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Enabling Infrastructure

Schools

There is a growing need for school places in London. Central government provides the majority of the capital funding to create school places and to carry out capital maintenance and repair work to existing school buildings[151], supplemented by capital contributions from London boroughs. An indicative survey by the GLA across the academic years 2011/12 and 2012/13 suggests that capital funding from Government represented around one third of the funding required. This analysis suggests that London will need in the region of £11 billion to 2050 to fund new primary and secondary school places and an additional £12 billion to undertake renewals on both new and existing school facilities.

[151]  Basic Need / Devolved Formula Capital

This investment will need to be made by increasing Government contributions and from sources raised locally, such as through CIL or Section 106 contributions. A wide range of new sources of funding is likely to be difficult to access without providing London government with greater control and freedom over its local tax base. Further innovation and efficiencies will also be required to bring down costs[152].

[152]  Arup, 2014, The cost of London’s long-term infrastructure

Health Facilities

The demand for health services in London is increasing due to a growing and ageing population and an increase in complex and long-term health conditions. As described in paragraphs 5.2.1 to 5.2.9 of this Plan, the NHS has set out the need to undertake a higher proportion of healthcare in community rather than hospital settings. However, many hospital sites contain old, poor-quality stock and there is a need for both replacement and maintenance. Investment is also needed in the workforce and digital technology to deliver service change.

Across London, developer contributions are used to fund the capital costs of new or expanded primary and community care facilities in order to meet the increasing demand for services which arises from population growth in new developments. Boroughs should use the London Healthy Urban Development Unit Planning Contributions Model (HUDU Model) to calculate the capital cost of the additional health facilities required to meet the increased demand. Boroughs should also work with Clinical Commissioning Groups and NHS England to determine what investment is required by monitoring housing and population growth, keeping infrastructure plans up to date and working together to identify and develop projects towards which Section 106 and CIL contributions could be used.

Section 106 in-kind contributions can be used to support the provision of new health facilities, particularly in Opportunity Areas where there is little or no existing infrastructure. Examples of in-kind contributions include: transfer of land to provide new primary and community care facilities; construction and fit-out of new health facilities; and provision of ‘shell and core’ space at peppercorn rent. Funding sources for health buildings also include direct capital from central government and private funding through a variety of public/ private joint ventures. A specific fund for Primary care estate, the Estates and Technology Transformation Fund (ETTF) is in the second of a four-year programme (to 2020).

London’s Sustainability and Transformation Plans (STPs) were published in October 2016 to set out how health and care services would evolve and become financially sustainable over the 5-year period to 2020/21. The plans outlined a requirement to spend £4.8 billion on existing health infrastructure in London just to keep it operationally functional. Further capital investment in NHS infrastructure of £2.1 billion is needed to meet the costs of transforming health services in London and accommodating population growth. Therefore, a total 5-year investment of £6.9 billion is required.

ETTF and developer contributions represent only a relatively small proportion of the capital funding required, so additional sources need to be identified. The London Health and Care Devolution Memorandum of Understanding offers significant opportunities to address health and care estate challenges. These include innovative approaches to realising value from underused and unused NHS land and buildings; working more collaboratively with the Mayor and London’s boroughs; and taking the One Public Estate approach to health and care developments. The London Estates Board and London Estates Delivery Unit aim to support the effective delivery of local and sub-regional estates plans, including more efficient estate utilisation. This will better meet the health and care needs of Londoners now and in the future.

Utilities

This Plan assumes that all regulated utilities infrastructure necessary to support growth will be delivered by the statutory providers and network operators. The London Infrastructure Plan 2050 suggests that energy and water infrastructure will require £148 billion and £46 billion of investment in London respectively over the period. Investment in energy and water infrastructure is usually funded by providers through user charges. Spend on new assets and operating costs are agreed through negotiations between the provider and regulator. These plans are then set out at the beginning of the regulatory price-control period in the provider’s business plan. Because capital expenditure is funded through user charges, utilities companies typically borrow to fund the upfront costs of investment.

The exception to this approach for utilities infrastructure is heat network infrastructure, the pipework that carries hot water connecting sources of low-cost, low-carbon energy to homes and business to meet their space heating and hot water needs. Heat networks are an emerging class of infrastructure recognised by both the Mayor and the Government as being essential in meeting climate change targets. Heat networks are not a regulated undertaking and therefore not subject to the same restrictions or benefits (in terms of powers) as statutory undertakers. The Mayor is exploring how to increase the rate of their development in London, which will require central government to create a level playing field for the treatment of district heating networks compared to other statutory utilities regarding access rights and business rates.

The scale of growth in London will require significant capital investment in water and energy infrastructure. Investment ahead of demand will be required to ensure the utilities are available when sites are developed. It can also realise significant efficiency savings for all parties involved in a development. The Mayor is working with providers and regulators to ensure the regulatory regime supports investment at the right time.

Digital Infrastructure

The London Infrastructure Plan 2050 estimates that £8 billion will be required to provide the digital connectivity infrastructure London needs. As in the case of energy and water investment, new digital connectivity infrastructure is paid for upfront through finance or private equity investment backed by user charges. In general, decisions on where to invest in infrastructure are determined on a demand-led basis. There are also regulatory obligations for coverage, and infrastructure roll-out decisions are also dependent on technology delivery type. Increasing demand, as business activities and people’s lifestyles become more dependent on faster broadband, means that, as with other utilities, the regulatory regime must support investment ahead of demand. This should take account of the fast changing nature of digital technology.

Green Infrastructure

Green infrastructure comprises the network of parks, rivers and green spaces plus the green elements of the built environment such as street trees, green roofs and sustainable drainage systems[153]. The city’s green infrastructure provides a wide range of benefits and services that generate significant economic value in a cost-effective way. The Mayor, in partnership with the National Trust and Heritage Lottery Fund, has published a natural capital account that clearly demonstrates this[154].

[153] Mayor’s London Environment Strategy

[154] Vivid Economics, 2017, Natural Capital Account for London’s Public Green Spaces

Provision of green infrastructure has traditionally been the responsibility of public authorities and various public or third-sector land-management bodies, but increasingly, a number of private sector actors (including utility companies, developers and businesses) are contributing to delivery. This is especially the case in the built environment where green roofs and walls, street trees and sustainable drainage systems are being delivered and maintained by private land-owners.

The funding model for green infrastructure differs from that of other enabling infrastructure in that there are rarely obvious primary revenue streams (such as fares, bills or charges) that relate the provision of the service to the cost of managing, maintaining and upgrading the infrastructure.

In an attempt to address the problem of not properly valuing the services and benefits of green infrastructure, the Government has committed to including natural capital accounts in the UK Environmental Accounts by 2020. This is to ensure that the economic benefits of green infrastructure can be understood alongside other key indicators of economic performance. The Office for National Statistics has been charged by Government with developing a roadmap to enable this.

This re-framing of our understanding of the economic value of green infrastructure makes a considerable difference to decisions about the allocation of existing resources. For example, the willingness of developers to integrate green infrastructure into developments rather than considering the provision of green space as simply a condition of planning.

The majority of funding for green infrastructure is still likely to come from public sector budgets for the management and maintenance of parks and green spaces. However, future funding may be derived from a wider range of public sector sources in recognition of the contribution green infrastructure makes to improving public health, enhancing resilience and providing more sustainable transport options.

Nevertheless, new funding streams will need to be identified in order to improve existing parks and green spaces and to create new green infrastructure in those areas where it is deficient. This might include offsetting funds, new environmental levies to address specific challenges (such as surface water flooding), and new devolved mechanisms. There is also an opportunity to explore new mechanisms to ensure that those who benefit from land value uplift resulting from good-quality green infrastructure contribute to its maintenance and improvement.

Waste and Circular Economy Infrastructure

As London’s population increases so will the amount of waste it produces both at home and in the workplace. Continuation of the current linear economy - where we take resources, make products, use them until the end of their lifetime and then dispose of them – would require significant investment in additional waste infrastructure to cope with this increase.

Transitioning to a circular economy, however, would bring about a net annual benefit of £7 billion by 2036 according to the London Waste and Recycling Board Circular Economy Route Map[155]. This is because the circular economy is restorative and regenerative by design. Relying on system-wide innovation, it aims to redefine products and services to design out waste, while minimising negative impacts. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural and social capital.

[155] London The Circular Economy Capital, London Waste and Recycling Board, 2015

Business will lead the transition to a circular economy, often through start-ups identifying a market opportunity. The investment required by these businesses will be a mixture of venture capital and equity, some of which will come from commercial investors but some of which will need to come from the public and not-for-profit sectors. The GLA and London Waste and Recycling Board have identified budget to invest in circular economy businesses on commercial terms, but accelerating the transition to a circular economy will require more investment.

Cultural Infrastructure

There is growing evidence of the continuing loss of cultural infrastructure in the capital. By 2019, London is projected to lose 35 per cent of its affordable creative workspace, 35 per cent of its music venues, 58 per cent of LGBT+ and night-time venues and 25 per cent of its pubs. This is of concern because cultural infrastructure is important to local communities, to the tourism industry and to sustaining the creative economy, which is a source of significant employment growth and worth £42 billion to London’s economy.

London will require significant investment to reverse the loss of these valued assets and to develop new production hubs, for example as part of the sub-regional vision for a Thames Estuary Production Corridor. In addition, investment in London’s cultural and heritage assets will be needed to maintain the capital’s position as a world-leading creative capital and tourist destination, with four out of five visitors stating that culture and heritage are the main reason for their visit.

To protect and develop London’s cultural infrastructure, investment will need to be raised locally, including from CIL and Section 106 contributions, where appropriate. The Mayor will also explore other sources of investment including philanthropic funding. Additional sources of funding will also be required, but will be difficult to access unless London is given greater control over its local tax base.