Why Crossrail risks being London’s last major infrastructure project

London’s new MPs of all political persuasions will need to lobby hard for city government to be allowed to tap funds for new infrastructure or very little may happen, says Alexander Jan.

In the heat of Britain’s election campaign, much was made of a note from half a decade ago that Liam Byrne – a Treasury minister in Gordon Brown’s government – left for his successor. It read, “Dear chief secretary, I’m afraid there is no money left… Good luck.” Of course, Byrne was only half right.

Over the period of the last government, chancellor George Osborne spent around three and a half trillion pounds. Nearly one pound in every five of that was borrowed – ironically, broadly in line with previous chancellor Alistair Darling’s plan.

"London MPs of all political persuasions should be encouraged to call for greater borrowing and tax raising powers for the city. After all, borrowing to build railways and houses is more attractive than borrowing to fund welfare."

But when it came to spending on discretionary items such as infrastructure, Byrne was perhaps closer to the mark. According to a recent report by the National Audit Office, government capital investment shrank by one third in real terms between 2009-10 and 2013-14, falling from £57bn to £42bn. 

Governments since the war have ramped up borrowing and spending to fund social security and health, largely at the expense of capital programmes. According to the Institute for Fiscal Studies, between 1953-54 and 2013-14, UK net government investment fell by more than two thirds as a proportion of national income – to just 1.5 per cent of GDP.

Over the same period, current expenditure ballooned from 34.5 per cent to 42.4 per cent of output. Nearly all the growth was in social security and the National Health Service. But surely government is about more than footing an ever-increasing welfare and healthcare bill?

In the election campaign, there appeared to be more of the same on offer: increased funding for the NHS, home helps and the like, but not much detail about where corresponding reductions in other parts of government spending would need to occur. And it is hard to see where much long term investment in new commuter or Tube lines, housing or schools – will be coming from, particularly in London. 

The 2010 - 15 coalition had an ambitious £466bn “plan” for the UK’s infrastructure – the National Infrastructure Plan. But it tangled up public and private sector numbers, projects that are underway and aspirations to the turn of the decade. At the same time, the OBR’s estimate of capital spending projections to 2019-20 shows a fall (albeit small) compared to 2014-15 as a share of GDP.  

If we don’t make the case for reform and investment, the prospects for closing London’s £135bn infrastructure gap in housing and transport (alone) are not promising. The SNP which is now the third largest party in the Commons, may be unwilling to support investment in the south of England, where most population-driven need exists. 

Whilst all the major parties are generally in favour of High Speed 2, strategic road investment and investing in the north, for Londoners, once the existing Crossrail scheme is completed, there are no major new transport schemes in the offing.

There is nothing approaching a cast iron guarantee to get the urgently-needed Crossrail 2 built. This in a city which contributes 22 per cent of GDP with just 13 per cent of the population, which exports billions in tax every year to support the rest of the UK, and whose population is growing by a hundred thousand people a year.

But there are glimmers of hope. There is all-party commitment to decentralisation. And as part of UK reform, the tectonic shift in Scotland’s political landscape could help lead to further devolution of powers to England’s cities including in the south.  

Local authorities have a much better record at capital investment and delivery than central government. If the mayor and the boroughs are given greater discretion as to how resources are spent, that might help ease the squeeze on capital programmes.

London MPs of all political persuasions should be encouraged to call for greater borrowing and tax raising powers for the city. The markets would be relatively relaxed about diligent, competent London government raising debt to invest in capital schemes. After all, borrowing to build railways and houses is more attractive than borrowing to fund welfare.

Investment, in turn, will boost London’s economy and the tax take for central government. Local government would be able to harness the greater firepower required to tackle the housing and transport problems that Londoners want solved. We could start to reverse the trend away from a long time decline in government investment. All in all, a win-win situation? Now that should give the new chief secretary something to think about.

Alexander Jan is a director at Arup