Investing in infrastructure promotes inclusive economic growth

If the UK government is to fulfil its ambition for a global Britain, it must be willing to embrace both physical regeneration and investment in social infrastructure, says CIPFA chief economist Jeffrey Matsu.

Jeffrey Matsu
15 March 2022

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Levelling up

Economic development

If we look back over the past decade, there are many examples of our world becoming more reliant on working together to solve problems, such as climate change or tackling the pandemic.

But at the same time we are seemingly moving further apart – fuelled by a growing scepticism of globalisation. From Brexit to the breakdown of supply chains during Covid, the ties that bind us together have been shown to be fragile. 

Left unaddressed, these changes can create a landscape with vast gaps between the rich and poor and the haves and have-nots. So, how can public policy better connect people, places and opportunities in this modern environment?

The answer is infrastructure – the roads that link up cities and regions, submerged data cables that connect continents and complex aerial networks that enable people to fly between time zones. 

Infrastructure makes the world smaller and, by extension, increases our choices and opportunities. It can be a driving force for growth and wealth – physically connecting individuals with markets and enabling business to happen anywhere there is an internet connection.

It’s for this reason that governments around the world have turned to infrastructure to stimulate economic growth. In the UK, we have the Plan for Growth; in the US, there is the Build Back Better plan; in the EU, there is the Green Deal – all ambitious visions to develop infrastructure to better connect people and places with opportunities.

Investment in infrastructure can boost a region’s economic growth. It can facilitate job creation, improve access to public services and expand and upgrade vital broadband networks. Quite simply, infrastructure can help to address social and economic inequalities.

CIPFA’s recent Investing in Infrastructure – enabling fairer growth report examines six international case studies of infrastructure projects designed to raise productivity and growth. By better understanding initiatives in other countries, as well as their outcomes, we can get a better idea of what might provide the most benefit here in the UK.

The report features a diverse array of examples, including an innovative community-led broadband rollout in the mountains of Italy, the construction of the Øresund bridge linking Denmark and Sweden, city-wide regeneration in Bilbao in Spain and projects to promote broadband access in rural Lithuania.

What is evident across the case studies is that a range of diverse funding models should be considered that are tailored to the project, and that take into account governance structures, responsibilities and fiscal powers specific to that region. 

Indeed, the experimental broadband network in Verrua Savoia was first developed by a professor at nearby University of Turin. The project was initially funded by the university before being transitioned to a non-profit, citizen-led internet service provider which then charged monthly user access subscription fees. This model shows how alternative funding streams can be very effective, especially for smaller scale, localised infrastructure projects.

Another important aspect is the presence of a robust evaluation, monitoring and appraisal system which can be adjusted over a project’s life cycle. The Øresund Bridge highlights the challenges of sharing data between jurisdictions that have different taxation and governance structures. Since the opening of the bridge, however, GDP has risen in both Denmark and Sweden, while the Øresund Integration Index (which measures various factors such as labour and housing markets and transport and communication networks) has increased from 100 in 2000 to 170 by 2012. 

This partnership working has positively impacted the flow of labour, transport and communication, alongside improving the housing market, culture offering and business environment.

By looking at these examples we can identify what works and what doesn’t. All governments can learn from the role of fiscal autonomy in developing infrastructure initiatives and the importance of appropriate financing mechanisms. Through their audit and assurance functions, public finance professionals can meaningfully contribute to the development, monitoring, reporting and oversight of such policy interventions.

Now that we have a road map to the levelling up strategy, public policy should recognise the powerful role that targeted infrastructure initiatives can play in stimulating economic and social opportunities within regions. 

Infrastructure can improve people’s life chances, forge new relationships and increase trade and quality jobs to benefit everyone. 

If the UK government is to fulfil its ambition for a global Britain, it must be willing to embrace both physical regeneration and investment in social infrastructure.

Jeffrey Matsu is chief economist at CIPFA.