UK should consider state investment fund - Mandelson

Mandelson said Britain may need to source as much as 500 billion pounds for future projects to remain competitive and spur growth, with the bulk of that cash probably coming from private investors.

There has been speculation that the government's budget on March 24 could contain details of such a venture.

"We need to mobilise private investors on a totally new scale," Mandelson said, according to the text of a speech in Manchester.

"That has to include examining the case for public-sector backed financial institutions."

The Labour government, facing the prospect of defeat in an election this year after 13 years in power, is looking at ways to encourage more private investment in the economy to reduce the burden on the public purse.

The budget deficit is set to reach a record above 12 percent of gross domestic product this year and whoever wins the election will have to rein in spending significantly to bring the books back to balance.

"The reality is that the bulk of new investment will have to come from the private investors, especially in the energy sector," Mandelson said.

"In Britain and around the world, savers looking to the long-term of their retirement are a huge pool of capital well suited to these kinds of long term investments."

(Reporting by Matt Falloon; Editing by Toby Chopra)