Never the place for sudden, revolutionary transformations, the UK has always shied away from massive infrastructure investment programmes.
Those who expected the chancellor to put an end to this pattern have been sorely disappointed. A conservative £23bn injection the UK’s infrastructure spending is well short of the estimated £50bn gap between current spending and pre-crisis trends. As a nation we invest less than 2% of GDP in infrastructure, which is less than half what France or Germany spends and well below the 3.5% recommended by the Organisation for Economic Co-operation and Development.
There is, however, one aspect of the UK’s approach that is quite radical: the centralised nature of our infrastructure funding. The direct effect of this system is a massive imbalance in infrastructure investment between north and south, to the tune of £1,590 per person.
Central government seems neither willing nor able to invest in the infrastructure the north needs. Projects such as Crossrail and HS2 are prioritised over smaller investments that would yield greater returns, such as improving commuter links in the north’s city regions. The local capital spending that does take place lives up to its name, given its extreme concentration in London.
Councils have faced deep cuts to their budgets, diminishing their capacity to deliver frontline services, let alone any new capital spending. With the chancellor neglecting to mention social care in his autumn statement and deciding to cut business rates just as they are devolved, these conditions look set to continue.
The continued failure to invest in the infrastructure this country needs will reduce productivity, limit growth and exacerbate the extreme regional economic imbalances. So will this new fund buck this trend? Initial signs suggest not, with announcements apparently favouring an Oxbridge superhighway over Northern Powerhouse rail. We can but hope this is just a matter of timing and further announcements will follow.
Rather than waiting for crumbs from London’s table, perhaps the Northern Powerhouse would do better to explore new ways of investing in infrastructure to live up to its potential.
In an upcoming report, Financing the Northern Powerhouse, the Institute for Public Policy Research North will seek to challenge the conventional wisdom that infrastructure projects must necessarily be funded up front by central government. The report will identify innovative new methods for financing the local infrastructure projects the north desperately needs.
From long-forgotten relics such as municipal bonds, to international innovations such as tax increment financing, we will work with to shed light on tried-and-tested methods that have been used to finance local infrastructure projects in the UK and around the world. We hope that our solutions will enable Transport for the North, the consortium of northern councils and local enterprise partnerships, to finance the schemes it has prioritised for development.
In recent years, local government has proven to be one of the most innovative and efficient parts of the public sector. The government’s commitment to give elected mayors powers over borrowing is a welcome acknowledgement of this. With a particularly conservative chancellor at the helm, the task of delivering an economy that works for everyone rests in our own hands.
Grace Blakeley, researcher, IPPR North