London to trial new development funding model

Chancellor Philip Hammond’s Budget has unveiled a potential new funding model for infrastructure, amid a raft of announcements including extra cash for schools and hospitals.

In documents accompanying the Budget announcement, the Treasury gave London’s Labour mayor Sadiq Khan the authority to launch a pilot ‘Development Rights Auction Model’ (DRAM) scheme in the capital among a package of devolved powers.

Under DRAM, landowners and the public sector would pool land for development in areas suitable for high-density schemes that would then be auctioned to developers.

Landowners that held out would suffer compulsory acquisition, while the purchasing developer would benefit from exemption from S106 and CIL planning charges.

Industry leaders welcomed the proposal and said the model could help unlock schemes across the UK should it be rolled out - but others questioned the government’s commitment to previous private finance, lamenting the absence of a PF2 pipeline of projects in the Budget.

Adrian Hames, UK head of infrastructure planning at WSP, said: “The UK has got to recognise as it moves through slightly more uncertain times in the economy that we do need to look at how the public and private sectors work together and [DRAM] is one way of trying to make schemes come forward more quickly.”

But Robert Meakin, partner at law firm Clyde & Co, questioned the lack of a PF2 pipeline in the Budget: “Despite being launched back in 2012, the Government has yet to fully embrace this model…

“Sooner or later, we’ll need to see actual schemes coming to the market, at a sufficient level to convince the private sector that it’s genuinely worth the investment of their time, money and resource.”

Elsewhere in the Budget, Hammond pledged an extra £580m of capital funding for schools, while hospital projects get an additional £325m.

Compared to George Osborne’s last Budget in 2016, the education and health departments are now set to spend an extra 16% and 25% on capital projects over the next four financial years, or £20.9bn and £24bn respectively.

In education, £320m has been allocated to opening new free schools - including a new generation of grammar schools - while £260m of extra cash has been assigned for improving the existing schools estate.

In the Budget documents, £665m of indicative funding has also been earmarked for free school projects in the 2021-22 financial year.

In health, £100m of the capital funding is for A&E projects.

Elsewhere, there was no major new funding announced for infrastructure projects - with Crossrail 2 and HS3 not getting a mention - although there was some funding allocated for roads projects (see box).

The Office for Budget Responsibility upgraded its forecasts for growth for next year from 1.4% to 2%.

In 2018 growth will slow to 1.6%, before picking up to 1.7% in 2019, 1.9% in 2020, and 2% in 2021. Previous forecasts were 1.4% for 2017, 1.7% for 2018, 2.1% in 2019, 2.1% in 2020 and 2% in 2021.