Debt, decline and a new funding model

It may be fatigue from unrelenting bad news, it might be economic problems arising from COVID-19, but all around us there is a sense that the UK faces a crisis in terms of funding requirements against taxation receipts. This is not just a reflection of an inability to fund new capital project ideas, much as these are needed, it is the realisation that the country faces a number of debts and capital shortfalls.

The UK has a public debt ratio of fractionally over 100% of GDP and in 2023, annual government interest payments rose to £117 billion. It seems clear, however, that this level of debt actually underestimates the real deficit within the economy. Under investment in public assets has created a backlog of required spending and other sleights of hand mean that aspects such as unrepayable student loans and financing social housing through indebted registered providers, crumbling schools, full prisons as well as the debts being racked up by local authorities, are all creating a disturbing picture.

Anyone asking for realistic action in levelling up, new infrastructure, or interventions in improved social care or low carbon is likely to be whistling in the wind and unfortunately, the reality is that this cannot be substantially changed, whichever political party is in charge.

The direction of public sector finances is also likely to deteriorate in the long run. Government commitments to pension contributions and the cost of adult social care will only increase over the next 15 to 20 years while at the same time, the working age population that fund these in year requirements through their income tax contributions will decline. This is a fine mess that we have gotten ourselves into.

Of course, many of these issues are well known and there is little value in repeating them. What is required is a new approach to funding what we value and what we require. One area where funds have been accumulated is in both public sector and institutional pensions, as well as corporate and personal savings more generally. It is an interesting point to consider whether tax breaks which have incentivised this saving have served us well, but this is mainly a philosophical point which can be set aside in favour of considering how these funds can be reinvested for public good.

The reinvestment of institutional finance is becoming a hot topic in economic development. Much of the early thinking was led by Mark Hepworth of The Good Economy. It was in fact, The Good Economy who ensured that this concept was included in the Levelling Up White Paper (whatever happened to that).

The concept of investing institutional finance to help reinvigorate value in local economies has become known as Place Based Impact Investment (PBII). Institutional finance invested in projects which have sufficient value to communities to create a modest financial return whilst at the same time driving economic change and ensuring funds achieve corporate social responsibility outcomes that most genuinely seek.

This space is interesting. Local Authorities should not see this type of finance as magic money but a new addition to the armoury of resources they can deploy in shaping future place. Every location has different priorities, but PBII can help unlock projects involved in things such as housing, commercial developments, infrastructure or low carbon investment - and this is by no means an exhaustive list.

Mickledore and The Good Economy have been working closely together for many months and announcements about the nature of future partnership arrangements will follow but, in the meantime, if you have any questions about the practical aspects of introducing institutional finance into those projects your area most values and needs, we would be delighted to discuss these with you and introduce you to our colleagues at The Good Economy.

Do contact Nigel Wilcock at or 07747 085400.



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