What does infrastructure investment in London mean for Wales? – Bevan Foundation

Significant investment and a more flexible planning system are on the horizon for England. What about Wales, asks Victoria Winckler, Director of the Bevan Foundation. 

The new UK government has pledged to ‘kickstart economic growth’ through investment in infrastructure and reform of the planning system. For example there’s been much excitement that projects such as the Lower Thames Crossing – 15 years in development without a spade hitting the ground – might finally get the go-ahead. 

But what does this mean for Wales? 

The benefits for Wales of infrastructure investment in England, and especially London and the south-east, are a moot point.  

On the one hand, the fortunes of the Welsh economy are clearly linked with the fortunes of the rest of the UK. Every graph of GDP per head (check out the Welsh Government’s dashboard) shows that when the UK economy is doing well, so too is the Welsh economy. This ‘tracker’ effect is not that surprising – Welsh businesses do not operate in a vacuum and have supply chains and customers that cross Offa’s Dyke. Similarly, consumption by households (a large component of GDP) is largely shaped by wages, taxes and benefits – mostly determined on a UK basis.  

Economic growth elsewhere also benefits Wales as a larger economy supports higher public spending (depending on the political colour of the UK government of course). In other words, a rising economic tide lifts all boats – least to some extent.

But that’s only part of the story.

A closer look at the GDP graph shows that when GDP in Wales grows, GDP in the UK grows even more. The effect has been to gradually widen the gap between output per head in Wales and that in the UK as a whole over the last 25 years or so. To keep with the boat metaphor, some boats clearly float higher than others.

The widening gap between Wales and the UK is because of the exceptional growth of GDP in London, whose output per head is now around 2.5 times that of Wales. It could be argued, as some have, that even more investment in London, whether the Lower Thames Crossing or any other scheme, will boost the UK economy which in turn will help the Welsh economy in some sort of geographical ‘trickle down’ effect.

But just as tax and benefit cuts that are supposed to ‘trickle down’ to the rest of the economy have been proven to benefit only the rich, so too might we expect regional economic growth that is supposed to ‘trickle down’ to the rest of the country to primarily benefit only the growth region. On top of that, concentrating economic growth in one place is environmentally unsound and reinforces social and economic inequalities.

The investment gap

Indeed, one of the reasons that nations and regions outside the south east lag behind could be the lack of investment in infrastructure in those places. The big ticket items in Wales – the A465 upgrade at around £1bn over more than 20 years and the equally-costly south Wales metro – pale into insignificance when compared with investment in London and the south east. Network Rail is spending £2.6bn on improving rail networks in Kent, while the Lower Thames Crossing comes in at an estimated £9bn! This is not just a population effect – the amount spent per head on transport in London is more than twice that in Wales.  

If investment in infrastructure is the route out of the UK’s economic impasse, as the UK government suggests, then there has to be significant spending in Wales. With a cap on the Welsh government’s borrowing powers, either the cap has to be raised or the UK government has to use its own spending power. There was a great deal wrong with the ‘levelling up’ approach taken by the previous government, but the principle of reducing inequalities between nations and regions, by investment in those nations and regions, is fundamentally sound. It is one that the new UK government, in tandem with the Welsh government, should pursue.