On 10 November, the eighth UK-China Economic and Financial Dialogue, a two day event aimed at further deepening the countries' trade relationship, was brought to a conclusion. In addition to roundtable talks on trade, financial services, infrastructure and energy, the Northern Powerhouse Investment Portfolio (NPIP) was unveiled.

In this article, we summarise the Government's plans for the Northern Powerhouse, provide details of NPIP and similar projects and note a few of the key considerations for investors in UK infrastructure.

The Northern Powerhouse

The UK Government's Northern Powerhouse initiative is a proposal which is intended to boost economic growth in the North of England, particularly in the "Core Cities" of Manchester, Liverpool, Leeds, Sheffield and Newcastle. The scheme is based on the principle of urban agglomeration and aims to reposition the English economy away from London and the South East.

In practice, this will mean significant investment in improving transport and trade links, and the provision of residential and commercial infrastructure to foster an improved business environment.

The NPIP comprises 13 'shovel-ready' infrastructure projects, each worth in excess of £100million. The unveiling of the portfolio marks an important stage in the development of the Northern Powerhouse, announcing as it does a significant pipeline of pre-approved projects being brought to market. The full list of NPIP projects and key details are set out in Table 1 below.

Transport for the North

In addition to the NPIP, the North Powerhouse will focus on improving and developing transport links, with £13 billion currently earmarked by the Government for the Northern Transport Strategy (NTS). The blueprint at Figure 1 below was published in August 2015 and demonstrates those routes on which works are planned to be carried out.

Click here to view the image.

Of central importance to the NTS is the improvement and creation of rail links to provide faster connections across the North of England. Existing plans include the Northern Powerhouse Rail (otherwise known as High Speed 3). The NTS also sets out plans for over 40 major road schemes across Yorkshire, the North East and North West ultimately worth £4.8 billion. In August 2016, it was reported that proposals for a road tunnel underneath the Pennines between Manchester and Sheffield, were being advanced. If completed, it would be the world's longest road tunnel, costing in the region of £6 billion.

Wider Infrastructure Investment Opportunities

Alongside the NPIP, the Department for International Trade also confirmed that they are working with 15 Chinese investors on property development and infrastructure projects in the North of England. The announcement signals the considerable appetite for attracting foreign investment and the existence of a wider project pipeline.

In Table 2 below we provide a selection of existing infrastructure projects which have attracted Chinese investment, whilst in Table 3 we set out examples of national projects which are likely to require private sector investment in the future.

Factors to consider in investing in UK infrastructure projects

In general, the UK is viewed as a liberal financial market and the promotion of schemes such as NPIP underline the importance to the UK Government of attracting foreign investment. In common with other jurisdictions, however, infrastructure projects in the UK require the consideration of a number of factors including:

  • Economic Regulation: Industries such as energy, rail, road and aviation are subject to specific regulatory frameworks. Specialist advisors will ensure that the impact of regulation is fully understood and strategies for compliance put in place.
  • Planning consent: Most of the projects in the NPIP have outline planning permission. Approval of detailed plans will be required before the main construction works can commence, a process which typically takes in the region of 6 months. The planning process often requires careful consideration of the wider benefits of the project, including the value being added to the local area, and negotiations with local authorities.
  • Procurement: A number of the NPIP projects are sponsored by local authorities or central government. In the UK, awards of these 'Public Contracts' are subject to a procurement process which is intended to level the playing field for parties bidding to participate. Central to this is the publication of a scoring system which will be applied to each bid. In projects of a nature similar to the NPIP, we would expect this process to take up to 6 months, and require interested parties to submit technical, legal and economical bids.
  • PPP/PFI model: This is a procurement model often used when the Government wishes to collaborate with the private sector under a public/private partnership (PPP). In this way, the private sector takes responsibility for design, delivery and finance a variety of infrastructure projects ranging from schools and hospitals to roads and offices. The Government grants the private sector project company a concessionary contract to run the project and repay the finance obtained (plus profit) over the life of the project. The latest model for PPPs, PF2, was launched in 2012. This will see the Government take a greater equity stake in order to strengthen the partnership, improve transparency, risk allocation, efficiency, competition, and accelerate the procurement process (18 month cap set for negotiating projects) making it more rewarding for private sectors to invest. The recent Autumn Statement confirmed the Government's commitment to use the PF2 model to develop a variety of new infrastructure projects in the UK.

Table 1: Northern Powerhouse Investment Portfolio

 # Project Name Development Type Description
 1 AeroCentre, Doncaster Offices Logistics, Industrial, Manufacturing Working with Doncaster Sheffield Airport in the next phase of development to create new offices, logistic units and aviation hangars. The development also has Enterprise Zone status, meaning that businesses located there can benefit from significant government tax incentives.
Future Carrington, Trafford Residential Retail, Offices, Community infra Transport  Opportunities for investment in a large scale residential and employment development in a prime location, providing over 14,000 new jobs and contributing an additional £720m Gross Value Added (GVA - the measure of the value of goods and services produced in an area, industry or sector of an economy) per annum.
 3 Kampus, Manchester  Residential Offices/td> A £200m mixed use redevelopment scheme in Manchester city centre. An exciting opportunity to create new city centre apartments and retail including bars, cafes and shops. 
4 Kirkstall Forge, Leeds  Residential Offices Retail  An opportunity to develop a new neighbourhood of 1,050 new homes, 330,000 + sq ft of office space, retail, leisure and community space. 
5 Liverpool Waters Liverpool  Residential Offices Hotels and Retail  This project offers the sale of land to develop a full range of uses, as part of an overall £5 billion project which will transform the city’s northern docks.  The development also has Enterprise Zone status, meaning that businesses located there can benefit from significant government tax incentives. 
MediaCityUK, Salford, Greater Manchester  Offices Media, Technology Retail Residential  Home to the BBC, ITV and more than 250 smaller creative and digital businesses, an investment would double the size of MediaCityUK, creating studio, office, residential and retail space. Phase 1 was completed in 2011 and Phase 2 has outline planning permission. 
Pall Mall, Liverpool  Residential Retail OfficesCommercial  This involves working with Liverpool City Council on a major regeneration project delivering 1000 new homes, office space as well as retail leisure and community facilities. 
Protos – Ellesmere Port, Cheshire  Energy Industrial Rail Infra Manufacturing  This project includes a range of investment opportunities in gas fired power generation, energy generation, industrial development and rail and berth infrastructure, generating over 3,000 new jobs with first phase producing £350m GVA. 
Sirius Minerals, Polyhalite Project, Whitby, North Yorkshire  Mining Transport Logistics  An opportunity to invest in the building of the first potash mine in the UK for over 40 years. Full production capacity will be 20 million tonnes per annum, directly creating over 1000 new jobs. 
10  Stockport Exchange, Stockport  Offices Commercial Leisure Retail  An opportunity to provide funding for Stockport Exchange, a brand new mixed-use destination combining high quality office space with retail, leisure facilities and car parking. The Project Sponsor is Stockport Metropolitan Borough Council, the Developer is MUSE Project and the value is £145m. 
 11 Unity, Doncaster  Residential Offices Commercial Leisure Retail  A major regeneration and infrastructure project that will create 3,100 new homes, a transport interchange, school and community uses. There is also an opportunity to invest in commercial space for manufacturing uses, 6000 new jobs, a new power station and a materials recycling facility. 
 12 Vaux, Sunderland  Residential Offices Commercial Retail  An opportunity to invest in a £100 million development providing offices, leisure, a hotel, residential and retail space. 
 13 Advance Manufacturing Innovation District, Sheffield  Residential Offices Commercial Leisure Retail An opportunity to invest in an over 2,000 acre centre of excellence for innovation-led advanced manufacturing in metals and materials. Over 4000 new homes will also be created in the district.  The developers are Sheffield and Rotherham Councils; University of Sheffield; Sheffield Hallam University; Harworth Estates; Sheffield Business Park Project. The project size is estimated to be in excess of £1 billion. 

Table 2: Examples of current Chinese investments in the UK

 # Project Name Development Type Description
 1 London Royal Albert Docks project   Mixed CITIC and Chinese Developer ABP will together invest £320 million in Phase 1 of the £1.7 billion London Royal Albert Docks project. CITIC Construction will also establish its UK HQ at Royal Albert Dock. When complete, the project is expected to create 30,000 jobs and become a commercial hub of a comparable scale to the City of London and Canary Wharf. 
 2 Airport City Manchester  Mixed In October 2013, Beijing Construction Engineering Group announced they would invest £800 million into the current expansion project at Manchester airport. The plan will follow an airport city model with the aim of stimulating the Greater Manchester economy by creating on-site logistics, manufacturing, office and leisure facilities.  Manchester Airport is the third busiest airport in the United Kingdom after Heathrow and Gatwick, and is the international gateway for northern England. The development also has Enterprise Zone status, meaning that businesses located there can benefit from significant government tax incentives. 
 3 Sheffield  Unknown  Sichuan Guodong Construction Group has entered into a partnership with Sheffield City Council in relation to a 60 year, £1 billion construction deal that is set to change the face of the city.  In the biggest Chinese investment outside London, Sheffield city council announced that an initial £220m would pay for four or five city centre projects over the next three years and create “hundreds if not thousands” of jobs in south Yorkshire. 

Table 3: Selected transport infrastructure projects which may present future investment opportunities

# Project Name  Development Type Description 
High Speed 2 (HS2)  Rail  HS2 is a pioneering UK project linking 8 cities in the UK by a new high speed rail line, which it is estimated will cost £55.7 billion. Work on the first phase is scheduled to begin in 2017, reaching Birmingham by 2026, Crewe on the left leg of the "Y" by 2027, and fully completed by 2033. 
Crossrail 2  Rail  Crossrail 2 is a proposed rail route in South East England, running from nine stations in Surrey to three in Hertfordshire providing a new rail link across London.  Estimates put the cost of Crossrail 2 at between £27bn and £32bn, in 2014 prices and including the cost of new trains and Network Rail works.
Heathrow Expansion  Aviation  It currently appears that the UK Government will give its formal backing to the expansion of Heathrow Airport. It is likely that this will be via a Northwest runway and new sixth terminal. The Airports Commission estimated the cost to be around £18.6 billion. 
High Speed 3  Rail  Transport for the North (TfN) proposed a west to east four-track trans-Pennine railway line, HS3, that would link with the HS2 line to London, and a new Liverpool–Manchester airport–Manchester railway line also linked to HS2. The HS3 rail link was given the go-ahead in the March 2016 budget. Depending on the route eventually chosen, cost estimates range between £5 billion and £19 billion. 
 5 Trans Pennine Tunnel  Road or Rail  Five routes have been shortlisted for the proposed £6bn Trans-Pennine tunnel between Manchester and Sheffield. If given the go-ahead the vast infrastructure project would rank as the most ambitious road scheme since the construction of the first motorways 50 years ago.