London's Olympic Demand For Construction Funding

The London Development Agency is responsible for preparing and implementing the Mayor's business plan and invests more than £300 million a year in supporting the growth of new and existing businesses.

The regeneration finance paper from the London Development Agency quoted by CIOB International in its earlier commentary on London's infrastructure funding problems gives a graphic account of the situation in which the public authorities in London and indeed the United Kingdom as a whole find it difficult to raise the money they need to finance works which have self-evident economic advantages.

The London Development Agency is responsible for preparing and implementing the Mayor's business plan and invests more than £300 million a year in supporting the growth of new and existing businesses.

The value of infrastructure in fostering economic growth must be blazingly obvious to this group which is heavily involved in the campaign to bring the 2012 Olympic Games to London.

The Agency is backing the bid because it acts as a powerful impetus to the transformation of London's Lower Lea Valley.

The planning application recently submitted provides for construction of key Olympic venues including an 80,000 seat stadium and a world-class aquatic centre as well as an Olympic village which serve to meet housing needs once the Games are over.

The background to the evidence recently given to the London Assembly by Greg Clark, LDA Director of London Promotion and International Initiatives, and his colleagues is that central government is finding it difficult to provide London with the new infrastructure it needs.

This might seem surprising in a capital city which ranks as one of the world's leading financial centres with legendary capacity to marshal funds: the money is there but as always the problem is getting at it.

The LDA paper went to the heart of the matter when it said: "London's investment potential using its own resources is strongly constrained by the UK's highly centralised public finance system.

Unlike other European and North American cities, LDA and its 33 boroughs have relatively little fiscal autonomy and few of their own investment vehicles, although this is changing.

"In the main, London depends on government transfers and programmes for the bulk of its economic development efforts, which limit the flexibility of city agencies to develop local solutions to local needs and to achieve the level of spending required." That level of spending in years to come will be prodigious, bearing in mind the Olympic bid, the development challenge of Thames Gateway, plus construction of Crossrail and its ancillary corridors.

One of the causes of this restraint on regeneration expenditure - despite the commendable ambition for urban renaissance crystallised in the 1999 report of Lord Rogers' Task Force - is the additional billions being poured into health and education.

Efforts to keep public expenditure within bounds have resulted in private finance initiative (PFI) and public private partnership (PPP) deals which take the financing out of the Government's borrowing account.

But as LDA says, such deals, especially when large-scale, are very difficult and expensive to put together.

As if those factors were not enough of a brake, investing in high-growth London appears to work against government policy of securing convergence of regional growth rates.

And runaway costs associated with megaprojects such as the Jubilee Line extension and the West Coast Main Line have made government very risk averse.

Rail links needed to ease road congestion.

The fact is that London is generating growth at a fast rate, a rate being accelerated by massive development at Heathrow Airport, the Thames Gateway and the prospect of the Olympics coming to London.

The following quote is a description of access to Heathrow taken from the London East-West Study produced by the Strategic Rail Authority while it was still in its shadow state.

At that time, "about 58,000 passengers leave the airport every day needing onward transportation.

This number is likely to increase substantially if consent is given for the construction of Terminal 5 at Heathrow.

"Further development of the airport, including Terminal 5, is likely to depend on minimising further increases in road traffic.

In order to achieve this there is general recognition that improvement of rail links, beyond the existing London Underground and Heathrow Express services, represents the best opportunity to achieve modal shift from the car." The public transport situation today is still broadly what it was when this study was compiled.

It will change when Terminal 5 is opened and new rail links are brought into the air terminal, where the target set by operator BAA is 40 per cent of surface access journeys by public transport.

But so of course will the volume of traffic.

Strong business case for AirTrack link with T5 The proportion of 'modal shift' from motor vehicles might be raised further if the AirTrack project being promoted by Surrey County Council is adopted by the Strategic Rail Authority.

The outline business case for AirTrack describes its financial performance as strong, with the possibility that no revenue support would be required from SRA.

It is described as a major initiative designed to improve rail access to Heathrow, with new direct links from South London and important centres such as Guildford, Woking and Reading.

This would be achieved by building a link between the Reading and Windsor lines at Staines and some 7 km of new double track from Staines northward to Terminal 5.

Such a connection would allow trains to run direct to the air terminal from London Waterloo, at the same time providing rail access from places like Ascot, Reading and Guildford.

The capital cost of the scheme is currently estimated at around £425 million, of which the major component would be tunnelling and the platform works required at Terminal 5.

It seems unlikely that significant public sector funding will be available for the capital works, due to broadly the same reasons as given by the London Development Agency, affordability constraints and the desire to transfer risk to the private sector.

Such risk transfer is possible since the new route is expected to operate profitably from the aspect of revenue against operating costs.

But the promoters will need help with capital financing and its attendant expenses.

This is where local authority funding could be so valuable in supporting initiatives which offer such manifest economic benefits.

It comes back to what the London Development Agency said about the narrow financial autonomy the councils are permitted in a highly centralised public finance system.

It is no wonder in these circumstances that the London Assembly should be moved to speak out for the London boroughs and for the counties around them - of which Surrey is one - when it said that the Government must show more determination to help public and private sector organisations to find new ways of funding large-scale regeneration projects.

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