Q&A with Paul Woods

After 33 years serving as Newcastle City Council’s chief finance officer, Paul Woods finally stepped down earlier this year. But he couldn’t keep away from the world of local authority finance for long, and has now taken up an equivalent role for the newly-created North East Combined Authority. He spoke to us this week about how localism is helping the region plan for growth.

Room151: Congratulations are in order

Paul Woods: Yes. In June, the team at Newcastle won the 2014 Municipal Journal achievement award for innovation in finance. The judge singled out the £200m Stephenson quarter development for praise. It had been empty for many years, and was on the verge of being redeveloped when the property crash struck. The council came up with a package of measures – we bought the site from the developer and provided a mezzanine loan of £15m for a hotel development. It is a risk but if successful the loan finance will provide a total return of 11% on the original investment.

R151: Tell us about the North East Combined Authority?

PW: The authority covers the seven local authorities of Durham County Council, Gateshead Council, Newcastle City Council, North Tyneside Council, Northumberland County Council, South Tyneside Council and Sunderland City Council. It has devolved powers over economic growth, skills and transport. It is the responsible accounting authority for the North East Local Enterprise Partnership, which covers the same area.

R151: What advantages does a combined authority have over a coalition of individual authorities?

PW: Firstly, it enables a more strategic view. As a combined authority we can also make a stronger case for decentralised funding to government.

R151: What funds are you looking after at the combined authority?

PW: The LEP has a complicated set of funding arrangements. We have had about £55m from the government’s Growing Places Fund, plus funding from the Department for Transport. We also had £47.9m of new funding confirmed for 2015/16 and £69.6m for 2016/17 to 2021 through a growth deal announced with Whitehall.

R151: What techniques are you using to maximise the funding?

PW: If we can create revolving funding mechanisms then we will be able to significantly increase the levels of funding. The LEP has already developed the first of these. A recent set of requests to the partnership wanted revenue funding but there were restrictions meaning it could only give capital funds. We put in place a mechanism whereby the combined authority was able to effectively swap some of our revenue funding for its capital funds. We have a revenue stream from the Tyne Tunnel which is used to pay off the debt from construction costs. We have been able to release £4m of this funding to the LEP this year, with more to come in future.

R151: What other opportunities could this provide?

PW: There are currently significant revenue reserves within the combined authority which are only earning a small interest return. I am hoping to explore with the LEP plans to use this cash as a loan fund for businesses. It would be a win win situation – increasing our return, while helping create more jobs.

R151: How else could the toll revenue help?

PW: We have an opportunity to use some of the future income from the tunnel to boost transport investment – we are working with the LEP to see how this might work. Before 2005, income could only be used to fund the repayment of construction costs and maintenance. After that date, the rules were revised which means we can be more flexible with the cash. There is an opportunity there to borrow against the expected surpluses over the next 50 years or so. The toll stream – currently around £24m a year – should have a life of 140 years but 50 years is a more realistic timescale for borrowing.

R151: How are the area’s enterprise zones progressing?

PW: The income from growth in business rates is already running ahead of expectations. Our model didn’t assume any income in the first two years up to 2015. However, we got more than a million in the first year, and are anticipating about the same this year.

R151: How is this affecting the strategy for the zones?

PW: With property consultancy DTZ, we are working on a revised model of how we use the business rates income. The original model was cautious – you repayed all the borrowing on the infrastructure before looking at spending any surpluses. However, now the LEP is attempting to be more creative and refresh the modelling. This could enable revenue spending on other economic development projects within the zones to come forward to an earlier date. It could also enable the creation of further zones and economic development strategies.

R151: How would you improve the enterprise zone arrangements.

PW: At the moment, borrowing for the infrastructure is done by individual local authorities, but the increase in business rates income is paid to the LEP. The LEP then repays the authority. This is a complicated arrangement and makes it more difficult to manage the risk. The situation would be made easier if the combined authority was allowed to borrow for economic development purposes, which is not the case at the moment.

R151: What other opportunities are you looking at?

PW: I am getting a lot of support from Pat Ritchie, the chief executive of Newcastle City Council, to develop a much longer plan for transport in the area – up to 20 years ahead. This could cover rail infrastructure, including the £15bn One North rail project mooted recently and extensions to the Metro system.

R151: Would the combined authority look to invest in or borrow from the proposed municipal bonds agency?

PW: It is too early days for us at this point in time. I haven’t talked to anyone from the LEP. There is no borrowing requirement from us in the current year but clearly in due course we will be looking at all the opportunities that are available if we need to borrow.

R151: How else can local authorities cooperate on borrowing?

PW: What would help combined authorities and individual authorities work would be for the Public Works Loan Board to reinstitute the power for authorities to transfer debt between each other. This could help the pooling of debt. The fact this stopped was unfortunate and I will be raising it as an issue with PWLB as a mechanism for creating greater local flexibility to manage resources.

R151: How are you finding your new role?

PW: The most amusing thing is that I am no longer a section 151 officer. The original 1972 local government act did not cover transport authorities. When they were created in 1985 a new role was created under section 73 of that act. I am a section 73 officer, which is appropriate as I am working about half the hours I used to work. I still don’t know if I am the only section 73 officer in the country – most of them also have responsibilities as a section 151 officer so go by that title.

Photo (cropped): Newcastle by Night by 96tommy is licensed under CC by 2.0