The next generation deserves a better future. A future with a thriving natural environment, measured economic growth, and strong social cohesion, writes Dr. Kaine Lynch, associate director at KPMG in Northern Ireland.

In the current decade, we need to turn the corner to net zero carbon and accelerate post-COVID economic recovery. We are in the driving seat and the map to a better future has clear directions: invest in infrastructure.

A better future can be realised through investment in our transport infrastructure, energy networks, water and wastewater systems, social infrastructure, flooding defences and digital networks. Infrastructure investment also forms the backbone of economic development, evidenced by the fact that every £1 spent on infrastructure construction raises economic activity by £2.84. 

Spending per capita

Despite the enormous benefits, infrastructure spending per person in Northern Ireland is consistently the lowest on these islands. Between 2015-16 and 2019-20, Scotland spent more than 1.5 times as much on infrastructure per person than Northern Ireland. In 2020, the Republic of Ireland spent more than 1.6 times as much per person on infrastructure.

This prolonged underinvestment in infrastructure has led to an infrastructure deficit amounting to billions. Our lack of wastewater infrastructure is already constraining development in many parts of Northern Ireland. Demand for social housing is outstripping supply. Public transport usage lags behind the rest of the UK. Our road network has a structural maintenance backlog of £1.2bn. 

Recovery Plan for NI

The Executive’s Consolidated COVID-19 Recovery Plan commits to the establishment of an Infrastructure Commission to provide expert-led infrastructure planning. This is a major leap forward. Like other UK infrastructure commissions and Project 2040 in Ireland, the Commission will set out a long-term plan for infrastructure in Northern Ireland. It will tell us what is required.

But a strategic plan is of little use if not affordable. Where do decision makers find the additional funding required to build a better future? Particularly when there are other complex and competing priorities across the public sector. Should hospitals be prioritised over water, education over housing, public transport over roads? 

The role of private sector investment

It doesn’t need to be a zero-sum game. Around half of the UK Government’s National Infrastructure and Construction Pipeline is to be funded by private investment. The National Infrastructure Strategy, published in November 2020, reinforces the need to use public funds to leverage private sector investment. The Scottish Government’s Capital Spending Review 2021-22 to 2025-26 outlines plans to augment its capital budgets with £3bn of private revenue finance. The Irish Government’s recently published National Development Plan also commits to examine policies to ensure they do not disincentivise the use of public-private finance models.

In contrast, Northern Ireland is heavily reliant on exchequer funding for infrastructure. Not only is public investment per person the lowest on these islands, the lack of private sector funding means that we will lag even further behind our neighbours.

Financing development

The recent establishment of the UK Infrastructure Bank has thrown us a lifeline. The bank aims to accelerate investment in the country’s infrastructure with the core objectives of tackling climate change and supporting regional and local economic growth. The bank has £22bn of financial capacity to deliver on its objectives in areas such as clean energy, transport, digital, water and wastewater. What’s more, the UK Government intends to legislate so that the Northern Ireland Executive can access the bank directly.

However, as the name suggests, the loans must be paid back. Servicing these loans may therefore become burdensome without an appropriate revenue model.

Thankfully there is a solution. Mechanisms such as Land Value Capture and Tax-Incremental Financing can be used to capture increased land values and additional taxes resulting from infrastructure investment to generate a revenue. These mechanisms have been used to finance transport projects such as Crossrail in London and Dulles Metro-rail Silver Line Expansion in Washington, as well as the regeneration of Glasgow City Council’s Buchanan Quarter. For example, land value capture could be used to help fund major infrastructure projects such as £1.2bn A5 Western Transport Corridor. 

Planning to progress

Northern Ireland’s Fiscal Commission, which was established earlier this year, is currently reviewing options for fiscal devolution. It is hoped that this work will lead to the devolution of the necessary tax powers to enable innovative funding models.  

If we are to truly take advantage of the opportunity presented by the National Infrastructure Bank, there is a need to fully explore how infrastructure investment can be used to generate revenues so that constrained public finances do not pose a barrier to a better future.

This article originally apppeared in the Irish News and is reproduced here with their kind permission.

Get in touch

For further information on financing large-scale infrastructure projects in Northern Ireland, please contact Dr. Kaine Lynch. We'd be delighted to hear from you.

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