The Midlands Engine: Building the Gateway to the Global Economy

Foreword

We stand at a crossroads in British economic and political history. Although there is uncertainty around Brexit and what comes next, we also have a golden opportunity to step forward and make decisions now that will help us improve the lives of people across the country, by investing in and empowering regions such as the Midlands to ensure that they achieve their full potential.

As it stands, the UK is the most unequally-developed country in Europe. While London has the highest employment growth of the UK regions, teamed with the most developed infrastructure, other parts of the country lag behind, outpaced by regions in countries across the EU both in terms of growth and productivity. The Midlands economy is worth £217.7bn1 – 13% of the UK’s annual output. It has strengths in key areas such as advanced manufacturing, automotive and aerospace engineering, and academia. However, there remains a persistent gap in productivity between it and other regions: Gross Value Added per capita in the Midlands Engine area is around 20% below the England average2. Two of the key reasons for this are a lack of connectivity and a shortfall in skills.

A strong Midlands Engine is core to a strong UK economy. As we move beyond Brexit, we must ensure a more consistent pattern of growth across the country. There needs to be a step change in the UK’s economic and productivity performance. A good place to start would be closing the transport spend gap between the Midlands and London, to enable the region to compete on a level playing field and fire up its economy. Not at the expense of London and important schemes such as Crossrail 2, but in addition to them: we must invest in our infrastructure the way Germany and France do, countries we will in the future be in even greater competition with than we are now. Our regions must be increasingly empowered to set their own strategic directions and to deliver and fund their own infrastructure priorities.

Balfour Beatty is committed to playing its part in helping the Midlands grow and prosper. Both our UK construction business and our HS2 Joint Venture with VINCI are based in the Midlands. We welcome the fact the fact that Coventry has been awarded the City of Culture 2021, and Birmingham will host the Commonwealth Games 2022. These events will act as catalysts for investment and profile raising for the region. The Midlands Engine’s Vision for Growth plots an ambitious course to the future: it must be given every assistance to help make that a reality.

About Balfour Beatty

The UK’s largest construction contractor, Balfour Beatty, was founded in 1909 and is listed on the London Stock Exchange. With 15,000 employees and over 40 offices in the UK, Balfour Beatty finances, develops, builds and maintains the increasingly complex infrastructure that underpins the UK’s daily life. With a legacy of projects across transportation, power and utility systems, social and commercial buildings: from Crossrail and Heathrow T2B to the M25 and M4/M5; and Sellafield; to the Olympics Aquatic Centre, we are proud to be a British company delivering iconic structures, bold engineering feats, behind-the-scenes innovation and joined-up thinking, financing and partnerships.

A major local employer with a significant presence across the region, Balfour Beatty has a long and proud history in the Midlands. Our UK construction business is headquartered in Birmingham, bringing together our civil engineering, engineering services and construction capabilities. We have, over the years, completed many projects in the region, including the landmark Birmingham City Centre Extension project for CENTRO; the QEII hospital in Birmingham; student accommodation for the University of Birmingham at Chamberlain halls; the Mod plus factory in Wednesbury; the M5 and M6 Smart Motorways; and the M6 Toll road. We take pride in our strong links with local communities and our supply chain in the region.

Balfour Beatty has also, with our joint venture partner VINCI, recently won two civil engineering packages of work for HS2 (Lot N1, the Long Itchington Wood Green Tunnel to Delta Junction/Birmingham Spur; and Lot N2 the Delta Junction to West Coast Main Line Tie-in). This is seeing us significantly increase our workforce in the Midlands, creating new jobs and opportunities for smaller, local businesses, which we ensure we partner with. Reflecting Balfour Beatty’s stance on bringing social and economic value to the local economies in which we operate, we are also investing in skills across the region so we have a talent pipeline in the future and are able to leave a strong legacy in addition to the infrastructure we are building.

As a key provider of both road and rail infrastructure, Balfour Beatty also deliver construction in the university, residential and commercial development sectors, and invest in developing skills and maximizing local social economic benefit from our activities.

Executive summary

The UK’s global competitiveness rests on our capacity to rebalance the economy. It is well-documented that infrastructure is a key driver of productivity and economic growth. It is also widely accepted that improvements to the UK’s regional infrastructure are needed across the piece, especially in rail and roads, to better connect towns and cities, enable people to access employment and get goods to market. Balfour Beatty’s view is that improved connectivity will become even more important post-Brexit. Brexit therefore offers a golden opportunity to take strategic action now to strengthen the economy by investing in better transport links across the country.

There has been much discussion in recent months around regional disparities in infrastructure spend. For example, London and the Southeast benefit from a significantly larger amount of transport investment, per head, than other regions3. The Midlands is the largest economic region in the UK outside London. While the Government is investing in a number of flagship infrastructure schemes in the Midlands, from the national space park next to the Leicester space centre to a £2bn central transport hub and HS2 interchange at Solihull, and while there are a number of good reasons why these spending differences exist, the post-Brexit UK needs a more balanced approach to infrastructure spending in order to achieve a balanced national economy.

Of course, it is not just about spreading future investment more fairly throughout the UK, but about improving infrastructure where it will make the biggest difference. In terms of transport for example, in the past, this has meant improving links between the various regions and London, rather than better connectivity within regions, such as investing in key East-West transport links such as the A38 and the A41. However it is improving links such as these that will bring the biggest boost to regional economies across the country: Midlands Connect predicts that improving connectivity across the midlands will boost the regional economy by £1bn a year.

The creation of new sub-national transport bodies, such as Midlands Connect and Transport for the North, is a milestone in the journey towards the delivery of more strategic transport decisions and investment which will bring the greatest economic benefit. Their creation will enable regions to speak with a single, coherent, informed voice, better articulating their priorities to key organisations including Network Rail and Highways England.

As firm supporters of the growth agenda, Balfour Beatty is keen to assist the sub-national transport bodies and combined authorities in realising their investment and growth ambitions. As the devolved nations and London have shown, this approach can transform infrastructure strategy and delivery, which is why Balfour Beatty believes that steps to ensure that similar bodies exist across the country, and to equip them with the powers they need, should be accelerated.

There are significant economic gains to be realised if we plug gaps in our infrastructure investment. The Government’s ambitious plans for the Midlands include creating 300,000 extra jobs alongside a new skills matching service for local people and increasing the number of skilled apprenticeships. They also include delivering £5.2 billion of investment in new transport infrastructure in the region, backing science and innovation, including by developing an Energy Research Accelerator through local universities, and supporting the construction of 30,000 new homes. It will be imperative now to ensure that these are delivered.

Crucially, the choice should not be between improving infrastructure and connectivity in London and the Southeast, or in the Midlands. The underlying problem is that Britain spends well below the international OECD average on infrastructure. We must be delivering better infrastructure across the whole country. Indeed, the original logic of rebalancing the economy was as much about taking pressure off London and the Southeast by investing in regenerating other regions as it was about strengthening and empowering those regions because it is the right thing to do. Where public funding is insufficient, new options must be explored to ensure that this can happen. The Midlands Engine needs both the money and the powers to take decisions for itself regarding its infrastructure priorities.

These are ambitious plans and they will require long-term commitment from successive Governments to ensure they are delivered.

Key points and recommendations
  1. Post-Brexit, the UK needs a more balanced approach to infrastructure spending in order to achieve a balanced national economy.
  2. The Government should press ahead and ensure that all areas of England have a sub-national transport body to deliver on strategic regional infrastructure.
  3. We must increase investment in rail and road networks in the North – not at the expense of London and the Southeast, but in addition to it.
  4. The existing processes for allocating funding must be reexamined. These tools are out of date and should be expanded to include an economic development priority.
  5. For regional infrastructure disparities to be levelled, sub-national bodies such as Transport for the North must be able to finance infrastructure projects and drive forward private investment.
  6. The costs of the infrastructure needed to ensure the UK has world-class regional connectivity will be so significant that we will not be able to rely on the taxpayer alone to fund and drive northern infrastructure projects. We must look at other funding sources.
  7. Alternative funding not previously used outside London should be considered and made applicable for other regions, including tax increment financing (TIF), rates supplements, new forms of PPP/PFI, and land value enhancement.
  8. Network Rail’s West Midlands and Chilterns Route Study highlighted a number of upgrades which would assist in improving connectivity and should, we believe, be committed to and delivered as soon as possible.
  9. We welcome the fact that the Government has committed to giving sub-national transport bodies such as Midlands Connect a key role in the management of the road network in their regions as it develops: devolved decision making is crucial in creating local road networks that work deliver the priorities of the regions.
  10. Closing the skills gap across a variety of sectors and skill levels is vital to the sustainability of the Midlands Engine.
  11. The significant infrastructure investment being made in HS2 and other infrastructure schemes must leave a legacy beyond bricks, mortar and tracks.
  12. Stronger regional infrastructure pipelines are needed to support the development of the regional talent pool.
Maximising the impact of HS2

HS2 will dramatically increase Britain’s rail capacity and shape the future of rail travel. It will be one of the most exciting infrastructure projects for decades. Balfour Beatty welcome’s the Government’s intention that the benefits of HS2 must be spread as widely as possible across the country. HS2 will have a transformative impact, with the potential to unlock huge economic benefits for the Midlands. With hubs in the both the West and East Midlands, at Birmingham Curzon and UK Central in Solihull, followed by Toton between Nottingham and Derby. HS2 will act as a spur to growth, regeneration, job creation and increased house building.

However, not everywhere will have an HS2 station and it will be important to ensure that there is infrastructure investment outside the core areas, so all areas of the Midlands benefit from better connectivity. We therefore believe that the benefits of HS2 for the region will only be fully realised if they come alongside other transport improvements, in particular, better connectivity within the region as well as between the Midlands and other parts of the country, as articulated in the Midlands HS2 Growth Strategy and the Transport for the West Midlands and Midlands Connect plans.

The benefits of HS2 must be felt beyond the big cities: Birmingham in the West Midlands, and Nottingham and Derby in the East Midlands. Newcastle and Durham for example, will become what the Government is calling ‘integrated high speed stations’, where passengers can catch HS2 trains and travel for much of their journey on a high speed line. To ensure it is maximizing the benefits of this, Newcastle is investing £9 million in the transformation of Central Station and a further £8 million in the redevelopment of the Central Metro station. This kind of investment should be replicated across the Midlands. The recently announced Hub, which will see £200 million investment in a new Birmingham International Station, Coventry station and the wider Friargate fevelopment, Wolverhampton Station and redevelopment, plus Transport for the West Midlands’ plans for between four and eight new or upgraded regional stations is the start of what must be a wider programme.

Balfour Beatty has considerable experience of designing and building railway stations. Modernization of and development around stations is an excellent way of attracting investment into towns and cities. Well-designed stations do not just facilitate connectivity – they also have the power to genuinely transform local economies: catalysing economic growth by attracting new residents, businesses and investment into the area. Building a new station or redeveloping an existing station can support the regeneration of a whole town or city, revitalising the centre. Stations can be architecturally inspiring, in some cases, iconic. They offer significant development opportunities and can act as commercial and leisure hubs. The area around stations offers a great opportunity for high-density residential development as well as new office, leisure and retail space, usually right in the town or city centre.

The £25 million redevelopment of Sheffield Midland rail station completed in 2008, for example, resulted in the creation of 3,000 jobs nearby4, while 57,000 new houses are being built within a kilometre of the new Crossrail stations5. For this reason, stations are now, quite rightly at the heart of local and combined authority growth plans. Stations across the country are at the heart of “masterplans” to revitalise communities from Euston to Edinburgh. With London St Pancras, Birmingham New Street, Manchester Victoria and Bristol Templemeads amongst the most famous examples, all of the areas due to see new Crossrail or HS2 stations also have their own plans.

Balfour Beatty is proud to have been awarded two contracts by HS2, worth a combined total of c. £2.5 billion. Balfour Beatty VINCI (Balfour Beatty’s 50:50 joint venture with VINCI) will deliver Lot N1, valued at c. £1.32 billion, and Lot N2, valued at c. £1.15 billion, between the Long Itchington Wood Green tunnel to the Delta Junction / Birmingham Spur and from the Delta Junction to the West Coast Main construction work is scheduled to start in 2018/19, following a period of detailed design work. Main Line tie-in near Lichfield in Staffordshire respectively, in a two-part design and build contract.

The contract awards reflect the innovative and collaborative nature of the joint venture. Balfour Beatty’s in-depth knowledge and expertise of British transport will be applied and complemented with the capabilities of VINCI’s High Speed Tours-Bordeaux project in France. Collaborating in this way, the joint venture will deliver one of Britain’s largest infrastructure projects in decades, creating thousands of jobs and supporting the economic growth of the Midlands and the whole country.

Roads, rail and air: better connectivity for the Midlands

Developing interconnectivity, not just between the key cities of the Midlands, but across the whole region, moving people seamlessly around, helping them get to employment, is vital to the creation of a strong Midlands Engine.

It is estimated that there will be an extra 24 million annual passenger journeys on the railways in the Midlands by 20236, demonstrating that continued investment in the railways across the region is essential to meet demand. Balfour Beatty welcomes the launch of West Midlands Railway services in December 2017. The creation of this new link between the private train operator and the West Midlands Combined Authority (WMCA) which gives WMCA a say over the local rail network for the first time, is an important development and one which should be replicated elsewhere.

In addition to this, Network Rail’s West Midlands and Chilterns Route Study highlighted a number of upgrades which would assist in improving connectivity and should, we believe, be committed to and delivered as soon as possible.

To build new transport infrastructure and upgrade that which already exists, of course requires significant investment. Balfour Beatty welcomes the £5 billion of capital investment which is being made in transport infrastructure across the Midlands in addition to the £55 billion investment in HS2. Plans include £2.7 billion for new trains on the east coast main line and upgrading sections of the M42, M5, M1 and M6 to four-lane smart motorways. However, these enhancements, together with increased traffic due to HS2 are likely to increase pressure on the road network, which may require additional investment. We therefore support the Midlands Connect Strategy’s identification of projects on the ‘major road network’ including the A46 expressway from Tewskbury to Lincoln that would help provide network resilience.

An effective road network is vital to the continued growth of the UK economy. Roads are the country’s arteries, ensuring that people can get to their jobs rather than sitting in congestion, supporting the transfer of goods to markets and linking local economies across the country. Balfour Beatty is supportive of the ‘Major Road Network’7, which would add to Highways England’s Strategic Road Network a further 3,800 miles of local authority-controlled ‘A’ roads of key economic importance which are vital to supporting England’s regional economies. We welcome the fact that the Government has committed to giving sub-national transport bodies such as Midlands Connect a key role in the management of the network in their regions as it develops: devolved decision making is crucial in creating local road networks that work deliver the priorities of the regions.

The second Road Investment Strategy (RIS2) will be delivered between 2020 and 2025. The Government has rightly committed to working with sub-national transport bodies such as Midlands Connect to develop a long-term vision for transport in their area and inform decisions on the RIS8 and to identify schemes such as the M42 at Junction 6, which are key priorities for their regions.

The importance of Birmingham Airport and East Midlands Airport to the Midlands region must also be recognized and supported: they will have a vital role to play in securing international trade and investment. East Midlands Airport is already the second busiest freight hub in the country, while Birmingham Airport is seeing sustained passenger growth9 – both contribute a significant amount to the regional economy. In the light of HS2 and Brexit, increasing capacity at Birmingham would enable it to cement and build on its role as a global hub, improving the region’s connectivity, facilitating tourism and exports.

Balfour Beatty is a recognised leader in modern rail engineering. With a successful track record of implementing the latest digital technologies to improve efficiency across the rail infrastructure asset lifecycle, we have planned, designed and managed the construction of thousands of miles of railway systems. From feasibility studies and planning, design and implementation to maintenance and asset management, we provide rail infrastructure services across the lifecycle of rail assets. Our expertise covers track, power, electrification, civils, signalling and railway systems and technologies.

Balfour Beatty maintains, manages and operates major highway networks across the UK. From routine maintenance and winter maintenance, to managing the day to day operation of motorways and dual carriageways, we also manage large sections of the trunk road network and constantly seek to find ways of reducing delays and improving journey time reliability for road users. This is something we have undertaken with success on the Midlands Technology Maintenance Contracts, undertaken on behalf of Highways England, which have seen us innovating to improve safety, journey time reliability and information for travellers on the Midlands network.

Working for local authorities, we also provide highways maintenance, street lighting and public realm services. Our expert approach to highways maintenance means we do more than fix the potholes and make sure the street lights are on when they should be, we improve everyday lives by minimising disruption and help our customers to manage their budgets through forward planning. Our solutions include consultancy, finance, design and maintenance of the entire streetscape. We’re shaping places, creating economic growth and meeting the needs of a changing society. One of our key contracts in the Midlands in this area has been the highways maintenance contract for Coventry City Council, Solihull Metropolitan Borough Council and Warwickshire County Council, which has provided improved value for money to the taxpayer as well as better service resilience and flexibility.

Balfour Beatty has significant experience in airport infrastructure development in the UK, US and Hong Kong. Our experience covers all aspects of airport and airfield work, including major passenger terminals and passenger transit facilities, airport facilities, and a full range of service installations.

We have long-established relationships with airports including Heathrow, Gatwick, Glasgow, Edinburgh, Aberdeen, Dublin and Hong Kong Midfield. These relationships are founded on our ability to deliver high quality infrastructure and successfully managing the security, logistics and health and safety requirements associated with working in an airport environment. At every stage of project development, we use advanced computer graphic applications and the latest modelling systems to help airports – large and small – envision and shape their future.

Balfour Beatty combined its design, construction, ground engineering, specialist mechanical and electrical expertise in the second phase of Heathrow Airport’s Terminal 2 (T2B) for BAA. A £2 billion investment by BAA replaced the old 1950’s terminal 2 and is now the home of the “Star Alliance” Airlines. T2B was built in a Live Airport environment. Combining retail space, airline lounges, offices, a safeguarded baggage basement for future expansion, underground passenger access tunnel and safeguarded Track Transit System station and baggage tunnels for future expansion, it was the largest ever airside project at Heathrow. Due to the scale of the scheme and the fact that the airport remained operational throughout, the project required significant innovation, the use of new construction techniques and the use of Building Information Modelling (BIM) and Design for Manufacture and Assembly (DFMA).

Investing in infrastructure

There is a range of reasons for some of the disparity in investment between London and the Midlands, including the significant number of non-London residents from commuters to tourists, who use London’s transport network daily, placing it under significant pressure. Nor do the figures take into account schemes such as HS2, which will bring greater benefit to the Midlands and the North than to the Southeast10. Even accounting for these points, though, there remains too much of a difference between the amount invested in the Midlands and the South. Balfour Beatty’s view is not that less should be invested in London in order to even this out, but that more should be invested in infrastructure projects in other regions.

In spite of significant investment by the Government, Britain still invests less in its transport infrastructure than other major economies, spending less than countries including Germany, France and the US11, and has done compared to other OECD countries over the past three decades12. Given this underinvestment, there is an element of catch-up, especially in relation to the country’s regional transport infrastructure. In the light of the UK’s imminent exit from the EU and the challenge of competing with countries such as France and Germany on a less certain footing, it is more important than ever that we boost our infrastructure spending across the country.

Firstly, however, the existing processes for allocating funding must, in our view, be reexamined. The Benefit Cost Ratio (BCR) processes can be over-reliant on narrow financial criteria relating to high population densities and high wages, rather than considering wider social and economic benefits such as potential new jobs and the Gross Value Added (GVA) of new infrastructure. We believe that these tools are out of date and should be expanded to include an economic development priority: we need all parts of the country to be growing.

Another key way to help tackle regional funding differences is by addressing fragmented regional decision making across the country. Balfour Beatty believes that the devolution agenda has real potential to improve infrastructure outside the capital, especially where sub-national bodies, such as Midlands Connect and Transport for the North are able to take a strategic view and coordinating role. While a ‘one-size-fits-all’ approach to sub-national governance would not be appropriate, giving regions the power to decide for themselves what their infrastructure priorities are has to be the best way forward and we welcome steps that have already been taken to this end.

However, as currently planned, Transport for the North, the first statutory sub-national transport body to be established, will not have nearly the same powers as Transport for London. It will be a “statutory influencer” with the right to prepare a strategy and provide the Secretary of State with advice. Transport for the North will not be able to borrow money or fund investment like Transport for London. For regional infrastructure disparities to be levelled, bodies such as Transport for the North and Midlands Connect must be able to finance infrastructure projects and secure private investment.

Balfour Beatty welcomes the Chancellor’s October 2017 announcement of £300 million, which will go towards ensuring HS2 infrastructure can accommodate future Midlands Connect and Northern Powerhouse Rail services. However, we believe we must also look at other funding sources. The costs of the infrastructure needed to ensure the UK has world-class regional connectivity will be so significant that we will not be able to rely on the taxpayer alone to fund and drive infrastructure projects.

A key step is the proposed precept announced by the Mayor of the West Midlands Combined Authority (WMCA), which would add a £12 annual increase on a band D property on top of the rates set by member councils, to fund infrastructure. The precept will be used to improve connectivity and tackle congestion, funding transport infrastructure including £3.4 billion of tram extensions, as well as new suburban rail lines, cycle lanes and motorway improvements and is a key tool for the WMCA in maximising the £36.5 million Government funding it will receive this year, some of which has been earmarked for other much-needed infrastructure projects such as the Midland Metro.

There must be reliable, robust funding to ensure that ambitious and much-needed infrastructure can be delivered. Alternative funding not previously used outside London, should also be considered and made applicable for the other regions, including tax increment financing (TIF), rates supplements, new forms of PPP/PFI, and land value enhancement.

The Midlands must be able to finance infrastructure projects and drive forward private investment.

Balfour Beatty is a leader in the delivery of Public Private Partnerships (PPPs), and has been successfully tendering and operating privately financed public infrastructure projects since they were first used in the UK over 20 years ago. Our experience has seen us develop a range of innovative ways to finance, deliver and maintain roads, hospitals, schools, student accommodation, street lighting, waste management facilities and offshore electricity transmission projects. With a strong track-record of financing public infrastructure in the UK and abroad, having closed projects with over £10 billion of private capital including our own investments, we have extensive experience of structuring transactions from a variety of sources including banks, monoline insurance companies and institutional investors. Our projects provide competitive financing terms that deliver value for money to our clients. We work hard to ensure that our proposed solutions continue to be deliverable and remain competitive throughout all stages of the project life cycle.

Residential and commercial development

Balfour Beatty has extensive experience in delivering high-end residential and schemes and is a leading constructor in delivering high quality commercial buildings. We are currently delivering a £150 million contract to deliver the main construction works of The Madison Tower in Canary Wharf, London, which is scheduled for completion in 2020. This will see Balfour Beatty deliver the iconic 53-storey landmark tower to include 423 residential apartments, residents’ lounge and business facilities. Our wide-ranging portfolio also sees us deliver schemes such as the new Audley Retirement Village at St George’s Place in Edgbaston.

Key to continued growth across the Midlands is of course ensuring that businesses are able to locate there and have the space to grow; and that the workforce of the future has the attractive, well-designed housing it needs. Balfour Beatty welcomes measures such as the £12 million which has been announced through the Local Growth Fund to unlock commercial and residential developments through the Black Country Garden City, which would see 45,000 homes built around Dudley, Sandwell, Walsall and Wolverhampton, and publication of the Midlands Engine Regeneration Opportunities Pitchbook published by UK Trade and Investment in March 2016, much of which rightly focusses on expanding or developing science parks and innovation centres, and providing space for SMEs and start-ups.

However, this area does not seem to have the same momentum as other priorities, such as connectivity. Balfour Beatty believes the next step is to ensure that businesses are encouraged to invest in the region and to access the various funds to ensure that the Midlands’ housing and commercial property needs are met.

While the Midlands Engine Vision for Growth outlines that it aims to: “Unlock housing growth, enabling the building of at least 600,000 new homes within 15 years” there is a shortage of available sites to build the houses on. While the Midlands Engine will not directly deliver homes it has a key role here in setting the strategy and facilitating a route to delivery for new housing schemes.

Leaving a legacy: skills and employment

Delivering the Midlands’ infrastructure priorities relies on having the skilled workforce trained and ready in the right place, at the right time. In the short-term, skills shortages in the construction industry are an ongoing issue which must be addressed. With demand for workers outstripping supply, wages are driven up, impacting the ability to deliver schemes to budget and putting margins under strain. In some cases, a shortage of skilled labour puts at risk the deliverability of schemes. Of course, Government has a key a role to play here in ensuring the education system delivers the pipeline of skills industry needs. For this reason, we believe stronger regional infrastructure pipelines are needed to support the development of the regional talent pool.

We are currently supporting the WMCA in developing a collaborative approach across the sector to taking a longer term, strategic approach to the investment programme. This, combined with a greater focus on ensuring funding certainty and local value added will help transform procurement and commissioning behaviours and derisk delivery, while ensuring that companies such as Balfour Beatty are making opportunities visible to the local supply chain, and working collaboratively across the region to enable them to take advantage of them. These measures will be a significant step towards ensuring the availability of the skilled workforce needed.

Two-thirds of all apprentices in construction receive their training via the Small and Medium Enterprises (SME)13, which dominate the sector. Smaller businesses have a prominent role in the UK construction market and a significant role to play in the continued health of the sector and the wider economy, which is why Balfour Beatty takes a proactive approach to supporting the SMEs in its supply chain.

Balfour Beatty believes that supporting apprenticeships as a path into industry has never been more important. We have welcomed and supported both the Apprenticeship Levy and the target to create three million new apprenticeships by 2020, as long as they are underpinned by a focus on completions and quality. The skills shortage across the construction industry is such that all the Apprenticeship Levy being paid by construction companies must be reinvested in high quality construction apprenticeships. To this end, Balfour Beatty is encouraging companies in our supply chain to consider setting up apprenticeship schemes to train the next generation and future-proof their businesses and the sector as a whole. The construction industry skills gap will only be bridged if more employers take on apprentices. We are also working with the Government to refine the Apprenticeship Levy, in order to ensure it delivers the maximum number of apprenticeships.

As a British company with a hundred year legacy in the UK, Balfour Beatty is committed to addressing the skills shortages in the UK and investing in home grown talent. Balfour Beatty employs over 150 apprentices each year in the UK in addition to the 320 currently under training in a diverse range of roles across the business. We employ around 700 more young people on graduate and part-time higher education/degree schemes. Balfour Beatty is also a long standing member of The 5% Club, an employer led organization set up by our Group Chief Executive, Leo Quinn, four years ago, aiming to address the skills gap by getting more young people into earn to learn opportunities, encourage businesses to take the lead on training and promote apprenticeships as a positive career decision.

Balfour Beatty encourages supplier diversity and currently has a supply chain that consists of a large proportion of SME and minority-owned businesses. We spent £1.4 billion with SMEs and £118 million with women-owned businesses last year. In 2016, Balfour Beatty was awarded the ‘Inclusive Procurement Award’ at the Minority Supplier Development UK (MSDUK) awards. The award recognises Balfour Beatty’s inclusive approach towards its supply chain and its engagement with minority owned and small businesses.

Over the longer-term, while physical infrastructure and the increased connectivity and capability they facilitate are vital, we must ensure that the significant infrastructure investment being made in HS2 and other schemes leaves a legacy beyond bricks, mortar and tracks. We must use the significant infrastructure investment being made over the coming decade to build skills and capability, and provide jobs for a generation. Closing the skills gap across a variety of sectors and skill levels is vital to the sustainability of the Midlands Engine. For the Midlands region, providing future generations with the skills needed to build future infrastructure projects will be key, building on developments such as the National College for High Speed Rail (NCHSR), which has a campus in Birmingham, and complementing the regions existing advanced manufacturing and technical skills base.

Business has a key role to play in maximizing local employment and skills during and after delivery of the investment, from taking on apprentices locally and ensuring that local businesses are used wherever possible to build and showcase capacity, to building strong relationships with local schools and with the 25 universities and 50 further education colleges based across the region, to ensure the development of training and skills that match local employers’ needs.

Crucially, we must have an environment underpinning the Midlands engine in which local people are educated and trained in skills that match needs.

The digital future

Productivity in the construction industry has been almost flat over the past two decades14. This is due to a number of factors, from the cyclicality and fragmented nature of the industry, to low profit margins resulting in a lack of investment in new machinery and equipment. And yet infrastructure construction and housebuilding are at the heart of the country’s plans to boost economic growth across the country, so the productivity of the sector is of key importance to the UK economy. This is recognized by the inclusion of construction as one of the key sectors in the WMCA productivity and skills commission, supported by Balfour Beatty.

There are two key ways to improve productivity: investing in better machinery and equipment; or improving process, which allows a worker to increase the speed or quality of what they are doing. In the construction industry, this largely means embracing improvements in technology and new methods in construction, techniques which have driven productivity improvements in other sectors. Technologies that offer particular promise to increasing productivity include off-site fabrication, robotics, mobile technologies, BIM, and augmented reality. Of specific benefit in the construction industry is the ability to share data in real time across the supply chain, allowing for a more collaborative, streamlined approach to projects, reducing costs and boosting productivity. This is because digital technologies offer the ability to provide early insight of job and production status, enabling the most effective deployment of labour and materials. For example, if real time updates are available and all those involved know that a crane is unavailable, product which cannot be unloaded to the site is not shipped, saving time for both the supplier and the onsite team in resolving the issue.

Balfour Beatty has made significant progress in its vision to become a truly digitally empowered business. Development of internal expert capabilities such as the training of new Drone Pilots, a digital surveying team with full laser scanning service, a high-end visualisation team and a significant increase in BIM-related skills has shown an increase in quality, a leaner approach and a safer working environment. In 2016, we undertook global collaboration in the fields of Virtual Reality and construction robotics, using skills from the UK, USA and Hong Kong. Both technologies are vital to the future of Balfour Beatty and the industry as a whole. We set out some of our thoughts on the digital future of the construction and infrastructure industry in our recent thought piece: Innovation 2050 – A Digital Future for the Infrastructure Industry15.

Although becoming digital-ready and responding to the fast-changing technological landscape is a challenge in the short term, embracing innovation and new technologies also offers the sector the best way of tackling the skills shortfall. Increased automation, off-site prefabrication and modularization will reduce the number of people required both on and offsite, driving safety, efficiency and productivity improvements. This is why Balfour Beatty has set itself the target of ensuring that 25% of our onsite activities today are done offsite by 2025. As an industry, we must find better ways of ensuring we have the workforce we need than simply looking to recruit more people although that is of course important in the short to medium term. The industry needs a better, more strategic solution and we believe that innovation and the increasing use of offsite and new technologies provides that.

At our purpose built Modular Systems + centre in Wednesbury, West Midlands, we specialise in the off-site manufacture and assembly of mechanical and electrical systems. Our flexible approach allows us to manufacture products that range from small modular electrical wiring components through to large complex multi-service modules and complete packaged plantroom solutions.

Conclusion

The Midlands, with its strong industrial heritage, has been an engine for growth for centuries. The plans which are being put in place, well-implemented and with the funding to back them up, will ensure that it is an engine for growth for centuries to come.

Empowering our regions and giving them the ability to thrive was always the right idea, but in the light of Brexit, it has never been more important. Indeed, Brexit offers a golden opportunity to take strategic action now to future-proof our regional economies for the long-term. We must now work together to make this vision a reality.

 

1 Midlands Engine Strategy, HMG, March 2017

2 ONS, Regional and Subregional Productivity in the UK, January 2017

3 House of Commons, Transport Spending by Region, November 2017

4 Transport Works

5 Crossrail 2017

6 Network Rail, 2017

7 Rees Jeffreys Road Fund Study, David Quarmby and Phil Carey, October 2016

8 Road Investment Strategy post 2020: planning ahead, DfT, 2016

9 https://www.birminghamairport.co.uk/media-information/news/2017/11/october-passengers-figures-for-birmingham-airport/

10 High Speed 2 Ltd HS2 Regional Economic Impacts, KPMG, September 2013

11 Transport for the North, Northern Powerhouse Independent Economic Review, June 2016

12 Improving infrastructure in the United Kingdom, Economics Department Working Papers No. 1244, OECD, 2015

13 Federation of Master Builders (FMB)

14 ONS, Productivity Handbook, April 2016

15 https://www.balfourbeatty.com/innovation2050