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News report: Financing development and infrastructure post-Brexit

Words: Huw Morris

Paul Webster has a story to worry many seeking finance for economic growth in the post-Brexit era facing the UK.

The Institute of Economic Development director was recently party to talks on attracting major international investment. The business and its financiers had rival offers on the table, one involving the takeover of a refinery in the north-east of England and another from Spain. The UK proposal could overcome planning hurdles and be working in up to two years. The Spanish promised to do it in three months.

“In much of the UK, unless it’s in an enterprise zone or on a brownfield site, they shake their heads,” says Webster. “Investors want certainty around time, building costs and operational delivery, and they need to do it quickly. The one part you can’t give any confidence or guarantee on is turning around the planning. That assurance does not come.”

Webster has a second alarming observation. In three-and-a-half years in the job, he has attended more than 100 meetings and taken part in more than 200 conference calls with the aim of smoothing inward investment into the UK. 

“The head of planning at the relevant local authority has never been there with the inward investment team,” he says. “Yet when firms are looking to invest, they need certainty that what is being developed will be done and quickly.

"Investors want certainty around time, building costs and operational delivery, and they need to do it quickly"

“While some town planning is fully aligned with the needs of inward investment, the vast majority is not. Culturally, that needs to change.”

No new commitments

Webster’s warning is timely. After Brexit, the UK has a monumental task securing finance for growth, development, infrastructure and ultimately jobs and prosperity. European Structural Funding has been the cornerstone of the nation’s regional policy for 40 years, pumping £66 billion into development projects since 1975. Merseyside, West Wales and Cornwall are among the big beneficiaries. The tap will run dry in the next few years. The UK government has guaranteed backing for any Structural Fund projects approved until the UK leaves the EU, but has made no commitments after that.

Then there is the European Investment Bank. Between 2012-16, this pumped a whopping €31.3bn into a panoply of UK infrastructure projects. Last year, the figure was €5.5bn plus €1.3bn in loans for social housing. A somewhat overlooked EU funding stream is TEN-T, covering strategic investment in transport and communication networks. This €24bn programme straddles national and EU boundaries and comprises a spatial strategy for nine core network corridors with links to Asia, Eastern Europe and other global destinations – a perspective that has yet to emerge this side of the Channel.

In this context, according to Manchester University’s Spatial Policy and Analysis Laboratory (SPA-LAB), there needs to be “a greater degree of realism about what can be achieved in economic growth from relatively small-scale funding”. 

It points to the £130 million recently allocated alongside the government’s industrial strategy to Greater Manchester’s Local Enterprise Partnership (LEP). This exceeds funding to other areas, but is “a modest amount when viewed against the intractability of the structural weaknesses that characterise the city-region’s economy”. 

The industrial strategy highlights the need to coordinate planning for housing, employment and transport infrastructure. Manchester University professor of spatial planning Cecilia Wong cites two caveats.

“Government policy has historically failed to address the relationship between housing, employment sites and transport infrastructure because of a narrow focus on administrative rather than functional economic areas.”

Wong stresses the importance of “thinking functionally” when coordinating housing, employment sites and transport infrastructure. She points to SPA-LAB research that revealed commuting into Liverpool and Greater Manchester extended far beyond their administrative boundaries. 

“The functional housing and labour market geographies of the two city-regions provided a far more effective lens for strategically coordinating housing, employment and infrastructure than administrative boundaries yet economic functionality is overlooked,” she adds.

What planners can do

The RTPI calls on local authorities to use their combined planning, economic development and regeneration powers to steer investment and lead the process of change. The Institute of Economic Development also poses a series of questions, among them:

  • Is the strategic planning actively aligned to national initiatives, programmes and funding?
  • Does the strategic vision engage with industries to understand their future infrastructure needs?
  • What infrastructure in masterplans supports the opportunities created by future industries?
  • How do you attract EU firms looking to set up representative offices in the UK post-Brexit?

Difficult strategic questions

Funding large-scale development is not the only issue. Leicester City Council inward investment director Helen Donnellan says EU Cohesion policy provided a long-term framework, clear objectives and priorities for development. 

“Now we face a fragmented approach to regional and local development following devolution and the disappearance of regional development institutions and instruments since 2010, superseded by local and urban initiatives with variable resources,” she adds. “This makes the Midlands Engine and bodies it like it all the more relevant as all parts of the UK face difficult strategic questions concerning the relative emphasis given to promoting growth in major urban centres versus balanced development so we have to co-operate on a regional scale. This also highlights the need for the government’s industrial strategy to be place-based.”

All this cuts to what works, and what works will be essential to what marketing professionals call “the offer”: what UK PLC offers to international investors to keep the funding tap running. Indeed, the UK had a huge presence at MPIM, the global real estate conference in March. 

British Property Federation CEO Melanie Leech says the UK government held its first pavilion to showcase the sector. Maintaining investor confidence, she says, is “particularly important for the real estate sector because we attract global investment and those investors commit for the long-term”. 

Leech adds: “Our sector supports most, if not all, UK economic activity and so decisions need to be taken now if we are to have the physical infrastructure to support a thriving post-Brexit UK economy.”

"Future large-scale employment developments are likely to be the distribution and logistics hubs"

Arcadis LLP partner and UK head of town planning Louise Brooke-Smith says flagship UK policies such as the Northern Powerhouse and Midlands Engine alongside the buoyant London and South-East must work together to sell the country’s offer. 

“Brexit has absolutely opened it all up,” she says. “We have to look internationally and at what is happening around the world.”

Plugging the finance chasm is one challenge. Getting the strategic planning right to attract that funding is another. Planning for new industries is a third.

Donnellan points to Amazon’s massive distribution centre, which opened in Bardon last year. 

“Future large-scale employment developments are likely to be the distribution and logistics hubs with Amazon soon set to be the UK’s largest employer, which is creating demand for last mile delivery locations in city centres,” she says. “The growth of this sector will be significant for Leicestershire and we are playing an increasingly vital role in this growth.”

Here, Webster says, there is a tension in local government between creating jobs and attracting new big businesses. 

“Amazon Web Services may set up a data warehouse in the area that will, in itself, require fewer than 40 staff. But the bigger picture is that you have the world’s biggest cloud computing company investing more than £100 million on your doorstep, which has a knock-on effect during construction and their ongoing supply chain.”

Councils and many LEPs focus on jobs, he says, and only then look at the longer term – such as shared industry infrastructure investments that are not solely about jobs and scoping out plans for future industries. 

“But this is where the UK is heading – and fast,” says Webster. “There will still be a high street, but on the horizon the biggest fish in the supply chain will increasingly shift to robotics, artificial intelligence, computer centres, life sciences, advanced manufacturing and space – industries that require fewer jobs but large capital expenditure.”

European funding by numbers

  • £66 billion - European Structureal Funds in the UK since 1975
  • €31.3 billion - Funding from the European Investment Bank (EIB) for UK infrastructure projects between 2012-16
  • €5.5 billion - Funding from the EIB in 2016

The RTPI has published a policy paper on strategic planning. It urges cross-boundary cooperation among local authorities. It can be found on the RTPI website.

Image credit | iStock