Devolved authorities need access to finance to fund regional infrastructure
Institution of Civil Engineers
The Institution of Civil Engineers recommends in its report, State of the Nation: Devolution, published today, that devolution settlements should include flexible but prudential approaches to attracting investment for infrastructure.
The relocation of power away from the centre provides many opportunities for the built environment and, in turn, society. Giving more powers to Combined Authorities for decisions on transport, flood risk management, waste management can enable economic growth and stronger communities. The Institution of Civil Engineers recommends in its report, State of the Nation: Devolution, published today, that devolution settlements should include flexible but prudential approaches to attracting investment for infrastructure.
This is fundamental if we expect Combined Authorities to fund new infrastructure without improving access to finance.
Every investor knows that you need money to make money, so Combined Authorities will need a purse that matches their plans. So far, the Government has proposed that local councils pool their business rates to fund cross boundary projects. This is a good start, but infrastructure costs a lot of money to plan, design, build, maintain and operate, so regions will need to raise the stakes if they are to raise the necessary finance.
So what are the funding options for Combined Authorities?
There are a number of flexible finance options for new Combined Authorities, which can be negotiated as part of devolution settlements. Overall, flexibility will give potential investors a clearer, long-term outlook and encourage industry to plan resources, such as supply chains and skills. All of which will help reduce the construction industry’s cyclical fluctuations and get us closer to the ultimate goal: economic growth and a better quality of life.
To give an example, the Greater Manchester Combined Authority has negotiated a model allowing it to ‘earn back’ tax from the growth it creates from investment into transport infrastructure. Such schemes allow ways of increasing areas’ control over investment streams.
Another option includes municipal bonds, which are issued by local authorities to raise funds to finance investment. Similar in principle to government gilts, municipal bonds are debt obligations – effectively an ‘IOU’ - issued by public bodies. The Greater London Authority used this model to part-finance the London Underground Northern Line Extension and Crossrail – both of which cross multiple local authorities and will connect more commuters to jobs, services, goods, family and friends.
Allowing such flexibility will also enable investment to widen the narrow focus on economic development and support better outcomes for communities and the environment.
Jonathan Spruce is an author of the State of the Nation: Devolution report, published today.
You can tweet support for our recommendations to @ICE_engineers using the hashtag #SoNDevo.
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