Create regional mutual banks

Policy baseline

Green economic policy supports regional mutual banks and local finance. Fiscal risk depends on capitalisation, lending quality and default rates.

• Targets SMEs and underserved regions.
• Credit constraints may be real in some areas.
• Bad lending creates taxpayer losses.

Core trade-offs

The direct beneficiaries are small firms and underserved regions. The costs fall mainly on taxpayers bearing credit risk. The main economic question is politicised lending can misallocate capital.

• Small firms and underserved regions gain most directly.
• Costs fall mainly on taxpayers bearing credit risk.
• Key risk: politicised lending can misallocate capital.

Fiscal impact by 2028-29

+GBP 1.0bn to +GBP 8.0bn. Central estimate: +GBP 2.5bn.

• Positive numbers mean net fiscal cost; negative numbers mean Exchequer savings.
• Main channel is the scored tax, spending or delivery change.
• Offsets depend on tax receipts, behaviour and pass-through.
• Range reflects uncertain implementation and economic response.
• This is not an official costing.

Economic impact by 2028-29

• Jobs: Higher public employment or procurement demand; shortages may shift workers from private firms.
• Wages: Direct gains for funded staff or suppliers; taxes fund the transfer.
• Prices: Public prices rarely rise directly; private prices may rise if labour is scarce.
• GDP / productivity: Potentially positive if capacity improves; negative if bottlenecks or crowd-out dominate.

Assessment

This is a real trade-off, not a free gain. Small firms and underserved regions benefit, while taxpayers bearing credit risk bear most costs. Overall output depends on behaviour, capacity and pass-through.

Confidence: Medium-low. Higher on the policy target and fiscal channel; lower on behaviour, pass-through and economy-wide effects.

Main risks

• Delivery bottlenecks: Staffing, procurement and capital constraints may stop extra money becoming better services.
• Crowding out: A tight labour market can shift workers from private firms rather than add capacity.
• Permanent baseline: Temporary programmes can become recurring spending commitments.

Safeguards

• Publish unit-cost benchmarks before rollout.
• Tie funding to measurable service capacity.
• Use staged delivery with independent audits.

Academic evidence

UK government evidence

Sources

• PolicyLens illustrative scenario methodology for create regional mutual banks Internal - PolicyLens, 2026
• Do Firms Want to Borrow More? Academic article - Banerjee and Duflo, Review of Economic Studies, 2014
• Corporate Income Tax Reforms and International Tax Competition Academic article - Devereux, Griffith and Klemm, Economic Policy, 2002
• Green Party manifesto: a reaction Think tank analysis - Institute for Fiscal Studies, 2024
• Green Party manifesto summary Manifesto summary - Local Government Association, 2024
• Spending Review 2025 UK government spending review - HM Treasury, 2025
• Manifesto for a Fairer, Greener Country Party policy source - Green Party of England and Wales, 2024

Other Green policies

• Raise the minimum wage to £15
• Index public-sector pay to inflation
• Add public-pay restoration premiums
• Raise low-paid public-sector wages
• Cap organisation pay ratios at 10:1
• Protect pay in transition schemes
• Create a single worker status
• Equal terms for outsourced workers