Infrastructure@Manchester Building The Northern Powerhouse .

rBuilding the Northern Powerhouse:How do we boost transformativeinfrastructure investment inNorthern England?Graham Winch and Rehema MsulwaReport 1 of 4

2Building the northern powerhouse: How do we boost transformative infrastructure investment in northern England?The publication of Transportfor the North’s StrategicTransport Plan in February2019 was a momentousstep for the NorthernPowerhouse. The Planbuilds on the work of theNorthern PowerhouseIndependent EconomicReview published in 2016and shows how the Northcan move from a “predictand provide” to a “visionand validate” approach toinfrastructure development.The economy of the North of England continues to fallbehind that of the South East, and a core part of reversingthat relative decline is transformative investment intransportation, energy, and digital infrastructure.Together these will enable the Northern region to yieldthe kind of dynamic economic benefits from which theSouth East has long benefited. Improved infrastructuremeans employers will be able to draw from a wider pool ofskilled workers; stimulate innovation through more intenseinteraction; and facilitate access to higher paying jobs forthose in the more impoverished parts of the region.3When Barclays became the firstbank recognised as a UKGovernment official partner indelivering the Northern Powerhouseprogramme, I was determined tokeep the momentum going in thedrive for equality of prosperityacross the whole UK. We went on tohelp found the independent,business-led Northern PowerhousePartnership, coordinating campaignsand economic advocacy across allsectors based here in the north.We are delighted to be working in partnership with Barclayson this series of thought pieces from Infrastructure@Manchester here at Alliance Manchester Business School,which aims to support the development of transformativeinfrastructure for the Northern Powerhouse.The first two papers in the series lay out the challenges for theNorthern Powerhouse in financing and funding infrastructureinvestment, while the last two in the series turn to thechallenges in delivering infrastructure assets once they havebeen financed to the budgets and schedules expected.Together with investments in skills and education, theNorth’s new infrastructure plans will transform economicgrowth, particularly in the high tech, professional services,and cultural sectors.This higher rate of growth is only sustainable if it isaccompanied by decarbonisation of transportationthrough smart digital ticketing, electrification of motivepower, and promotion of active travel. This will also makeour cities healthier and more pleasant places to live.Infrastructure@ManchesterProfessor Fiona Devine CBEHead, Alliance Manchester Business SchoolThis commitment is a personal one. As a proudYorkshireman, I joined Barclays as an apprentice in Barnsleyover 35 years ago, and as my career has progressed, I’veremained firmly rooted in this part of the world, doing mybest to help clients, customers and colleagues along theway. I’ve never been more excited at the role we can andshould play in unleashing the next generation of technology,skills and innovation to deliver wealth and prosperity forsociety and business across the north of England.Barclays’ heritage across the north stretches back as far asthe late eighteenth century. We were involved in some of themost crucial infrastructure investments of the time, such asthe financing of the Manchester Ship Canal in the 1890s andthe Stockton to Darlington Railway earlier that century.Today, we are proud of have a significant presence in theregion - with 12,000 colleagues employed across theregions, innovative and world-leading contact andtechnology centres at Sunderland, Wavertree and Radbroke,and 2019 sees the first anniversary of our popular 500mNorthern Powerhouse Growth Fund to help SME’s grow andscale across the north.Our commitment goes beyond this, however. We aredetermined to convene the north of England’s mostexperienced and influential businesses, policymakers andacademics, working with them to generate new andinnovative solutions for improving prosperity for thisdynamic and potential-rich part of the UK.I am delighted to introduce this new research series,Infrastructure@Manchester, from Alliance Manchester BusinessSchool. The series is one of our flagship thought partnershipsin support of the Northern Powerhouse programme, and oneI’ve been greatly looking forward to. Whilst the views andopinions expressed are those of the University’s academics andnot Barclays, we are nonetheless pleased to be part of shapingthe policy debate about the north of England’s exciting future.Tony WalshHead of North and Mid Corporate, UK Barclays

4Building the northern powerhouse: How do we boost transformative infrastructure investment in northern England?Infrastructure@Manchester5Executive summaryUnderstanding the role of infrastructure and its valueWelcome to the first in a series of papers in a new researchprogramme, Infrastructure@Manchester, produced byAlliance Manchester Business School and Barclays.Infrastructure is the cornerstone of moderneconomies and productive societies.Increasingly complex and interconnectedinfrastructure services – unimaginable even adecade ago – are required to address thechallenges of today’s world. These challengesrange from social stability, rapid urbanisationand technological advances to globalisedissues such as climate change2.The purpose of this research is to support the development ofeconomic infrastructure for the Northern Powerhouse byproviding original analysis and ideas, thereby challengingpreconceptions about infrastructure development policy.There is a huge opportunity for policymakers at all levelsacross the UK to fully unlock the benefits of infrastructureinvestment in order to achieve the aims of the IndustrialStrategy. This will require a number of significant changes tocurrent best practice in infrastructure investment. Ourmethods for selecting projects will need to change so that theyreflect the full range of benefits from the investment, therebystimulating growth rather than following growth. Our methodsof project delivery will also need to change so that promisesmade in the investment case are met rather than overrun. Webelieve that such a modernisation will be crucial in realising theambition of rebalancing the UK economy and ensuring all areasof the UK benefit equally from infrastructure investment. Thisway, every pound spent will contribute to greater levels ofnational productivity, stronger levels of employment, andgreater prosperity for people’s lives across the UK.In this first paper, we will argue that transformativeinfrastructure investment in Northern England is presentlyfaced with two main challenges. First, it suffers becauseof the historic under-investment by the UK as a whole ininfrastructure, and second it suffers because the investmentin transformative infrastructure that has been made favoursthe South East. If the UK is to achieve the ambitions of theIndustrial Strategy for the whole country, both of thesechallenges need to be addressed. More specifically, we will:Technical Note: Infrastructure Services Explain why infrastructure investment is important foreconomic development in the Northern Powerhousethrough an evaluation of the current context.According to the World Bank, the primary measure ofeconomic benefits from infrastructure derives from theoperation and the value of the services generated bythe physical asset, rather than the asset itself. To thatend, infrastructure services contribute to economicdevelopment both by increasing productivity and byproviding amenities which enhance the quality of life. Distinguish between enabling and transformativeinfrastructure assets and the infrastructure servicesthey provide. Review the financing of infrastructure, identifyingthe principal challenges in financing and fundingsuch investment.Regarding productivity, infrastructure servicesstimulate aggregate supply and demand through atleast two channels. First, transport, water, andelectricity, for example, serve as intermediate inputs toproduction. Any reduction in their costs raises theprofitability of production, thus permitting higherlevels of output, income, and/or employment. Second,the availability of infrastructure services raisesproductivity for other capital and labour, such asthrough a reduction in workers’ commuting time.Following this we will: Make two overarching recommendations regarding futurepolicy for infrastructure development in the NorthernPowerhouse on sectoral coordination and focus ofnational lobbying efforts. Introduce the subsequent papers in this series.Regarding quality of life, infrastructural services arelinked to both personal welfare and the environment.These impacts are realised in three broad respects:first, reductions in the cost and improvements ininfrastructure services to households can havebeneficial effects on increasing their real income andconsumption; second, infrastructure affects labourproductivity and access to employment, and thus theAcknowledgementsWe are extremely grateful for the feedback of Professor Diane Coyle, Cambridge University, Professor Ian Reeves, Synaps LLP,Simon Warburton, Transport for Greater Manchester; and Ian Palmer, Transport for Greater Manchester on earlier drafts.We, of course, remain entirely responsible for the final version.2This research will focus on economic infrastructure such astransportation, energy, and digital technology with thepotential to transform the economic performance of theNorthern Powerhouse. We will not cover direct consumptiongoods such as housing, or social infrastructure such ashospitals. These are no less important, but play a differentrole in economic development.The variety of infrastructure services (see technical below)offered by infrastructure assets is indicated in Technical Note:Infrastructure Services Classification, on page 21.which details a series of definitions of infrastructureservices, developed from earlier Alliance ManchesterBusiness School research3.capacity to earn future income; and third, it affects realwealth. Infrastructure services are, therefore, valued asessential for health and the creation of environmentalamenities (e.g. water and sanitation);or as items of consumption in their own right (e.g.recreational transport, residentialtelecommunications). Moreover, infrastructureservices provide access to jobs, education, andopportunities for the consumption of other goods.Reducing the cost of infrastructure services andimproving service provision can, therefore, havefar-reaching implications. Realising the benefit of theefficient generation of infrastructure services canallow enterprises to lower their costs with favourableimpacts on profits and the level of production achieved.In addition, increased accessibility to reliable andquality infrastructure services for households canpositively impact their quality of life by increasing theirreal income and consumption, raising the productivityof their labour, and freeing time of individuals forhigher-value activities in a manner analogous to thebenefits realised by firms.Source: Kessides, C. 1993. The Contributions ofInfrastructure to Economic Development: A Review ofExperience and Policy Implications. Washington DC,World Bank.World Bank Group (2015) Infrastructure Strategy Update FY 2012-2015: Transformation through Infrastructure. World Bank Group.Developed from Luger, M. Butler, J. and Winch, G.M. (2013) Infrastructure and manufacturing: their evolving relationship: Future of ManufacturingProject: Evidence Paper 20, London, Government Office for Science. Figure 4.3