What is he talking about here?
Economically what this country needs is a massive injection of money into local infrastructure to get employment going again and to lay the foundations for growth when the recovery happens. Some green initiatives would help no end too.
All this add up to one thing – and the answer is local authority bonds. They’re local. They encourage accountability. They are low risk but offer better returns than gilts and any bank. And they encourage local growth.
What’s more , if sold in sufficiently small blocks, they can be wrapped inside pension funds and Individual Savings Accounts (and this must be actively encouraged). Plus, they encourage saving with an explicit social return in the places where people live.
They’ll also help create jobs – which is what people want. And they’re cheaper than the Private Finance Initiative. And they break the stranglehold of the banks on infrastructure spending. Most important of all, they create a demand for local democracy.
All of which means that I want you to grant me just one wish George. Give me local authority bonds. Tomorrow.
One minor point is that he says that local authority bonds offer better returns than gilts.
So, umm, they are more expensive to a local authority than borrowing the money off central government who then issue gilts.
Not really what we want from a financing alternative really.
But to the major point. There\’s nothing stopping local authorities from issuing bonds right now:
Historically, municipal bond finance formed an essential part of the finance armoury available to local authorities in the UK and was used to fund large capital projects. It fell out of favour in the 1980s as capital controls were imposed by central Government to limit municipal spending. Local authorities have since regained the freedom to issue bonds but few have chosen to do so because they have had unlimited access to cheap long-term borrowing available from central Government, through the Public Works Loan Board. Last year, local authorities borrowed about £6.3 billion at the lowest cost seen in the past 50 years.
Oh. So they can do it then. And they don\’t do it even though they can: because, erm, as Ritchie has pointed out, doing so is more expensive.