What does the Government’s agenda mean for real estate and will it help us to’ build back better’ in line with the PM’s strategy to rebuild Britain and fuel economic recovery across the UK? Simon Williams shares his thoughts.
The levelling up agenda was a high profile issue during the UK 2019 General Election. Boris Johnson’s manifesto presented the electorate with the most ambitious infrastructure investment plan for decades: £100bn in new spending spread over a relatively short period of time. Some political commentators argue that this plan was at least partially responsible for delivering the Conservatives sizeable majority that made him win the election.
The levelling up issue has become a hot topic because in the last 25 years the wealth gap in the UK between the richest and poorest regions has almost doubled, meaning that the UK has greater regional economic inequality than any other western European nation.
The Government’s current regional approach to COVID-19 also means that the spotlight is firmly back on the levelling up agenda.
The necessity for a cohesive UK regional policy to replace the EU Structural Funding, which last year was worth £2.1bn to the UK, has been recognised for some time.
Theresa May’s government initiated a Shared Prosperity Fund but it is estimated that this will only be worth about £750M.
David Cameron launched City Deals from 2011, which were worth about £2.4bn, but over a number of years.
High profile promises included £500M over a five year period to reverse many of the Beeching railway cuts introduced in the early 1960’s, £500M to repair pot holes in the road system and £257M to provide free car parking in local hospitals.
Infrastructure to provide high-speed broadband across the UK and high-speed rail beyond the currently committed HS2 project will almost certainly follow. However, more will be needed and unlike late 2019 when these promises were made, the UK Government has now had to increase our national debt to the highest ratio of GDP that the country has experienced since the early 1960’s.
Innovative interventions and solutions are therefore needed to bring forward new initiatives in the UK regions, which will generate maximum return for modest investment.
With UK Government 10 year bonds priced at 0.19% and 5 year Bonds at -0.6% (this is the first time ever that UK gilts have gone into negative territory), we know that despite recent rating agency downgrades, investors remain hungry for the security offered by UK public sector credit.
If the government wants to build our way out of recession, it could use the strength of its covenant to fix the private development funding market, which is holding back the delivery of essential commercial and residential regeneration that will do much to balance up the country.
This could be structured through local authorities being supported and underwritten by central government, if it provides income guarantees on newly completed development to ensure that investors get a secure return on their development finance commitments. This sort of approach is already happening but could be expanded with the support of central government - without the need for additional cash - and should actually generate revenues for local government when the schemes are let to occupiers who are paying rent and rates.
