Mr. Murphy and Local Authority bonds

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.

13 thoughts on “Mr. Murphy and Local Authority bonds”

  1. “Economically what this country needs is a massive injection of money into local infrastructure to get employment going again”

    Does he really think that unemployment in this country consists entirely of people who can drive and operate earth-moving equipment? I would love to be given the chance but I suspect that I would not be employable on any construction site.

  2. Aha! I see we’ve gone over to a largely ‘no comments accepted’ format chezMurph.

    Not so much a blog, more a platform for ex-cathedra proclamations.

  3. @bloke in Spain
    Which is a shame, because the vast majority of the value in his blog was in the comments. I know my own interest has plumeted.

  4. @bloke in Spain

    It seems his WordPress install keeps allowing comments when he posts a new article. If you’re quick, you can get one in (only if it says he’s right of course!). Hence the few articles posted in the last few days.

  5. …oh, and he’s on Jeremy Vine on R2 today if you want to try and poke a question through there!

  6. I also suspect that few people nowadays would want to invest in local government bonds. These are the dolts who invested money in Icelandic banks.

  7. I like this bit:

    “they encourage saving with an explicit social return in the places where people live.”

    So Granny invests her few pennies in LA bonds and what does she get? A ‘social return’ no less! Thats going to help pay the bills isn’t it?

  8. Oh, and he seems to live in some 1930s style fantasy. Infrastructure projects need highly skilled operatives nowadays, not the sort of unemployables that live on benefits. All throwing loads of cash at infrastructure would do would be to push wages for skilled labour through the roof, and the benefits culture types would be passed by entirely.

  9. Jim, the other thing too – he seems to know nothing about how public sector projects are procured. He seems to think the mayor stands on the Town Hall steps handing out money to local businesses.

    It involves a painfully slow, bureaucratic procedure, heavily weighed on price, aimed at the big boys, involving relatively small numbers of skilled individuals and lots of kit. A proposal to hire casts of thousands to dig the road with teaspoons etc will have no chance.

    And it would be illegal for a Council to prescribe the workers must be from its own locality. Projects are open to bidders across the EU so no guarantee any jobs created will be even British, let alone local.

  10. Adrian…so why is he considered as an authority on anything whatsoever? and how do we stop that happening?

  11. And all this is apart from the fact that even if you wanted to have some Grand Project that might even make sense, the lead time on such things can be decades not just years. All infrastructure projects attract local opposition resulting in public enquiries, reports, committees etc etc. You might raise the required finance in months – how would you pay the interest while the planning process ground slowly on? Or are we entering Ritchie World, where our hero decrees your back garden will become a 7 lane superhighway on Monday and the diggers move in on Tuesday?

Leave a Reply

Your email address will not be published. Required fields are marked *