Supplementary written evidence submitted by the Greater Manchester Combined Authority (FDC 38)

1 INTRODUCTION

1.1 This note follows the recent CLG Select Committee visit to Manchester as part of the current inquiry into fiscal devolution to cities and city regions.  During the course of discussions, Committee Members indicated they would welcome further information on Greater Manchester’s proposals to move towards financial self-sufficiency by closing the gap between the taxes generated and public spending.

2 THE GM APPROACH TO GROWTH AND REFORM

2.1 Greater Manchester has two priorities, sustainable economic growth, and ensuring all residents contribute to and benefit from that growth.  These are articulated in the revised GM Strategy, Stronger Together, and the Growth and Reform Plan submitted to Government in December 2013.

2.2 Our aspiration is to close and then eliminate the c. £5 billion per year gap between total public spending and total tax take by 2020, so GM becomes a net contributor to the national economy.

2.3 Our approach seeks to create a platform for self-reliance in Greater Manchester empowering local authorities to undertake their place-shaping role to create high quality places that attract and retain more productive people and businesses and reform the way that public services are delivered to improve outcomes for our people.  This “place-based” approach will enable us to better understand both spend and tax take to produce a true picture of how resources are aligned to outcomes.  We are seeking to work with Government to understand the inter-dependencies of budgets and to examine how different funding streams can be accessed in a coordinated way to facilitate the delivery of the component parts of our strategy in a planned, sequential manner.

2.4 On the growth side, we have made good progress by investing in infrastructure, skills and businesses.  These investments have made GM resilient to the worst effects of recent recessions – as demonstrated by GVA for 2012 increasing more quickly in Greater Manchester than anywhere outside London and the South East.  We have invested in supporting our businesses to expand, innovate and diversify, and attracted significant inward investment in sectors where we have global distinctiveness, such as creative and digital, science and innovation and financial and professional services.  We have diversified the employment base over the last few years, and we now have the potential to create another 80,000 jobs over the coming years to 2020[1].  Our innovative approach to investment (set out in more detail below) will continue to support growth and further improvements in GVA, productivity, employment and earnings by ensuring that funding is recycled wherever possible in order to maximise the impact of the funding over several investment cycles.  It is a model that is replicable across GM, building on the development of the Earnback model for transport investment and ideally positioning Greater Manchester to maximise the benefits arising from the introduction of single pots such as the Local Growth Fund.

2.5 We recognise that generating growth and jobs will not be sufficient to close the gap or deliver our second priority, of ensuring all residents can contribute to and benefit from growth.  We also need to reform our public services to help all residents be independent and self-reliant, connecting our communities to economic growth.  This means reducing levels of worklessness and improving residents’ skills, and tackling the complex barriers to independence that many people face.  At present there are still over 250,000 GM residents out of work and claiming benefit, and as many again claiming working tax credits. and significantly more residents with no qualifications than the national average.  Building on our Whole Place Community Budget pillot, the GM Public Service Reform programme involves more integrated, intelligent, evidence-led approaches to these complex challenges in order to sustainably reduce demand for expensive, reactive public services.

2.6 The analysis in this note demonstrates that we can make significant progress towards reducing the deficit by 2020 by:

-          Investing in growth, for example:

• We want to work with Government to develop a new financing model that would support a range of projects for which more traditional funding approaches do not work well and where central and local government priorities converge. The initial case study relates to accelerating HS2 at Piccadilly but it is envisaged that the model could be adapted to have a wider applicability - for instance for developing town centres. We have been working to develop proposals that would accelerate development at Piccadilly to ensure that the city was HS2 ready and that the benefits of growth were realised as early as possible. We have a strong evidence base which shows that there is the potential to create 30,000 net additional jobs in the immediate vicinity of the station but that this will require early work to align and coordinate investment, bringing forward capital investment.  Without this, not only are the benefits not realised early but the whole area is at risk of blight and disinvestment for a 25 year period.

-          Reforming our public services, for example:

• Reducing worklessness in GM by 12%, as set out in the GMS.  This could save £250 million per year in direct benefits payments alone by 2020[2].  We have evidence of similar results achieved by intensively supporting our most Troubled Families by integrating public services around families and individuals, as set out below.  Our Work Programme Leavers example aims to support 15% of those with complex health needs back to work.  Our work on complex dependency will broaden and deepen these approaches to much larger cohorts, in particular those with longer term or recurring employment issues

• Improving health by integrating health and social care services to provide person-centred packages of support.  This will reduce future admissions to hospital and long-term residential care.  As we operate at greater scale, more of the potential savings become cashable.  Our GM ambition is to reduce mortality rates by 18% by 2020, double the trend rate.  If we could make an 18% reduction in reactive health spend this may free up £410 million of resource per year[3].  Even if only half of that were cashable, that would still save over £200 million.

• We are rolling out Intensive Community Orders for 650 young adult offenders across GM from June 2014.  As set out in our Community Budget business cases, this could save around £58 million per year by 2020 as we make significant inroads into the severity and frequency of reoffending, as well as supporting over a quarter of the cohort into work.

2.7 To reform services at this scale, GM needs a different deal with Government over the next Spending Review period.  Our priority for reform in 2014/15 is to generate stronger evidence that will convince Government to develop a different deal from 2015/16 to 2020.  This would involve, multi-year budgets for public services, places able to retain savings achieved through reform, deals to share risk and reward, and devolution of accountability.

2.8 We realise that our proposals are ambitious, and in some cases ground-breaking, but believe that if implemented they will enable us to move towards our objective of financial self-sufficiency and close the gap between taxes generated and the funding spent on public services in Greater Manchester.

3 OUR ANALYSIS

GM SPEND

3.1 As part of the financial analysis for the Public Service Reform programme, we have mapped out all of the spending on public services in Greater Manchester, in order to understand where expenditure currently goes, and the potential areas for making savings.

3.2 This has involved a detailed analysis of all government agency expenditure, based on the published accounts for each department. Some of the analysis has been taken from financial statements of agencies that are geographically based purely in Greater Manchester – e.g. the 10 Local Authorities, Greater Manchester Police, and the Primary Care Trusts (now Clinical Commissioning Groups).  Other budgets have been apportioned to Greater Manchester based on demand.  For example, Ministry of Justice expenditure is managed nationally, and has been allocated based on levels of recorded crime in Greater Manchester compared to national levels. Benefits spend, while administered locally is recorded on a regional basis, so we have been able to detail the spending on different benefit types across Greater Manchester.

3.3 In total in Greater Manchester, the public sector spent £22,460m in 2012/13.  This figure includes both revenue and capital expenditure.

3.4 Figure 1 below shows the key building blocks of this spend.  We have also compared to total spending in 2008/09.  As can be seen from the graph, the overall spend has stayed virtually the same in real terms, despite the reductions in funding to public services – the total spend in 2008/09 was £22,928m[4].  Although the total has stayed the same, the proportions of spending have changed, with large reductions in Local Authority (non-Dedicated Schools Grant) funding offset by increases in health spend, pensions and welfare benefit spend. 

3.5 In addition to looking at the overall spend profile we have considered whether there is any scope for reducing costs through greater focus on early intervention programmes.  For each element of spend for each government agency, we have assessed the proportion of spend which is proactive (i.e. designed to reduced dependency on the state in the short, medium or long term) or reactive as a result of poor outcomes occurring, such as responses to crime, unemployment or unplanned hospital admissions.  Of the £22bn of expenditure, approx £7bn is reactive spend, and therefore has the potential to be reduced by better focussed and targeted proactive spend.  The two largest areas of spend in this reactive category are welfare benefits and health and social care spending.  Therefore, the key to reducing the £22bn will be to focus on the NHS and DWP spending categories.

GM TAX TAKE

3.6 The other side of the public financing equation is the amount of taxation income from individuals and business that pays for the public spending.  It is more difficult to estimate tax take for a sub-region such as Greater Manchester as most taxation is collected nationally, and only figures for council tax and business rates can be easily determined for Greater Manchester.  In order therefore to estimate the taxation derived from Greater Manchester individuals and businesses, we have assumed that this is proportional to Gross Value Added (GVA). 

3.7 GVA is calculated at Greater Manchester level by the Office for National Statistics. In 2012, the figure was £50,991m.  Nationally taxation rates are approximately 35% of GVA, so using this proportion, we estimate that GM delivered approx £17.8bn of taxation revenue to the exchequer.

THE GAP BETWEEN TAX AND SPEND

3.8 GM has already made some inroads into the gap over the last year.  This is principally due to a 3.1% increase in GVA generated between 2011 and 2012, from £49.5bn to £50.9bn, which has increased the overall tax take.  This has been supported by our investments in economic growth:

-          Public spending was £22,460m in 2012/13

-          Total tax take estimated at £17,800m in 2012/13

-          Gap of £4,660m – down from previous estimate of £5,200m

3.9 Our aspiration is to close and then eliminate the c. £5 billion per year gap between total public spending and total tax take by 2020, so GM becomes a net contributor to the national economy.  This is based on a number of assumptions about the increases in economic growth and tax take that are supported by our investments in growth, and the reductions in public spending that could be achieved by expanding our reforms to public services

3.10 Drawing on GVA projections developed using the Greater Manchester Forecasting Model (GMFM), we can estimate the growth trajectory for GM tax income through to 2020.  The chart below illustrates an anticipated year on year growth rate in tax income of between 2.1% and 3.2% over the period, amounting to a net uplift of some 26% over the eight years from 2012-13, and resulting in tax income of an estimated £21.5bn by 2020-21.[5]

3.12 The savings we could achieve through our reform activity on worklessness, integrated health and social care and Intensive Community Orders have also been charted, to show the contribution that ongoing reductions in public expenditure could make to narrowing the gap and ultimately moving GM to become a net contributor to the national exchequer.[6]  Please note, these are only examples, and there will be other areas of reform that may also generate savings, for example, other element of crime, offending, justice and rehabilitation.

3.13 We recognise there will be a number of cost pressures in GM over this period on public spending.  Key pressures relate to people living longer, the increasing cost of health and social care, and any potential increases in benefits spend, which will relate to GM economic performance, and national policy decisions.  Many of the savings from reform will ultimately be used to better meet those budget pressures on partners while protecting key outcomes, rather than making additional savings.  Meanwhile, the OBR predicts public spending for local authorities, police and others will continue to fall in the early years of the next Spending Review.  A more detailed analysis will be developed of these pressures and reductions.  For the purpose of the current analysis we have assumed the pressures and reductions broadly offset each other, i.e. that the base scenario is total public spending continues to be around £22bn over the period.

4 OUR APPROACH TO GROWTH

4.1 Our approach to delivering growth is underpinned by our innovative approach to investment, focused on generating returns that can be recycled and reinvested, maximising the value of every pound spent. 

4.2 Greater Manchester has been at the forefront of this agenda from the outset. Our approach builds on the unique Greater Manchester Transport Fund (GMTF), established in 2009, which combines central government transport funding and significant local borrowings. The GMTF is supporting a £1.5 billion investment programme of targeted transport measures, which will be completed in 2016, specifically prioritised for their ability to support increased sub-regional productivity and growth, whilst also securing improved access to employment from our most deprived areas and carbon benefits at a programme level. 

AN INVESTMENT FUND FOR PROPERTY AND INFRASTRUCTURE

4.3 The Greater Manchester Investment Fund (GMIF) is a virtual pool of c£100m of RGF2, RGF3 and Growing Places monies, held by the GMCA and directed at supporting economic growth across Greater Manchester.  GMIF is also closely linked to other externally managed funds such as the North West Evergreen Fund and the GM Loans Fund, giving a Fund of Funds of approximately £160m. 

4.4 We propose to invest a total of £106.5m of ERDF into Financial Engineering Instruments (FEIs) - £59m into Evergreen (JESSICA), £32m in the NW Fund (JEREMIE), £15m into a Low Carbon Investment and £0.5m into a Local Impact Fund. This investment into FEIs is an integral part of our European Investment Plan and we have ensured that the FEI investment is directly aligned to EU thematic objectives.

4.5 We are also seeking to provide a platform that encourages other partners to invest in the fund, including public sector partners such as the GM Pension Fund, and private sector investors, including banks and venture capitalists, thereby increasing the amount of funding available to support GM investment priorities. 

4.6 Whilst there are specific requirements attached to each element of the GMIF, the overarching objective is the creation or safeguarding of jobs, with a secondary objective of recycling funding wherever possible in order to maximise the impact of the funding over several investment cycles. 

4.7 It is a radical approach with the potential to deliver growth at a pace unachievable if we were to only focus on delivering individual funding streams.  £83.7m of projects have been approved to date, which are forecast to create or safeguard 7,550 jobs.  Our success in deploying capital has driven an expansion of our project pipeline and a corresponding increase in funding requirements.  In response we are developing a game-changing funding offer to complement existing and forthcoming funding streams.  Our ambition is to create a fund with an investment capability of £500m.  In conjunction with recycled Evergreen and other GMIF funds there is a potential opportunity to leverage a EIB facility in order to present a comprehensive funding offer to project applicants of senior and mezzanine debt, equity –style finance and grant funding for projects.

4.8 In addition we have ambitious proposals to work with Government to develop a new model of local-central financing that will support delivery of long term transformational investment that drive economic growth over the long term.

4.9 By prioritising projects on the basis of economic and employment benefits we have been awarded funding that will better support the growth of GM businesses.  Airport City has been designated an Enterprise Zone; MediaCityUK is a national hub for digital and creative industries; and we have secured investment in transformative initiatives such as the establishment of the National Graphene Institute and the Sharp Project.  We have brought forward key strategic sites such as Kingsway, Cutacre and Ashton Moss, and are investing in transport links to open up more strategic sites to the North of the conurbation.  We are developing unique and lasting plans for the revitalisation of our town centres, including the provision of value-driven flexible work space, access to high-speed digital connectivity and integrated public services, the development of creative clusters, strengthening the links with education establishments and creating pathways to business incubation and job creation. We have created the UK’s first Low Carbon Hub to pioneer new ways to deliver a low carbon economy and we have successfully worked with other cities to make the case for greater investment in the North on the basis that it will help to grow the UK economy as a whole.  Our investment in a 21st century transport system, including the expansion of the Metrolink and our support of Northern Hub rail schemes, demonstrates our determination to continually improve the transport offer, and to encourage the development of further transformative proposals such as the devolution of rail franchising and the development of High Speed Rail.

4.10 Updated GVA for 2012 released shortly before Christmas indicate that this approach is bearing fruit.  Greater Manchester’s GVA rose from £49,461m in 2011 to £50,991m in 2012, a rise of £1,530 million, or 3.1%.  This is almost double the national average increase of 1.7% and the highest growth rate in the country outside of London and the South East.

5 OUR APPROACH TO REFORM

OUR WORK TO DATE

5.1 Our work on public service reform to date has involved applying core principles, based on Troubled Families ways of working:

• integration, sequencing and prioritisation of public services to form bespoke packages of support, coordinated by key workers
• deploying interventions with a strong evidence base
• integration of services on a whole family basis, not just for individuals

5.2 All our work on reform is underpinned by a commitment to generating strong evidence, building on our leading work to develop a Cost Benefit Analysis for reform, with Treasury and other departments.  We are also developing new investment models alongside new delivery models to enable those partners that benefit from reform to jointly invest, and realise a return as demand for expensive, reactive services is reduced.  Over time, the savings generated from decommissioning services no longer required will be reinvested in further scaling up.

5.3 Accelerating public service reform will require a different approach.  We are developing proposals for two types of fund: a development fund and an investment fund.  Development funds will provide the resources for investment in a pipeline of reform propositions.  This will enable us to develop our evidence base to give GM partners the confidence to invest mainstream resources.  Local authorities will hold their own development funds as well as contributing to a GM fund to support those programmes where GM is sharing risk and reward with Whitehall.  Development funds will, wherever possible be matched by European funding.  Over time, we will develop an investment fund for reform, as a recyclable fund through which resources are invested and savings accrued for further investments on an on-going basis.

5.4 Significant evidence has been generated about the impacts of reforming public services on key outcomes and on public spending, for example:

• The Troubled Families programme which leads to savings for a broad range of partners, including Local Authorities, Greater Manchester Police, Housing Providers and Health partners.  Recent findings from the Manchester Troubled Families programme evaluation working with 294 families identified a 73% reduction in offending and an 86% reduction in police call-outs, with savings to the criminal justice system and GM Police respectively.  Other notable findings include a 40% reduction in need for safeguarding provision (looked after children, Child Protection Plans and Child in Need), and a 64% reduction in domestic abuse.  Applying similar approaches to a much broader cohort through our work on complex dependency could make a significant contribution to the £250 million per year savings outlined above.

• Our Health and Social Care integration programmes which will reduce hospital admissions and costs to the acute health sector, through greater coordination and preventative support and treatment in the community.  For example, in Wigan, Integrated neighbourhood teams are providing bespoke packages of support for those at high risk of readmission to hospital.  Initial evidence from one year of working with 2990 such individuals has demonstrated a 41% reduction in non-elective admissions, 38% reduction in A&E attendance, and a 17% reduction in outpatient attendance.  Applying these approaches at scale could help to reduce mortality as outlined in the GMS and make a significant contribution to the potential £410 million benefits outlined above – while recognising there will also be significant cost pressures in the health system and national policy frameworks about health spending to work within.

• The Intensive Community Orders programme which through intensive rehabilitation and support of prolific offenders in the community has lead to 27% gaining employment, and a more than 50% reduction in the severity and frequency of offending.  We are rolling out ICO to 650 young adult offenders across GM from June 2014.  This could save around £58 million per year by 2020 principally from lower costs of criminal justice and policing.

• Our Early Years programme, which will impact on school readiness and parental employment of parents, reduce the need for Special Educational Needs support in schools, and reduce health costs.  There could be significant longer term benefits from higher earnings and employment as the children enter the labour market, of up to £400 million additional GVA.

OUR PRIORITIES

5.5 Our priority for reform in 2014/15 is to gather stronger evidence about the impacts on key outcomes and spending in two major areas, tackling issues of complex dependency, and integrating health and social care.  From 2015/16, we need to be implementing reform at much greater scale across the conurbation.  This is essential to meeting our GMS priorities on growth as well as reform – ensuring people have the skills they need to access growth opportunities, supporting our employers to be more productive, significantly reducing worklessness, and sustainably reducing public spending.

5.6 We are seeking to develop stronger evidence of the impact that reform has on key outcomes, building on our Whole Place Community Budget pilot and ongoing work with Treasury, DCLG and other departments to provide the evidence and scale to inform the 2015 Spending Review.

5.7 Based on the GM Strategy priorities, our two ‘big ticket’ items are tackling ‘complex dependency’ (which includes early years and worklessness and low skills) and ‘integrating health and social care’.

COMPLEX DEPENDENCY

5.8 Our work on complex dependency will extend the Troubled Families ways of working to other cohorts, including offenders, those with complex health needs, and those at risk of becoming troubled.  This would significantly scale up the good results already achieved and have a stronger employment focus. 

5.9 During 2014/15, GM will work intensively with subsets of the complex dependency cohort to gather stronger evidence:

• For the cohort of Troubled Families covered by the first phase of the national programme, gather stronger evidence of the impacts on a range of outcomes including employment, offending, health and school attendance
• Roll out Intensive Community Orders for young adult offenders across GM, and gather evidence about the impact on reoffending and employment
• Implement Work Programme Leavers, which will evidence the effectiveness of a better integrated, more intensive support for 5,000 Employment and Support Allowance (ESA) claimants who have been on the Work Programme for two years and not found work.  The aim is 15% of the cohort are supported into sustained work;
• For a cohort of adults of working age with complex health needs, who are also within complex dependency cohorts, develop and test new models of integrated out of hospital care

5.10 GM also wishes to work with Government to co-design a number of other tests of complex dependency during 2014/15:

• GM to be an early adopter of Troubled Families approaches to the next phase of families in the national programme.  GM wishes to start working with these families during 2014/15, and gather evidence with Government to national roll-out in 2015/16
• Early testing of the support services element of Universal Credit (UC) for those with more complex needs including some individuals and families who cycle in and out of low pay, no pay jobs.  This would build on UC pathfinders in Tameside, Wigan and Oldham
• Integrated support for those with health barriers to work who become new ESA claimants during 2014/15 and possibly 2015/16.  This would be a variation on the WPL model but for a cohort of people who have just started claiming ESA, not been on ESA and the Work Programme for two years, so it would test whether intervening earlier through an integrated delivery model is more effective. 

5.11 The evidence generated could inform a different deal for GM in the longer term to tackle worklessness for those with complex barriers to work, from 2015/16 to 2020.  Options include a place-based carve out for the next phase of the Work Programme (from the point those contracts are let) for those flowing on to ESA, or, GM and Government co-commissioning support for these groups

HEALTH AND SOCIAL CARE INTEGRATION

5.12 In terms of improving health outcomes by investing in integrated health and social care, we are developing models of integrated out of hospital care that will reduce admissions to hospital and long term residential care.  To support this we are asking Government to:

• encourage sustained investment in H&SC integration, building on the Better Care Fund, including multi-year budgets for Clinical Commissioning Groups and local authorities from the 2015 Spending Review period;
• proactively support the development of new local contracting arrangements such as Alliance Contracts, encouraging all partners to invest collectively in interventions that reduce pressures on acute services;
• work collaboratively with GM and organisations such as Monitor to ensure these approaches deliver sufficient competition, patient choice and value for money.

6 CONCLUSION

6.1 To summarise, the Greater Manchester approach to Growth and Reform is having a significant impact, even within the current framework that we operate in.  Our analysis shows that, if empowered to take control over the levers and resources which impact on our ability to deliver economic growth and to improve the quality of life for local residents,  by 2020/21, tax take in Greater Manchester will have risen to £21.5bn and public expenditure will have fallen to £20.9bn.  Securing the financial self-sustainability of Greater Manchester is a realistic ambition.

6.2 But to achieve that ambition it is essential that financial capacity is aligned with functional economic areas so that growth and public service reform strategies can be integrated to support competitiveness and labour market productivity.

6.3 Fiscal devolution should be built around a new settlement between central and local government based on risk and reward, which incentivises local investment - thereby rewarding growth and reducing dependency. This will enable places to develop greater self sufficiency and is crucial to enable government to meet the financial challenges which lie ahead. The devolution of substantial fiscal powers should be contingent on the ability of places to demonstrate the robustness of the functional economic area concerned and effective structures for local leadership, decision-making and accountability for that area.

6.4 We believe that Greater Manchester is uniquely placed to work with Government to design how this could work in practice.

March 2014