La presencia de la saya en las fiestas de la comunidad

Whilst much of the infrastructure investment required in London is likely to be delivered and funded thorough the private and regulated sector, as well as central government, a significant element will fall to London government to find. It is clear that the funding gap between projected future costs and income sources in housing and transport of approximately £135 billion in the study period represents a significant challenge, in addition to the remaining sectors of the study where it assumed that costs are “unfunded” at present.

In order to deliver the identified infrastructure requirements, London government will need to consider mechanisms for reducing the gap between projected costs and income. In part, as we have discussed, this could relate to driving efficiency savings in the delivery of major infrastructure projects.

It also is evident that additional sources of funding will need to be identified, be it through newly committed central government grant, access to new funding

streams or access to new capital receipts. The London Finance Commission

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We detail provide additional commentary around this analysis in chapter 10 and in the appendix to this report.

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Borough roads exclude those which form part of the TfL Road Network or Borough Principal Road Network, both of which are managed by TfL.

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Both of these revenue streams could vary substantially over the period. In particular, the General Grant, negotiated directly with central government, could be subject to periodic/on-going

reductions and uncertainty. The core capital funding stream also is negotiated directly with central government and could be subject to periodic/on-going reductions and uncertainty.

concluded that “London government needs fewer borrowing constraints and greater devolved tax powers to enable it to invest more comprehensively without the need for ad hoc, project-by-project financing arrangements.” As would be the case for Britain’s other major cities, London is likely to benefit from fiscal autonomy that matches continuous, stable funding streams with the ability to determine local need. Greater local control similarly should enhance political accountability, fiscal discipline and responsibility.

Should London government be permitted to retain a greater share of the tax revenues it generates, there is good reason to believe that central government funding could be reduced over time. In the short term, limited and modest proposals for fiscal devolution will not in themselves generate the financial resources to make a significant dent in the additional public capital investment requirements facing London. Over the long-term, with regular revaluations and year on year increases, the property tax base may yield more significant sums. Irrespective of fiscal devolution, additional powers to implement new revenue generating schemes will need to be granted in order to close the funding gap.

1.12

Options for reducing the gap: additional sources

of revenue

There is considerable potential for London to raise the capital required to support infrastructure development. We have considered a range of new funding sources, including the traditional and the more radical.

Figure 15 below provides an illustrative estimate of the level of income each source could theoretically generate during the period of the plan.54 It does not consider financial structuring implications, the potential impact on London’s competitiveness or willingness/capacity to pay. We discuss each option in more detail in chapter 12.

Potential additional source Amount (£bn, 2014 prices, undiscounted)

Business Rate Supplement 3

Council Tax Supplement 2

London income tax share 33

South East income tax share (excluding London)

23

Motoring duty 48

Hotel tax 6

TfL fares increase 79

User charging (new roads) Project specific

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Note as we discuss, in a number of cases this is not for the full thirty five year period 2016- 2050.

Potential additional source Amount (£bn, 2014 prices, undiscounted)

Property development Project specific

Sponsorship and third party contributions

Project specific

Figure 15: Potential sources of revenue indicative amounts (£ billion). 2014 prices, undiscounted. Source: Arup analysis

Of the seven sources considered that are not project specific, we have identified revenues ranging from £3 billion to some £80 billion over the study period. For example, a cost neutral measure for employees would be to devolve a portion of the income tax collected nationally, based on the number of employees working within London. It is estimated that such devolution could generate £33 billion of revenues during the study period (undiscounted).

These projections have not included potential additional revenue from devolved property taxes. As noted in chapter 10, a 2.5% per annum real increase in property tax revenue would equate approximately to an extra £78 billion of income (on an undiscounted basis).

The potential revenues identified should be considered separately and on no more than an indicative basis. Competing demands for scarce resources would dictate that only a portion of future revenues, whether from property taxes or other sources, are likely to be available for infrastructure development. Moreover, changing London government’s fiscal powers would be likely to have dynamic effects on the revenues generated by individual mechanisms, and there is

uncertainty around the projections made. There is similar uncertainty around the composition of London government’s overall income, which could change with the introduction of new taxes and other sources of revenue.

This discussion of revenue potential has not accounted for the profile of investment across the different infrastructure sectors the GLA is considering. Additional analysis (indeed a further study) would be required in order to understand the relationship between the investment programme and potential funding sources. In addition, future analysis would need to address the debt profile and financing costs associated with different investment proposals.55 It is likely that such considerations would need to be addressed to achieve support for new revenue mechanisms. Most of the fiscal powers discussed in this report would require some form of central government support.

Notwithstanding these caveats, there is considerable potential to finance infrastructure via devolved revenue sources. A more local approach to funding infrastructure development could help to foster a virtuous cycle of efficient

investment, growth and accountability, more effectively structuring incentives and decision-making. As the London Finance Commission (LFC) has identified, localised fiscal powers could level the playing field with other international cities that have greater control of local revenues and spending. Furthermore, there is no reason these funding mechanisms could not be used by other British cities,

supporting existing initiatives such as City Deals, Community Budgets and efforts to increase the involvement of Local Enterprise Partnerships (LEPs) in spending decisions.

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1.13

Conclusions

Arup’s study of the costs associated with London’s long-term infrastructure has shown that capital (enhancements and renewals) expenditure requirements in both the public and private sectors could be within a range of £1,000 billion and some £1,750 billion between 2016 and 2050.56 In our central case, approximately £1,324 billion of capital expenditure (enhancements and renewals) is projected to be required between 2016 and 2050. Enhancements to London’s existing

infrastructure asset base are projected to comprise some four-fifths of this cost, nearly £1,000 billion. Renewals expenditure, relating both to new assets and to the existing infrastructure, could total an additional £324 billion.

Some £1,000 billion of all capital expenditure relates to the housing and transport sectors. Combined public and private investment in these two infrastructure sectors is projected to comprise more than 75% of capital (enhancements and renewals) expenditure required in the study period. Capital requirements are projected to grow significantly over the next decade. Between 2021 and 2025, it is projected that capital expenditure (including both enhancements and renewals) will represent some 8% of GVA, given a considerable increase in forecast housing unit delivery and in the initiation of major transport schemes. In later periods, it is projected that capital requirements will decline as percentage of GVA. By the middle 2030s, it is projected that capital expenditure requirements (enhancements and renewals) will fall to some 5.5% of projected economic output (GVA). This figure is roughly equivalent with estimates of current expenditure as a percentage of GVA.

Operating expense requirements are projected to increase with capital

requirements in the period. Between 2016 and 2050, approximately £970 billion of operating expenditure is projected to be required across London’s different infrastructure sectors. A large portion of operating expenditure is projected to relate to the city’s transport system and housing stock. Transport operating cost requirements, including routine operating of the Underground, rail, bus networks, are projected to exceed £500 billion in the period. Housing operating expenditure requirements are projected to exceed £250 billion in the period, include routine maintenance costs.

Our preliminary assessment indicates that the ‘gap’ between projected future costs and income sources in the housing and transport sectors alone could be

approximately £135 billion in the study period, between 2016 and 2050 (2014 prices). As this figure does not include all of the infrastructure sectors, there is good reason to believe London’s infrastructure funding gap could be considerably greater. This figure also does not account for potential debt servicing costs and/or other additional central overheads, and it likely represents a conservative estimate of the projected funding gap in the two sectors.

In order to deliver the identified infrastructure requirements, the government will need to consider giving London government the powers and mechanisms for reducing the gap between projected costs and income. Driving efficiency savings in the delivery of major infrastructure projects may also contribute.

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Projected outturn costs will depend on a large variety of factors. This range relates to variation in forecast population growth, possible delivery efficiency and construction industry price growth.

To meet the needs of a growing population and enhance Londoners’ quality of life, it is imperative policy makers find a way to deliver infrastructure for London on what will be an industrial scale across all types of infrastructure. Additional sources of funding will needed – from central government grant, or access to new funding mechanisms and sources of finance. Fiscal devolution is elemental to delivering infrastructure success. Without bold and radical thinking, London risks losing its position as one of the world’s most competitive and liveable cities. That would be to the detriment of the whole of the United Kingdom.

Ove Arup & Partners Limited. July 2014