Infrastructure investment creates jobs

We look at one of the projects identified in the National Infrastructure Plan to see what impact it could have on jobs and the economic development.

The UK economy appears to have stabilised since the autumn, but promoting growth is still top of the agenda. Inflation is up, wage growth is down and unemployment is at a 17-year high (see graph) with 1.7 million people claiming Job Seekers Allowance in February 2012.

This not only creates hardship for the millions of individuals unable to find work, but also is hugely expensive for the Treasury. On average, each claimant costs the taxpayer £10,000 in benefit payments and lost income tax per year, imposing a total cost of around £17 billion on the economy. Official forecasts show that this cost is expected to rise into 2013, but it is not yet a foregone conclusion. The Government is taking steps to promote growth, and has announced that £5 billion would be redirected to the delivery of the National Infrastructure Plan with the aim of creating better transport systems, broadband networks and sustainable energy supplies and, above all, more jobs. In better times, construction jobs would not be considered an economic benefit. But now, with 170,000 architects, engineers and tradesmen on benefits and desperately seeking work, the opportunity cost of these projects is at an all-time low.

We used our SpECTra model to analyse the economic benefits of Network Rail’s Northern Urban Centres project, which will redevelop Salford Crescent station to provide train stabling, platform lengthening and capacity enhancements on Route 20 between Manchester and Liverpool. The project will cost £96 million over three years and (assuming a conventional benefit-cost ratio of 1.5), once completed, will provide net welfare benefits of around £50 million for rail passengers over a 60 year period.

But what about the impacts on the economy in an area with one of the highest levels of unemployment in the country? In the short term, the scheme is likely to generate around 660 ‘direct’ full-time equivalent jobs. Supply chain impacts and wages will also generate a further 795 ‘indirect’ and ‘induced’ jobs, which could reduce the benefit bill by up £15 million over the course of construction.

In the long term, the project will provide wider benefits by improving the perceptions of the local area, increasing land values, and generating productivity benefits of around £29 million per year. Taking account of these wider impacts, the benefit-cost ratio of the project grows from 1.5 to 2.2. The project could create around 15 permanent jobs in the local economy, increasing GVA (gross value added) by £1.3 million per year, providing a compelling economic case for investment.

What is SpECTra?

How we appraise transport projects is changing. With increased power to local decision-makers and more importance given to local impacts, we need to assess how transport projects meet local needs. Steer Davies Gleave developed SpECTra (Spatial Economic Consequences of Transport), a modelling framework that predicts how transport improvements translate into economic impacts at a sub-regional level. It helps scheme promoters understand what the impacts of a transport improvement are likely to be, answering questions about job creation, increased economic development and its contribution to meeting economic objectives.