The North needs a principles-based approach to infrastructure investment that recognises the importance of both finance and funding, of public and private investment working together, of greater subsidiarity and local autonomy, and of a more sophisticated approach to appraisal. Through case studies and practical examples, this report sets out those principles.

60-second summary

In the autumn statement in November 2016, the government produced a northern powerhouse strategy detailing a wide range of initiatives and investments that had previously been pledged as part of attempts to rebalance the UK economy. Despite recognition of the value of infrastructure investment in stimulating the post-Brexit economy, there was, however, very little new money promised. As a consequence, the most up to date analysis of the national infrastructure pipeline shows that 35 per cent of total infrastructure spending and 54 per cent of all transport infrastructure spending in the UK will continue to take place in London.

2017 is a critical year. With significant transport spending rounds being prepared and a strategic transport plan due to be published by Transport for the North, public and businesses alike will expect to see major new commitments. Energy, flood defence and broadband will also require significant investment to meet local needs, to ensure economic competitiveness and to meet climate change obligations.

In order to facilitate the investment required to transform the northern economy, government and subnational stakeholders need to adopt a principles-based approach to infrastructure investment which recognises the importance of both finance and funding; public and private investment working together; greater subsidiarity and local autonomy; and a more sophisticated approach to appraisal.

To this end the government should: use its March budget to pledge new investment in northern powerhouse infrastructure; redraft the Treasury Green Book to better reflect the wider economic benefits of infrastructure projects; provide for greater borrowing by local authorities and Transport for the North and for a Northern Powerhouse Infrastructure Bond; and package up investment opportunities into a northern infrastructure prospectus.


There is widespread evidence that public investment in infrastructure derives both economic and social benefits, not least when much infrastructure is a public good with positive externalities. The IMF estimates that infrastructure investment has a short-term multiplier of 0.4 and a long-term multiplier of 1.4, while the OBR estimates a UK infrastructure multiplier of 1.

As regards transport infrastructure spending, the current national infrastructure pipeline shows that there is a £1,515 per capita gap in projected spending between London and the North, while Yorkshire and the Humber is set to receive less than any other English region in per capita terms. While the cost for all northern transport projects together will be only £6.6 billion, the capital’s Crossrail alone will cost £8.3 billion from 2015/16 onwards.

International evidence shows that there is a wide range of financing and funding mechanisms available to support infrastructure investment, both public and private. These include everything from tax increment finance and municipal bonds at the local level, to government guarantees and subordinated debt at the national level, to sovereign wealth funds and private finance that are global in their scope. The financing and funding of major infrastructure projects in the UK, however, remains a significant challenge.

Our research, which engaged a variety of stakeholders through a series of interviews and regional roundtables, identified four primary reasons for this.

  • There is a lack of clarity both on the part of national government and in wider agencies and organisations as to the circumstances in which government, the private sector – or a combination of the two – should be expected to finance and fund infrastructure projects.
  • The appraisal process by which many significant transport projects are judged is based too heavily on demand relief rather than wider economic benefit.
  • Subnational bodies such as local and combined authorities and quasi-national organisations such as the National Infrastructure Commission and Transport for the North have insufficient powers and fiscal autonomy to broker infrastructure investment.
  • Further secondary issues include the fact that the UK is facing some significant skills shortages in relation to infrastructure development and it has relatively inflexible procurement models which further deter potential investors.

We explore the following three case studies involving innovative financing approaches:

  • Transport for New South Wales public-private partnership to finance Sydney Metro North West in Australia.
  • the Aberdeen Municipal Bond which has been used for transport, housing and energy investment.
  • the Portland tax increment finance initiative in Oregon, US, which was used to regenerate a number of brownfield sites.

Furthermore we investigate possible finance and funding approaches for:

  • the M60 Quadrant in the North West
  • Northern Powerhouse Rail (HS3)
  • carbon capture and storage (CCS) schemes in Teesside.

Principles and recommendations

Based on the challenges and case studies, we identify the following four principles which are necessary to guide infrastructure investment in the North.

  1. Funding is as critical as financing – greater attention must be paid to the long-term funding of large-scale infrastructure projects, rather than the short-term financing to get them off the ground.
  2. Appraisal must be objective, systematic and long-term – methods of project appraisal need to take greater account of the long-term and wider economic and social benefits of large-scale infrastructure investment, and modelling needs to be able to account for both positive externalities and induced demand.
  3. Subsidiarity, scale and trust are central to good investment – more decision-making concerning the funding and financing of infrastructure should be devolved to subnational bodies, along with greater fiscal powers to unlock investment.
  4. Procurement, project management and capacity should also be key considerations in unlocking major infrastructure investment. If new projects are to be built, the construction workforce will need to be expanded and upskilled.

Alongside these four guiding principles we make 5 recommendations:

  • Recommendation 1: Government should better recognise its critical role in securing northern infrastructure projects where there are clear social and economic benefits to doing so and make specific commitments to new investment in its March budget.
  • Recommendation 2: Public sector bodies charged with infrastructure appraisal should take better account of the wider economic benefits of investment as well as induced demand effects and the Treasury Green Book should be redrafted accordingly.
  • Recommendation 3: Government should reduce local borrowing caps to allow local areas and subnational bodies, including Transport for the North, to borrow more freely on international capital markets, working closely with one another and with the private sector. This should be combined with further fiscal devolution.
  • Recommendation 4: Working with the new Municipal Bonds Agency, the Treasury should take additional steps – including through reform of the tax and pensions rules – to make provision for an ambitious and wide-ranging UK municipal bonds scheme which among other features should enable individuals to make tax-free investments in UK munibonds as part of their personal pension plans. Such provision should allow for subnational schemes for particular purposes including a Northern Powerhouse Infrastructure Bond. This should be combined with further fiscal devolution.
  • Recommendation 5: The northern powerhouse team within the Department for International Trade should work closely with Transport for the North and other relevant bodies, in order to develop a more coherent infrastructure investment prospectus that is attractive to private sector investors both at home and overseas.