Infrastructure finance & delivery: Seize the moment!

Proposition

Public sector resources for civic infrastructure remain largely unchanged, at around £200bn over 4 years, even following the Comprehensive Spending Review: but this continues to be significantly less than what is needed, and is not effectively integrated into spatial planning and local delivery arrangements.

We need new ways of:

  • integrating public resources with private sector investment,
  • ensuring that planning provides certainty sufficient to give investors confidence, and
  • attracting global capital to the UK, against competition from other economies.

However, this must be capital looking for long term sustainable and productive investment opportunities that no longer rely on the speculative and inflationary increases in land and house prices that have so damaged the economy in recent years.

Key Points

What is infrastructure?

"The basic physical and organizational structures needed for the operation of a society or enterprise… specifically, the services and facilities necessary for an economy to function."

Infrastructure investment needed now

Successful places are about much more than just development, but it is infrastructure that is essential to making places work, and investment into this needs to continue throughout the economic downturn.

The role of the public sector statutory bodies, especially local authorities, is crucial in the provision of infrastructure. Even in difficult financial conditions, it is imperative that the provision of infrastructure remains as a core enabling and integrating function, through local political leadership and empowerment, with teeth.

There are many challenges ahead in realising the infrastructure needs of the UK. Ageing existing infrastructure, a difficult economic backdrop and a new, largely untested planning system are just three of these. There is also an increasing urgency for new types of infrastructure to be provided, particularly energy, to ensure a stable future for UK plc and protect it from supply shortages and price volatility.

The importance of scale and picking winners

With the prospect of a prolonged shortage of capital, only those projects which can deliver on their promises should receive financial support. Priority must be given to those services and developments that add value. Local Authorities and other decision-makers must be supported to cut other projects that do not meet these tests.

But 'picking winners' does not mean supporting a development just because it is easy and can be made to happen. Development should only go to those places where investment can produce long term sustainable regeneration or growth. We cannot afford to invest wastefully in unsustainable places, just because the sites are available.

Intervention - by whom and when?

Government is seeking to move away from mandatory policy, and instead empower local authorities, parish and town councils to get more involved in decisions that affect them directly. For example, local public health directors will be moved out of the NHS and into local government, as part of a major re-structure. It is believed the wider remit of councils in areas such as housing, transport and leisure puts them in a stronger position to tackle smoking, drinking and obesity in England.

Another example is contained in the Localism Bill, where parish and town councils are being encouraged to use their right to challenge local authorities' service provision and to take over services where they can demonstrate better quality and value for money. There is, therefore, the potential for active participation by local government, at all levels, not just in setting its own infrastructure requirements, but then also a role in the subsequent delivery.

Local Economic Partnerships and the link between infrastructure and the economy

The value of infrastructure in driving economic development is accepted. Whilst schemes such as London's Docklands and the Channel Tunnel/High Speed Rail Link may have their detractors, they have demonstrated that infrastructure investment can act as a catalyst for economic development. Milton Keynes is another good example of a new place that focussed its growth around a road, rail and retail strategy that has matured well.

It is important to understand that some infrastructure, such as strategic rail, often spans beyond district and county boundaries, and therefore requires models that allow larger administrative areas to collectively fund this delivery. Historically, this has been difficult to administer, despite the existence of strategic bodies such as Regional Development Agencies (RDAs). Moving forward and with the introduction of Local Economic Partnerships (LEP's) there is the potential for a group of local authorities to promote and deliver infrastructure for a much larger area, so that they can draw on a larger network of partners for financial support.

The recent budget recognised the importance of infrastructure when it announced plans to invest £200m in regional railways schemes, including £85m for the Ordsall Chord link between Manchester's Victoria and Piccadilly Stations. This significant project will reduce journey times between Liverpool and Leeds, but more importantly will create improved transport links along the route, unlocking development and investment opportunities along the way.

Toolkit of infrastructure investment

  1. The traditional S.106 model is now broken and unlikely to change in the near future as many development sites are unviable, and unable to afford to provide such benefits. The Community Infratsructure Levy (CIL) Regulations also reduced the scope of S.106 Agreements applying more stringent tests of legitimacy.
  2. Tariffs and CIL – where developers pays a set rate for infrastructure, and when the pot is big enough, the Local Authority provides the services eg Milton Keynes where this has worked effectively through different economic cycles. CIL is still to get going, and only a small number of authorities have published their charging schedules. It still relies on developers to pay up front, and with the current recession, it may be some time before it returns as a meaningful amount for any Local Authority. In the future, a CIL/tariff pot may be used to pay for a much wider range of services. Indeed, the Localism Bill envisages a proportion of CIL payment to be reserved for use by local communities, administered by Parish Councils, to mitigate the impacts of development. Whilst this is currently envisaged to be used for a variety of projects, it could be restricted to ‘infrastructure projects’ to ensure every investment opportunity is exploited.
  3. Tax Increment Financing (TIF) – where local authorities are able to borrow against predicted growth in their locally raised business rates to finance infrastructure delivery. There has been lots of interest with pilots submitted to Government, but it is still lacking the essential legislative framework
  4. Public sector assets – under decentralisation powers, it may be feasible for local authorities to make investment decisions about their own property portfolio in the future. Using assets to raise finance to fund key infrastructure is to be encouraged as part of the Government’s wider policy of decentralisation.
  5. New Homes Bonus - a central government grant for new net additional homes in a council area, will be available to encourage local authorities to release land for new housing. Based on receiving the equivalent of six year’s worth of Band D Council Tax for every new home, it will cover some of the additional costs of infrastructure, but, being payable only on completion, will limit some local authorities’ ability to have the infrastructure ready before new people move in.
  6. Land use auctions – announce in the recent budget saw an announcement as a pilot initiative for public sector owned sites. Prospective developers will bid to buy land with planning permission guaranteed from local authorities, which would then profit from the resulting uplift in values.

Key Messages

National Politicians

'Lead and they will follow'. Provide the legislative and institutional investment framework, eg Green Infrastructure Bank, that will give local authorities the comfort they need to make decisions.

Local Politicians

'Get on board or get left behind'. Be bold and establish sustainable investment partnerships to meet needs known to exist, or known to be emerging.
'Build and they will come' but be choosy and only support projects that can drive economic activity.

Local people

'Nowhere is isolated from global forces for change' Acknowledge that, without change and growth, society and services will crumble

Landowners

'Land is for investment, not speculation'. Recognise that fair gain, not exploitation of the planning system, is the responsible way forward

Planners

'Better, not less or no planning'. Simplify plans and processes. Focus on what is strategic and difficult.

Infrastructure Providers

'Development follows infrastructure, not the other way round' Recognise that they are the initiators and precondition of growth.