What works in upgrading infrastructure to boost local economic growth?

Following the success of our first series of workshops on how to develop effective local industrial strategies last year, we have been busy for the last few months running a second series with the support of the Cities and Local Growth Unit (CLGU).

Policy context

The government has committed to working with all places to develop Local Industrial Strategies by early 2020. These strategies will be developed locally and agreed with the government. They will map out distinctive strengths as well as local responses across the Industrial Strategy’s ‘foundations of productivity’.

We held four workshops in four different UK cities, each one focusing on one of the ‘foundations of productivity’ – people, ideas, business environment and infrastructure – and its interaction with our foundation of interest, which isplace.

Local Industrial Strategies

The Government’s Local Industrial Strategies Policy Prospectus (October 2018) set out two objectives. Government is committed to Local Industrial Strategies so that all places:

• Are able to increase productivity and realise their potential: building on well-evidenced and distinctive strengths aligned with the national Industrial Strategy.
• Set out the spatial impacts of national and local policy across our cities, towns and rural areas: informing priorities and choices and demonstrating how they will allow all communities to contribute to, and benefit from, economic prosperity.

The policy prospectus set out that Local Industrial Strategies will inform the approach of LEPs/MCAs to maximise the impact of future funding, including the UK Shared Prosperity Fund (UKSPF). The UKSPF will look to tackle inequalities between communities by strengthening the foundations of productivity. 

For our fourth and final workshop in the series, we went to Coventry to talk about infrastructure. The day included presentations from the What Works Centre, the National Infrastructure Commission, DfT, and DCMS as well as lots of discussion.

We covered issues around both transport and broadband infrastructure.

The importance of infrastructure

Good infrastructure connects people to amenities and jobs and businesses to workers, suppliers and markets.

The case for government involvement in the provision of infrastructure is strong. Building networks or improving them usually incurs large upfront costs; the benefits are felt by many people even if they don’t help contribute to those costs. This combination of public good characteristics and network externalities means that the private sector will tend to underinvest in infrastructure thus helping justify public sector intervention. We also know that infrastructure is an important factor in determining private sector productivity and growth.

Overall, the crucial arguments around infrastructure are not whether the government should get involved, but instead, revolve around what investments to support directly as well as how to structure the rules and regulations that affect private sector investments.

What we know about what works

Precisely due to the public good nature of infrastructure and the externalities involved, the possible impacts of infrastructure projects are difficult to assess before-hand and hard to evaluate afterwards.

Their impact is felt over a large area, by lots of people and over a long period of time which makes the effects very difficult to quantify. And lots of things change in this time so even when we do manage to quantify the effects, it can be hard to draw a strong connection between the intervention and the impact.

The ex-post evaluation evidence is strongest for broadband, road and rail projects as summarised in our evidence reviews.

For transport infrastructure, a lot of the available evidence covers the positive impact on property prices. This can be useful when thinking about the case for impact fees on property owners who benefit and for informing some elements of cost-benefit analysis. Unfortunately, this is far less useful for thinking about the likely productivity and employment impacts that will be central to the role of transport infrastructure in LIS. Here the evidence is more mixed.

The situation is better for broadband where our evidence review finds positive effects on employment and productivity. One key finding highlighted by our review is that these benefits tend to be larger for urban than rural areas, larger for the high skilled than the low skilled and larger for services than for manufacturing.

These differences in effects have important implications for whether the case for schemes can be based around the economic impact, or instead needs to draw on wider public good considerations.

Although we didn’t discuss these on the day, our two toolkits on transport also provide useful evidence on the likely effects of smart ticketing and on providing better information for users. These kinds of interventions generally involve some upfront investment in supporting infrastructure and it will be useful for areas to think about such complementary investments when developing the transport components of their LIS. Complementary investments are also a key factor for broadband, where the evidence suggests that infrastructure provision alone is unlikely to be enough to deliver productivity improvements. Many of these complementary investments need to be done by firms and discussion on how local and central government might encourage and support such investments (e.g. through the ongoing piloting as part of the Business Basics Fund) was one item of discussion at our LIS event on business environment.

The most important principles to bear in mind

Our work on Local Industrial Strategies identified 10 principles to consider in designing effective strategies. Here’s an example for how some of these play out in thinking about infrastructure policies.

When developing infrastructure initiatives within the LIS, it is very important that places really understand their starting point i.e. the state of the current networks, modal use, congestion patterns, etc. As this evidence often sits with transport authorities it will be important to think how such information will be summarised and shared during the LIS development process.

It is also important to figure out how the economy is evolving – does the public transport network need to be improved to facilitate commuting? Is there an ageing population that needs to be catered for? Armed with these, places can begin to figure out how to generate options and prioritise different projects.

As was highlighted by NIC and DCMS on the day, it’s important to remember that this improving infrastructure doesn’t always mean large upfront investment. This is especially true for expanding broadband networks across UK towns and cities where the Barrier Busting taskforce focuses on how places should streamline their processes e.g. improve the wayleaves process and allow providers to access street furniture rather than costly cap-ex investments.

When implementing these initiatives, places should carefully consider and craft their relationships with other places and with the private sector. It is important to coordinate with other places on both projects and timelines and to ensure that when private providers are used, the risk and the returns are appropriately shared.

Things to bear in mind when articulating the policy response

Here are some of the most important things to keep in mind, which emerged from the presentations and the wide-ranging discussions of the day:

1. NIC made the point that we need to think differently about upgrading old networks (rail, road etc.) and building new ones (EV charging, 5G etc.). Improving old networks generally involves marginal improvements which are amenable to more standard appraisal and evaluation (even if everyone agreed that existing approaches could be improved). New networks involve a fundamentally different set of decisions and a step-change in provision.
2. It is useful to ascertain objectives at the outset. Some investments are made for their contribution to productivity and will be assessed against the benefits they are expected to generate. Some are supported for their status as a public good – access to these networks is considered a universal right and is important for inclusivity. Such arguments would, for example, justify rural broadband provision as a public good issue, just as in the past they justified rural electrification or the provision of uniform postal services. As discussed above, LIS may then want to think about complementary investments and support that would make the most of this provision, without needing to make the case that the initial investment was somehow key to the LIS.
3. When the objective is to stimulate new employment in a particular area then it’s important to think carefully about where that employment is coming from. In particular, it’s important to assess the extent to which ‘new’ activity is actually new rather than just displaced from elsewhere. There was quite a lot of discussion on the day as to whether our current approach to appraisal allows us to consider and answer these questions.
4. DfT emphasised the importance of understanding the local economic geography i.e. figuring out who and what needs better connections. This means having a good grasp of where the jobs are, where people live, whether there are adequate connections between the two and whether this is likely to change over time. Different LEPs will have to deal with different sets of challenges. For instance, London with its predominantly urban make up will have a different set of challenges to Cornwall. D2N2 LEP, with the Peak district and the cities of Derby and Nottingham within its boundaries, will have some combination of the two.
5. Although the headline challenges for most cities would be the same i.e. poor air quality, congestion etc., the solutions might be quite different based on specific local characteristics. Milton Keynes with its American style grid road network will need different mobility solutions to the older, narrower streets of York.
6. Areas need to think about the ways in which they assess and prioritise different investment alternatives and the way in which this information is presented and used by local decision makers.

Things to do when implementing the policy response

The presentations and subsequent discussions also highlighted some key messages for implementation:

1. Research by the NIC, DCMS and our sister organisation, Centre for Cities all provide lots of concrete recommendations on how places can support the expansion of high-speed internet provision. All agree that commitment and buy-in for this objective at the top level are critical. But beyond this, much of what needs to be done by councils is streamlining processes and coordinating them to make delivery straightforward for providers.
2. Due to the nature of infrastructure projects, it is highly likely that intervention will require coordination between various actors both within and across a place – this message was driven home by our TfWM attendee. It is essential for project success that these parties are engaged as early as possible – this is likely to strengthen the business case for the project as benefits to the wider economy would be better captured, improve design and get buy-in. Different LEPs have taken different approaches to creating this engagement. Some are leveraging their relationships while others are using financial incentives – by offering financial support to project proposals from local authorities that align with the overall LEP strategy. What works best may be very much context dependent.
3. Places need to better integrate the way they plan housing, transport and jobs. In principle, this ought to be done through the planning system by creating a joint spatial plan as it has been done by some combined authorities already and used to create better connections within the economic geography. Unfortunately, much of the discussion on the day emphasised the difficulty of doing this for many areas with complicated geographies.

Conclusion

One of our attendees on the day said “on its own, infrastructure means nothing but, done well, it can be everything” and we couldn’t agree more.

Getting infrastructure right means building systems and networks that service people’s needs and in the context of LIS, that connect people to jobs and businesses to one another. Improved decision making will require better assessing, developing and implementing interventions and this is key to maximising the contribution that infrastructure can make to local and national productivity.