Event summary: investing for inclusive growth

20 December 2018

By CPP

Earlier this week we were joined by Lord O’Neill, Bruce Katz and Vicky Pryce to discuss how we can invest for inclusive growth and explore innovative ways of financing and structuring approaches, at a local, national and global level. With central government in political turmoil, the overriding message was that places must take the lead in sourcing finance for inclusive growth, but that this won’t be easy given current constraints on budgets and powers.

Taking back control from the centre

Localism expert Bruce Katz, Founding Director of the Nowak Metro Finance Lab at Drexel University, opened the discussion by describing his recent experiences from across the pond. With Washington broken, he argued there’s an unprecedented desire to get things done at the local level. Facilitated by the Investing in Opportunity Act passed in 2017, investors in the United States are now able to eliminate some of their capital gains tax if they invest in low income communities. This has had a transformative effect by incentivising investment at a local level. Bruce noted this change to the law has enabled the development of an interesting new initiative - Accelerator for America – which acts as an intermediary, funnelling money towards the best local initiatives that improve economic security in deprived areas. And for this to work well, several places are actively mapping their key local trends and assets to create city-wide investment prospectuses. Bruce argued this was a great example of “reverse engineering” in public policy, where local areas can “take back the government”. He had several key lessons for the UK:

  • Tapping into both market and civic power at the city level.
  • Push power down and identify the key 21st century community institutions that can get things done.
  • Align with the Environmental Social and Governance (ESG) goals that are embedded in investment funds.

Could such a model work in the UK?

With government paralysed and failing to engage in devolution, former Chairman of Goldman Sachs Asset Management and former Commercial Secretary to the Treasury Lord O’Neill, argued that places need the support of business investment. But according to Lord O'Neill, businesses in the UK just aren’t doing enough. He cited the example of Germany where the private sector heavily invests in education spending and contrasted this to the UK where businesses complain about an endemic lack of skills but do much less in response. Moreover, unlike in the US where local investment can be delivered via the municipal bond market, Lord O'Neill didn’t see an equivalent over here. He also highlighted his concerns about how we measure the value for money of a prospective investment – arguing that the current HM Treasury approach is too short sighted and fails to properly consider productivity gains. Lord O'Neill did, however, strike an optimistic tone about the potential role of investment funds, especially with an increased focus on environmental, social and governance (ESG) aspects. The next generation of investors, he thought, will care much more about the human and social outcomes of investing rather than simply the return. And he concluded by referring to the success of Greater Manchester in showing that devolution can work and should be a source of “great inspiration” for others.

An evidence free zone

Former Head of the Government Economic Service Vicky Pryce argued that the UK had been an “evidence free zone” regarding the experience of regions. Places have had their funding severely cut and she cited the 49% reduction in local government finance since 2010. Vicky argued that Regional Development Agencies could have facilitated more local regeneration had they been properly resourced, but ultimately the agencies were disbanded leaving a hole in the social fabric of places. Meanwhile housing - such a vital asset for ensuring mental health, employment prospects and educational achievement - has also been underfunded and is exacerbating local area inequalities. In response, Vicky argued that more investment is required in areas outside of London and the South East. She believes the benefits of these investments must stay within local communities. Additionally, while public money will be important, more could be done to harness social impact style investing from the private sector and this could be incentivised by government policy.

This engaging debate provided some cause for optimism about emerging models at a local level and the role of business, while remaining pessimistic about the desire of central government to deliver change. In summary:

  • There are working models of devolution at home and abroad where places are taking back control to improve outcomes in deprived areas.
  • Delivering inclusive growth at a local level is growing in importance, with multiple initiatives currently underway to understand what works to drive improvements in places.
  • Cities have great assets that can form important investment opportunities to attract private and public capital.
  • Whilst the government is otherwise occupied, there is growing will in local areas to innovate and experiment.

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