I have been sent a blog from Tom Aubrey and Con Keating about how we pay for the new towns we need to house millions of people who aren’t living in their own places or living in places they’d prefer not to be.
Financing the next wave of New Towns
Supporting the shift towards self-funding public corporation debt
Con Keating and Tom Aubrey
One of the main challenges for the Chancellor’s budget on 26th November is how she can help support the rate of growth without negatively impacting the public finances. At her last budget, the Chancellor’s boost to investment caused gilt yields to rise driving up the cost of servicing future debt payments, thereby placing greater pressure on the government finances.
While the need for investment remains high – particularly for new towns enabling high productivity areas to expand – increasing general government debt would place excessive strain on the gilt market. Moreover, a likely consequence of this strain would be that much of this proposed development would be deferred and delayed, or perhaps, simply abandoned, leading to lower growth and the economy remaining in its current doom loop.
An alternative approach that has been tried and tested in the UK and across Europe, is to finance the wave of new towns, including across the Oxford-Cambridge arc, using self-funding public corporation debt. This debt will be paid back from the sale of land to developers after the development corporation has deployed the necessary infrastructure and awarded planning permission. The increase in land values from agricultural to residential value can increase by as much as a100 fold.
The prior Conservative government has already created the necessary compulsory purchase arrangements to facilitate this model – which was central to the success of the wave of post-war new towns across the UK. This is without question the biggest single thing the Government could do to drive higher economic growth.
However, the divergence of the government’s fiscal rules from European public finance accounting standards continues to block this tried and tested approach. This is because self-funding public corporation debt is included in the UK’s definition of debt for its fiscal rule, whereas it is excluded from the European rules given that the liability is only a contingent one.
If this divergence from European standards is not addressed, this self-imposed constraint will continue to inhibit the UK’s scope to grow and build the houses and transport networks that the country so desperately needs in its high productivity areas. Hence bringing the UK’s debt definitions in line with European public finance accounting standards would be unequivocally positive for growth and therefore for the public finances.
Self-funding development corporation debt to finance infrastructure in areas of high housing demand is a low risk way of boosting growth without adding to the UK’s debt sustainability challenges. The technical details for this are set out in these Bennett School of Public Policy pieces here, and here which were reported on by the Times here.
A number of large funds, asset managers and banks have already agreed to sign a letter to the chancellor requesting that the Chancellor announces a short consultation with investors on the case for adjusting these rules. If you are interested in adding your organisation’s name to the list please can you get in touch with Thomas Aubrey at Thomas.aubrey@creditcapitaladvisory.com
From the Plowman
Many readers may not be familiar with the Government’s plans and if you’d like to read them (published 28th September 2025) please follow us this link
Thanks to Tom Aubrey and Con Keating for keeping this idea to the front of our agenda. I hope that LGPS pools and the Funds they report to, will be reading this and putting their names to the letter. There are likely to be many more New towns in the future and just because one is not in your region does not mean there may not need proper feeding when one is announced.
