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Infrastructure: the Conservatives’ necessary but misplaced priority

January 18th, 2020

The Custard Factory is one of Birmingham’s more striking developments.   Its current incarnation is as Birmingham’s answer to Shoreditch (a question that probably did not need asking).  Its history, however, stands as a warning to the government, a warning that it almost certainly will not heed.

The Custard Factory’s name is not, like so many new developments, the product of a random buzzword generator, but a simple statement of its origin.  Until 1964, Bird’s Custard was manufactured on that spot. And then as a direct result of government industrial policy, it desserted the site.

In the decades after the Second World War, Birmingham’s economy boomed.  In 1961, Birmingham household incomes exceeded those of London and the south east.  Successive governments fretted about how Birmingham and London were leaving the rest of the country behind.  Central government took direct measures to spread their success to more deprived regions. First they restricted industrial development, then they restricted office development.  The city of a thousand trades was booming and this was a crisis. Introducing the order placing restrictions on office development in 1965, the government minister saw this as a “threatening situation”.

In words that now seem prophetic, the MP for Sutton Coldfield at the time opposed the measure:

“This Order is a kind of penalty on the success of the West Midlands and Birmingham, imposed admittedly by the Government in order, as they believe, to help somewhere else. There is a growing anxiety in Birmingham that the Government may have carried too far this process of siphoning off the prosperity of the Midlands to other areas. I can give examples which are germane to this Order. In Birmingham on Monday I heard of firms, which provide employment similar to that affected by this Order, being forced to leave the city. These firms, to a considerable extent, are firms which are independent of cyclical fluctuations of trade.

The manufacturers of Bird’s Custard, a food product, who have been in the city for a great many years, were quoted as an example. The motor industry, on the other hand, is a cyclical industry and whilst Birmingham is very prosperous, it and the Midlands, to the extent of dependence on the motor industry, are living dangerously in their prosperity. Therefore, it hurts these areas the more when industrial and commercial employment of a non-cyclical kind leave the area. Such a movement can prove a great future potential loss to the city and surrounding area.”

The Order was highly effective, at least so far as Birmingham was concerned.  Birmingham no longer has the problems of success. It has a lower GVA per head than the national average – and lower than Liverpool, for example.  It was, however, much less effective at boosting the economy of struggling areas, many of which have remained in relative decline to this day.

55 years on, and Britain has another government looking to siphon off the prosperity of successful regions to struggling areas.  There isn’t much evidence that the government has any better idea how to do it this time than it did in the 1960s.

The government seems set to divert infrastructure spending away from the areas of the country that are prospering to the forgotten north.  This isn’t a new idea either. Nor did it prove a particularly successful idea either. At the same time as Birmingham’s business was being run off, the Humber Bridge was commissioned.  Hull and Grimsby are better connected to each other, but both still languish economically. A lot more than infrastructure is needed to breathe new life into depressed areas of the country.  Past experience has shown that if you only build a field, they won’t come.

The government doesn’t really have a choice.  Its newly-elected backbenchers made great play in their local campaigns of fighting for infrastructure investment.  If they don’t deliver, they’ll be up against it at the next election. If you’ve successfully won seats on the basis that your opponents have taken their voters for granted, you really can’t afford to take them for granted yourself.

This gives the government two big problems.  First, if it is going to invest in infrastructure in previously forgotten areas, it is going to come up with a clear rationale for how it is going to prioritise investment.  Previously, governments have worked on the basis of a cost-benefit analysis (which is why London has done so well – as by far the most prosperous and successful area of the country, projects can easily demonstrate bang for buck).  If that metric is to be abandoned, what is going to be put in its place? The government has as yet given no clear statement of principle but without one, the likelihood of pester power winning out is high, with projects allocated on the basis of influential backbenchers’ ability to buttonhole ministers.  Majestic herds of albino pachyderms can be sighted lumbering towards us on the horizon.

And second, if improving infrastructure is a necessary but not sufficient condition for reviving failing areas of the country, what else is the government going to do?  Shooing business away from London won’t work. Wooing it away might. Again, however, the government has so far shown no trace of having thought about how it might do this.  

The big risk is that the government will fail to provide the investment in infrastructure that the successful parts of the country need and instead provide investment in infrastructure in the declining parts of the country without providing the additional support to provide the economic turnaround that they urgently need.  The country has enough problems at the moment without massively misallocating resources at a time when the public finances are already under serious strain. The government needs to set out some very clear principles. And soon.

Alastair Meeks