Better public private partnerships must shape the future of levelling up
20th July
To get the most impact from billions of pounds of government investment and truly level up the UK, the private sector must share risk with local authorities, argues Paul Wright from the Whatifgroup and Senior Fellow of the IPM.
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It’s been a good decade for interventionist government. From furlough to energy bills and company bailouts, big state dirigisme has been embraced by all political parties. Levelling up was the unifying mantra of this approach, with more than £11billion of funding being poured into schemes to improve high streets and town centres in the last parliament.
But with the UK’s net debt above 100 per cent of GDP for the first time since 1961, the public finances are not in great shape. And it would be foolish to expect a continuation of business as usual in the next parliament. Not least because I am not sure the Government will have got the ‘bang for their buck’ they expected from their levelling up investment.
Private sector responsibility
My bet is that levelling up will remain part of any government’s policy agenda, but scaled back. And in order to keep moving the dial on progress in many towns that have been metaphorically struggling in quicksand for too long, it’s time for the private sector to take on more responsibility.
To achieve the most impact, that means fundamentally changing the nature of public-private partnerships.
Because while the significant increase of government funding for town centre improvements is welcome, and needed to start investing the serious amounts that countries such as Germany have spent on reducing regional inequalities, it has not necessarily resulted in better partnerships between local authorities and developers.
Public private partnerships (PPP’s) have been around since the beginning of the industrial revolution. But under the New Labour government of 1997 to 2010 they became ubiquitous and were seen as a means of financing new public sector assets outside the government’s balance sheet.
Now a key part of the local government landscape, they are evolving but arguably not fast enough. The problem is that too many developers are entering into relationships with councils to deliver regeneration schemes and taking little or no risk themselves.
Far too frequently all the risk is weighted on the public sector and, despite these PPPs being dressed up as 10-year partnerships, the private sector are essentially glorified development managers taking a guaranteed return. Very often these partnerships involve the council offering their covenant in a “wrapper lease” which are highly coveted by annuities type funds that have very low risk mandates. So the private sector takes on the low risk element of the partnership, while the public sector carries the high risk.
This is not fair or sustainable.
"Adverserial zero sum dynamic"
In a report produced by the Local Government Association and British Property Federation over 10-years ago, the authors warned of an “adversarial zero sum dynamic” that has undermined partnerships.
This problem is still with us and, as greater scrutiny falls on the delivery of levelling up projects, I have no doubt that serious partnership failings will be uncovered.
One clear manifestation of this can be seen in vast overspends. Woking’s Victoria Place project is a particularly egregious example, but this is not the only case of bad practice.
Some local authorities are currently having to cut leisure, street cleaning and sports services because of regeneration overspends. There are many reasons for this but an unequal partnership where risk is not shared does not help. As a result, developers are not controlling costs to the extent that they would if it were their own money.
Stamford Quarter - a partnership with equal footing
Of course, it would be wrong to characterise all partnerships like this and a number are very much committed to working on an equal footing.
An example of this can be seen in the relationship between Trafford Council and Bruntwood. Both parties entered into a JV to purchase the Stamford Quarter in Altrincham and Stretford Mall.
On the face of it, this seemed an unusual venture, particularly with it being Bruntwood’s first investment into shopping centres. But on closer inspection the asset class was largely irrelevant, as the partnership was more based on a regeneration model, of what is essentially impact investment.
It’s an ambitious town centre regeneration project with a wide range of outputs. Some of which, like taking the roof off Stretford Mall, creating a green biodiversity corridor and opening up the streetscape, simply could not financially work in the traditional shopping centre sector.
The JV has an interest in much wider ownership than the shopping centre. By improving the shopping centre it adds value to the whole neighbourhood, fundamentally increasing real estate value to make the model work, but also to making Stretford a more pleasant place to live and work, and making better housing more viable.
Looking at the project as a whole, the benefits are both financial and social, therefore appealing to public and private sector objectives. It’s a complicated programme that relies on a broad skillset of regeneration, development and asset management. It’s also one that’s quite rare - but in many town centres, particularly where civic pride is low, this approach is essential.
IPM has long recognised that unlocking the potential of town centres is heavily reliant on developing healthy partnerships. There are many stakeholders involved in this process and building trust, creating transparency and ensuring strong commitment from key partners is vital.
Local authorities may not have felt they’ve had much choice with regard to the partnerships on offer with developers before now. Public and private need to embrace a new way, where their interdependence becomes the strength. Maybe this will also open up a vehicle in which local authority pension funds can participate.
Councils arguably still need to become more commercially savvy and developers need to show more risk appetite for genuinely equal partnerships to happen. But there’s an emerging new model being developed that needs to become the norm. Because as the old saying goes, ‘success is best when it’s shared’.
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If you are a developer or local authority employee and would like to discuss new forms of partnerships with Paul, please get in touch by emailing IPM@mmu.ac.uk
About the author
Formed in 2006, the Institute of Place Management is the international professional body that supports people committed to developing, managing and making places better.