The House | Regenerate the coast: let development corporations borrow outside the fiscal rules

Aerial drone view of Westbrook Bay, Margate Kent (Alice Baddeley/Alamy)

4 min read53 min

As the MP for a coastal constituency that has often been overlooked by Westminster, I believe this question must be central to Labour’s mission in government.

The economic case is clear. Coastal economies have grown at half the national average since the financial crisis, yet they possess enormous potential that is currently being squandered – from port and renewable energy potential, to the creative economy and fantastic people crying out for better opportunities. If we could match that potential with institutions and capital capable of turning it into sustained economic growth, it could be a huge gamechanger for our whole economy.

That is why development corporations deserve far greater attention. Widely used across Europe, these bodies operate outside of short-term political cycles while remaining accountable to local leaders and communities. Their purpose is simple: to bring together public and private capital, assemble land, deliver infrastructure and unlock long-term regeneration.

For many left-behind areas, development corporations could be transformative. They offer a way to move beyond the piecemeal funding competitions and short-term grant schemes that have too often characterised centralised government thinking.

Yet their potential is currently being held back by the way Britain treats borrowing. Under existing arrangements, borrowing undertaken by development corporations is counted as public debt under the Chancellor’s fiscal rules, effectively treating it in the same way as borrowing directly undertaken by the Treasury. This creates a powerful disincentive for ambitious regeneration projects, even when those investments are commercially viable, low-risk and capable of generating substantial long-term returns.

This constraint is increasingly being recognised by investors themselves. Last year, some of Britain’s largest pension funds and insurers urged the government to allow development corporations greater borrowing flexibility for major regeneration schemes. They argue that the current system makes it harder to acquire land, invest in infrastructure and bring forward housing and growth projects that would ultimately strengthen the economy. Giving development corporations the ability to borrow responsibly would unlock a powerful mechanism for growth.

These organisations can capture the increase in land values created by planning decisions and infrastructure investment, then turn those gains into housing, transport improvements, public spaces and further economic development. Rather than relying on repeated injections of central government funding, they can help create a virtuous cycle of regeneration.

This is not an argument for abandoning fiscal discipline. Fiscal rules exist to ensure governments can meet their obligations and maintain market confidence. But those rules should not prevent well-governed investment vehicles from pursuing commercially sound projects that expand the tax base and strengthen local economies.

For many left-behind areas, development corporations could be transformative

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We already rightly distinguish between day-to-day spending and capital investment because they have fundamentally different economic effects. The same principle should apply here. If bond investors trust that development corporation borrowing will deliver strong economic returns, this shouldn’t impact government borrowing costs.

Many European countries make far greater use of publicly backed development bodies in this way, but Britain remains unusually centralised, both in how investment decisions are made and how they are financed. Too often, projects that could deliver economic transformation are delayed not because they lack economic merit but because of Whitehall accounting conventions. Imagine what locally accountable development corporations could achieve if given the tools to act.

Britain’s economic future depends both on the success of its cities and on the renewal of places like those at the coast that have too often been left behind. Development corporations offer a vehicle for that renewal. Giving them the ability to borrow outside the fiscal rules, within clear parameters and for clearly defined regeneration purposes, would not weaken our growth strategy – it would strengthen it.

If we are serious about tackling Britain’s regional inequalities, we must stop treating regeneration as a cost and start recognising it as an investment in our country’s future. 

Polly Billington is Labour MP for East Thanet