • Sunderland • Swindon and Wiltshire • Tees Valley • Thames Valley Berkshire Core city deal Second wave city deal