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Economic Case for Transformational Infrastructure

Graham RussellAMION Consulting

June 2014

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Structure• Economic rationale for transformational infrastructure

• Measuring economic impact

• Case studies: forecast economic impact

o Liverpool 2 and the Manchester Ship Canal Ports

o Mersey Gateway

o HS2 - Curzon

o Bristol Arena

• Realising the transformational benefits

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Economic rationale (1)

• Infrastructure can:o Raise economic growth o Increase productive capacity o Promote agglomeration benefitso Generate significant positive spillover effects

• Need for investmento Meet current demand through the renewal and upgrading of existing infrastructureo Meet future demand and create spare capacity and allow flexibilityo Grow within a global economyo Address key issues including climate change and energy security

UK National Infrastructure PlanInfrastructure must strengthen and drive the economy, create jobs and act as a key enabler for future economic development and rising living standards across the whole country...

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Economic rationale (2)• BUT – the UK performs relatively

poorly in terms of infrastructure investment by global standards

World Economic Forum (2013-14)

UK is ranked 28th in terms of “quality of overall infrastructure”

• Reasons for under-investment (or sub-optimal investment) include:

o Large initial capital cost

o High risk

o Benefits often accrue over the long-term

o Necessary but not sufficient investment

o Complex interconnections and complementarities

• Understanding the potential economic impacts is essential to making informed investment decisions

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Measuring the economic impact (1)• Economic impact assessment - impact on the local/national economy

(Cost Benefit Analysis – full welfare costs and benefits)

• Effects arise through inter-related mechanisms

o primary: short-term and permanent employment created by the infrastructure

o secondary: additional economic activity from supply linkage and income multiplier effects

o tertiary: broader impact of the infrastructure in generating additional economic activity and other quantifiable benefits

o wider: a range of less tangible impacts (positive or negative externalities) such as image and environmental impacts

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Measuring the economic impact (2)• Timing of impacts

o Construction phase or activityo Operational phase or activityo Persistence

• Nature of the impactso Outputs, outcomes and impactso Outcomes/impacts

• Additional impacts

Potential benefits may include:

Employment and labour market impactsGross Value Added (GVA)Students and traineesProperty market impactsResidential unitsWider impacts

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Measuring the economic impact (3) • Additionality – the key concepts

o Leakageo Displacemento Substitutiono Multiplier effectso Deadweight

Liverpool 2 and Ship Canal Ports (1)

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Port Wirral

Port Cheshire Port Ince Port Warrington Port Salford

Port of Liverpool

Port Cheshire

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Liverpool 2 and Ship Canal Ports (2)• Liverpool 2 represents transformational change

o £300 million investmento Support 3,140 gross jobs o Employment opportunities for local communities

o Significant up-stream and down-stream multiplier effectso Support other opportunities – e.g. logistics satellites

Managers and senior officials

Professional occupations

Associate Professional/Technical occupations

Administrative and secretarial occupations

Skilled trades occupations

Personal service occupations

Sales and customer service occupations

Process, plant and machine operatives

Elementary occupations

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Liverpool 2 and Ship Canal Ports (3)• Manchester Ship Canal Shuttle and Ports will create major new

sustainable growth opportunitieso Combined investment of c. £560 milliono Support the creation of 11,650 gross jobso Gross Value Added impact of almost £600 milliono Port Salford - UK's first tri-modal inland port facility and distribution parko Port Cheshire – potential linkages with automotive and chemical sectors within Ellesmere Porto Port Ince – enable the delivery of wider strategic plans for £850 million Ince Resource Recovery Park

Port Wirral Port Cheshire Port Ince Port Warrington

Port Salford

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Mersey Gateway• Work started on the Mersey Gateway Project on 7th May 2014

• New six lane toll bridge over the Mersey will open in Autumn 2017

• Important economic benefits:o 470 permanent full-time equivalent jobs on site during the

construction phaseo 4,640 permanent new jobs as a result of the operation of the

Mersey Gateway, regeneration activity and inward investmento £61.9 million a year in Gross Value Added from the new jobs by

2030o Support sustained growth of key assets including Liverpool John

Lennon Airport

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HS2 – Curzon Masterplan• HS2 one of the largest infrastructure projects in the UK

• Phase 1 will link London to Birmingham

• HS2 station - focus for Curzon Masterplan

• Need to ensure station is fully integrated with wider proposals for the delivery of 600,000 sq m of employment floorspace

• Focus on design:o Ensure station does not act as a barrier/constraint to growtho maintain and enhance linkages between the City Centre and key

growth locationso Ensure the station acts as a focus for investment

• Potential to support 30,150 gross jobs

• Annual net additional GVA impact of £823 million

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Bristol Arena• 12,000 capacity arena venue located within Temple

Quarter Enterprise Zone• Mayoral investment priority• Create a major new destination adjacent to Temple

Meads station• Potential to support more than 900 jobs• Significant catalytic effects

o Image and perceptionso Enhanced access infrastructureo Accelerate redevelopment of major opportunities on

adjacent sites – potential for a further 800 gross jobs

• Opportunity to capture significant Business Rates uplift

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Realising the transformational benefits (1)• Comprehensive and consistent long-term vision/plan – at national,

regional and sub-regional levels

• Public sector appraisal/accounting – focus on net additional economic returns

• Private sector investment – given limited public sector resources

• Planning system – more efficient and effective

• Compensation – compensating those adversely affected

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Realising the transformational benefits (2)• Forward planning – designing in flexibility and capacity

• High quality – if sustainable benefits are to be achieved

• Effective delivery – getting the right people and leadership

• Integrated programme/portfolio of investments - ‘critical mass’, sequencing and linkages

• Partnership working – using the know how and resources of public and private sector partners

• Evidence-based – learning the lessons