Richard Threlfall KPMG

Halting investment in London is no solution to the UK's widening north-south divide.

Last week London First published its second report on Crossrail 2, looking specifically at options for funding the scheme and seeking to meet the Government’s challenge of finding at least half the cost from private sources.

As with the first report, published in May 2012, the working group to which I contributed brought together members of the business community with representatives of Transport for London and Network Rail. 

The first report found an overwhelming case for Crossrail 2 to cope with the unmanageable strain on London’s transport networks of a population expected to increase by more than 1.5 million people (an increase of more than 18%) over the next 20 years. 

The second report concluded that not only could the Government’s challenge be met, but under some scenarios the costs could be covered with a Government contribution of less than one quarter of the overall cost of the scheme. We are still some way from a political commitment to build Crossrail 2, but the report shows how it could be done, and the ball is now back in the Government’s court. 

"Current infrastructure investment levels see London invest every two days what Greater Manchester invests in a year."

Richard Threlfall, KPMG

But the Crossrail 2 debate raises two critical issues that go beyond that scheme itself – the balance of investment between London and the rest of the UK, and the ability of London, or any other major city region, to invest in its own economic future. 

London is and will remain the economic powerhouse of the UK for many lifetimes, and the economic strength of London is therefore in the interest of the country as a whole. But the north-south divide is widening. In 1999 31.9% of the UK’s economic output came from London and the South-East. By 2011 that had grown to 36.6%, a huge shift in the economic balance of the country, according to Office of National Statistics figures

Yet current infrastructure investment levels see London invest every two days what Greater Manchester invests in a year. Some rush to conclude that schemes like Crossrail 2 should therefore be shelved in favour of schemes outside London, but that is self-defeating too. We must find a way to enable all our major cities to invest more in their infrastructure.

The Crossrail 2 funding solution relies on expropriating for that project a substantial proportion of the income available to London over a period of 20 years or more. That is fine for Crossrail 2, but it is not a sustainable solution for London’s many other infrastructure investment needs. The problem is London retains only 7% of the money it raises; New York, by contrast, keeps 50%. As the London Finance Commission report of May 2013 makes clear, that needs to change if we are not to keep lurching from one infrastructure funding crisis to the next. 

And what works for London would work for the rest of the country too. The Government’s City Deals are a first step towards greater financial devolution, but still tentative. If we want a thriving future for the whole of our country, we need to entrust in our major cities the income to invest in their own growth.

Richard Threlfall is head of Infrastructure, Building & Construction at KPMG


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