The fate of regional development agencies (RDAs) is emerging as a key battleground in the forthcoming election. Labour wants to bolster them with funds from a new infrastructure bank. The Tories might scrap them.

Last Wednesday, business secretary Lord Mandelson (pictured) promised not to scrap the RDAs after the election, and indeed, plans to set up a state-run bank to finance them.

The Tories, on the other hand, want to hand RDA housing and planning powers to local authorities.

In a speech to ministers in Whitehall, Mandelson said economic recovery should be driven through the regions, and fuelled by private capital.

“We’re committed to creating more regional autonomy. To my mind the RDAs are absolutely indispensable,” he said.

RDAs have been crucial to regenerating cities outside London and the south-east, but future growth would not be driven by public spending alone, Mandelson added. “It means using public investment to lever in more private capital.”

Support for RDAs would come from a state-run National Infrastructure Investment Bank. Mandelson backs plans to create such a bank in April’s Budget to help fund the £200bn of infrastructure investment needed by 2015. It would target developments that would be difficult to finance through private debt.

He has met twice in the past month with executives at German government-owned KfW Bank to discuss their business model with a view to copying it in the UK. KfW was set up to supply capital for reconstruction projects after World War II.

The Institution of Civil Engineers, which has lobbied for the creation of a UK equivalent for more than a year, said in its 2010 Budget submission that a bank should merge all existing infrastructure funding sources. There are six of these: the Public Works Loan Board, the Centre for the Protection of National Infrastructure, Partnerships UK, the Treasury Infrastructure Finance Unit, Infrastructure UK, and the Infrastructure Planning Commission.

The Infrastructure Planning Commission opened for applications on Monday and is expecting its first next month, but the Tories say they would scrap it if they won the election.

Labour’s infrastructure bank would seek to augment public funding with capital from individual investors and pension funds. This would be invested in infrastructure projects through the RDAs, rather than direct grants. Tony Dolphin, senior economist at thinktank the Institute of Public Policy Research, which supports the idea, says it would allow RDAs to fund “tricky” projects.

The Conservative position on scrapping RDAs, however, is unclear.

A spokeswoman said: “We want to strengthen local economic development and urban regeneration. We intend to strengthen local economies by enabling business and elected local authorities to form local enterprise partnerships.”

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