Regional economic policy review: paper 2 – the regional perspective

2. City Region & Growth Deals

2.1 Overview

2.1.1 City Region and Growth Deals involve agreeing a suite of projects to be delivered across a defined period of time, with an agreed budget between the Scottish Government, the UK Government and regional partners. The rationale behind these funded packages is to bring about long-term strategic approaches to improving regional economies, allowing them to harness additional investment and accelerate inclusive economic growth by creating fair new employment opportunities and skills programmes linked to the infrastructure projects.

2.1.2 There are 12 Deals in total:

City Region Deals:

• Aberdeen City Region
• Edinburgh and South East Scotland
• Glasgow City Region
• Inverness and Highland
• Stirling and Clackmannanshire
• Tay Cities

Regional Growth Deals:

• Argyll and Bute (in development)
• Ayrshire
• Borderlands
• Falkirk
• Islands
• Moray

The programme as a whole includes £2.692bn in capital spend and £93.1m in revenue spend. All Deals include a mix of SG, UKG and local authority funding. The exact makeup of the investment differs per Deal.

2.1.3 Overall the Deals Programme is expected to deliver a broad and deep range of economic interventions, with the estimated economic impact of creating 80,000 jobs and attracting over £1bn of additional investment.

2.1.4 The projects relate to known regional strengths, seeking to innovate across themes such as life sciences, food & drink, tourism & culture, aquaculture and advanced manufacturing, as well as exploit new market opportunities including space & aerospace, energy transition, digital and net zero. The Deals are intentional about building the skills and entrepreneurial culture needed to boost inclusive growth, with some weaving a Community Wealth Building approach into the fabric of what they do.

Governance

2.1.5 All Deals are overseen by the Scottish City Region and Growth Deal Delivery Board which is a joint UK Government and Scottish Government Board reflecting the joint funding profile of the Deals. This Governance structure enables Governments to surface risks and mitigations, ensure progress remains on track, and work with regional partners to manage any significant changes.

2.1.6 It also ensures an overarching national picture, where particular aspects of the Programme that will affect all Deals can be discussed and actions taken. Currently the cost crisis is a priority for the Board, with both Governments working with regional partners to understand the impacts of rising inflation on project delivery, and seek to arrive at solutions that do not negatively impact the benefits expected from investment, or value for money.

Figure 1 below shows the geographical split of the Deals.

Operation

2.1.7 The Deal programme began with Glasgow in 2014, and by 2022 the Scottish Government had agreed Deals to cover all of Scotland. All Deals are partnerships between the Scottish Government, UK Government and local partners. It is noteworthy that there are Deals without City hubs (referred to as Growth Deals) and whilst the majority involve a partnership of multiple local authorities, there are some single local authority Deals (Falkirk, Argyll & Bute, and Moray).

2.1.8 Whilst the Scottish Government have emphasised regional working, some local authorities have opted to develop a suite of projects distinct to their particular local economy. This may be on the basis of very specific economic drivers, such as Grangemouth in Falkirk, and whilst it makes for a mixed picture, given the role of autonomy in regional working, the Scottish Government does not dictate when and how local authorities come together.

2.1.9 The exact nature of the Deals in each region differ to allow for tailored responses to each region's identified economic strengths and weaknesses, but all comprise of a programme of interventions to support positive change and transformation within the region. The authors of the Deal are the regions themselves, recognising that regions are best placed to determine and prioritise work that will enhance the strengths of their economy and create inclusive growth.

2.1.10 Ensuring regions self-selected the projects helped to establish a sense of autonomy and ownership over the decision making and delivery. However, there remains an approvals process for each Government in terms of the business cases that must be endorsed before any funding is released, and as such a sense of vertical accountability to UK and Scottish Governments remains within the Deals programme. This is balanced out by the existence of Deal Joint Committees, comprised mainly of elected members, who are final decision makers in many aspects of the Deal. The exception to this dynamic and structure is Glasgow which will be discussed in more detail below.

Project and Programme Management

2.1.11 The exact governance of individual Deals differs but due to the Scottish and UK Governments being the major funders, both Governments have a role in ensuring that Deals remain on track to delivering the success envisioned for the programme.

2.1.12 All of the deals must be HMT Green Book ^[1] compliant which means that every project in every Deal must go through a rigorous business case process. This journey can be challenging, complex and time consuming, often creating slippage and some delays to delivery.

2.1.13 Whilst both Governments would note that they aim to provide feedback and approval as quickly as possible, the business case journey is iterative and normally requires more versions of Outline Business Cases that regional partners may hope, which can cause frustration and the delays against optimistic timescales for delivery.

2.1.14 The number of iterations can also be due to a lack of capacity, resource and expertise within local authorities too, with some technical aspects around carbon management and the economic cases a recurring weakness. The Scottish Government have responded to this by bringing in expertise on Carbon Management and developing an approach to calculating carbon costs. However, regional partners often resolve the capacity issue by procuring consultants to carry out economic analysis. REPAG view this as a costly solution, that fails to build expertise and capacity in the longer term.

Alternative Governance Models

2.1.15 It is worth noting that the Glasgow City Region stands as an exception from the standard management of the Deal Programme.

2.1.16 Business Cases are approved by the City Region Cabinet which has allowed for a more streamlined process for approving business cases and delivering on projects, and offers a very strong shared sense of accountability across the partnership.

2.1.17 The expert economic analysis provided by the Intelligence Hub in Glasgow City Region Deal is also vital to this streamlined process as it is able to produce the necessary data that would otherwise be commissioned by external consultants. The Hub is briefly mentioned in Paper One, and will be detailed later in this Paper but there is clearly value in the Scottish Government exploring how learning could be taken from this Hub and applied elsewhere in Scotland, perhaps building on existing capacity and expertise, ensuring that the development of business cases to release funding is expedited.

Outcomes to Date

2.1.18 Notwithstanding some governance and process challenges, and in spite of huge economic shocks such as Brexit, the Covid Pandemic, and the Cost of Living and Doing Business Crisis, the Deal Programme has managed to deliver an impressive array of successes to date, some of which are summarised below.

2.1.19 Highlights to date:

• Inverness and the Highlands: Highlands and Islands Affordable Housing project, aiming to deliver high quality, attractive housing for young people in the region, completed 57 housing units in 2021/22
• Ayrshire: Community Wealth Building project supported 85 businesses
• Inverness and Highlands: 2 of the 5 Newton Rooms are open in Fort William and Thurso
• Glasgow City Region Deal: 8,000 young people supported into employment through the Youth Gateway project
• Ayrshire: HALO Enterprise and Innovation Centre complete and open having received £24 million capital, revenue and in-kind support
• Aberdeen and Aberdeenshire: secured 66% of the Deal Fund in private sector investment
• Tay Cities: Construction works have begun at the James Hutton Institute on the Advanced Plant Growth Centre and International Barley Hub
• Edinburgh and South East of Scotland: delivery of 8000 new homes in Dunfermline will be supported by a £5 million grant awarded

• Inverness and the Highlands: work to transform Inverness Castle into an international visitor attraction is moving forward
• Aberdeen and Aberdeenshire are also investing in the Net Zero Solution Centre to utilise the skills, knowledge and experience that the region has in energy to support the transition to Net Zero by 2045

2.1.20 Each Deal is required, as a condition of grant, to develop a Benefits Realisation Plan (BRP). The primary objectives of Deal BRPs are to demonstrate, for the benefit of local, regional and national stakeholders, the outputs, outcomes, and impacts realised as a result of Deal investments in projects. They must also identify, collate, and explain the collective benefits of the Deal as a whole, which may be wider than individual project outputs, outcomes, and impacts. BRPs also provide accountability for both government and partner investment, enhance the operational effectiveness of existing projects, and improve potential future initiatives through the capture, dissemination, and application of learning.

2.1.21 BRPs will differ slightly between regions, but guidance has been offered to Scottish and UK Governments that state it should include number of jobs to be created/protected; evidenced contributions to inclusive growth and/or sustainability (e.g. carbon reduction); cultural participation; regional economic impact; and wider impacts (e.g. on place making, regional partnership working).

Case studies

2.2 Inverness and Highlands City Region Deal

2.2.1 The Inverness and Highlands Deal was signed in 2017 and totals £315 million of investment over a period of 10 years. The Scottish Government have committed £135 million, the UK Government committed up to £53 million, Highland Council and regional partners (particularly Highland & Islands Enterprise) up to £127 million.

2.2.2 The region recognises its strengths as an area that offers an outstanding quality of life providing a clean, healthy and safe environment in which to live and work. Inverness is recognised as one of the fastest-growing economic areas in the UK (RBS Study). The region has benefited greatly from the creation and expansion of the University of the Highlands and Islands. It continues to expand the further and higher education courses it offers which helps reduce youth out-migration.

2.2.3 The region has also secured major investment in digital infrastructure and transport in recent history making it significantly more accessible and attractive for business, making it less likely that the younger generation will be forced to migrate for employment and making it more attractive to working-age individuals and families wishing to relocate.

2.2.4 Although population retention remains an issue, especially when it comes to attracting more young people to live, study and work in the area, the region has seen population growth over the past 30 years. Over the period 2005‐2015 the population in Highland increased by 7.4 per cent, from 218,100 to 234,100. However, the region faces significant challenges: median weekly earnings of full‐time employees, who reside in Highland, in April 2016, were 1.4 per cent lower than those in Scotland as a whole.

2.2.5 Additionally, lack of Higher Education opportunities in the past and a limited range of employment opportunities have contributed to significant outmigration of young people. In 2015, the population aged 15‐29 in Highland region accounted for 16 per cent of the total population; significantly lower than that of Scotland as a whole at 19 per cent.

2.2.6 The Deal investment allowed the regional partners to address inequalities and build on strengths by focussing investment on:

• Digital
• Land remediation
• Housing
• Innovation
• Health and Life Sciences
• Transport
• Assisted Living
• Workforce Development
• Tourism
• Skills

Digital

2.2.7 The digital project aims to extend digital coverage to support the region in becoming the most digitally connected region in Europe.

2.2.8 The region has successfully provided WIFI to the city of Inverness and 14 other settlements throughout the Highlands which has been a welcome success for the Deal. This was only one part of the project with the development of a business case to secure funding for superfast broadband throughout the region underway.

Skills

2.2.9 To investigate, develop and deliver a Highland approach to employability and skills. The region recognised that a significant change like this needed:

• Local partners to align and deliver services better (for example, National Health Service and Highland Council);
• National partners to align or deliver services better with local partners (for example, Skills Development Scotland with Highland Council or third sector partners);
• New services aligned with existing provision rather than imposed (for example, replacement work programme or work choice).

Northern Innovation Hub

2.2.10 The Northern Innovation Hub (NIH) builds on and accelerates current business innovation support services in the region, enabling an increased focus on sectoral opportunities which will build global competitive advantage. It is not a physical hub; instead it is a coherent grouping of projects designed to benefit small and emerging businesses. This will include:

• Graduate placement programmes
• Intensive support to young and new businesses
• Digital skills programmes
• Adoption of competitive digital practices for highland businesses

Project Significance

2.2.11 The significance of these projects are they directly tackle the inequalities present in the region.

2.2.12 Digital connectivity is essential for linking geographically isolated communities with relevant markets, information sources and opportunities. It addresses rural inequalities such as limited opportunity to earn adequate income compared to urban counterparts (SMID – Rural Deprivation, 2017).

2.2.13 The Covid-pandemic heightened our reliance on good connectivity and the greater adoption of flexible working patterns and geographically-neutral employment opportunities means that individuals in geographically isolated communities can have employment (and study) opportunities that were not available pre-pandemic. In a nutshell, geographical isolation should be less of a barrier to employment opportunities than it has ever been previously but fast and reliable broadband is the link that needs to exist to allow this reality.

2.2.14 Addressing digital accessibility is pivotal to unlocking the opportunities that are presenting themselves to geographically isolated communities.

2.2.15 Tying in with this, the region is delivering a skills initiative which is central to the objectives of the Inverness and Highland City-Region Deal. This project ties in with another skills project that is part of the Deal which is the Science Skills Academy which aims to transform the uptake of Science, Technology, Engineering and Maths (STEM) subjects in schools.

2.2.16 Combing a regional programme to deliver employability and skills opportunities with the development of STEM skill projects for young people leads to a young workforce ready and able to enter into new employment opportunities in the growing sectors within the region such as renewable energy and digital technologies. All of this ties in with the work being done on innovation.

2.2.17 The region has sectorial strengths in life sciences, digital, renewables, tourism, food and drink, and the creative industries. The region is using the Deal to support improvements to business competitiveness at a UK and international level to accelerate business growth in the region leading to it attracting employment opportunities and bringing about inclusive growth.

Above are just three examples but they highlight the strategic links that underpin the Deal. Combining projects on skills, innovation, and digital and focussing on the existing and future workforces and industries ensures that the Deal is best-placed to address regional inequalities such as lack of competitive employment opportunities for residents and youth migration.

2.3 Edinburgh and South East Scotland Deal

2.3.1 The Edinburgh and South East Scotland (ESES) Deal is a £1.13 billion Deal and was signed in 2018 and will run for 15 years. It will accelerate economic and inclusive growth by delivering improvements in innovation, housing, infrastructure and skills.

2.3.2 The region is of great economic importance to Scotland and the UK bringing in around £36 billion per year and the region is projected to have strong economic growth. The average annual growth projections from 2020-2030 suggest a growth rate of 2.4%, which could be higher than the average annual growth projected for Scotland as a whole.

2.3.3 However despite it being a prosperous region, it is not universal across the region with around 22% of children living in poverty at the time the Deal was signed. The region also lacks affordable and mid-market housing stock with the average house prices in the city region being higher than the Scottish average and high house prices to earnings ratios in many locations.

2.3.4 There are regional disparities also evident in job densities, ranging from 0.55 in East Lothian to 1.02 in the City of Edinburgh and gender and age inequalities with men across the city region earning 14% more than women, and lower female to male participation and employment rates.

2.3.5 The Deal therefore focusses on the following areas:

• Housing
• Employability & Skills
• Transport
• Innovation
• Culture

Housing

2.3.6 The Deal includes a Regional Housing Programme to accelerate the delivery of affordable housing and housing across all tenures, enable the development of seven major strategic housing sites and drive efficiencies across the public sector estate.

2.3.7 To do this the Deal will:

• Support the greater use of offsite construction to deliver affordable homes
• Deliver an expanded affordable housing programme
• Developing risk sharing guarantees
• Delivering seven strategic sites (as part of the strategic development plan)
• Increasing the supply of good quality, low cost rental housing
• Maximise the potential contribution of public sector land and property
• Create more jobs, training and apprenticeships as well as opportunities for regional construction related SMES

Employment

2.3.8 There are a number of employment projects included in the Deal such as:

• The Integrated Regional Employability and Skills Project – seeks to evolve regional labour market policy and practice to drive inclusive growth. It will deliver an additional 14,700 skill improvements; 5,300 people into employment; and a further 500 career enhancements
• The Integrated Knowledge Management Systems Project – will create a new, joined up Management Information System (MIS) for Skills and Employability across the region. The system will have an access point for members of the public looking to engage with employability services and will offer a more streamlined approach for caseworkers and clients
• The Labour Market Analysis and Evaluation Project – this will develop the regional labour market intelligence capacity around patterns of demand and supply.
• The Integrated Employer Engagement Project – this will coordinate and improve the employability and skills service offer to employers which in turn will present opportunities to the citizens of the ESES region
• The Intensive Family Support Service Project – this is a multi-agency project that offers a combination of intensive, general, and specialist activities tailored to the needs of the whole family. The core offer includes family support, advice, and employability.

Project Significance

2.3.9 ESES have used the Deal investment to target the areas of critical importance within the region such as child poverty and inequality.

2.3.10 At the time of agreeing the Deal projects, unemployment was low but partners realised that despite this there was still persistent worklessness and poverty in the region due to low income, skills inequalities, gender and age inequalities and regional disparity in job density.

2.3.11 With a lack of affordable housing stock and a high-cost rental market, many low income families were struggling and a rate of around 22% of children were living in poverty.

2.3.12 The projects of work selected by ESES show an understanding by regional partners that housing and employability must be addressed simultaneously to allow for inclusive growth in the region.

2.3.13 Child poverty is a difficult issue for a region to tackle directly via an investment Deal but by creating affordable housing (including affordable rental properties) and offering employment and skills-development opportunities for residents, the rate of child poverty should fall as parents are able to utilise these opportunities. Including a specific family support project also ensures that families can access guidance on a wide range of subject matters from a well-connected partnership.

2.4 Ayrshire Growth Deal

2.4.1 The Ayrshire Growth Deal was signed in November 2020 securing £251.5 million to help the region achieve their vision of becoming "a vibrant, outward looking, confident region, attractive to investors and visitors, making a major contribution to Scotland's growth and local well-being, and leading the implementation of digital technologies and the next generation of manufacturing".

2.4.2 Ayrshire is an example of a region that does not include a city but instead covers South, East and North Ayrshire (which is inclusive or the island of Arran). Both North and East Ayrshire have high levels of deprivation with 28% of North Ayrshire's data zones being in the 15% most deprived in Scotland and 31% of East Ayrshire's data zones were in the 20% most deprived in Scotland.

2.4.3 Ayrshire has a number of strengths as a region. Tourism plays a vital role in the economy and is home to world-class golf courses, historic landmarks, high quality hospitality, costal settings and breath-taking islands. Creative arts are also a significant strength of the area with arts, entertainment and recreation contributing around 2.4% GVA to the region. Manufacturing and Human health and social work activities are also high value sectors in the region.

2.4.4 The Ayrshire Growth Deal therefore focusses on the following areas:

• Aerospace and Space
• Energy, circular economy, and environment
• Tourism
• Community
• Economic Infrastructure

Community Wealth Building

2.4.5 The Scottish Government provided £3 million for a regional Community Wealth Building Fund. The aim of the Fund is to develop an Ayrshire approach to Community Wealth Building that enhances wealth, ensures fair and meaningful work, and creates successful places throughout the region. Ayrshire intend to achieve this by:

• Community Wealth Building Business Locality Officers – to work in localities alongside Anchor Institutions to facilitate CWB activities across public, private, and social economy on procurement, employment, assets and ownership, linking with existing local service delivery.
• Community Wealth Building Fund – to support place-based CWB activity, and the work of CWB locality officers, including but not limited to: social enterprise support, employee ownership transition, workplace innovation, supplier development and capacity building, and supporting locality entrepreneurship.
• Fair Work Ayrshire – A dedicated Ayrshire 'Fair Work' resource to engage key employers (including Anchor Institutions) to ensure they recruit inclusively and provide quality and meaningful work, and to develop practical steps with employers to position Ayrshire as a Fair Work region.

Project Significance

2.4.6 The project is the first regional place-based approach to Community Wealth Building (CWB). Ayrshire were keen to develop and pilot this work recognising the opportunity that it offered for the region.

2.4.7 The project seeks to develop resilient, inclusive local economies, with more local employment and a large and more diverse business base. As detailed above, the region has areas of high deprivation and so by focussing on engaging meaningfully with the anchor organisations within the region, Ayrshire is able to make a positive move in tackling poverty in the region.

2.4.8 The outcomes from this project would include an increase in fair paid and meaningful employment for residents in the region along with supporting local entrepreneurship tying it squarely with the national priorities as set out in NSET.

The HALO

2.4.9 The Halo Project is a £63m brownfield urban regeneration project on a 23-acre site, formerly the home of Johnnie Walker, the world's leading Scotch whisky. The development is a fully integrated Enterprise and Innovation Hub which will establish an entrepreneurial ecosystem to stimulate innovative business practices between new and established businesses.

2.4.10 Working with Scottish Power the region has created an industry leading cyber and digital training and learning facility. The facility is open and making good progress.

Project Significance

2.4.11 The project is creating new jobs and offering "retraining" opportunities in digital skills which is helping produce a workforce for the future. This ecosystem is intended to encourage the development of new digital and cyber security products and services, responding in particular to the needs of the energy, health and space/aerospace sectors.

2.4.12 This addresses the need in Ayrshire for greater skills opportunities and plays to the regions strengths in manufacturing. As with the CWB project HALO opens up fair employment opportunities which in turn reduces poverty in the region.

2.4.13 Stimulating innovative business practices between new and established businesses should lead to inclusive growth in the region and a greater entrepreneurial base which again ties nicely with national targets.