Beyond big banks and big government: Strategies for local authorities to promote investment

Little attention has recently been paid to the capacity of local governments to stimulate economic growth and facilitate lending to enterprises in their areas, despite copious debate over how banks and the central state should act in these respects. However there are established and emerging finance options available to local authorities which could more effectively deliver investment in infrastructure and housing, and provide much-needed finance to small and medium-sized businesses.

This paper focuses on how these opportunities - including different forms of tax increment financing, attracting capital from sovereign wealth funds, longer-term investment from local and foreign pension funds, and variations on a 'northern bank' - could benefit the north of England in particular. The authors diagnose the UK's current problems with investment and regional fiscal autonomy, and explore case studies of successful financial tools used by local authorities, both in Britain and internationally, to support economic growth.

Finally, a set of recommendations are laid out for how the UK could develop frameworks for public and private capital investment which will meet the infrastructure, housing and development needs of the North and other parts of the country:

1. local authorities should make greater use of municipal bonds to enable investment at scale, and on-lending for smaller projects in their areas
2. a northern investment vehicle, capitalised by pension fund investment, should be created to raise finance for housing and other northern infrastructure projects
3. a well-resourced British investment bank should be formed with a clear regional allocation of funds to provide for a northern investment capacity with its own strategic funding priorities.