The Conservative Party leadership election was always going to centre on what the UK’s Brexit negotiation strategy should become. But while this will inevitably be the immediate priority for the new administration, it will be domestic policies that end up determining the long-term economic prospects of London and the UK – and, of course, the success of the new Government.
The newly appointed Prime Minister, Boris Johnson, has outlined some policies on domestic issues – although these have yet to be fully fleshed out. However, it is already clear that infrastructure will need to be at the heart of economic policy: our nation is divided, and the Prime Minister will need to use infrastructure policy to help bridge regional divides and re-unify the nation. This theme will be central to the discussion at London First’s annual London Infrastructure Summit in September.
We know that an uplift in infrastructure investment is needed across the UK. Sir John Armitt, Chairman of the National Infrastructure Commission, has called for an increase in long-term public spending on infrastructure to 1.2% of GDP per year, which would be the upper limit of the agreed guideline set out in the National Infrastructure Assessment.
The private sector will also play its part. Of the expected £600bn national infrastructure pipeline over the next decade, the Government is expecting half of the investment to come from private sources. However, investment alone will not be sufficient to deliver an effective long-term infrastructure strategy. The new Government will need to mitigate risks to delivery, too. This includes dealing with growing political and regulatory risk, addressing worrying signs in the financial health of the UK’s construction industryand developing models to facilitate investment in new technologies.
The HM Treasury Infrastructure Finance Review, which is due to report at the Spending Review, will be a crucial part in addressing these challenges and helping to deliver London’s infrastructure pipeline. Much of the capital’s pipeline will boost the economic prospects of the UK as a whole. In particular, a third runway at Heathrow will create domestic and international connectivity. We need a firm political commitment to this project and expansion of capacity at Gatwick, Stansted and London City airports.
There are also, of course, infrastructure projects in the pipeline that are essential to keeping London itself globally competitive and better connected. Upgrades to the Piccadilly line to increase capacity, an extension to the Bakerloo line and market-led proposals for new rail routes to London’s airports, and of course Crossrail 2, are just some examples of the new transport projects needed to relieve capacity constraints and meet future demand for public transport in London and the South-East.
The bulk of transport investment, airports and ports apart, traditionally comes from the public sector. Even though the central government pot for infrastructure is set to grow, London will need to be prepared to be innovative, as it will be competing for resources with regions where infrastructure has been historically underfunded. This means that London requires new localised funding streams. New funding models, such as land value capture, need to be developed in parallel with greater fiscal devolution. Whitehall and the Greater London Authority need to work together to deliver these kinds of reforms.
Overcoming challenges in delivering an adequate pipeline of investment in the capital’s non-transport infrastructure, almost all of which is provided by the private sector, will also be important for London’s future success. For example, the capital’s water infrastructure will need to cope with the greatest projected increase in risk of drought anywhere in the UK, and electric vehicles are already connecting to the electricity distribution network operated by UK Power Networks faster than anywhere else in the UK. Regulators need to incentivise operating companies meet these needs.
Delivering the future infrastructure pipeline in London and the UK must take centre stage in the coming years. A primary objective for Mr Johnson’s economic policy must be to use the upcoming Spending Review to make a strong commitment to infrastructure spending and ensure that the policy environment is conducive to private investment. Failing to do so will be hugely damaging Britain’s future competitiveness.
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