Barbara’s Blog

THE BRUMMIE BOND

09-10-2008

Even in the midst of the current credit crisis, there are ways of raising cash that aren’t reliant on the banks. Barbara Panvel campaigns for Brummie bonds.

Stock markets continue to fall and many who have savings in shares which they hoped would support them in retirement are desperately worried.

A far more stable, secure and socially and environmentally beneficial haven for investment is advocated by Colin Hines, formerly co-ordinator of Greenpeace’s International Economics Unit and senior accountant Richard Murphy - local authority bonds.

Bond issues are used to raise finance by federal states in Germany and many other local authorities around the world. Municipal bonds financed the civic infrastructure and utilities of our cities until the Thatcher government limited local financial independence. However there are now no legal constraints on local authorities raising bonds and London recently issued £600m in this way to improve the city’s transport infrastructure.

The idea, first raised some time ago in a report, People's Pensions, published by the New Economics Foundation (NEF) and last month in the Green New Deal report, is even more timely today - with rising unemployment and inevitable business collapse in the wake of the credit crunch.

The trillion pounds in private pension schemes could be invested into local authority bonds for reducing energy use in public buildings and its council housing stock, through efficiency, combined heat and power and renewable energy for buildings. Part of the savings would fund the repayments due on such bonds.

The lead could be taken by Birmingham which used local authority bonds to develop the city in the last century. It is now the biggest landlord in Britain, owning more than 80,000 houses and flats, many in need of repair and energy inefficient. A "Brummie bond" could fund a carbon army of local workers to make its entire housing stock energy tight, warmer and cheaper to heat. Renewables such as solar electricity, solar water heating and larger scale combined heat and power systems would all provide business opportunities in the area.

In 2004 Mike Whitby considered financing a new central library using Brummie bonds as proposed by Hines: "I think it’s the way forward to finance big projects instead of going cap in hand to London and the banks," said Councillor John Clancy, who once worked in the venture capital market. "Giving local people the chance to invest in culture and regeneration will increase civic pride and make people far more confident in their city."

The following year, the Financial Times reported that Birmingham city council was working on plans to use Brummie bonds to refinance the National Exhibition Centre, buying back the original stock and issuing new bonds.

However public support for these big ‘civic pride’ schemes was cool. Improving the housing stock, reducing fuel poverty and meeting climate change targets would be a more beneficial use of bond funding, offering a reliable pension investment for the general public – leaving the financing of culture and prestige building projects to the big institutional investors who eagerly snapped up the London bonds.

Local authority bonds could and should form part of a sorely needed socially responsible finance industry, committed to nurturing the real economy and the environment.

Bring them on!

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