In 2003 Colin Hines, Alan Simpson (then an MP) and I wrote a paper called 'People's Pensions'. In it we called for the issue of local authority bonds in which pension funds could invest to build infrastructure to provide the basis for long term security for pensioners and our economy and to create jobs.
We were away ahead of our time. But the time comes for all good ideas. The Local Government Association has in its 2012 budget submission said:
Councils could mitigate public sector spending cuts and get unemployed young people back into the labour market ladder with jobs and skills funded by pension funds through new local bonds, if the government sets the right regulatory framework.
Councils' budgets to invest in vital infrastructure have been halved to help tackle the government deficit. But private investment for roads and homes is still waiting in the wings if it can only be unlocked with the right keys.
English and Welsh councils — which now have credit ratings better than many European governments — are developing plans to issue their own bonds to fund productive infrastructure. A revived triple-A municipal bond market will represent a better and safer return for private investors than many currently available and will attract a share of the capital seeking a secure home in troubled markets, including a proportion of the £100 billion of assets in councils own funded and prudently-managed pension schemes. With the funding raised from the markets, councils can combine their local master planning with private sector delivery expertise to create local jobs in construction, fit-out and other sectors. Unemployed young people will benefit from the opportunities and skills that result.
For this revival in local economic dynamism to be possible, however, the government needs to lift regulatory barriers, including:
- delivering on its White Paper commitment to devolve funding for skills and transport projects to local areas;
- making it easier to pool public sector capital funding in a place
- giving councils greater autonomy over tools to facilitate growth, for example using tax increment financing powers to invest in
infrastructure; decentralising fees and charges for services such as planning; delivering on the “city deals”
- making sure tax and regulatory framework for local authority bonds does not create unnecessary barriers;
- working with the LGA to help raise awareness among pension fund trustees and advisors of the opportunities for prudent triple-A infrastructure investments.
I wholeheartedly support the idea, of course.
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The idea sounds good in theory but I would be extremely wary over such a move. Issuing bonds is, after all, merely a means of borrowing and the prospect of local authorities all over the country having the freedom to end up with possible sovereign debt crises of the type we see in Greece is rather perplexing. Several US cities have gone through very bad times in this way with the consequent vicious circle of austerity measures and crippling tax burden and, like Greece, they were not in a position to allow depreciation of the currency to provide adjustments.
Also the idea of borrowing on the basis of “tax increment financing powers” is a rather speculative notion. As is often the case, the reality does not match the theoretical plan and the tax increments do not materialise or, at least, do not provide as much as anticipated thus leaving the debt unmanageable.
The basic problem is that governments (national and local) like to offer spending commitments whether it be improved public services or prestigious infrastructure but they are also aware that virtually nobody likes paying more taxation. In these circumstances borrowing becomes the easy option – spending commitments can be met and taxpayers do not notice any instant extra payment. It can be too tempting as the people of Greece (or at least sme of them) have come to realise.
So we can PFI to the wise public sector at high cost but not borrow at low cost
What great advice
And we can continue with the unemployed
And watch our competitive advantage go
And you don’t care
No one in their right minds would listen to your opinion and think it logical
er… but if we had locally owned banks we could create money directly into the local economies, could we not, and do away with the borrowing from private banks which cripples us with interest payments? At the moment as a nation we’re paying massive interest to a handful of privately owned banks for loans they never made, having created money instead into the nation’s accounts when they pretended to loan it. Why can’t we have our own banks doing the same thing, either at a very low interest rate, the profits of which could go back to us as a dividend, say, or at a higher rate of interest which could then be used to take the place of council taxes, for example? This is all eminently doable, the problem is getting people to understand it and then after that getting it past the likes of government, few of whom show any inclination to step away from the neofeudal model of society currently being reinforced around us. It’s pretty clear why London wanted the Olympics so badly, it’s to get all that security established in one place so it can protect the City when it finally dawns on the greater population just how badly they’re being routinely robbed by the bankers. But I digress… 🙂
PS
Another problem is that local authorities are not really accountable to their electorates. Council elections (for those that bother to vote) tend to take the form of a snapshot opinion of national politics rather then being a reflection of performance and merits of the respective councillors. How many people even know who their councillors are and how many know which party (if any) has control over their council?
The voice af the anti-democrat at work
I’d like to see it in conjunction with development of local currencies unique to each area. At the moment, the more money we make the more places like Tesco siphon it off and spirit it away overseas. We need to develop local banking too, a la North Dakota. Then we’ll be getting somewhere.