Britain Can’t Afford to Go All In on Centralised Growth

2025 report calls for dynamic fiscal rules and a thriving municipal bond market to fuel local growth and turn Britain’s debt story around.

Leeds, May 2025 — With rigorous analysis supported by leading financial data from partners like Macrobond, this Leeds Policy Institute (LPI) outlines a comprehensive framework for supporting fiscal decentralisation and establishing municipal bond markets in the UK. As Britain navigates a high-interest-rate environment and tightening fiscal constraints, this paper examines how smarter fiscal rules and decentralised financial instruments can enhance economic resilience, facilitate local investment, and improve national debt sustainability.

Read the Full Report

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“To gradually shift the scenario from r>g to r=g and eventually to r<g, where public debt no longer exerts upward pressure on bond yields, we recommend increasing growth through structural means via decentralised growth in the UK.”

Key Findings:

1. Smarter Fiscal Rules: The UK's current fiscal rule of balancing the budget by 2029/30 fails to account for Blanchard’s r<g condition, which suggests that borrowing is more sustainable when real interest rates are lower than real growth rates. The paper argues for adjusting fiscal rules to reflect changing economic conditions, ensuring responsible borrowing.

2. Competitive Governance Frameworks: Local councils need greater autonomy to implement policies tailored to regional economic conditions. The paper advocates for competitive governance structures that reduce centralised mandates and empower councils to attract investment through targeted initiatives.

3. Fiscal Autonomy and Revenue Retention: A more decentralised financial system would allow councils to retain a larger share of locally collected taxes. This would enhance their ability to fund critical infrastructure and services without excessive dependence on central government allocations.

4. Establishing a UK Municipal Bond Market: The UK Municipal Bond Agency (UKMBA) has struggled to compete with alternative financing options. The paper proposes transitioning to an open municipal bond market, enabling local authorities to raise capital more efficiently and independently from government intervention.

   
   

Policy Recommendations:

1. Adopt Dynamic Fiscal Rules: Modify current borrowing constraints to reflect growth and interest rate dynamics, avoiding excessive austerity measures that hinder economic expansion.

2. Develop Regional Governance Models: Implement an enhanced six-tier governance structure to clarify jurisdictional roles and improve democratic engagement in local elections.

3. Enable Municipal Bond Financing: Discontinue the UKMBA in favour of a decentralized municipal bond system that mirrors the successful U.S. model, allowing councils to fund projects autonomously and attract private investment.

4. Prevent Fiscal Mismanagement: Introduce balanced budget requirements for local governments to ensure sustainable fiscal policies while allowing strategic long-term investments.

By promoting decentralisation and introducing market-driven fiscal instruments, this policy paper presents a roadmap for fostering economic growth, enhancing local decision-making, and improving financial sustainability across the UK.

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About Leeds Policy Institute

Leeds Policy Institute (LPI) is the UK's first student-run policy unit and think tank based at the University of Leeds. Since its establishment in April 2023, LPI has united over 100 undergraduate and postgraduate students across diverse disciplines to conduct evidence-based, policy-driven research. LPI’s work has been rigorously reviewed by academic experts and presented at national conferences, including the British Conference of Undergraduate Research.

Media Contact:

Joseph Clark

President, Leeds Policy Institute

07592 461606 | bn224jc@leeds.ac.uk

Notes to Editors:

• The full policy paper is available upon request.

• The paper examines fiscal decentralisation, municipal bond market reforms, and governance structures to improve economic sustainability.

• Case studies include successful decentralisation models from Switzerland and the United States.

• The LPI is based at the University of Leeds and produces independent, evidence led research to inform UK policy.