Infrastructure, particularly transport, is central to productivity and is the bedrock of the local business environment. Beyond supporting economic activity to take place it enables and boosts the productivity of people and capital. Infrastructure also has a natural locally driven dimension.
Infrastructure also delivers the spare capacity required for future unconstrained growth. An export intensive economy needs good quality and robust transport infrastructure including airports, ports and roads.
An economy focussed on developing a productive and adaptable workforce needs a comprehensive transport network and advanced broadband and communications infrastructure.
Infrastructure is important to manufacturing
Manufacturers place a high stock in infrastructure availability and quality.
It is therefore unsurprising that manufacturers believe transport should be the initial focus of regional devolution, our previous surveys have shown this to be the main challenge in local business environments. We covered this in our blog yesterday.
The What Works Centre for Local Economic Growth also highlights the significant importance of transport investment to local economies. Their evidence review on this notes the positive effects on property prices, wages and incomes and productivity.
These effects feed into an increase in tax receipts and the reduction of social and other programme costs.
The UK has underinvested for decades
Despite this importance, the UK has underinvested in infrastructure for decades. As a result, infrastructure in the UK is ranked poorly compared to other countries such as Germany, France and the USA according to the World Economic Forum.
The OECD notes that annual infrastructure investment of around 3.5% of GDP is necessary in developed economies to avoid “implications for living standards and quality of life”. Current government expenditure puts public sector infrastructure investment at around 1.5% and falling as a share of GDP to 2019/20.
There is space for local government to take the lead and increase, and then maintain, infrastructure investment, where successive national governments have failed.
Infrastructure is tangible – supporting trust building
In one area, London, infrastructure investment has increased. The government’s own data from the national infrastructure pipeline shows the value of projects being significantly higher in London compared to other UK regions.
Evidence suggests that businesses in London are comfortable with further devolution to the capital because they have seen the tangible benefits that can be delivered where action is taken at the sub-national level.
Businesses across the rest of the country need to see this in other areas of the country for trust in further devolution to be seen in a more positive light.
Infrastructure investment delivers financial returns
Devolution of transport power is also important as it provides access to the public transport fare box, which could be borrowed against for additional infrastructure investment.
Businesses are also more likely to support additional taxes, such as a supplementary business rate levy, where they know funding will be driven straight into an infrastructure investment programme.
Transport for London has seen a significant increase in its fare box revenue from 38% of income in 2010/11 to 51% in 2015/16 and business rates retention amounts, as its grant from central government has declined over time (from 39% in 2010/11 to 19% in 2015/16).
Transport is therefore an enabler
Transport is an economic enabler not just in terms of allowing people to get the jobs they want and businesses to access wider talent pools, but also in terms of enabling future support for devolution from the business community through tangible and visible improvements in local transport networks.
Manufacturers believe that local authorities should prioritise the devolution of transport in their negotiations with government. Transport investment powers will boost productivity, deliver financial returns and support the rebuilding of trust with local businesses.