Tuesday, July 23, 2024

Birmingham pays the price for UK’s infrastructure gap

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It is more than 80 years since suburban passenger trains ran on the Camp Hill railway line into Birmingham. But from the end of 2024 commuters in the UK’s second-biggest city will be using the line for the first time since the early 1940s.

The £61mn upgrade will cut rush-hour journey times from the city’s affluent southern suburbs by 20-30 minutes. It is part of a plan to revive the city’s economy around a cluster of knowledge-intensive, high-productivity jobs in the city centre. The prospect of the arrival of High Speed 2 rail from 2029 is expected to provide a further boost.

But while the cranes bristling on Birmingham’s skyline speak to the beginnings of that transformation, the reality is that Britain’s “second” city is racing to catch up after decades of under-investment.

The same story plays out across the regions of the UK outside London and the south-east, according to the latest assessment by the UK’s National Infrastructure Commission, the independent body that advises the government on infrastructure needs.  

Its boss, Sir John Armitt, warns that the UK faces yawning infrastructure deficits after four decades during which average UK investment in things such as roads and railways has been the lowest in the G7.  

The result is what the NIC called “significant deficiencies” outside the well-connected and prosperous south-east. Inhabitants of key regional hubs like Birmingham, Manchester, Leeds and Bristol typically suffer longer commute times, have less access to affordable housing, fewer hospital beds per head and weaker digital connectivity than their European counterparts. The NIC notes that England’s main regional cities are “less productive than comparable European cities”.

The assessment was echoed in a December 2023 report by the Bennett Institute for Public Policy, which found that “the picture for the whole range of infrastructure in the UK — ‘hard’ [like road and railways] and social, public and private — is a story of decline and inequality, especially between poorer and richer places”, constraining both access to jobs and to opportunities.

Despite the government’s stated aim to “level up” poorer regions of the UK economically, the institute found that on infrastructure “we have been going backwards”.

At the heart of the problem is a consistent failure to invest for the future, according to James Smith, research director at the Resolution Foundation think-tank, which has calculated that if the UK had kept up with the average public investment levels of other advanced economies since 2000, an extra £500bn would have been spent.

“For too long Britain has been living off its past,” he says. “The results of this failure are clear everywhere you go — from potholed roads to overwhelmed hospitals lacking enough MRI scanners, and schools that are literally at risk of falling down.”

Few places feel this more keenly than Birmingham. The former industrial powerhouse is still fighting to carve out a future for itself in the UK’s services-oriented economy, after the sharp decline in manufacturing that followed the oil-price shock of the 1970s and the severe recession of the 1980s.

The Birmingham urban area (BUA) remains 37 per cent less productive than London — a much greater gap than between, say, Paris and Toulouse — but the size and density of its population also holds out the greatest prospect of returns, according to the Resolution Foundation. The think-tank says a more productive BUA “would be game-changing for the country, the region, and its many residents”.

A street with a view of the HS2 Birmingham signs
A Birmingham terminus of High Speed 2 rail will link the city to London’s tech cluster around King’s Cross © Charlie Bibby/FT
The Trumpington Meadows development, south of Cambridge
Thousands of new homes are being planned for Cambridgeshire, despite warnings that the area lacks sufficient infrastructure © Charlie Bibby/FT

It is a phenomenon that is repeated across the UK. But the situation is not irretrievable, according to Armitt, citing previous moments when the UK made great leaps forward in infrastructure — like the building of the strategic motorway network of the 1960s and 1970s and the UK’s offshore wind revolution since 2010.

But, he says, the remedial work needs to begin now. Years of under-investment mean there are now multiple demands on the public purse at a time of elevated borrowing costs and sluggish economic growth. Infrastructure experts say future British governments must therefore concentrate their limited financial firepower on regional growth hubs, where it can make the maximum difference.

“Spreading a little bit over every town in the country won’t work, in our view,” Armitt says. “Bigger cities must act as hubs for the towns around them. But this can’t be done in two or three years, it will take 10 to 20 years.”

Better transport links are fundamental to creating these city-hubs. They are also key to improving productivity, according to the NIC, which has recommended the government invests £22bn in city transport networks — £15bn of which should be reserved for Birmingham, Bristol, Leeds and Manchester to narrow that gap.

The Camp Hill project in Birmingham is part of a larger £5.6bn programme of transport infrastructure investment planned over the next decade by the West Midlands Combined Authority, the regional body that brings together 18 local authorities around Birmingham including Wolverhampton, Coventry and Solihull.

West Midlands mayor Andy Street says that the old spending deficits with London are beginning to be reversed. “Before I was elected in 2016, spending per head on transport infrastructure was one-seventh in Birmingham [what] it was in London, and it had been that way for decades, but that is now changing,” he says.

Nevertheless, between 2000 and 2022 London received, on average, more than twice the transport capital investment per resident than the West Midlands. In other regions of England, the gap in per capita spending is widening.

Taking long-term decisions and sticking to them is essential to driving investment, according to Street and Armitt, who both lamented the government’s decision last year to cancel the northern legs of HS2, around which northern cities had based their future economic growth plans.

The decision was “deeply shortsighted”, says Jürgen Maier, the former chief executive of Siemens UK who has been commissioned by the opposition Labour party to chair a review into the UK’s transport networks. He believes it is an example of why the UK needs to build legal architecture to ensure that governments “don’t choose filling potholes today over completing tomorrow’s next-generation infrastructure”.

Similarly, a failure to build new reservoirs throughout England is now proving the biggest constraint on UK government plans to turbocharge growth around Cambridge, according to local government leaders. No new large reservoirs have been built in the country in the past 30 years.

Levelling up secretary Michael Gove set out a grand vision last year to expand the UK life sciences hub around a new “quarter” in Cambridge while building 150,000 new houses. But analysis by the Environment Agency, the government body that oversees water conservation, has found that the city doesn’t have adequate infrastructure to meet even existing plans to build 50,000 more houses by 2041.

Lucy Nethsingha, Liberal Democrat leader of Cambridgeshire county council, says the failure to invest in water infrastructure, or regulate private water companies to ensure they planned for future growth, has in effect put new development around Cambridge “on hold”.

“Cambridge has been one of very few areas of the UK which has been showing rapid growth over the past 10 years,” she says. “But this can only continue if governments are willing to work with local councils to ensure future growth is sustainable: that means we need a new reservoir urgently, along with changes to planning rules to protect our chalk streams.” 

Strengthening local government will be key to making the UK better at completing large infrastructure projects, according to analysis by the Resolution Foundation, which argues that the country’s over-centralised bureaucracy has, over the decades, repeatedly led to squeezes in capital project expenditure whenever national belt-tightening was required.

A tradition of stronger local government in Europe means that about 50 to 75 per cent of investment is controlled by regional governments, compared with just 30 per cent in the UK.

To that end, Street has welcomed a decision to grant Birmingham and Manchester new “trailblazer” devolution deals that will see both the city-regions being treated like self-contained Whitehall spending departments from 2024-25, giving mayors greater autonomy to make longer-term plans.

The settlements should provide stability for the overarching mayoral authority even when its component parts are struggling. Last year Birmingham city council, a separate entity, declared itself in effect bankrupt, leaving it to Street to convince international investors that the turbulence was temporary and the longer-term gains were still worthwhile.

Ultimately, to create maximum value, investment in regional cities should focus on creating hubs where high-productivity activities such as professional services, tech and creative industries can flourish, according to both the NIC and think-tanks.

However, this will entail a shift in political outlook, away from the focus on improving towns as part of the ruling Conservative party’s “levelling up” agenda and towards strategic investment in larger economic centres, according to Andrew Carter, director of the Centre for Cities think-tank.

Commuters on a tram
Passengers on Birmingham’s tram system, which has recently added three new stations and is continuing to expand © Charlie Bibby/FT
A view from the top deck of a bus, with cars in a traffice jam in front
The city is notorious for its congestion, with residents keen for ways to travel that avoid traffic jams © Charlie Bibby/FT

“We need to be clear what is going to make a difference to prosperity and move away from a system dominated by small packets of cash doled out by government at random points in the electoral cycle,” he says.

The Resolution Foundation found Birmingham’s productivity gap when compared with London would be narrowed fastest if the city added 165,000 graduates to its working population by 2040.

Improving intracity transport with projects like the Camp Hill line upgrade, a £1.3bn extension to the city’s tram system and the promised terminus of HS2 are all intended to draw more high-calibre workers into the city.

It will take time, says Street, but graduate opportunities are already growing as the city looks to retain more of the attendees of the city-region’s three world-class universities at Warwick, Birmingham and Aston. The surviving leg of HS2 will link Birmingham with London’s tech cluster in King’s Cross, spurring the development of a new “knowledge quarter” around Aston University.

A chart based on 2021 data from the Centre for Cities which shows the share of a city’s population that can access the city centre by public transport. It shows that English cities are less accessible than European peers

Birmingham’s tram system is expanding rapidly, with three new branches opening since 2017 and three more to come. Those riding the new rails — like Bernard Murphy, a London-born property developer who moved to Birmingham 26 years ago — are enthusiastic about the commuter experience in a city that was built around dual carriageways and underpasses in the 1960s and remains notoriously congested. 

“I only started using the tram five or six weeks ago, but it’s brilliant,” says Murphy, who comes in from Edgbaston. “I used to drive and it would take me 45 minutes and I’d spend a tenner on parking. This takes me five minutes right into town.”

The template for a higher-productivity future for the UK’s regions is already emerging in the shape of Birmingham’s £700mn Paradise development in the city centre.

The scheme is still partly under construction, with a hotel and 48-storey block of rental-only apartments due for completion by 2025. But already big City names such as PwC, DLA Piper and Goldman Sachs have taken up residence.

Street says the development is a textbook case of a “planful” approach, where the local government invested in creating the conditions for private sector development — moving roads and utilities and leveraging investment against future business rate income.

A view of the Paradise development in Birmingham
The Paradise development in Birmingham involved local government investment to attract businesses © Charlie Bibby/FT
Goldman Sachs new building
Goldman Sachs is among the big companies to have secured new office space in the development © Charlie Bibby/FT

It is a view long taken by both public and private sector regeneration experts outside of the south-east of England. In places with lower land values and poorer infrastructure, developers often struggle to make schemes commercially viable in the first instance — particularly in post-industrial areas, where land requires expensive decontamination and is often under multiple ownerships.

For Gurjit Jagpal, the local boss of Goldman’s who grew up in Birmingham, to truly succeed the new office must be seen not as a second-best regional outpost, but a standalone branch with a global reputation.

The job isn’t done, but he says Birmingham has already been transformed from the city of his childhood in the 1980s, with the “concrete collars” of the 1960s ring roads slowly being dissolved as the city seeks to become a place where professionals want to live and work.

“It was a place with a central business district where no one lived, then light industrial and then the suburbs, but that is now changing,” he says. “[Goldman’s] main commodity is talent and being in a place where talent wants to be is incredibly important to our firm.”

However, the transformation of Birmingham and similar regional hubs cannot be achieved only by building new railways and office blocks.

Last month, the Bennett Institute concluded that a co-ordinated “universal basic infrastructure” approach was needed by both central and local governments, one that encompasses not only transport connections but recognises the “clear link” between housing growth and health, social and education facilities. It highlighted Northstowe, a new town outside Cambridge, which is expected to house 26,000 new residents but still has no shop, café or GP surgery six years after people moved in.

New financial mechanisms “may need to be considered” to deliver what is needed, it argued. That could mean the infrastructure banks common in other countries, but also a “wider range of local tax instruments” for leaders such as Street, including tourism taxes and instruments like “land value capture”, where the public sector gets a return from the private sector when, as in the Paradise development, it has invested in infrastructure that increases the value of the land.

Alongside that, planning experts say there must be a simultaneous investment in tens of thousands of new homes to avoid rising house prices driving up wages and sucking up the productivity gains that come from investing in new transport infrastructure.

The greater Birmingham area is already showing signs of housing pressure, with prices doubling in the past 20 years and over 54,000 households on waiting lists for social housing, according to the Resolution Foundation.

Higher prices make the city less affordable to the graduates it needs to attract, while also pricing out existing residents, which in turn erodes public support for growth-focused policies, according to Smith of the foundation.

“We cannot expand our city centres if they’re not within commutable reach of workers, but we also have to address the housing issue, where the UK, particularly on social housing, is far behind its peers,” he says. 

Street, who is standing for re-election this year, says Birmingham’s building boom is evidence that the region’s planners understand very clearly that improved transport links need to go hand in glove with housebuilding inside the city.

The West Midlands authority is on track with its 2016 target to build 215,000 new homes by 2031. Street says that many of those new homes will need to be built on brownfield city centre sites to bring population densities closer to those of more productive European cities.

“More people need good-quality housing so you can attract those relatively footloose, modern industries, but you can’t continue to have urban sprawl,” he says. “Cities of this scale need to be far denser than they are, and if you compare with EU cities, we’re nowhere near as dense.” 

Data visualisation by Alan Smith

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