I spent my day around Westminster yesterday. One of the meetings I spoke at was staged by the All Party Parliamentary Group on Local Authority Pensions. I will not comment on the suggestion that I know how to have a good time.
Also speaking at the meeting was Rishi Sunak, Parliamentary Under-Secretary of State for Local Government. He lamented the fact that at present just 0.5% of local authority pensions are invested in infrastructure projects.
The representatives of the pension funds present said they needed a product to help them invest if that ratio was to improve. I have been arguing this point for 15 years now: my co-authored report on what I called People's Pensions came out in February 2003. As we argued then, pensi0ns funds should be able to invest in bonds issued by local infrastructure projects. We said:
The possibility of People's Pension Funds being promoted for separate localities or regions would be strongly encouraged, especially for health, housing and education services. Local People's Pension Funds would increase the identification between the person saving and the asset they had helped fund, and so promote the ideas of:
1. common ownership
2. localisation
3. ethical investment
4. sustainable local communities
5. provision of a resource base that people might need now and in their retirement (such as hospital facilities) from the savings they have made during their working life
I stand by the idea. I hope to re-present it this autumn. Local authority pensions funds would be amongst those able to take advantage of this idea.
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Richard, I put forward a similar idea regarding getting high speed broadband into rural areas, which I believe would also have worked for urban areas like business parks which, at the time, were being deliberately ignored by BT. The idea was simply that municipalities issues bonds to purchase the broadband infrastructure the community wanted from a willing supplier. These bonds could be sold to anyone, including community members. Not being an accountant or a lawyer, or indeed, English-born, I left it for such folk to work out the details such as tax breaks for investing, taxes on gains, and compatibility with State Aid rules.
No-one took it up. Instead, Britain got BDUK, an expensive, centrally-controlled bureaucratic system that was successfully gamed by BT, and which has left consumers and small businesses with copper-based broadband connections that are unfit for the highly decentralised economy that is emerging.
Precisely
“I will not comment on the suggestion that I know how to have a good time.” 🙂
A currency issuing government can do this sort of bond issuance because the bonds can be (more or less) guaranteed to be honoured.
What security is there for the investor that the government would honour a commitment to the Local Authorities to maintain appropriate funding into the future ?
Currently if such schemes were in operation Local Authorities would be scuppered by central government austerity cuts wouldn’t they ? How can that be prevented ?
So what is currently stopping local authority funds – or other pension funds – investing in infrastructure? Do pension regulations prevent this – presumably not as most pension funds do invest in government and/or corporate bonds? Are infrastructure linked bonds not available? Or do they produce insufficient returns?
Bonds are not readily available. They tend to fund specific projects and that is very inflexible
I suppose it’s inflexible for the investor but it commits the issuer in a way that is univerally appealing. If Network Rail could issue bonds for a project, it would be difficult for it to be cancelled à la Grayling
Indeed
“Bonds are not readily available.”………
…..because local authorities don’t see the benefits of issuing them ? Or a deeper reason ?
Is it just lack of vision ?
Thatcher killed them to create monetary control
We need to recreate them to deliver fiscal control
Sam Jones says:
“So what is currently stopping local authority funds — or other pension funds — investing in infrastructure? Do pension regulations prevent this ….”
To some extent, possibly a large extent, my suspicion is that lack of vision and a bad and negative attitude plays its part.
Local government officers (who let’s face are the drivers of Local Government) see their role as managers of the household budget. The limit of their imagination seems to be to charge for services which would be better free (car parking charges in already struggling High Streets is a case in point) in order to offset some of the budget deficit and attempt to balance the books. The corollary is that anything they see as a burden gets shut down and sold off.
The very idea that Local councils might be proactive in generating economic activity seems to be anathema. Despite the fact that we pay them entrepreneurial business, bench-marked salaries they behave like servile administrators for central government.
(Am I being unfair ? )
Community energy schemes are being funded by bonds- that tend to be taken up by local people.
Some good points re local gov bonds , which leaves one wondering how widely read or indeed economically literate is the Mayor of London, given this:
https://www.energylivenews.com/2018/07/09/mayor-of-london-launches-500m-energy-efficiency-fund/
extract: London Mayor Sadiq Khan has worked with commercial lenders such as Lloyds Bank, National Westminster Bank, Santander UK and Triodos Bank to offer flexible and competitive finance through a wide range of funding option
This implies funding costs in the range 4 to 7% – one wonders why other options such as local gov bonds were not considered. I suspect that they simply did not know about them – or – Khan’s advisers (giving him the benefit of the doubt) want to keep the (London-based?) banks in business – so they can cause another financial crash later down the track (Triodos excepted from that comment).
I cannot think of a better thing to do with LA Pension funds to be honest. It is a way for the retired to help the next generation and help sustain the value of the funds. It’s a win/win.
It makes perfect sense to me. Which means that it will continue to be resisted no doubt.