Ed Cox IPPR North International Festival for Business 27 th June 2014

1. Northern Prosperity is National Prosperity: the Role of Infrastructure in Driving Regional Economic Growth EdCox IPPR North International Festival for Business 27th June 2014

2. Outline • The importance of infrastructure • Current UK policy and investment patterns • Northern challenges and opportunities • Transformational infrastructure – what is it? • Northern infrastructure plans – examples and ideas • Questions for discussion

3. What is it? Infrastructure is the “economic arteries and veins; roads, ports, railways, airports, power lines, pipes and wires than enable people, goods, commodities, water, energy and information to move about efficiently.”[Economist, 2011]

4. Infrastructure Effects LSE’s growth commission concluded that: ‘well-designed infrastructure investments have long-term economic benefits; they can raise economic growth, productivity, and land values, while providing significant positive spillovers. However, investing wisely in infrastructure is critically important as over-investment can lead to projects that are inefficiently large, and therefore have low marginal returns’ (LSE; 2012)

5. Infrastructure Effects Research by the OECD found that infrastructure investments could be targeted better towards weaker economic regions: ‘Among the less developed regions, those growing faster than the national average appear to have more infrastructure, better human capital and higher density of activity relative to the underperforming group’ [OECD; 2012]

6. Furthermore, the NEFC highlighted OECD’s key growth drivers for fast-growing intermediate regions: • Skills & mobilisation of the labour force • Infrastructure & connectivity • Innovations – especially patenting & collaborative activity • Co-ordination of local assets in relation to growth sectors • Strong and stable institutions & policies All underpinned by access to finance

7. The role of the public sector The extent of current public sector investment differs widely by sector, largely on account of privatisation, and the ability to lever in private finance. Whilst public investment in infrastructure is not necessary for all projects, or in all cases, public finance is essential for two reasons: • Address market failure • Distribute the costs of infrastructure fairly (see NAO; 2013) The public role extends beyond money, into ensuring that coordinated spatial plans are in place (see NEFC; 2012) and that the policy environment is right.

8. Current UK Policy and Investment Patterns

9. UK Public Policy Context The UK is in an unusual position amongst developed economies, as 60% of its key economic infrastructure is held privately – Australia is next at 30% (Armitt; 2013) Consequently, public policy across (most) sectors must focus on co-ordinating private interests. Source: NIP; 2014

10. Coalition Position The government believes infrastructure is ‘critical to support economic growth through the expansion of private sector businesses across all regions and industries, to enable competiveness and to improve the quality of life of everyone in the UK’. Government’s key role is to specify what infrastructure is needed, to identify the key barriers to achieving that investment and to mobilise the resources, both public and private, to make it happen. [HM Treasury; 2010] The Coalition’s National Infrastructure Pipeline cuts across three main priority areas: • An integrated transport system • Advanced digital communication networks • Sustainable, reliance, and affordable energy, water and waste networks.

11. Future investment plans differ by sector Source: NIP; 2014

12. National Infrastructure Pipeline by Region (£ per capita ) Source: NIP; 2014

13. Transport Per Head (NIP) Source: NIP; 2013

14. The long view Imbalances in (total) transport investment are nothing new (£pp). Source: PESA; 2012

15. All Economic Affairs (% total)

16. Projects by stage ofdevelopment Source: NIP; 2014

17. Northern challenges and opportunities

18. What does the North need? • Transport connectivity – local & inter-city? • Improved logistics? • Additional airport capacity / connections / long haul flights? • Digital revolution? • To exploit natural assets to drive growth?

19. Assets to harness LAND The proportion of previously developed land that is vacant or derelict is 4.6 per cent for the North compared to just 1.7 per cent in the South East. WATERAvailable water is concentrated in the north and west of the country[EA; 2009] ENERGY For renewable energy the north has the land, the coastal sites and the offshore allocations from the Crown Estate to make a significant contribution in a sector which would build on its industrial history and residue of technological orientation and skills. Significant supplies of shale gas

20. Specific Disadvantages The regions of the North face several challenges to attracting infrastructure: • Economic viability • Population density • Imbalances in public expenditure • Political fragmentation These impact on the ability to attract and justify major infrastructure investment.

21. To drive northern growth… There needs to be a rebalancing of infrastructure expenditure [public and private] away from London, and into regions where it will have a more transformative impact. To happen, three things need to occur: • The appraisal process for calculating the impact of infrastructure needs to account for wider economic benefits, not just user benefits • The political environment in Westminster, and the North needs to change • The North needs strong, realistic proposals for investment

22. Transformational Infrastructure – what is it?

23. NIP and Transformational Infrastructure The NIP (2010) refers to ‘transformational large scale capital projects’. It recommends in the following circumstances: ‘significant investment in new or replacement infrastructure should only be considered where it is a part of a clear long term strategy, is affordable and where maintenance or small scale investment will not meet future need.’ [NIP; 2010]

24. Transformational? Source: NIP; 2013

25. Transformational Tests 1. Scale – does the project have a demonstrable impact on the economic performance of the region, or locality within it that could be picked up in economic data? A) Does the infrastructure have an impact on potential productivity?B) Does the building process support enough jobs to make a meaningful impact on Employment/ unemployment in the area? 2. Business Impact Will it change the costs of doing business, or the way businesses are operated? 3. Social Impact Will it change lives? 4. Environmental Impact Will it support environmental sustainability?

26. Transformational Infrastructure – some examples

27. Energy Mersey Tidal Barrage • Hydro-electric power to 20,000 homes in the North West • Cost estimated at around £3.5bn • Equivalent scheme has been suggested on the Humber estuary, and the Severn.

28. Rail HS3 • Closing the ‘Y’ Gap with HS2 technology would cost around £120m per mile. 20 Miles More and ‘closing the HS2 ‘Y’’ gap • Spur to Liverpool and electrifying /tunnelling for improved connections across trans-pennine rail network. • Cost of Liverpool spur alone approximately £2bn Electrification of the Middlesbrough stretch of the North East rail line. • Costs are estimated at approximately £75 million.

29. Atlantic Gateway A complex array of investments to improve the infrastructure along the banks of the Mersey estuary, comprising of three main port elements. Port Salford, Wirral Waters, and Liverpool Waters. The review estimates an additional 140,000 jobs could be supported through the initial investment and logistics aspects of infrastructure. Estimated cost of Liverpool Waters and Wirral Waters approx £10bn

30. Utilities HS2 Water Pipe A proposed pipeline for water, tracking the route of, and built simultaneously to, the High Speed rail network. The project is intended to shift water supplies from more plentiful areas of fresh water in the North West of England, to places in the South where supply is weaker. The 6ft wide pipe would ultimately cost around £2.7bn to construct. A National Water Grid, connecting all parts of the UK applies a similar principle.

31. Airport City Expanding Manchester’s airport capacity to include a freight terminal and improve surrounding access infrastructure. Air passenger demand for Manchester is projected to double by 2050, but airport capacity needs to expand with it. Costs are estimated to be between £400-£650 million on current plans.

32. Further Ideas • A series of garden cities, around high pressure Northern housing markets, such as York. • City wide wi-fi networks across the North, already underway in Manchester, Leeds and Bradford • ‘Sandscaping’ on the North East Coast • Relocate the House of Lords to Manchester • Buying slots at Heathrow and other airport hubs

33. Recommendations • The need for an overall vision of what a Northern supercity might look like 30 years from now • The need for a series of transformational infrastructure projects that will drive Northern productivity • The need for joined up governance and public support to make the case for central government to let go