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Top UK government bond investors have urged Rachel Reeves to relax Treasury constraints on borrowing by development corporations in a bid to streamline big projects such as the Oxford-Cambridge Arc and boost growth.
In a letter last month, companies including Legal & General and Aviva warned the chancellor that her self-imposed fiscal rules are making it harder to buy land and convert it into new towns and big housing schemes.
Development corporations — public bodies that drive new housebuilding and regeneration — should be able to “borrow outside the fiscal rules” in line with other European countries, said the letter, which was seen by the Financial Times.
“If left unaddressed, this current constraint will massively inhibit [the government’s] scope to raise the UK growth rate,” it added, arguing that development corporation borrowing would not be seen as “adding to the UK’s debt sustainability challenges”.
The letter — which was signed by Legal & General chair John Kingman, Aviva chair George Culmer and Kate Barker, chair of the Universities Superannuation Scheme pension fund — came alongside a report by the influential Labour Together think-tank.
The report called for a new development corporation to push forward the Oxford-Cambridge Arc and said ministers should empower it to bypass local objections to the scheme, which is designed to connect the high-growth economies of Oxford, Cambridge and Milton Keynes.
The government hopes the revived scheme, which was shelved four years ago after then Conservative prime minister Boris Johnson prioritised “levelling up” poorer regions, will deliver new rail infrastructure, housing and science investment and capitalise on the area’s existing knowledge economy.
Development corporations are “money-printing machines” because they could buy land, grant planning permission and sell it for a higher price, the think-tank said.
But the bodies needed “the financial autonomy to operate at scale”, with permission to borrow outside the fiscal rules because their debt was low-risk, it added.
Development corporations have to pay upfront to purchase tracts of farmland for development, adding to public debt, while they only raise funds by selling it off down the line.
On taking office in July 2024 with a promise to grow the economy, Reeves shifted to a current budget target, which excludes borrowing for investment. But this borrowing still adds to overall government debt, which the Treasury is attempting to bring down as a share of GDP in a bid to strengthen the public finances.
Under Reeves’ key rule, debt as a share of GDP must be on a downward trajectory at the end of the current Parliament in 2029-30.
One person familiar with the matter said the Treasury should consult on how to adjust the fiscal rules to permit borrowing by certain development corporations. Without such changes, plans for ambitious projects such as the government’s new towns and the Oxford-Cambridge Arc would lack sufficient scale, the person added.
The interventions by the investors and Labour Together come despite Reeves’ attempts to boost homebuilding and unlock higher infrastructure investment via changes to the fiscal rules, which she has described as “ironclad”.
The government on Wednesday launched a consultation on creating a new Greater Cambridge development corporation, vowing to tackle challenges including “infrastructure deficiencies, commercial accessibility and housing affordability.”
Thomas Aubrey, founder of Credit Capital Advisory, argued in an FT article last year that the UK’s “highly centralised” approach to financing and funding infrastructure was creating significant barriers to growth.
The country should shift to the system applied in other European countries such as the Netherlands, which rely more on public corporations that can issue debt, he added.
L&G, Aviva and the USS declined to comment. The letter was also signed by Calum Cooper, a partner at advisory group Hymans Robertson, and Pretty Sagoo, managing director of insurer Just Group. Both also declined to comment.
The Treasury said in a statement: “The chancellor has been clear that the fiscal rules are non-negotiable. They put the public finances on a sustainable path and prioritise investment to support long-term growth.
“The government is committed to go further and faster on growth — with over £500mn investment for new homes, infrastructure and more jobs in the Oxford to Cambridge growth corridor.”