Councils have been given freedom to double the amount of pension assets they could invest in local infrastructure projects from 15% to 30%, potentially freeing up an additional £22bn to fund pro-growth schemes, ministers have announced.

The news follows a consultation into lifting existing caps limiting how much the 89 Local Government Pension Scheme (LGPS) funds with combined assets of around £150bn, can invest in limited partnerships – the asset vehicle often used for major property, private equity and infrastructure projects.

As a result of the new regulations, a total of around £45bn of LGPS funds could be available for house-building, transport or regeneration projects – a move which would boost chancellor George Osborne's plan to raise £20bn of cash for infrastructure projects over the next decade in the run-up to the Budget.

Last month the London Pensions Fund Authority (LPFA) joined two other LGPS funds the Strathclyde Pension Fund and West Midlands Pension Fund in signing up to the Pensions Infrastructure Project (PIP) – which has a short-term target of securing  £2bn from large retirement pots by 2013, in order to kick-start major projects.

Lord Heseltine's growth review, issued last year stated ‘there is a one off opportunity now to match the needs of pension funds with the urgent need to boost investment in the UK's key infrastructure'.  Similarly, a recent report by the Future Homes Commission said local authority pension funds could help finance 300,000 new homes every year and tackle Britain's housing crisis – were 15% of the assets held by the 15 largest LGPS funds pooled in a £10bn development fund.

Local government minister, Brandon Lewis said: ‘Unlocking town hall pension pots so they can invest more in vital infrastructure projects will help this country compete on a global scale and get Britain building.

By lifting the restrictions controlling local pension investments councils will now have the choice to invest more in local job-creating infrastructure and housing projects.'

Director of the National Association of Pension Funds, Darren Philp said he was pleased the Government had listened and made the change.

‘Lifting this limit will remove one barrier, but there are wider issues that need to be addressed. The Government needs to undertake a comprehensive review of the local authority pension fund investment regulations to ensure that funds can act in the best interests of their members and council tax payers,' said Mr Philp.