Though the media headlines focused on big changes to capital gains tax, last month’s Comprehensive Spending Review and Pre-Budget Report moved the devolution debate forward substantially – proposing a range of new funding tools for Britain’s cities and towns. Business rate supplements, an improved LABGI, and a new planning charge will give our cities more financial power to deliver infrastructure than they have seen in years.

However, these new tools are only half the story. Cities don’t just need to raise revenue for development – they also need to deliver it. And given the tighter public spending picture, a renewed effort is required to combine public- and private-sector resources to deliver economic growth.

Local Asset Backed Vehicles (LABVs) – arrangements that allow local authorities to package together their land assets with long-term investment from the private sector – may enable some cities to finance and deliver large-scale regeneration and housing projects.

Why LABVs? Unlike other delivery arrangements, they would allow councils to retain a long-term stake in development, and a share of the returns – instead of flogging off precious assets to developers on an ad hoc basis. Additionally, they offer councils a way to plan development citywide – or even across local authority boundaries.

To date, however, no councils have taken the plunge, suggesting that a number of barriers still need to be overcome before the model can be used to unlock local growth.

Do we need new delivery vehicles?

In recent years, many British cities have enjoyed a renaissance. However, Britain still has two-track cities – with some more successful than others in generating economic growth. Even cities that have done well still contain persistent pockets of deprivation.

Over the past two decades, both Conservative and Labour governments have proposed a range of acronym-laden delivery models to unlock local economic growth.

But cities continue to find it hard to attract investment to difficult sites, deliver essential infrastructure projects and create high quality business environments – all of which are fundamental to regeneration and development. Existing delivery models are sometimes criticised for being overly complex, and lacking the resources and legal powers needed to deliver growth. Because of these concerns, there has been a growing debate around whether new vehicles are required to deliver specific local growth objectives – with LABVs as one highly-touted option.

LABVs explained

LABVs are designed to bring together public and private sector partners in order to pool finance, land and expertise; to minimise risk for private investors; and to plan and deliver projects more strategically. Given cities’ varying assets, capacity, and regeneration ambitions, every LABV will be unique – and tailored to the needs of an individual urban economy.

To make a LABV function effectively, cities need to identify a pipeline of major projects, develop a mixed portfolio of assets to put in to the vehicle, undertake economic modelling, and build management capacity and stable political support.

By bringing together planning powers, land, finance and expertise, LABVs could allow some cities to unlock significant additional investment for regeneration projects, raise the standard of project management, and even create a ‘self-sustaining cycle’ of regeneration funding, if returns are re-invested to finance other development projects.

Area-based vehicles are already in action today at the regional level, including the East and West Midlands and the North East. British Waterways has also created a vehicle, Isis Regeneration, to unlock development on its own complex sites.

Unsurprisingly, given the potential benefits, a number of cities are now interested in the LABV model. Several cities, including Newcastle-Gateshead, Hull and Sheffield, are actively investigating LABVs – and how they could work together with proposed City Development Companies.

Central government is also keen. Whitehall has long encouraged local authorities to pursue new and innovative delivery models, and the recent Housing Green Paper outlined proposals for a new kind of LABV – Local Housing Companies (LHCs).

The Government has realised that its ambitious house-building targets – 3m new homes by 2020 – will require a major delivery boost. The new targets represent big challenges for many cities and towns, and LHCs are intended to help councils to deliver them.

Fourteen LHC pilots are currently being launched across the country, in cities as diverse as Bristol, Wolverhampton and Newcastle. However, their detailed operation still remains unclear. Ministers have proposed to use LHCs to draw together public-sector land, English Partnerships funding and private-sector resources, with LHCs acting as ‘master developers’ for communities within a designated area.

To LABV, or not to LABV?

LABVs are not right for every city. Some cities do not yet have the diverse project ‘pipeline’, the right mix of valuable assets, or the willingness to pool those assets in a public-private vehicle.

Those cities that do have the right mix of assets still need to consider their options carefully. LABVs require significant resource commitments; councils must invest in economic modelling, personnel, and long-term management structures to get it right. And many councils lack the capacity to develop and stick with the complex governance arrangements that LABVs require.

Politics provides an additional challenge. Stable, cross-party support is required, as a single LABV is likely to outlast a number of changes in council control. Other key stakeholders, including the local business community, must also be involved in the design and delivery phases if a LABV is to function effectively.

A LABV is a means to an end, rather than an end in itself. As they seek to achieve their regeneration and growth goals, cities must be clear on what they want to achieve, why a new vehicle is needed, and whether there is sufficient political will and capacity to enter into a long-term development arrangement. Otherwise, LABVs could just become another economic development acronym – rather than a vehicle to unlock and deliver local growth.

Download City Solutions: Delivering Local Growth by Ben Harrison and Adam Marshall.