Leading UK Government bond investors have urged Chancellor Rachel Reeves to loosen Treasury borrowing restrictions on development corporations, arguing the changes are necessary to deliver major infrastructure and housing projects.
Legal & General and Aviva were among financial institutions that wrote to the Chancellor last month calling for reforms to enable large-scale schemes such as the Oxford-Cambridge Arc to proceed.
The letter was signed by Legal & General chair John Kingman and Aviva chair George Culmer, alongside Kate Barker from the Universities Superannuation Scheme pension fund.
Additional signatories included Calum Cooper from Hymans Robertson and Pretty Sagoo from Just Group.
The investors warned current fiscal restrictions could damage economic expansion if they remain unchanged.
The group said the constraints would “massively inhibit [the Government’s] scope to raise the UK growth rate” if ministers fail to reform the rules.
The letter argued development corporations, which are public bodies tasked with housebuilding and regeneration, should be allowed to “borrow outside the fiscal rules” in line with approaches used in other European countries.
The investors also argued such borrowing would not be seen as “adding to the UK’s debt sustainability challenges”.
Major pension and insurance investors urge the Government to relax borrowing limits for development corporations
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GETTY
Development corporations face significant upfront costs because they must purchase agricultural land before planning permission is granted, which increases public debt immediately.
Funds are typically recovered later when land is sold at higher values once planning permission is secured and development progresses.
The Labour Together think tank published a report alongside the investors’ letter calling for the creation of a new development corporation to support the Oxford-Cambridge Arc.
The organisation urged ministers to give the body powers to override local opposition to the project, which is intended to link the economies of Oxford, Cambridge and Milton Keynes.
The treasury rebuffed the plea, saying ‘fiscal rules are non-negotiable’
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GETTYDevelopment corporations were described as “money-printing machines” in the report because of their ability to purchase land, secure planning permission and sell land at higher values.
However, the report stated these organisations require “the financial autonomy to operate at scale”, including permission to borrow beyond fiscal rules due to what it described as the low-risk nature of the debt.
The Oxford-Cambridge Arc proposal was previously abandoned four years ago when Boris Johnson’s Government prioritised levelling up policies focused on less prosperous regions.
Ministers have rejected calls from investors and the think tank to change borrowing rules.
The Treasury said: “The Chancellor has been clear that the fiscal rules are non-negotiable.”
Boris Johnson prioritised levelling up policies
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PAThe department added: “They put the public finances on a sustainable path and prioritise investment to support long-term growth.”
Under the Chancellor’s primary fiscal rule, Government debt as a share of GDP must be falling by the end of the current Parliament in 2029-30.
Despite maintaining this position, the Government announced on Wednesday a consultation on creating a new Greater Cambridge development corporation aimed at addressing infrastructure shortages, commercial access and housing affordability.
The Treasury also highlighted a commitment of more than £500million for housing, infrastructure and job creation across the Oxford to Cambridge growth corridor.