British Property Federation Response to the Industrial ... · arrangements are right to support local growth and productivity, as other responses to questions in this consultation

British Property Federation Response to the Industrial Strategy Green Paper

Section A: Background

1. The BPF1 represents the Commercial Real Estate industry, which has a market value of £1,662bn and contributed more than £94bn to the economy in 2014.

2. Commercial Real Estate is not only a major contributor to the UK economy in its own right, but touches every community in the UK by providing the places where people live, work and play. It is an integral part of the success of many other sectors and its role in supporting the economy and enhancing productivity should form a key part of any Industrial Strategy.

3. In common with all aspects of the economy, Commercial Real Estate faces some significant opportunities and challenges. There is significant appetite among investors from all over the world to invest in our towns and cities; not just in office buildings and shopping space but also in healthcare facilities, logistics warehouses and homes for rent. Making the most of this potential investment would not only help to renew the UK's infrastructure, it would also support jobs throughout the construction supply chain.

4. However, Commercial Real Estate also faces adaptation challenges caused by technological change: the internet economy has already transformed the way businesses work and occupy property, but there is more change on the cards in the form of driverless cars, autonomous pedestrian bots, delivery drones and others.

5. Our sector offers much to the UK economy and society, and it can do more. Working with local and central Government, we can help transform and regenerate our towns and cities and build their capacity to compete, nationally and internationally. We take this responsibility very seriously, and therefore are responding to the invitation in the Green Paper for sectors to proffer responsibilities in the governance and economic wellbeing of this country; we look forward to submitting robust proposals in due course.

6. We would be delighted to expand upon any aspect of this response and to provide further supporting information. Please contact Patrick Brown, Head of Special Projects Tel: 0207 802 0108 E: [email protected]

Section B: Responses to Consultation Questions

Question 1: Does this document identify the right areas of focus: extending our strengths; closing the gaps; and making the UK one of the most competitive places to start or grow a business?

7. The Industrial Strategy Green Paper strikes the right note in seeking to correct imbalances between London’s growth and productivity and the rest of the country. In France and Germany, which are more decentralised countries compared to the UK, loci of growth and productivity are dispersed throughout a series of major cities and regions. It is no accident that there are governance arrangements to support this. The Organisation for Economic Co-operation and Development (OECD) has calculated that local authorities

1 http://www.bpf.org.uk

WE HELP THE UK REAL ESTATE INDUSTRY GROW AND THRIVE

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in the USA, Spain, France, Germany and Japan all have greater autonomy over budgets than their UK counterparts. We firmly believe that local solutions must be found for local problems, and have been involved in discussions with local authorities, combined authorities and Local Enterprise Partnerships (LEPs) to ascertain what can work best in each area.

8. The competitiveness of the UK vis-à-vis other countries is partly a function of the regulatory and financial environment and partly that of operating environment. Investors cite the more attractive features of the UK environment for real estate as being the rule of law, property rights and the transparency of Government and the political process. They also welcome the attractiveness and maturity of the leasing environment.

9. Barriers to investment in the UK include:

9.1. Availability of land in strategic locations around the country;

9.2. the complexity of the planning system and under-investment in administrative capacity within local authorities;

9.3. Efficient identification of infrastructure investment targets and deployment of funding;

9.4. Access to housing for workforces.

10. It is vital that we attract those seeking to invest, incorporate and/or operate in the UK. Local authorities need at a political leadership level and an administrative level to be able to attract them, and agencies (such as the Department for International Trade) need to be in a position to provide aftercare to ‘fix’ and ‘steer’ investors’ experience of the UK regulatory, operating and financial environment.

Question 2: Are the 10 pillars suggested the right ones to tackle low productivity and unbalanced growth? If not, which areas are missing?

11. As the Government develops its Industrial Strategy, it is critical that the real estate infrastructure to support people’s working and domestic lives is present to ensure delivery of the goals in all pillars of the strategy2. Real estate is an industry in itself but it is also an enabler which supports other sectors to become more industrious – businesses cannot succeed without high-quality space in which to carry out their activities; including offices, warehouses or retail space. This in turn is dependent upon the availability of land with planning consent in strategic locations across the country. An Industrial Strategy must also consider how existing planning, tax and regulatory policy might be constraining the ability of the real estate industry to support the government’s industrial and economic aims.

12. The interaction between cross-cutting services sectors such as our own and the rest of the economy is only very loosely implied in the Industrial Strategy Green Paper. That is a shame for two main reasons: firstly, the refactoring of the economy for growth and productivity will involve substantial reorientation and collaboration between sectors in addition to the more vertically conceived and organised sector deals. The availability of business space is something that all sectors of the economy will care about.

2 This clearly also represents a tangible link to the current consultations associated with the Housing White Paper, and our response has tried to ensure complementarity between our responses to each



13. Secondly, real estate is often conceived of as being an aspect of construction. In fact, the reverse is true; our members are primary demand drivers of construction activity since they obtain the finance and take the risk in developing buildings, hold them and provide services to occupiers. They create the places in which people live, work and play and as such have a critical role, alongside local authorities, in the enfranchisement of local people.

14. This dynamic needs to be captured somehow, and for this reason, we are putting forward an outline proposal for a Place-Based Sector Deal that will seek to unlock growth and productivity across the UK by ensuring businesses and people have access to the infrastructure that they need to thrive. We have been in discussion with officials from a number of different departments and have broad support for our proposals so far (within various Government Departments, member companies and stakeholders).

15. A final aspect that is present in the detail of the Strategy, but which could perhaps be given greater prominence is that of the disruptive threats posed to many sectors by megatrends such as demographic change (e.g. aging populations, flows of people), the possible exodus of skilled and unskilled labour following the conclusion of the Article 50 process and automation of various jobs using AI and big data. All these trends impact on our sector and our customers.

16. We would wholeheartedly support the following pillars:

16.1. Supporting businesses to start and grow: continued business confidence in the UK stimulates and is stimulated by the real estate sector, and is critical to maintaining national and global investments in real estate. The appetite of occupiers and investors alike is essential to delivering the housing and business infrastructure that the UK needs now and in the future. Much of this will be delivered through public/private partnerships, so the Government must drive innovation and good practice, empower local leaders and simplify processes such as OJEU that currently inhibit the pace of development.

16.2. Developing Skills: access to the best talent drives the economy and stimulates demand for real estate. It is essential that our industry is able to access skilled construction workers from overseas while continuing its efforts to develop more home-grown talent and resources. We are ready to work with the Government to find ways to solve the current skills shortage.

16.3. Upgrading Infrastructure: balancing the maintenance and repair of existing infrastructure assets with the construction of new infrastructure assets should be done on a case-by-case basis. While there is no doubt that a larger and aging population will require new and different infrastructure, improving the effectiveness of what is already available will be crucial as well. The core infrastructure priorities that facilitate new houses and work premises are in general allied to connectivity – roads, rail, high speed broadband and statutory services. However, the ability to take advantage of infrastructure is also important and delays to infrastructure connections are a case in point that invite significant financial risk around developments.

16.4. Improving procurement – public procurement, and particularly the approach of some local authorities towards this, can be improved. An overreliance on process, cultured via a risk-averse approach can damage development outcomes. The procurement process should seek to extract best value and outcomes for local authorities, developers and the quality of life of local residents and Brexit offers the prospect for reform that delivers on those objectives.



Question 3: Are the right central government and local institutions in place to deliver an effective industrial strategy? If not, how should they be reformed? Are the types of measures to strengthen local institutions set out here and below the right ones?

17. Please see our response to Question 36. There is currently a plethora of institutions with responsibility for delivering economic growth in their areas or sectors, and it is vital that new institutions do not simply create unnecessary additional layers of bureaucracy. Local Enterprise Partnerships (LEPs) in particular are tasked with this and it would therefore be sensible for them to take on a strengthened role. However, their levels of effectiveness, expertise and independence currently vary greatly across the country, making a review very welcome. Further, their governance processes could be made more transparent, as identified by the National Audit Office3.

18. Improved joint working between local authorities and the private sector is critical to the success of the Industrial Strategy, and we work closely with the Local Government Association to help further economic growth and regeneration across the country. The principle behind an alderman role is welcome, but we would seek clarity on how this differs from private sector members (and indeed Chairs) of LEPs. It would also be important to distinguish these roles in practice if they were to be brought forward. In practice, engagement with business should be ingrained in the approach of all in local government rather than be allocated as the responsibility of a sole individual.

19. The regional hub programme spearheaded by the Government Property Unit (and Agency) within Cabinet Office is also welcome, and will help to spread growth across the country. It is important that regeneration opportunities are carefully considered as part of this programme, as well as the potential for regional clusters that could be supported by relocation of central Government departments or arms-length bodies.

20. We would welcome further devolution deals where there is an appetite. The Combined Authority mayoral elections in May will lead in many cases to substantial powers being passed to candidates and their teams, and there will be a real need not only to increase administrative capacity but to upskill and ensure local government is promoted as an attractive place to work.

21. Likewise, it is important that interest and advocacy groups are involved in these institutions where appropriate as they will often have expertise and resources not available to the public sector. We have a series of regional Committees that are well-placed as evidence and intelligence gathering resources, and we would be pleased to put these at the disposal of Government.

Question 4: Are there important lessons we can learn from the industrial policies of other countries which are not reflected in these ten pillars?

22. A number of countries’ industrial relations policies offer possible models for adoption, but it is important to recognise that institutional complementarity and path dependence mean that economic adaptation takes time to effect, and certainly over time horizons greater than a single Parliament. That said:

22.1. Germany has world-class companies in a broad range of sectors – such as Siemens, BMW, Bayer, ThyssenKrupp, Bosch – that are supported by a network of smaller, largely family-owned businesses

3 https://www.nao.org.uk/report/local-enterprise-partnerships/


https://www.nao.org.uk/report/local-enterprise-partnerships/


that plan for the long term and seek to compete on the basis of the quality of goods and social obligations to the wider community. The German Government has also used labour market controls to protect German industry from low wage economy international competitors and a long-term consistent industrial infrastructure policy to help provide skills, technology and financial resources to support competitiveness.

22.2. Scandinavia, South Korea, China and the US have supported growth through innovation. There is a need for patient capital to fund innovation and Government could usefully seek to share in the ultimate value that is created which could then be re-invested in stimulating more sectors and promoting multi-business collaboration. There is also scope for National Savings and Investments to compose financial products that enable the general public to support such projects via a safer environment than some crowdfunding approaches.

Question 5: What should be the priority areas for science, research and innovation investment?

23. Of the listed priorities, we would be supportive of a focus on smart, flexible and clean energy technologies, and in particular those that can both make onsite and offsite renewable energy generation more viable in buildings.

24. Energy storage has associated benefits, such as the ability to provide clean energy for use in electric vehicle charging and larger capacity for energy storage (with the potential to use stored energy to balance peak load and demand, and to provide incentives via feed-in tariffs).

25. From the perspective of a more general overview of sectors that offer promise to the future economy, priority areas should include: bioscience, medical science, data analytics, robotics, artificial intelligence, data telecommunications, materials science, aerospace, transport, nanotechnology, building design and construction, building components, built environment plant and machinery, energy generation and smart grids, hydrogen economy, circular economy, defence and security.

26. A general focus on applied science in order to improve the UK’s poor record on commercialisation of scientific discovery would be beneficial, given the UK’s research pre-eminence and presumptive competitive advantage to be obtained from that.

Question 6: What challenge areas should the Industrial Sector Challenge Strategy Fund focus on to drive maximum economic impact?

27. With the progression to a smarter, more flexible energy grid, as older generating capacity is retired it seems likely that there will be a need to place greater reliance on energy grid management to accommodate peak demand. We would therefore be supportive of the development of clean technologies, particularly those that can be building-integrated, and energy storage. Our property-owning members will typically hold liabilities under a lease to their occupiers in cases of interruption to energy supply; security of energy supply is therefore a key productivity concern. In addition, the next iterations of the Energy Performance of Buildings Directive and Energy Efficiency Directive are likely to stipulate that similar approaches be taken. Even in the context of BREXIT, energy market harmonization with the continent is likely to remain since we



understand that the UK intends to continue to make use of the interconnectors that are part of the Energy Union.

28. Similarly, next generation materials offer hope for the deployment in buildings of applications of materials such as graphene (being highly conductive, light, strong and insulating). 3D printed materials and bacterial printing also offer promising lines of inquiry with regard to the creation of building materials that reduce the need for internal strengthening. Self-healing buildings and buildings with embedded sensors for better operational management can further reduce management and maintenance costs.

29. The development of new methods of construction are not only a means to an end, but offer opportunities in urban design:

29.1. The adoption of driverless vehicles reduces the need for street furniture and signage, and improves the livability of cities;

29.2. The development of technologies for building upward and downward in relation to existing structures, or adaptation of existing use classes within buildings, offer opportunities to densify neighbourhoods and address housing need without encroachment on existing green space (vital for countering the heat island effect), as well as taking a thoughtful approach toward co-location of housing and workspace; and

29.3. The creative repurposing of existing use classes, such as retail and offices, as housing also offer potential to address housing need and attract new residents.

30. Thus, we see technological and structural change not only as an adaptational challenge to our sector, but also as holding potential benefits for the general quality of life in the UK.

Question 7: What else can the UK do to create an environment that supports the commercialisation of ideas?

31. We are not best placed to answer this question.

Question 8: How can we best support the next generation of research leaders and entrepreneurs?




Question 9: How can we best support research and innovation strengths in local areas?

33. Please see our responses to questions relating to innovation in public procurement and leadership and institutional capacity within local authorities.

Question 10: What more can we do to improve basic skills? How can we make a success of the new transition year? Should we change the way that those resitting basic qualifications study, to focus more on basic skills excellence?


Question 11: Do you agree with the different elements of the vision for the new technical education system set out here? Are there further lessons from other countries’ systems?

35. We would look to models such as EdX, Udacity Micromasters and Nanodegrees for the model for adoption of technical qualifications. This typically involves an academic institution teaming with industry practitioners in order to design curricula that teach students in-demand skills, as well as offering opportunities to graduate to full-time employment. As well as looking to international examples, there are cases of this happening across the UK particularly in driving manufacturing skills across the north west (such as the Northern Logistics Academy in St Helens) and north east (Gateshead College). The value of non-university graduate achievements should be emphasized.

36. A number of private colleges, coding and tech bootcamps and academic institutions offer continuing professional development which involves a career development/change track for an additional fee, often with the proviso that candidates may receive a refund on all or part of the course fees should a job offer not be forthcoming within a certain timeframe. In order to be able to make such an offer, such institutions typically incorporate mixers, job placements and projects, technical interview practice as part of the tuition.

37. While the agglomeration benefits of the creation of a Professional Technical Institute along the MIT model cannot be denied, there may be tweaks that can be undertaken to offer existing academic institutions the option to provide vocational qualifications. There are also potential synergistic benefits in better collaboration between local authorities, businesses and academic institutions to attract and retain new businesses and the people to staff them. Access to talent is often a prerequisite for leading occupiers to choose to invest in a local area.



Question 12: How can we make the application process for further education colleges and apprenticeships clearer and simpler, drawing lessons from the higher education sector?

38. We are not best placed to respond to this question.

Question 13: What skills shortages do we have or expect to have, in particular sectors or local areas, and how can we link the skills needs of industry to skills provision by educational institutions in local areas?

39. The real estate sector procures services from construction contractors, designers and architects, sub-contractors, engineers, utilities and civils workers, environmental and planning consultants. In many cases, it is already difficult to source these skills and this has a bearing on the viability of new developments and on the speed with which they can be delivered.

40. Another aspect to the skills agenda concerns the competition for talent experienced across regions and cities and between countries. Clearly, the model adopted for the UK’s future relationship with the European Union will affect the ability of occupiers of commercial property (our customers), to access a suitable workforce.

41. The Higher Education Statistics Agency (HESA) gathers data for all publicly funded Higher Education Institutions and the University of Buckingham. The data also includes statistics on Higher Education (HE) level courses which are delivered at Further Education Colleges. The figures for 2015/16 show that growth in students from non-EU countries is stagnant, with the general upward trend predominantly owing to increases in the UK4 domiciled student population (up 1% on the previous year) and an increase in the number of EU domiciled students (up 2% on the previous year). Therefore, while non-EU domiciled students account for 14% of the total, this proportion was the same as in the previous year. Therefore, constraints on the movement of people may have implications for purpose built student accommodation provided by our members, as well as for the supply of suitable graduate and postgraduate talent, all other things being equal. Clearly, this issue is soluble either through recognition of the virtues of the UK’s access to the best talent or through adaptation of the methodologies used to catalogue migration figures.

42. Were the Government to seek to introduce some kind of restriction on companies employing workers from overseas (such as a levy or published list of overseas workers), or a minimum earnings threshold for the right to work in the UK, this could have detrimental effects for the supply of construction workers. It could also reduce the general attraction of the UK as a venue for work in some sectors, and may reduce the choice pool for some graduate recruitment schemes. The Government is under pressure from public opinion to reduce immigration, but it is worth noting that while the public believes that 25%5 of the population are ‘non-western’ immigrants, to take an example, the UK immigrant population is 13%6 of the total UK

4 https://www.hesa.ac.uk/news/12-01-2017/sfr242-student-enrolments-and-qualifications 5 http://www.migrationobservatory.ox.ac.uk/resources/briefings/uk-public-opinion-toward-immigration-overall-attitudes-and-level-of-concern 6 http://www.migrationobservatory.ox.ac.uk/resources/briefings/migrants-in-the-uk-an-overview


https://www.hesa.ac.uk/news/12-01-2017/sfr242-student-enrolments-and-qualifications

http://www.migrationobservatory.ox.ac.uk/resources/briefings/uk-public-opinion-toward-immigration-overall-attitudes-and-level-of-concern

http://www.migrationobservatory.ox.ac.uk/resources/briefings/uk-public-opinion-toward-immigration-overall-attitudes-and-level-of-concern

http://www.migrationobservatory.ox.ac.uk/resources/briefings/migrants-in-the-uk-an-overview


population. Conversely, 31% of firms (across the economy), according to the CBI, are concerned about future access to migrant workers.

43. There have been many reports into the structure, conduct and performance of the construction industry. The Latham (1993)7, Egan (1998)8 and Wolstenholme (2009)9 Reviews each accepted that there was a clear need for addressing training and skills issues within the construction sector, and to recognise that the demand for workers is cyclical. There is increasing concern not just about skill shortages, but about whether our educational systems are capable of producing the kind of trained and educated people that our modern economy requires. The Latham/Egan agenda of greater partnership and collaboration has still a long way to go and the Government is keen to encourage the development of sustainable communities throughout the regions.

44. The interim findings report issued by the Low Carbon Construction Innovation and Growth Team (IGT) (2010)10 under the Coalition Government said that periodic economic downturns have led to an exodus of skilled labour from the construction industry. When economic conditions improve, it is rare for construction workers to return to the industry as many find work which is equally or more lucrative in other sectors. This leads to skills shortages, which in the construction industry are frequently filled by drawing in labour from overseas, which creates pressure on social costs lying outside construction output (such as increasing the number of NEETs as jobs are displaced from the domestic population) and means that there is not a constant upskilling of the domestic workforce. It also may mean that inadequately skilled labour is drawn into the market and as a consequence of the above there is a loss of quality in the industry’s output (e.g. build quality).

45. For construction clients like the real estate industry, the above are clearly significant issues. Construction clients commission projects from other actors in the construction supply chain, and are dependent upon capacity being in place in order to deliver the buildings which are required by the wider economy – the places in which people live, work and play. The Low Carbon Construction IGT Interim Findings Report also accepted that investment in skills can lead to a concomitant uplift in the quality of construction and installation, meaning that Government is less required to monitor and enforce regulatory compliance.

46. The recent Farmer Review11 suggested that one way to address chronic skill supply issues within the Construction sector would be for construction clients to take the lead. Based on a business as usual scenario, purely on the age of the existing workforce, it is highly likely that over the next decade we will witness around a 25-30% fall in the number of construction workers. Constraints on the supply of workers posed by potential movement restrictions following BREXIT might further exacerbate future skills shortages. It is clear that remedies are required, such as addressing the image problems that construction has among young people as a career and ensuring that construction workers are trained in modern methods of construction that deliver appropriate volumes with more modest human resources. But it should also be recognised that any stepping up of vocational training of the domestic workforce will need time to deliver.

47. While the construction sector has remained predominantly cyclical, counter-cyclical sectors such as build to rent housing, healthcare and purpose built student accommodation can offer some opportunities to

7 https://pdfs.semanticscholar.org/bed6/02d037ee26af24746b3021bbaf7184374d12.pdf 8 http://constructingexcellence.org.uk/wp-content/uploads/2014/10/rethinking_construction_report.pdf 9 http://constructingexcellence.org.uk/wp-content/uploads/2014/10/Wolstenholme_Report_Oct_2009.pdf 10 https://www.gov.uk/government/publications/low-carbon-construction-innovation-growth-team-final-report 11 http://www.constructionleadershipcouncil.co.uk/wp-content/uploads/2016/10/Farmer-Review.pdf


https://pdfs.semanticscholar.org/bed6/02d037ee26af24746b3021bbaf7184374d12.pdf

http://constructingexcellence.org.uk/wp-content/uploads/2014/10/rethinking_construction_report.pdf

http://constructingexcellence.org.uk/wp-content/uploads/2014/10/Wolstenholme_Report_Oct_2009.pdf

https://www.gov.uk/government/publications/low-carbon-construction-innovation-growth-team-final-report

http://www.constructionleadershipcouncil.co.uk/wp-content/uploads/2016/10/Farmer-Review.pdf


counter some of the difficulties experienced in the past with sustaining careers among construction workers.

Question 14: How can we enable and encourage people to retrain and upskill throughout their working lives, particularly in places where industries are changing or declining? Are there particular sectors where this could be appropriate?

48. Again, we believe that the involvement of the private sector in crafting educational curricula (subject to appropriate checks and balances) will ensure that education institutions offer training that is worth having. We already enjoy fruitful working relationships with the LSE, Universities of Reading and Kingston-Upon-Thames, with a view to ensuring the curricula for their academic qualifications are reflective of current issues and challenges in our sector. We also participate in continuing professional development courses applicable to agents, property owners, occupiers, lawyers, facilities managers and so forth.

49. One of the key challenges for retraining and upskilling throughout careers is that of affordability. This manifests in two key ways: first, taking time off work for longer courses which may diminish earnings (at least in the short run) and second, the sunk cost of the course itself. Greater support for the costs of professional development would be welcome.

50. There is emerging evidence too to suggest that real estate development can have a benefit for upskilling and quality of life in local areas. For example, PwC conducted an assessment of the employment and training impact of Meadowhall shopping centre in the greater Sheffield area, establishing that £1 in every £100 and 1 job in every 100 in the greater Sheffield area could be ascribed to Meadowhall directly. The shopping centre itself provided the mechanism for 8500 directly employed jobs and 660 apprenticeships (the latter over 5 years), 62% of which living in the Sheffield area. A £55m refurbishment of the property supported 740 construction jobs during works. This illustrates the role that real estate can play with regard to training and upskilling in local areas.

51. Similarly, in a study of 12 major UK shopping centres12, Hammerson identified that they provided in total 30,940 jobs. 37% of these jobs went to the previously unemployed and 12% to NEETs. 93.5% of these were retail sector jobs with 87% of these resident within 20 miles of each centre (and therefore demonstrably benefitting local geographic areas). These centres generated £421m in total wages, £50.8m in income tax and £40.5m in national insurance contributions and £96.5m in business rates. It is estimated that the centres averted £27.7m in Government spending on unemployment benefit claims and £5.9m in reduced offending. Pertinent from an infrastructural and agglomeration perspective, it is fair to assert that without the Bullring Shopping Centre, it is unlikely that the £500m regeneration of Birmingham New Street would have been viable. Nor would the £175m cultural quarter without Westquay, with local surveys in each location also pointing to improved quality of life for local residents derived from the Bullring and Westquay.

12 http://b2de0febdea80fa78eb4-5cad31df697fe43d78c0459eba68b1d4.r36.cf3.rackcdn.com/wp-content/uploads/2013/09/0754JO-5312-hammerson-report-value-original.pdf


http://b2de0febdea80fa78eb4-5cad31df697fe43d78c0459eba68b1d4.r36.cf3.rackcdn.com/wp-content/uploads/2013/09/0754JO-5312-hammerson-report-value-original.pdf

http://b2de0febdea80fa78eb4-5cad31df697fe43d78c0459eba68b1d4.r36.cf3.rackcdn.com/wp-content/uploads/2013/09/0754JO-5312-hammerson-report-value-original.pdf


Question 15: Are there further actions we could take to support private investment in infrastructure?

52. Infrastructure investment often involves publicly-held land and therefore working with local authorities. Upskilling local authorities - in particular their planning and estates teams - and making it easier for them to pull the levers at their disposal would be helpful for promoting new development where appropriate (for example encouraging increased use of Compulsory Purchase). Greater skill levels should increase the confidence and deftness of local authorities to trial and innovate, as well as to attract the best talent to inform their strategies for development, but arguably there is also a need for a cultural shift in local authorities to develop and display the commercial nous to attract and retain development, growth and productivity.

53. We are exploring ideas around addressing local authority skills in our proposals for a real estate sector deal. In our view, certain local authority functions (such as planning) could have a much clearer link to vocational qualifications (either replacing or supplementary to academic qualifications) to make local authorities more development focused.

54. A further issue concerns the regulatory arrangements in the sector for utilities connections, and how that interacts with new development. The regulated industry must work within the constraints governing their sectors and how these are interpreted by the regulatory authorities, Ofgem, Ofwat and Ofcom. Sometimes these regulations and their interpretation limit the extent to which companies operating in the sector can choose to invest with unintended consequences.

55. This can lead to inefficient and counterproductive actions being encouraged. One example of this is the difficulties faced by electrical Distribution Network Operators (DNOs) in investing in new large scale distribution capacity in central city locations and new development areas. Restrictions on risk exposure, return on investment and socialisation of the cost of new infrastructure makes it very difficult for DNOs to make anticipatory investments.

56. This has led to electrical capacity problems in some locations preventing new development. In others, it has led to prohibitive costs being imposed on developers for network reinforcement. These issues have been raised with Ofgem and Central Government by several organisations, including London First, Westminster Property Owners Association, City of London13, BPF14 and the GLA. There is a real need to address this issue, particularly if the intention is to foster growth and productivity across the country, given that connectivity and energy security will be necessary prerequisites.

57. Utility infrastructure providers need greater incentive to make strategic investment in infrastructure than currently exist, and this needs to be looked at in the context of the Industrial Strategy and the Call for Evidence on a Smart, Flexible Energy System.

13 https://www.cityoflondon.gov.uk/business/commercial-property/utilities-and-infrastructure-/Documents/Developer%20guidelines%20for%20incoming%20utility%20services%20-%20GOOD%20PRACTICE%20GUIDANCE%20NOTE%20-%20update%20030214.pdf 14 http://www.bpf.org.uk/sites/default/files/resources/BPF-Getting-Connected-Utilities-Connections-a-guide-for-developers.pdf


https://www.cityoflondon.gov.uk/business/commercial-property/utilities-and-infrastructure-/Documents/Developer%20guidelines%20for%20incoming%20utility%20services%20-%20GOOD%20PRACTICE%20GUIDANCE%20NOTE%20-%20update%20030214.pdf



http://www.bpf.org.uk/sites/default/files/resources/BPF-Getting-Connected-Utilities-Connections-a-guide-for-developers.pdf

http://www.bpf.org.uk/sites/default/files/resources/BPF-Getting-Connected-Utilities-Connections-a-guide-for-developers.pdf


Question 16: How can local infrastructure needs be incorporated within national UK infrastructure policy most effectively?

58. A key point to make is that local infrastructure need does not need to be serviced solely by grand projects such as Crossrail and HS2. While such larger projects have their place, infrastructure funding can be spread more evenly and efficiently via smaller scale infrastructure projects that address pressing local needs.

59. More generally, there must be better engagement between local and combined authorities, Government Departments and bodies such as the National Infrastructure Commission in order for local infrastructure needs to be incorporated within national policy. While the major infrastructure projects are lauded as the most significant, often the smaller, locally-based projects are those which have the biggest impact on the viability of development projects which in turn attract further investment and occupation. While national Government may have a stronger hand to play on national scale infrastructure, local infrastructure may be better dealt with at a more local level.

60. Of course, for local authorities to take a stronger lead on local infrastructure, cross-border collaboration from local authorities on this is critical and necessary. All places are different, and may require packages of tailored support to their needs. The Government’s City Deals programme is an acknowledgement that vertical and horizontal collaborative working can lead to significant and focused success in pursuing growth. Across the eight deals, there have been strikingly innovative and ambitious approaches – for example, Greater Manchester’s ‘Earn Back’ Leeds plan to become a ‘NEET-free’ zone, and the Trans-pennine economic area bringing together the Manchester and Leeds regions. Each also contained examples of cross-sectoral working, such as in the case of investment plans with infrastructure delivery agents such as the HCA.

61. On local infrastructure, it may be appropriate for central government to set out its expectations of local authorities in terms of strategic planning (e.g. where should necessary infrastructure be located and why), and identification of need, and to set out potential frameworks to form the basis for collaboration between different local authority areas. It may also wish to engage in institutional strengthening, such as is already proposed under the Industrial Strategy Green Paper.

Question 17: What further actions can we take to improve the performance of infrastructure towards international benchmarks? How can government work with industry to ensure we have the skills and supply chain needed to deliver strategic infrastructure in the UK?

62. Local councils should have a pipeline of relevant and achievable infrastructure improvements that can be communicated to investors. However, this is dependent upon the issues and barriers we have identified in our response to Question 15. Central government needs to demonstrate that a commitment to local growth is at the heart of the infrastructure investment strategies of arm’s-length bodies and the National Infrastructure Commission.

63. Across many infrastructure utilities, historic underinvestment is in the process of being rectified but not on an even basis across the country. A problem that causes costs for developers is that of historic records relating to gas, electricity, water, waste and telecomms networks which are frequently inaccurate and may



consequently lead to abortive works by developers based on incorrect information. Deployment of underground imaging and mapping technologies could address this process, reducing these unnecessary costs and improving project viability.

64. Telecommunications and connectivity is becoming a sine qua non of productive businesses, and a demand in homes of all tenure types. The structure of the telecommunications sector means that coordination of streetworks can be challenging and can result in a section of pavement being redug several times in order to introduce broadband connections as different occupiers come onboard. However, such problems can be overcome via strategic collaboration between developers and local authorities; Land Securities has worked with City of London and Westminster in order to introduce shared chambers and entry ducts into its buildings, but this does not resolve all the issues. For example, within London, some areas are poorly served from a connectivity perspective, such as Shoreditch, Westminster and the Southbank, all of which are considered growth business districts. While businesses are offered by Openreach new telecommunications services on request, this only extends to copper infrastructure and not fibre. We are optimistic for the introduction of the new Digital Economy Bill (due May 2017) and the Electronic Communications Code in providing a new and more fruitful working relationship between the mobile telecomms providers and building owners.

65. On transport, improvement of the liveability of cities should be prioritised through increased cycle safety via cycle highways, route maps, information campaigns and cycle lanes. This would have additional benefits with regard to air quality in cities. The introduction of electric vehicles (and connected and/or autonomous vehicles) holds the potential to not only better understand the flow of traffic within cities and to respond accordingly when the opportunity arises to rethink transport. Such vehicles also have infrastructural requirements, whether those are cycle parks, cycle hire or charging points.

Question 18: What are the most important causes of lower rates of fixed capital investment in the UK compared to other countries, and how can they be addressed?

66. As well as sharing fundamental physical and economical characteristics (e.g. a long life, the potential for steady income returns), real estate and infrastructure and highly complementary. Not only is infrastructure a necessary precursor to real estate development - after all, developers will not build something if there is no road to get there - often it is only the prospect of future real estate development that makes a piece of infrastructure investment viable.

67. As the green paper points out, the UK has for decades under-invested in its infrastructure when compared to other countries. This is likely to have resulted in a lower level of real estate development than would have been the case had more infrastructure spending been forthcoming. For that reason, we welcome the government's creation of the national productivity investment fund (NPIF); its financial support for new infrastructure is likely to open up opportunities to improve and renew our urban areas.



Question 19: What are the most important factors which constrain quoted companies and fund managers from making longer term investment decisions, and how can we best address these factors?

68. Real estate investment and development involves large capital outlays in assets that will be around for a long time. In order to feel comfortable about making such decisions, investors need as much certainty as possible regarding the tax, planning and regulatory environments. When the 'rules of the game' change during the course of a project, the assumptions on which the investment was made can become irrelevant, sometimes at great cost to investors. This creates nervousness and a supports 'wait and see' attitude, whereby investments are put on hold or simply not carried out.

69. While a certain amount of legislative and regulatory risk is inevitable - and accepted by investors - the last few years have seen heightened levels of policy change. Since 2010 there have been more than 20 new tax policy measures aimed directly at real estate and a further 40-odd that have indirectly affected the industry. Given the considerable uncertainty surrounding the process of extricating the UK from the EU, ensuring a period of calm in tax-policy making is one way that the government could support long-term decision making in the real estate industry.

Question 20: Given public sector investment already accounts for a large share of equity deals in some regions, how can we best catalyse uptake of equity capital outside the South East?

70. As noted in our response to question 18 above, infrastructure investment is often a catalyst to further real estate development. This is because it enhances the attractiveness or accessibility of particular places, such that people want to set up businesses there - for which they need premises.

71. Infrastructure projects need not be big or regional in scale in order to achieve those benefits. Sometimes all that is required is a new roundabout or slip road, a new train station or bus stop. Investing in local-level infrastructure up and down the country would enable more private sector capital - which the UK's real estate industry is very adept at sourcing from around the world - to be channelled towards our towns and cities.

72. From a real estate specific perspective, catalysing uptake of equity capital could be effected via better promotion of the investment opportunities outside of London. Often, local and regional authorities will seek to court developers via offering development sites for regeneration. However, our members’ decisions as regards where to develop will rely upon a sound understanding of the demographic make-up of a local area, how accessible they are to transport hubs, whether utilities can be accessed straightforwardly and whether there the local population either possesses or is able to access the necessary skills to make development a success. Local and regional authorities can usefully take this into account in marketing their areas as being ripe for development.



Question 21: How can we drive the adoption of new funding opportunities like crowdfunding across the country?

73. We do not feel best placed to answer this question.

Question 22: What are the barriers faced by those businesses that have the potential to scale-up and achieve greater growth, and how can we achieve these barriers? Where are the outstanding examples of business networks for fast growing firms which we could learn from or spread?

74. One of the challenges for growing business networks concerns the availability of suitable housing, infrastructure and commercial space to support employment and business operations. The Government has a set of tools at its disposal to support development. We offer an appraisal here of how these initiatives have fared, with a view to informing their effective deployment into the future. Box 1 below sets out some examples of how these initiatives have been well-deployed in the past, to further reinforce the elements of their successful use.

74.1. Simplified Planning Zones (SPZs) – these are a planning consent that allows specific classes of development to take place without the need for the usual full planning application process. They were originally deployed to promote economic growth in grant assisted areas since the 1990s. Box 1 details an example of their successful use in Slough, and typically their use benefits from a geographic area where only one or two large property owners are present. The planning is controlled by adherence to a set of rules and guidance and through a simple notification process. The planning uncertainty is eliminated and the usual planning application timescale of 6-12 months is reduced to days with the submission of key information required only. Clearly, too, the deployment of SPZs tends to work best when there is a clear vision for a local area. We imagine that SPZs would be a useful adjunct to the Government’s Place-Based Approach toward Industrial Strategy, but this would need to be accompanied by support and a strategic overview. This underscores the need for institutional capacity building at local level, in keeping with one of the priorities of the Industrial Strategy.

74.2. Enterprise Zones - Over 25 enterprise zones have been designated in England since 2011, each accompanied by an action plan setting out the key steps needed to generate growth. Each has met with mixed levels of success:

74.2.1. Although the benefits Enterprise Zones offer are rarely attractive enough to be game changing on their own, Enterprise Zones do confer some benefit purely on the basis that it spotlights an area and shows intent to drive growth and productivity there.

74.2.2. Often, Enterprise Zones can be really successful when combined with other forms of Government and business support (such as strategic management, advice to businesses, a clear economic and land use plan for an area)



74.2.3. Enterprise Zones may hold some time lag before benefits to local people are enjoyed. For instance, many sites require redevelopment and the process for translating this into employment opportunities can take time.

74.2.4. The real successes have been the Manchester and Birmingham Enterprise Zones, where the emphasis on simplified planning elements and the availability of tax increment financing to support key infrastructure have been a real catalyst. Enterprise Zone designation was seen as being critical in the eyes of our members that were involved in both. The way that each of the above were deployed with some flexibility to accommodate local circumstances was also important; the Birmingham City Centre Enterprise Zone, for example, was not a single contiguous site, but a series of smaller zones. We believe that much more of this type of success could be achieved if the incentives offered were more flexible. These might include the introduction of ‘Enterprise Zone Schemes’ to grant planning permission instead of reliance on local development orders to simplify the planning process within the Zones. The Government might also offer capital allowances for new development.

74.2.5. That said, it remains that the incentives on offer within Enterprise Zones as they stand may not be sufficient to make the difference between a development coming forward and not.

74.3. City Deals - are negotiated agreements between central Government and cities to create innovative solutions to key problems, whether in relation to infrastructure provision, skills development or other matters. They also allow cities to retain more of the benefits of growth and reinvest the income locally. Crucially, City Deals place considerable emphasis on bringing the public and private sectors together.

74.3.1. There were clearly lessons learned from the first set of City Deals. Some cities did not see the process as being truly collaborative and there remains a need to ensure that central Government departments are suitably skilled and onboard with the principle of decentralisation; this ran counter to the intent of the City Policy Unit’s mandate to deliver place-based policy.

74.3.2. For their part, cities need to put in the groundwork to make the most of the opportunity. Not all cities had viable policy proposals ready when the City Deal invitations were circulated. Analogous scenarios could arise with regard to sector deals, which is why we have been encouraged by officials’ suggestion that sector deals can be pursued perhaps in rounds on an iterative basis.

74.3.3. Constraints in local authority capacity, whether through resourcing or cultural challenges, have constrained the potential for some City Deals to deliver on their promise. Analogous circumstances may arise in respect of Sector Deals, and some sectors may need more help than others to deliver their potential. This is an important consideration since sectors with most promise for the future of the UK economy may not necessarily be those that are best geared toward embracing the opportunity afforded by sector deals. The Government should be mindful in seeking ‘offers’ from industry that it does not overlook golden opportunities.



Box 1 – Business Networks Case Studies Slough Simplified Planning Zone - Segro

Creating a planning environment that provides investors and developers with certainty, flexibility and speed can give the UK with a competitive advantage in a global market. Working in partnership with Slough Borough Council, SEGRO has established the Slough Trading Estate as Simplified Planning Zone (SPZ). The SPZ is a 10 year planning permission that covers the estate and allows for pre-determined classes of development within pre-agreed parameters (density, height, etc.) to be constructed without the need for the full planning application process. This approach has eliminated uncertainty and reduced securing planning consent from up to 12 months to a matter of days. Since the SPZ was first established on Slough Trading Estate in 1994, SEGRO has regenerated one third of the estate delivering 2.1m square feet of modern industrial space for a range of local and international customers. A substantial 71% of this floor space was purpose built to meet the exact needs of SEGRO’s occupiers, which has helped to attract and retain investment from international mobile companies such as UCB, Selig, and Lonza. In 2011, the SPZ was instrumental in helping to secure a £16m from Lonza, a world leading specialist in pharmaceutical and biotechnology ingredients. The company had announced it was looking to strengthen its global biologics network of development and manufacturing and the UK faced strong competition from Lonza’s production facility in Tuas, Singapore. The certainty of securing planning consent to meet Lonza’s timescales resulted in a new 62,000 square feet development laboratory and GMP facility being constructed on Slough Trading Estate. Today, Lonza employ 700 people in Slough. Birmingham – Business Birmingham

In 2011-12 Birmingham attracted more Foreign Direct Investment than any other regional city.

Since launching in April 2011, Business Birmingham – the investment programme for Birmingham, the Black Country and Solihull – has worked with its public and private sector partners to entice investors into the region. The Plan, Set-up, Grow arrangement provides a strategic partner and consultant free of charge for internal project teams providing relevant information and a comprehensive package of support across all phases of a business’s plan. Services range from mediating between businesses and central or local government, providing intelligence, familiarisation tours and advice on legislation, tax and funding. It also includes connection with networks, sector support agencies and media contacts and advice on accommodation and relocation. At MIPIM 2017, Business Birmingham launched a 20 year growth plan that will be revealed for the ‘Hub’ of UK Central Solihull, with highlights including the potential for 775,000 square metres of new commercial and mixed-use floor space, up to 4000 new homes and the delivery of a major economic boost worth up to £4.1bn in GVA each year. The anticipation is that this will deliver up to 77,500 new jobs. The Birmingham region, thanks to Business Birmingham, is already home to strategic economic assets such as Birmingham Airport (recently expanded), the NEC, Jaguar Land Rover, and the home of the HS2 interchange station, placing the area 38 minutes from London Euston. The Hub expects to receive £1.5bn of infrastructure investment over the next 10 years. The Greater Birmingham area is home to businesses such as TNA, Ideas for



Life, NVC Lighting and Southbank IT. Birmingham City Centre - Enterprise Zone

The Birmingham City Centre Enterprise Zone, which is spread across multiple sites in the city, is an example of how Enterprise Zones can be used for regeneration that extends beyond a single assigned site and can act as a catalyst for attracting inward investment to a location – in this case a city centre. Argent is managing the design and delivery of the Paradise Circus scheme, a key part of the new Enterprise Zone and Big City Plan – that is being taken forward via a Joint Venture Company between Birmingham City Council and British Telecom Pension Scheme (managed by Hermes). Covering 17 hectares of land between Centenary Square and Chamberlain Square, the dramatic transformation of Paradise Circus will provide a significant mixed use development of offices, shops, leisure and cultural facilities together with civic amenities, a hotel and new public realm. The first phase of the scheme includes a completely revised road layout, substantial new public realm and two new office buildings providing over 23,000 square metres of Grade A space.

Question 23: Are there further steps that the Government can take to support innovation through public procurement?

75. Public/private partnerships are a popular vehicle for the delivery of projects. There is an increasing emphasis on local authorities to become more self-sufficient as evidenced by plans for local retention of business rates and early pilots – this suggests that local authorities should be encouraged to think more creatively about how they can finance projects in the future.

76. Such public private partnerships have been shown to deliver in the case studies set out in Box 2 below.

Box 2 – Innovative Public/Private Partnership Case Studies

Oxford City Council partnership with Grosvenor – procurement via a non-OJEU process

Oxford City Council’s ownership of the land at Barton provided Oxford with the single biggest site for housing development within Oxford and a significant opportunity to deliver new and affordable housing in a city where it is much needed. However, technical, infrastructure, viability and market issues with the site, combined with the challenging economic climate, had meant that to date the council had been unable to bring the site forward for development and proposals had stalled. A co-investment joint venture partnership was established between Oxford City Council and Grosvenor. This sought to unlock the site’s potential, to ensure the delivery of the proposed development and to see the fulfilment of the council’s aspirations. The partnership aimed to provide the necessary infrastructure funding and create the delivery of serviced sites that could then be sold into the market to suitable house builders. The structure reflected the changing property market while achieving best consideration for the council and ensuring the council’s core objective of allowing early delivery of necessary infrastructure was met. Through the soft market testing exercise undertaken prior to going out to the market, it was apparent that the private sector was very reluctant to enter into a full OJEU process primarily owing to cost implications,



complexity and associated timescales with such a procurement route. In respect of the OJEU route, it was considered that this would adversely impact on the timetable for partner input into the AAP process, delay housing delivery and reduce the number of bidding parties. East Wick and Sweetwater – procurement via an OJEU process

This example demonstrates the cost involved in bidding/participation, and how deterministic the concept of OJEU can be. The London Legacy Development Corporation launched an OJEU procurement process in November 2013 to select a development partner to take forward the new neighbourhoods of East Wick and Sweetwater. The Corporation carried out thorough due diligence on bidders’ financial and economic standing, and bidders were asked to submit proposals for design, priority themes, delivery approach, structure and funding, legal agreements, and financial offer. Balfour Beatty and Places for People won the bid. The process highlighted that while OJEU is effective at finding an answer, it is less successful in longer term propositions involving complex risk and partnering.

77. When working with private sector stakeholders, an important factor for local authorities is credibility and trust – both in terms of a local authority’s ambition and confidence in delivery. Local Authorities could use agents, for instance like developers would, for advice and as intermediaries and interlocutors.

78. Confidence in a team/figurehead is difficult to quantify but could include:

78.1. Political buy-in – the potential of Mayors to take a lead where possible; in general, continuity and political influence are useful at both leader and Chief Executive level;

78.2. A track record of getting sites delivered, ie problem solving throughout the process;

78.3. A responsive planning authority;

78.4. Clarity of responsibility, and not overselling an individual’s ability to make things happen;

78.5. Empowered officers with a consistent objective throughout the organisation.

79. Overly lengthy and complex procurement can easily derail interest where it is legally unnecessary. In workshops we have run with both local authorities and developers, OJEU was noted as a hindrance, and it was felt that local authorities may be missing a trick if they think they can extract more value through commercial tender. However, there is also a perception amongst local authorities that OJEU is needed to find a solution.

80. The interests of developers and local authorities can meet through dialogue but the expectations of each party must be clear, and bespoke institutions established for the development (such as public/private partnerships) that provide a form of incomplete contracting that administers the benefits of development to each party, reconciles issues as they arise and ensures clear responsibilities. In order to aid local authorities and developers to better understand where OJEU processes are fully necessary and where not, we have produced a routemap with local authorities to clarify roles and responsibilities15.

15 http://www.bpf.org.uk/sites/default/files/resources/OJEU-flowchart-Nov-2016-FOR-WEB.pdf


http://www.bpf.org.uk/sites/default/files/resources/OJEU-flowchart-Nov-2016-FOR-WEB.pdf


Question 24: What further steps can be taken to use public procurement to drive the industrial strategy in areas where the Government is the main client, such as healthcare and defence? Do we have the right institutions and policies in place in these sectors?

81. The UK moved to early transposition of the new EU Public Contracts Directive 2014/24/EU with the adoption of the Public Contracts Regulations 2015. Projects above a value of around €100,000 are governed by the OJEU process. This provides a UK legal framework for access to global and EU trade and the legal mechanisms to implement a procurement regime, with the objective of a fair, non-discriminatory and transparent manner and designed to deliver best value from an open market. However, three main issues arise that serve to affect developer and investor appetite in commercial and residential development:

81.1. Local authorities may erroneously determine that the OJEU process should apply unilaterally due to being unwilling or unable to determine whether the rules should apply to the project in question;

81.2. Local authorities may, in seeking to deliver projects transparently and competitively erroneously determine that the OJEU process itself will deliver this, whereas other methods would be open to them if the project does not breach the thresholds (in other words, the OJEU process is not the only route to best value);

81.3. The way that the UK has gilded the implementation of OJEU processes may be stifling the ability of local authorities and developers to work together in more creative and innovative ways.

82. In order to encourage best practice, and to dispel some of the myths around the procurement process, we have produced two iterations of a process map for the OJEU process16 with a view to educating local authorities as to how and when to use OJEU, with a view to its correct deployment and reducing the stifling of innovation and slowing of the development process.

83. In the context of the Great Repeal Bill, we are keen to work with the Government to establish how processes could be created that both deliver the end objectives of competition, transparency and best value within the obligations posed by international trade treaties.

Question 25: What can the Government do to improve our support for firms wanting to start exporting? What can the Government do to improve support for firms in increasing their exports?


16 http://www.bpf.org.uk/events/ojeu-or-not-ojeu-revisited


http://www.bpf.org.uk/events/ojeu-or-not-ojeu-revisited


Question 26: What can we learn from other countries to improve our support for inward investment and how we measure its success? Should we put more emphasis on measuring the impact of Foreign Direct Investment (FDI) on growth?

85. The UK's real estate sector is already very good at attracting investment from overseas, to the extent that over 27% of the country's investment-grade commercial real estate is owned by non-UK investors - up from 14% in 2003. The increasing scale of this investment over the past decade has been a real boon for development activity, which is a huge source of demand for the construction industry and the c. 2 million people that it employs. While it is not always easy to do so, we would see value in measuring more carefully how overseas investment in real estate translates into construction sector demand and jobs.

86. In creating the Capital Investment Directorate at DIT, the Government made the right decision to focus on attracting investment through marketing and promotion of the UK as a venue for investment. In the context of Brexit, it is all the more important to demonstrate that the UK is open for business.

Question 27: What are the most important steps the Government needs to take to limit energy costs over the long term?

87. The commercial property industry has for some years been seeking to reduce its energy use, increase the energy efficiency and reduce the carbon emissions associated with its operations. Throughout that process, our members have gained valuable insights into the complexities associated with both the collection of the data and the way in which it is reported. However, the industry is also well aware of the importance of reducing emissions from the built environment (non-domestic buildings alone account for around 18% of UK carbon emissions). Without significant progress, the Government’s Climate Change Act target of an 80% overall reduction in UK carbon emissions on 1990s levels by 2050 is unlikely to be achieved.

88. In essence, deregulation and rationalisation should not be seen as an equivalent for smarter regulation. The increase in productivity in the economy, the reduction in energy wastage and increasing energy security are unlikely to occur left to market forces since the cost of energy remains relatively marginal compared to the other costs of occupation of a commercial property.

89. Therefore, interventions such as the redistribution of energy taxation (e.g. via the transition from the CRCEES to an amplified Climate Change Levy) to make energy costs more material, and therefore incentivise energy efficient activities, represent a correction to an economic externality that will face the UK at a future date, but brought forward to a point in time when time and resource can be devoted to the problem. It therefore seems nonsensical when considering deregulation that the costs of inaction are not priced accordingly in view of the risk that is presented. Equally, a single-minded focus on reducing the cost of energy bills is unlikely to be tenable in the long term, energy pricing scenarios suggest that mothballing of existing energy generation, and a transition to a greater share of renewables in the energy grid will only increase energy costs without a fundamental rethink of the regulation of the energy market envisaged in the Call for Evidence on a Smart, Flexible Energy System17. Such reforms would offer the potential for time of system use tariffs and demand response that would offer clear demand-side incentives and make energy storage a more viable proposition.

17 https://www.gov.uk/government/consultations/call-for-evidence-a-smart-flexible-energy-system


https://www.gov.uk/government/consultations/call-for-evidence-a-smart-flexible-energy-system


90. A socialised cost of carbon, with price discovery of the costs of emitting embedded within it (as was the intention of policies such as the Carbon Reduction Commitment Energy Efficiency Scheme and the Climate Change Levy) were the signalled intention of the Business Energy Tax Reform Consultation process. That process has stalled, and no clear signal has been given as to when the implementation of the findings of the first consultation, and the release of a second consultation can be expected.

Question 28: How can we move towards a position in which energy is supplied by competitive markets without the requirement for ongoing subsidy?

91. The Government’s recent call for evidence on a smart flexible energy system suggested means for addressing some of the issues that are raised in the Industrial Strategy Green Paper. Accommodating the intermittency that is associated with a transition to a higher share of renewable energy in the grid via peak demand management and energy storage is a sensible strategy. Additional incentives could be provided not via public subsidy, but via gainsharing between energy suppliers and large energy consumers in the form of demand management tariffs, and feed-in tariffs for stored capacity (whether from charged electric vehicles or decentralised or building-integrated energy storage).

92. The advent of smart meters should facilitate the granting of time of system tariffs, as well as feed-in tariffs for energy storage, as well as real time pricing for energy consumption. It may also be possible for large consumers to consider the introduction of demand response around energy using services in large buildings in order to balance peak demand.

93. The above is notwithstanding earlier points we have made in response to Questions 26 and 27. Ceteris paribus the removal of subsidies from non-domestic energy bills may help to keep bills low, but they are likely to rise in the longer term due to the mothballing of existing generating capacity meaning that we will need to resort to more expensive sources of generation to satisfy peak demand unless either a) more generating capacity is built quickly and/or b) the energy market itself is reformed along the lines that we have set out above.

Question 29: How can the Government, business and researchers work together to develop the competitive opportunities from innovation in energy and our existing industrial strengths?

94. More could be made within the Industrial Strategy of the potential for:

94.1. Capturing the economic benefits of the Circular Economy18 in terms of reducing wastage, job creation, reclamation of materials, land-use and productivity

94.2. The benefits in terms of job creation, mitigation of operational and financial risk (having an eye to the recommendations of inter alia the Bloomberg Commission)19.

18 https://www.ellenmacarthurfoundation.org/circular-economy/overview/principles 19 https://www.ft.com/content/15425194-cefd-11e5-92a1-c5e23ef99c77


https://www.ellenmacarthurfoundation.org/circular-economy/overview/principles

https://www.ft.com/content/15425194-cefd-11e5-92a1-c5e23ef99c77


94.3. How the Government envisages that the benefits of findings from the Industry Sector Challenge Fund in relation to building demand response and energy storage will find their way into common practice in domestic and non-domestic buildings (being key sources to reduce generation need and peak demand)

94.4. There is growing interest in the concept that buildings should become vertically integrated power stations and fuel stations, combining renewable energy, electric vehicle charging infrastructure and energy storage. While this objective is laudable, much more work needs to be done involving organisations and think tanks with an understanding of city and building design, planning and construction to determine what the effects of this might be, and the conditions necessary to make it work. Further, work needs to be undertaken to corral guidance on the correct installation of charging, and feasibility studies relating to larger scale energy storage

94.5. What approach will be taken to manage the interventions in heating and cooling that the Committee on Climate Change sees as being vital to reducing energy demand in buildings, further to delivery of the 5th Carbon Budget

94.6. With regard to technology transfer and commercialisation of research, models that are adopted in pharmaceuticals, apparel and the automotive sectors are not readily translatable due to the disaggregated supply chains associated with real estate. However, a number of incubators, entrepreneurs and intrapreneurs are currently investigating disruptive technologies and practice that may change the nature of real estate to a greater or lesser extent. Their input as to how to bring matters from the realm of academia to that market would be invaluable.

Question 30: How can the Government support businesses in realising cost savings through greater resource and energy efficiency?

95. We were part of a consortium20 that commissioned Deloitte Real Estate to carry out an assessment21 of the effectiveness of individual carbon reduction policies and of the policy framework as a whole, building on a literature review, focus groups and a survey of over 300 opinion formers. A key conclusion was that while overlap was not in and of itself a problem, the complementarity of individual policy instruments could be improved. In other words, nugatory costs and administrative burden were perceived in the way that policies on occasion drove conflicting behaviours.

96. The report concluded deregulation and rationalisation should not be seen as an equivalent for smarter regulation. The increase in productivity in the economy, the reduction in energy wastage and increasing energy security are unlikely to occur left to market forces since the cost of energy remains relatively marginal compared to the other costs of occupation of a commercial property. Therefore, interventions such as energy taxation to make energy costs more material, and therefore incentivise energy efficient activities, represent a correction to an economic externality that will face the UK at a future date, but brought forward to a point in time when time and resource can be devoted to the problem. It therefore

20 The Association of British Insurers, the Association of Real Estate Funds, the British Council for Offices, the British Council of Shopping Centres, the British Property Federation, the Investment Property Forum, the Urban Land Institute and the Green Construction Board jointly funded and commissioned the Report from Deloitte Real Estate 21 http://www2.deloitte.com/uk/en/pages/real-estate/articles/carbon-penalties-and-incentives-report.html


http://www2.deloitte.com/uk/en/pages/real-estate/articles/carbon-penalties-and-incentives-report.html


seems nonsensical when considering deregulation that the costs of inaction are not priced accordingly in view of the risk that is presented.

97. Therefore, it will be important in the context of the Business Energy Tax Reform Review that the Government’s revisions are seen as having a positive effect upon the coherence and functional effectiveness of the policy framework, and over the long term. While the real estate industry would like to see nugatory costs and obligations addressed in the policy framework, it is also keen to ensure that it honours its obligations as a good corporate citizen. Clearly articulated requirements with a defined goal would be welcomed by the industry, and will prove vital for investment certainty.

Question 31: How can the Government and industry help sectors come together to identify the opportunities for a ‘sector deal’ to address – especially where industries are fragmented or not well defined?

98. The most valuable contribution that the Government can make toward sector deals lies in:

98.1. Encouraging industry to step forward to address structural or behavioral issues in the industry, with the intention that this will deliver greater growth and productivity and more evenly distributed throughout the country on a long timeline;

98.2. Establishing ways of working that would unlock growth and productivity in all parts of the country;

98.3. Finding ways to make regulation smarter, or removing rules where no longer needed. This should include avoiding the ratchet effect22 where regulation is designed for the market as-was rather than the market as-is;

98.4. Overcoming structural barriers or intransigence to adaptation to future opportunities and threats.

99. We, in our discussions around a potential real estate sector deal, have examined the opportunities and suggest that:

99.1. We are the organisation that can build the best picture of the barriers to productivity and growth posed by a lack of supply of suitable housing and commercial space;

99.2. We are seasoned at convening cross-industry efforts to tackle structural and behavioral challenges facing our sector;

99.3. Our membership has worked in areas where the formula for growth has been delivered and can provide recommendations for enhancing that growth and its wider propagation;

99.4. We have networks across major cities in the UK, bringing together LEPs, local authorities, businesses and developers and property owners that can act as sounding boards and implementation groups where required.

22 https://scholar.harvard.edu/files/weitzman/files/rachetprincipleperformanceincentives.pdf


https://scholar.harvard.edu/files/weitzman/files/rachetprincipleperformanceincentives.pdf


100. We are acutely aware that the Government will wish to have a single interlocutor in respect of any sector deal; however, we also believe that the proposition can be much stronger if we can build consensus with other real estate sector organizations and so would propose to provide an institutional arrangement for a sector deal that can meet both needs equally and harness the necessary resources to deliver on these most important of outcomes.

Question 32: How can the Government ensure that ‘sector deals’ promote competition and incorporate the interests of new entrants?

101. With regard to a potential sector deal for the real estate industry, we represent the real estate industry as a whole, rather than just the interests of our membership. Further, over time our membership has expanded and developed with the market, witnessing new classes of investor and the emergence of new business models and diversification into alternative asset classes such as student accommodation, retirement living, logistics and healthcare. Our institutional arrangements and decision-making structures enable us to seek consensus and communicate resolved positions to Government and wider civil society.

Question 33: How can the Government and industry collaborate to enable growth in new sectors of the future that emerge around new technologies and new business models?

102. Please see our response to Question 32.

Question 34: Do you agree that the principles set out above are the right ones? If not, what is missing?

103. We agree that the priorities are correct. We would emphasise the need to ensure that the institutional arrangements are right to support local growth and productivity, as other responses to questions in this consultation illustrate. Institutional weakness at local level leads to weakness in implementation of growth initiatives and inability to attract businesses, residents and infrastructure providers.

Question 35: What are the most important new approaches to raising skill levels in areas where they are lower? Where could investments in connectivity or innovation do most to help encourage growth across the country?




Question 36: Recognising the need for local initiative and leadership, how should we best work with local areas to create and strengthen key local institutions?

105. The Industrial Strategy rightly identifies that growth is not evenly distributed across the country and as a matter that must be rectified. Institutions can mean both formal institutions, as well as formal and informal rules, norms and standard operating procedures. In other words, institutional development can be as much a cultural and operational exercise as it can be about development of organisations.

106. It should be recognised in the objective to deliver growth across the country that some areas will be more equipped to deliver than others. Central Government may wish to review City Deals to check that they are addressing the right issues and operating effectively. While the ‘Deal’ concept may have wider applicability, the special focus on cities as the chief engines of growth should be maintained as the core of this objective, since they are likely to be quickest to deliver. Indeed it may be appropriate (as we have set out in response to Question 22) to adopt an iterative approach toward this objective. There is a lack of capacity within Government to negotiate deals on a local authority by local authority basis and therefore more generic offerings may be possible to extend devolution, as envisaged by the Local Finance Commission. The bigger cities have significant organisational capacity, and internal coherence, but this is not necessarily true of other areas that may have to negotiate deals. This may mean that from a sector deals perspective, where the Government is seeking to engage in the fostering of geographic industrial clusters, the Government will need to keep under review as to whether there is the necessary street level implementation capacity to deliver objectives, and indeed whether local objectives and central government objectives marry with one another.

107. A key cultural challenge in some local authorities is the transition, and associated necessary support, on how best to use existing powers to drive growth. There may be a need for additional support and information from central government to help them do so, as well as incentives to ensure that authorities are directing their activities toward fostering growth and productivity.

108. In alignment with this goal, central, local government and developers each have complementary responsibilities to the delivery of growth and productivity on a regional basis23.

109. Pro-growth councils should:

109.1. Create political certainty – investors will look to local areas where there is cross-party consensus on a framework for attracting and supporting investment;

109.2. Ensure a convincing and realistic vision – A clear and frank assessment of an areas’ strengths and weaknesses helps convince investors of a local authority’s vision for development;

109.3. Use land assembly tools at their disposal – Understanding how public sector land holdings or strategic sites could be brought together is key. Mechanisms such as compulsory land purchase and Strategic Development Partnerships can enable councils to package land in a way that is much more attractive to developers;

23 http://www.bpf.org.uk/sites/default/files/resources/BPF-LGA-unlocking-growth-through-partnership.PDF


http://www.bpf.org.uk/sites/default/files/resources/BPF-LGA-unlocking-growth-through-partnership.PDF


109.4. Develop commercial mindsets – Understanding the commercial realities and opportunities of an area will help local authorities become less dependent on government funding and the uncertainties that come with this;

109.5. Commit to improving infrastructure – a pipeline of relevant and achievable infrastructure improvements should be developed and communicated to investors.

110. The Government has implemented various structures and schemes aimed at supporting development. These range from far-reaching regional scale strategic bodies such as LEPs to more local and targeted structures such as Enterprise Zones and City Deals.

111. An important factor to consider is to what extent these institutions, and other Government arms-length bodies with a responsibility to deliver growth and productivity, truly apply across the whole of the UK – LEPs, for example, are not in existence in Scotland, Wales or Northern Ireland, and bodies such as the Homes & Communities Agency or Highways England equally do not apply across all devolved administrations.

112. Initiatives such as the Northern Powerhouse and Midlands Engine are seen as helpful in branding and marketing an area to investors, but their offers need to be clearly defined and better understood.

Question 37: What are the most important institutions which we need to upgrade or to support to back growth in particular areas?

113. There is a broad political agreement on the need for structures that can sit above the level of individual local authorities and help foster economic growth across an economic sub-region. This need is reinforced by the trend toward greater delegation of powers to the local level. The introduction of LEPs – partnerships between local authorities and businesses – designed to set the strategy and vision and take the decisions that will drive growth locally has therefore been a very welcome development (although as we have noted elsewhere, their quality and consistency has been variable and some could benefit from capacity building).

114. Recent workshops conducted by the BPF and the Local Government Association highlighted the progress that had been made throughout the country in delivering growth, as town centres and local economies were transformed. Part of the success is owed to the development of innovative public/private partnerships as councils forge new relationships with major investors.

115. A revision of a 2012 project24, we brought together the private sector, local government and central government partners in Southampton and Milton Keynes to consider progress and the opportunities for growth in these cities. Via these discussions and further research, we have identified the key recommendations for unlocking growth in local areas, and these are set out in our response to Question 36.

24 http://www.bpf.org.uk/sites/default/files/resources/BPF-LGA-unlocking-growth-through-partnership.PDF


http://www.bpf.org.uk/sites/default/files/resources/BPF-LGA-unlocking-growth-through-partnership.PDF


Question 38: Are there institutions missing in certain areas which we could help create or strengthen to support local growth?

116. Given that in our view the Government’s strategy should be about setting out the physical and social infrastructure required to imbue the UK with the necessary ability to deliver growth and productivity, we believe that the strategy should be agnostic as to the geographical location of particular projects. Instead, it should focus on goals and the decision processes that determine how one gets closer to the objective.

117. That is not to say that there are not geographically/regionally distinct issues that stand in the way of prosperity and productivity. For example:

117.1. Amongst our members that have interests or who are based in northern city regions, there is a strong feeling that the lack of integrated transport connectivity both within and between cities is limiting the areas’ growth;

117.2. The availability of housing poses a major challenge almost nationwide, but particularly in London and the southeast, affecting the ability of the capital to attract and retain top best talent;

117.3. Similarly there are huge strains on the country’s healthcare infrastructure (both GP premises and care homes), which again affects the attractiveness of the country as a place to do business, particularly with the burgeoning interest in wellness in the workplace;

117.4. The demand for industrial real estate is particularly high in areas just outside city centres, with the growth and prosperity of cities reliant on a successful logistics and distribution network;

117.5. While there is a national network strategy, the logistical buildings sector and freight are necessary for the success of a range of emerging sectors;

117.6. The local retention of business taxes is likely to mean that some areas will be forced to become more self-sufficient, and may require suitable guidance as to how they can best deliver on existing obligations as well as newfound obligations;

117.7. The decline of high streets in many parts of the country has challenged the more traditional retail sector, but it offers opportunities to develop residential growth on high streets; to create affordable and flexible new workplaces and to ensure that visiting town centres becomes a positive and attractive experience;

117.8. Land assembly remains a key challenge in the delivery of large scale development and infrastructure projects; much of the land is in the hands of local authorities and other public sector bodies who should play a more active role in delivery; Development Corporations offer a vehicle for such processes, with 70% of the land involved in the Old Oak Common HS2 and Crossrail station scheme being in the ownership of public sector bodies and being brought together in the Old Oak Common Park Royal Development Corporation;

118. That said, it may be that the national component of the Industrial strategy needs to consider where the locus of authority should lie when seeking to address geographically specific issues. Consideration of this issue is timely, given the current Government’s focus on devolution of responsibilities to an increasingly



local level where possible, and local retention of business rates. In our view, the strategy should seek to set out:

118.1. The principles that should be adopted in policy making across Whitehall and city regions;

118.2. The headline objectives that the Industrial Strategy is seeking to achieve (but leaving means flexible);

118.3. What Local Government might be expected to achieve in pursuit of these goals, alongside incentive structures to encourage them to do so (e.g. peer review and benchmarking);

118.4. How Central Government will ensure that Local Government will have the necessary tools at its disposal to deliver on the objectives of the strategy;

118.5. Where industrial concerns are transboundary and/or require collaboration between multiple local or regional authorities, Central Government may need to help to establish or boost existing institutions that can structure such cooperation in line with a Strategic Economic Plan that is aligned with infrastructure proposals also planned at that scale.
