Ride the Wave

Balancing investment risk and opportunity to guide urban renewal

Author: Sandy Forsyth   |   30/10/2025

In her 29 January speech outlining the Government’s ‘Plan for Growth’, chancellor Rachel Reeves argued our cities will require focus on the two key areas of infrastructure and investment if they are to realise their potential and promise, with central government bringing in a raft of institutional and policy reforms to help support the financing of local projects. This new wave of investment will require our place leaders to understand how to properly and professionally manage investment risks or imperil the urban growth agenda. Ride the Wave examines the framework for local investment aimed at driving urban renewal and economic growth in the United Kingdom. The analysis centres on how local authorities can navigate investment risks and opportunities within a changing policy landscape characterized by a new emphasis on city-regions, empowered mayoral authorities, and a reliance on private finance.

Key points

Recognising the core tension: prudence and the growth agenda

The central conflict lies in the demands placed upon local authorities to pursue growth and investment while ensuring that public funds are protected from undue risk. The government’s growth agenda relies heavily on increased public sector net capital investment, new public financial institutions (like the National Wealth Fund), and the prioritisation of mayoral strategic authorities as catalysts for growth. Local authorities and strategic authorities are expected to develop and deliver investment pipelines for growth. Simultaneously, local authorities operate under the Prudential Framework, which enforces a well established hierarchy of priorities for borrowing and investment.

Chief Financial Officers (CFOs) hold statutory responsibility for financial sustainability, and local leaders face severe political and financial consequences where there is failure to manage risk. At its most serious this could include government intervention. This pressure leads the financial culture of local authority planning to reinforce prudence which limits risk appetite.

Addressing structural weaknesses

A neglected aspect of raising investment appeal locally is the capability of local and subregional governance structures. A primary barrier to successful investment and collaboration, particularly in Public-Private Partnerships (PPPs), is the weakness in public sector capacity, specifically the lack of in-house specialist commercial and financial skills. This forces reliance on external consultancy. The government needs a clear and well-resourced strategy to improve in-house commercial skills, viewing local government recruitment as part-and-parcel of the capital investment programme.

Furthermore, the ongoing creation of new strategic authorities and local government reorganisation causes institutional churn, which is detrimental to investment appeal because these new institutions lack established processes, relationships, and long-term vision. Institutional maturity is key to attracting private involvement. Policy must support the widespread adoption of structured institutional maturity models (progressing through initial, managed, defined, and optimising stages) as a gap analysis tool to accelerate capabilities in areas like governance and risk management, providing the cohesion needed to attract investment.

Improving the evaluation framework

Evaluating the success of investments presents another critical challenge. The government’s goal of “inclusive, sustainable growth” is difficult to measure using traditional economic indicators like GDP. Current evaluation frameworks, such as the new Local Government Outcomes Framework (LGOF) and the bespoke Integrated Settlements Outcomes Frameworks (ISOFs), are a step forward but require harmonization and greater sophistication. Success depends on establishing effective frameworks that assess both immediate and long-term impacts, ensuring growth is sustainable and inclusive. New metrics are necessary to move beyond traditional economic indicators like GDP and Real Household Disposable Income, which provide only limited insight into the quality of growth. These new metrics must evaluate inclusive and sustainable growth by considering factors such as equality of access, empowerment, and long-term environmental capacity.

The government should develop a single, tiered outcomes framework for local government, harmonising the Local Government Outcomes Framework (LGOF) and the Integrated Settlements Outcomes Frameworks (ISOFs). This unified framework must be robust, multi-layered, and learning-focused, drawing methodology from the UK Shared Prosperity Fund (UKSPF) evaluation strategy (which measures process, impact, and value-for-money). The forthcoming neighbourhood governance units (English Devolution and Community Empowerment Bill) should also be used in policy scrutiny, potentially functioning as ‘citizen juries,’ to evaluate whether growth successfully extends opportunity and prosperity to local communities.

Recommendations

Reckoning with the capacity gap

• Central government should provide structural and institutional supports to local authorities to manage the time-consuming and complex nature of Public-Private Partnerships and the use of private finance. A weakness in public sector capacity is a primary factor contributing to PPP failures, often leading to reliance on external consultancy. Policy must focus on developing and supporting internal institutional expertise and administrative capacity to mitigate these risks.
  • There should be a clear and well-resourced government strategy to improve in-house commercial skills in local government. This strategy should be a focus of the government’s working group on local authority skills and be developed alongside stakeholders such as the LGA and CIPFA, receiving capital allocation as an investment in national growth.
  • Rather than being seen as ongoing revenue pressure, local government recruitment must be seen as part-and-parcel with the capital investment programme of this government, alongside national measures like the establishment of the National Wealth Fund.
  • In the long run, policy should move beyond simply encouraging the acquisition of commercial skills. Central government needs to provide structural and institutional supports to local authorities to manage the time-consuming and complex nature of PPPs. A weakness in public sector capacity is a primary factor contributing to PPP failures, often leading to reliance on external consultancy. Policy must focus on developing and supporting internal institutional expertise and administrative capacity to mitigate these risks.
• Government should provide contractual frameworks for local authorities to use in structuring PPPs for local investment and regeneration, drawing lessons from past issues. This should focus on optimal risk allocation, transparency, and the exclusion of “soft” services, as demonstrated by the Welsh Mutual Investment Model.
  • In the whole, any future development of PPPs needs to benefit from a careful initiation and contract phase, focusing on whole-life costing, value for money, and reaching the best possible risk allocation between partners.
  • Policy should actively encourage and incentivise local authorities to engage in smaller-scale PPP projects initially. This approach can build a more pragmatic and positive environment for public-private collaboration, helping local institutions overcome the political caution and lack of learning capacity associated with the history of the Private Finance Initiative (PFI) regime.
• There needs to be a clarification and simplification in how public sector organisations can interact with and seek help from the range of potential supports, both new and old, in terms of both funding and investment expertise, potentially in the development of a single front door service for matching local investment prospectuses to public financial institutions.

Building institutional maturity and governance

• Government should include neighbouring strategic authorities within regions as mandatory consultees for statutory local growth plans, to ensure coherence across England’s regions and to help bridge gaps in institutional maturity between authorities
  • Planning and development strategies can also benefit from cross-regional collaboration; in order to avoid arbitrary limits being set on Spatial Development Strategies based on geographic boundaries, regions that identify similar opportunities should be encouraged to join-up their offers for those specific opportunities on a thematic basis.
• Government must provide further clarification of how scrutiny and oversight processes are going to align with the mayoral system, both in terms of scrutinising the individual and their cabinets, as well as how they will account for the scale involved with the functions of strategic authorities.
  • The development of regional boards drawn from the scrutiny committees of constituent strategic authorities should be considered as a way to both enhance governance and develop institutional maturity through shared learning.
  • Accountability frameworks must incorporate an understanding of institutional maturity and guard against policy churn, helping to identify areas where interventions are working and specialist skills are being acquired. This type of review can help to provide a stable policy framework, which is conducive to investment.
• Policy should support the widespread adoption and implementation of structured institutional maturity models (which progress through initial, managed, defined, and optimising stages). These models, applied to functions like governance, risk management, and planning, can serve as a gap analysis tool to help new organisations rapidly progress their capabilities and acquire the cohesion and expertise necessary to attract and secure private investment.

Evaluating outcomes

• Government should develop a single, tiered outcomes framework for local government, harmonising the Local Government Outcomes Framework (LGOF) and the Integrated Settlements Outcomes Frameworks. This framework should be robust, multi-layered, and learning-focused, drawing on the methodologies of the UK Shared Prosperity Fund evaluation strategy to measure “quality” growth, which includes social, environmental, and inclusive outcomes.
  • The policy direction must support the creation of a system that allows for the positive and continual self-reflection on the impact, processes, and strategy of evaluation itself. This aligns evaluation with developing the institutional maturity required for effective long-term governance and risk management.
• The forthcoming neighbourhood governance units of the English Devolution and Community Empowerment Bill should be given a role in policy scrutiny to function as ‘citizen juries’, especially concerning whether growth successfully extends opportunity and prosperity will have genuine influence on decision-making at the regional level.
• There is also a need for clarification on how performance based on the new, broader outcomes frameworks will interact with central government’s assessment of a local authority’s Best Value Duty. Policy should assure local leaders that adopting innovative, outcomes-led approaches will not expose them to undue risk of intervention based on short-term or narrow measures.
• Government should also support the development of metrics that go beyond traditional economic indicators like GDP and Real Household Disposable Income to evaluate inclusive and sustainable growth, considering factors like equality of access, empowerment, and long-term environmental capacity.
  • Policy should support the creation of national guidelines or toolkits that help local authorities and strategic bodies consistently define complex, aggregated concepts like “sustainable jobs” across sectors and departments.

Best practice for local and strategic authorities

While the fiscal environment is undeniably challenging, the rapidly-evolving political landscape provides real opportunities for strategic and local authorities, as well as risk. Below are some best practice considerations for authorities of both tiers based on the research for this project.

Strategic authorities should:

• Leverage enhanced powers and strategic planning:
  • Develop robust, realistic statutory Local Growth Plans and Spatial Development Strategies to set clear strategic directions for regions and identify optimal investment opportunities, working closely with the National Wealth Fund and other central institutions.
  • Actively engage with the rejuvenated Office for Investment to develop and market pragmatic investment proposals and attract international capital into their regions.
  • Formalise inter-regional collaboration by consulting neighbouring strategic authorities on growth plans, especially for pan-regional efforts like transport infrastructure, to ensure a coherent economic vision and share expertise.
  • Fully utilise powers and mechanisms such as investment zones and Mayoral Development Corporations to provide a long-term vision for investors and accelerate regeneration.
• Build internal capacity and expertise:
  • Prioritise investment in building in-house specialist commercial and financial skills to effectively manage Public-Private Partnerships (PPPs), procurement processes, and complex contracts. A lack of such skills is a significant barrier to effective project delivery and risk management.
  • Foster a strong institutional culture of accountability, expert risk management, and objective strategy assessment within the authority. This requires strong leadership, continuous learning, and robust scrutiny.
  • Focus on institutional maturity, understanding that well-established processes, relationships, and clear standards are crucial for attracting and securing private investment in infrastructure. Ringfencing resources for internal development can help new organisations progress rapidly through stages of evolution.

Local authorities should:

• Ensure robust governance and risk management:
  • Implement comprehensive investment reviews to ensure adherence to the Prudential Framework’s hierarchy of Security, Liquidity, and then Yield. These strategies should include quantifiable risk assessments and robust procedures for risk management, avoiding over-reliance on debt financing for commercial yield.
  • Clarify and empower effective neighbourhood governance mechanisms to ensure residents have a genuine say in decisions affecting their areas and to foster inclusivity in growth outcomes.
• Secure strategic partnerships and encourage collaboration:
  • Explore alternative PPP models like the Welsh Mutual Investment Model (MIM), which involves public sector equity shares, excludes “soft” services, aligns with broader wellbeing objectives, and has proven effective for infrastructure delivery where capital capacity is limited.
  • Engage in smaller-scale PPP projects initially to build a more positive and pragmatic environment for public-private collaboration, helping to overcome historical caution related to PFIs.
  • Foster genuine partnerships with stakeholders from the private and third sectors, as well as anchor institutions like universities and hospitals, through a collaborative approach to drafting local growth plans and spatial development strategies.

Project kindly supported by: