Productive forces - infrastructure and growth

With only a few days until the election, ICE’s Gavin Miller looks at how the next government can drive productivity and regional growth through the nation’s infrastructure.

In a recent survey, 84% of engineers reported that the UK’s road and rail infrastructure is constraining the economic growth
In a recent survey, 84% of engineers reported that the UK’s road and rail infrastructure is constraining the economic growth
  • Updated: 05 June, 2017
  • Author: Gavin Miller, ICE Policy Manager

The UK’s productivity is poor compared to other G7 countries – 35% behind Germany and 18% behind the G7 average. There are also significant regional disparities in productivity throughout the UK.

One reason for this is that areas where infrastructure – particularly connectivity – is weaker tend to have lower levels of productivity. We need to better target investment in infrastructure to improve growth and productivity across the country.

Infrastructure and superstructure

In a recent survey of engineers carried out on behalf of the UK’s professional engineering institutions (including ICE), 84% reported that rail and road infrastructure is constraining economic growth and lessening quality of life. In addition, in the same survey, 77% of respondents said they thought Government should be involved in supporting private sector involvement in infrastructure.

During uncertain economic times, continued investment in UK infrastructure – with clear Government commitments including support for the private sector – will help provide economic stability, enhance productivity and facilitate inward investment.

High quality, high performing infrastructure is vital for economic growth and is a catalyst for social and economic inclusion across the country.

Capital accumulation

Between 2010-11 and 2014-15, an average of £49bn per year was invested in infrastructure. While undoubtedly commendable, this is likely to fall short of the OECD recommended target of £80bn per year by 2020-2120.

Infrastructure is capital intensive but investment in it provides a strong economic stimulus with a multiplier effect that can help to rebalance growth around the country. Studies have estimated that when part of a major infrastructure investment for every £1 invested by Government, £3.20 is returned through increased GDP, resulting in an increase of up to 108,000 jobs per year.

Therefore, as part of the modern industrial strategy, the next Government must – as a minimum – seek to increase the current level of funding and incentives to the OECD target.

The means of productivity

In London, and more recently in Greater Manchester and the Midlands, programmes of devolution with greater policy focus, investment and decision-making have shown locating power closer to those it affects can lead to economic growth and productivity. (See research by Centre for Cities and the University of Manchester.)

In our 2016 State of the Nation: Devolution report, ICE recommended regional infrastructure strategies be developed to identify infrastructure need and the skills required for their delivery. This would be more efficient and effective by providing transport, infrastructure and coordinating skills at the geography at which the economy operates.

The regional infrastructure strategies’ aim should be to determine ongoing infrastructure needs to coincide with aspirations to build major new economic regions. ICE therefore commends the recent Midlands Engine Strategy and urge whoever forms the next Government to work together with regional stakeholders to develop similar plans across the country.

Investment in infrastructure is a key driver of productivity. Understanding where ultimate decision-making over the implementation and delivery of infrastructure policy should be located is, therefore, imperative.

Understand the infrastructure issues

Read more of ICE’s recommendations to political parties