What’s the problem?
The economic divide between the south-east of England and most of the rest of the country is a decades-old feature of Britain’s economic geography — so much so that many policymakers accept it as an immutable fact. But there is reason to believe that something could be done to help places outside London do much better. This would not only be good for its own sake. It would also increase the prosperity of the country as a whole, take pressure off the richer parts of the country with regards to housing and infrastructure, and help Conservatives win votes and seats in cities where they currently struggle.
To get this right, we need policies that take advantage of the power of agglomeration effects — the fact that larger cities in most countries tend to be more productive and richer. Uniquely in developed countries, this phenomenon is very weak in the UK — in part because local transport doesn’t work well and we have not built the transport networks that would make places like Birmingham or Leeds function as economic units in the way their peers in other countries do.
In the post-war era, local governments prioritised cars over other forms of transport. Leeds, for example, is the largest city in Europe without a light rail or metro system, but had an extensive tram network until 1958 – when the city corporation scrapped it as part of its ambition to make Leeds the “city of the motorway”.
The problem with transport in the North of England is a combination of investment in the wrong things and low investment in general. Researchers like Tom Forth have argued that, for political reasons, successive British governments have passed over transport projects in the North and funded ones in the south-east with worse benefit-cost ratios.
Addressing this will require investment: investment in transport in particular, to make cities function. Investment costs money, some of which should be found from private investment and some of which may need to come from the government. Some have argued we could fund Northern transport by axeing projects like HS2, but the purpose of HS2 is not simply to provide a faster service between major cities – it is to provide extra capacity.
Because intercity lines need fast services (that skip most towns in between) and slow services (that do not), adding an extra line allows for one line to be used for each. This prevents slow services acting as a bottleneck on fast services, and increases total capacity by a factor of four or higher. While we do not take a position on whether HS2 should be cancelled, if other rail projects pass a cost-benefit analysis they are worth funding in their own right, whether or not HS2 goes ahead.
Better infrastructure is also an effective way of tackling the problem of so-called “left-behind towns”, by allowing them to benefit from agglomeration effects. Less productive towns are facing increased challenges because of the power of the knowledge economy and the effects of town size. Rather than making false promises about restoring their prosperity through spending on local projects that in many cases are driven by politics over economics, government should be investing in transport to connect them to nearby cities so that the whole area prospers.
Our goal
Over a five- to ten-year timeframe, we should seek to increase the productivity of major UK cities and their surrounding towns and villages by improving transport links. This will increase the effective size of large cities and expand the number of towns that can benefit from the prosperity and knowledge spillovers of highly productive urban areas. And we should do this in a way that is sustainable with regards to public finances.
Specific policies
Set up a regional transport and R&D fund. The government should launch a significant fund to invest in local, city-region-level transport in and around major cities. A small fund of this sort was put in place by the last government, but we should be much more ambitious: a fund in the tens of billions is likely to be needed.
Similarly, the Government should work with city leaders to increase public R&D investment in one or two cities with the potential to make the most of it. A worthwhile goal would be to make Birmingham, Manchester or Bristol much more R&D-intensive, building on their world-class universities and local industries. This policy would build on UK Research & Innovation’s “Strength in Places” fund, but at a larger scale and with greater focus and ambition.
Use land value uplift to fund new infrastructure. In and around London and other prosperous cities like Leeds and Manchester there is demand for both new infrastructure and housing. New infrastructure opens places up to more development — the areas along either end of Crossrail are now much more attractive to people who work in central London.
Historically, much of London’s rail network was self-financing. The business model consisted of first building rail lines through empty fields and houses around the stations, and then selling the houses that were now connected to the city. A similar model continues in Hong Kong and also in Japan, a nation where most railways are run privately without a subsidy from the state. In both cases the operators raise significant revenues from leasing out properties in and around the stations.
The main reason that this is not more common in the UK appears to be the piecemeal nature of the planning system. Crossrail 2, for example, which would run from North to South London, could in principle support 250,000 new homes along its line. Under the current planning regime, however, TfL would need to make hundreds of separate applications for approval to build these homes. If a certain number of approvals was needed for Crossrail 2 to be viable, the risk and costs could be prohibitive.
One option to avoid this could be to set up a special purpose vehicle for new lines, like the one used to approve the 2012 Olympic Village sites. This would check new developments to make sure they were legal and operating within established building regulations, but would be less subject to local lobbying than local councils, and could make decisions along entire sections of railway lines, allowing for fewer applications to be made and less risk. In general, these new sites should be obtained at market prices and not through compulsory purchase, which is subject to abuse and is deeply unpopular (as the row over the Heathrow expansion has shown). It is rarely used in Japan.
This would have five benefits. It would make new infrastructure in prosperous areas self-financing and would reduce the burden on taxpayers. Second, it would allow us build new housing in the places where it is most valuable. Third, more railway lines would be economically viable than is the case under the current publicly funded model. Fourth, infrastructure funds would be freed up for parts of the country where they may have a stimulating effect, creating new agglomeration economies instead of simply improving on existing ones. And fifth, it would create a sustainable funding stream for infrastructure, instead of being reliant on the whims of central government — which, as the Beeching cuts demonstrate, can be fatal in difficult times.
Take buses seriously. Outside of London, buses are far more important than trains for commuters, but they are underused because they are slow (because of how the routes are designed) and often delayed by congestion. Traffic problems put off passengers more than any other factor: a 10% fall in operating speeds is associated with a 10% fall in ridership.
But in other countries, bus network redesigns, such as Jarrett Walker’s work in Houston and a similar scheme in Barcelona (alongside that city’s pedestrianised superblock plan), are succeeding in increasing speed, reliability and passenger numbers. Dublin’s plans also look promising.
The idea behind this new approach is to deliver high-frequency services along trunk routes, so that the bus grid can be as simple as the tube map. When people feel certain that a bus is coming broadly to their location in less than four minutes, without them having to check times, they’re happy to transfer. In Barcelona, there is a 3–8 minute headway between buses along major routes, and people make transfers on around a quarter of all journeys because they’re so regular they’re almost akin to the Tube. Once the system has fully rolled out, it is expected that nearly half of all boardings will be bus-to-bus transfers (the figure is 13% in London and likely to be much lower in cities outside of London). This kind of approach may work with the grain of existing bus deregulations, which led to higher supply and frequency along trunk routes.
Whether or not the massive postwar expansion of the urban and suburban road networks was a good idea, we have them now, and using city streets for cars is much less efficient than for rapid bus networks. Local government should be given as much power as possible to move towards this kind of system — redesigning the network won’t unless there is also more priority for buses (in the form of bus lanes), and higher congestion charges.
Break up Openreach and open broadband up to competition. As a national monopoly that is vertically integrated into by far the largest telecoms company, BT, Openreach is chronically inefficient. It is heavily unionised, has a captive market in the form of BT’s customer base, and uses cable laying methods that are more expensive than the methods of its smaller rivals. The result is weak fibre rollout and weak competition. BT also has an enormous lobbying team and budget, and a very close relationship with Ofcom that may border on regulatory capture. All of this contributes to a broadband network that is badly lagging behind: in Ofcom’s 2017 rankings with similar countries, the UK was 18th out of 18th in terms of fibre-to-the-premises rollout.
To achieve faster fibre rollout and lower costs, the national broadband market should be opened up to competition and new entry. To achieve this, Openreach should be broken apart into eleven regional companies that are separate from BT. Each of these could then expand outside their region and compete with each other.
This would create more competition in fibre rollout between these new businesses and other, more efficient ISPs. The fact that there would be no automatic relationship with BT would mean that these new regional companies would have to compete with other ISPs to supply BT customers, and would not be doing so as a national monopoly.
This would drive faster fibre rollout in cities and towns, especially if broadband companies were given the same rights to build infrastructure that the energy and water sectors enjoy, without the need for planning permission that currently holds back rollout. It should also boost rural broadband rollout, with more active searching for profit opportunities by smaller players that can now access BT customers, compared to OpenReach’s current weak incentives and high costs.