As some will know, I have been advocating the use of local government bonds to fund local Green New Deals for as long as I have been involved with tax justice campaigning. It was good therefore to note a new post on the Climate Bonds web site that reports that the French region of Ile de France, which includes Paris, has issued its second green bond for €600 million. Tellingly, it was so popular that more was subscribed than originally expected and the offer had to be closed after an hour because by then it was fully subscribed. The interest rate was 18 basis points (0.18%) over French government bond rate - which is attractive to savers but vastly below the cost of the Public Finance Initiative, which is the only option available in most cases to UK local authorities.
I believe that such bonds are a vital part of the devolution of the powers of government to local authorities. With funds borrowed at relatively modest rates local authorities could once again become major house builders to meet local need - as is so obviously necessary. The rent paid would, of course, service the debt obligation.
But this bond finance could also, of course, be used to regenerate the local economy. It is possible to share the savings resulting from domestic green investment. And it is, of course, with capital investment possible to considerably expand the reach of such schemes whilst investment in local sustainable transport infrastructure would be (and should be) sufficient justification to raise the modest sums needed to service debt through council taxes, but with obvious tangible benefits being visible to justify the payment to local electorates.
The examples could go on, but the point is a simple one. In the UK we are suffering massive regional disparity in economic fortunes. It is only by reinvigorating local economies that this can be done, and capital is needed for that purpose. Local bonds could deliver that capital with local savers investing directly or via ISAs and pension funds in the development of the communities where they live.
Isn't there any better investment option than that?
In that case, why aren't we seeing this in the UK?
PS These bonds could also be used to buy out crippling PFI contracts, I think, and save the burden these are imposing on so many communities.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Apologies if I have read you wrong, Richard, (it wouldn’t be the first time :)) but why sell bonds to investors? Why not either a state and municipal bank simply swap bonds for cash a’la QE with the Bank of England and have the banks lend that cash out? That way, the interest comes back to the state rather than to investor’s pockets.
It’s still a brilliant idea as it stands. It is rather similar to the Reconstruction Finance Corporation from the FDR New Deal period that raised tens of billions of dollars without recourse to government borrowing or taxation.
That is the recommendation of (as I understand it) of Positive Money’s Sovereign Money Creation-that way we could elect real Governments rather then the present system of begging bowls to the bank and bond market.
For once I wholeheartedly agree. PFI was just a ridiculous way to move borrowing off balance sheet – if any level of government is going to borrow then be honest about it.
I assume HM Treasury don’t like the idea in case Whitehall ends up bailing out a defaulting local authority?
If so, why not make it clear when the bonds are issued that they are unsecured with no Central Government bailout? The coupon would probably have to be higher but then I suspect they’ll be snapped up by pension funds that need the steady income.
Brilliant idea but unlikely to be taken up by true blue councils like mine.
I’m afraid I’m with Sue on this one. In my experience LA’s are if anything, less trustworthy and qualified (if that’s possible) than their Westminster counterparts. I mistrust and fear the devolution of powers to these people.
In my borough we have an East/West divide between some of the most deprived districts in the Country in the(largely Labour voting) west, and the most affluent in the solid Tory east. For years the borough has been mismanaged by the Conservatives who have recently (in Coalition with the perfidious Lib-Dem’s, who else?) gifted at least £11m to private property developers, whilst cutting £21m in essential services to Children, the Disabled and the Elderly.
It’s not often I disagree with your ideas, Richard, but in this case I have to respectfully demur. We have already seen what happens when nationally important institutions and services are devolved to regional level with British Rail and the NHS, both of which were better when centrally run from Westminster.
I have had rather more to do with Elected Representatives and Officers of Local Government than I care for. Frankly I wouldn’t trust most of them to sit the right way on a lavatory.
Interesting point: I share some of that concern, especially on social spending, whilst still thinking capital spending could be usefully devolved
With the exception of the European Commission Local Authorities are the most democratically unaccountable force in British politics. Answerable only to a toothless ombudsman with no powers of enforcement beyond criticism, a Local Authority decision can only be challenged in the High Court, (assuming the tens of thousands of pounds necessary on the part of the appellant).
Councils are notorious for using funding pots (as in my home town)to advance ideologically driven agendas. Guidance (and sometimes statute) are routinely ignored. And, as we are now witnessing, unpopular cuts can be easily managed by devolving responsibility to Local Authority level, then making deep cuts to overall LA budgets, whilst at the same time limiting Council Tax increases.
Austerity by proxy.
Interesting idea,but for local bonds how does it work in deprived areas where investment is needed most, that by definition there may not be enough people with money to buy the bonds?
Not a problem in France
No shortage of demand for bonds
I see no likelihood of many not being available