LGA calls for US-style public bond issues to boost infrastructure

The Local Government Association has called for the introduction of a system of US-style public bond issues and tax increment financing to avoid Britain’s roads and other infrastructure being “left to crumble” because of public spending cuts.

In its report, Funding and planning for infrastructure, the LGA said tax-free municipal bonds would allow long-term investment to continue without driving up the deficit.

“There is potential for councils to maximise funding for investment in infrastructure by re-establishing a market in municipal bonds and developing innovative collective investment schemes that could provide local government pension funds and other long-term investors with access to investment in local infrastructure projects delivering a secure and attractive rate of return,” the LGA argued.

Calling for wide-ranging reforms, the report also said:

• Different funding streams should be brought into one place-based pot. The LGA argued this would: allow more efficient targeting of capital funding where it is most needed; deliver efficiency savings; provide a common and simple appraisal methodology to assist in the prioritisation and coordination of funding; and boost confidence and certainty over long-term funding
• Such a place-based model should be complemented by planning and management development on a matching geography. This will require: “a joined-up approach to invest in nationally significant infrastructure networks”; the alignment of planning and investment decisions at the right economic level “by encouraging councils to plan and co-ordinate infrastructure delivery at the level which reflects the functioning local economy”; and the removal of central prescription and bureaucracy from the planning system
• Policy should be framed in a way that puts the variety of balance sheets with varying strength to work in the most efficient way
• Councils to be generally handed more flexibility to use their £250bn-worth of assets and attract investment from the private sector to fund infrastructure.

Of the changes needed to allow councils to make greater use of their borrowing powers, the LGA highlighted the removal of ring-fencing from funding streams “to allow more flexibility to finance capital” and the removal of council tax capping “so that communities can invest in infrastructure”.

The report also said councils should be given more ability to raise new revenue streams to support borrowing “through markets in which investors have confidence”. Revenue to fund borrowing could come from user charging, localised business rates, or other levies, the association argued.

The LGA said a “new generation” of public private partnerships was needed to rely less on government grant and make greater use of its proposed new sources of funding.

“There is enormous scope to put public sector equity investment to work to deliver better value for money for the taxpayer than borrowing,” it said. “This will involve greater use of new and more flexible partnership models to package different developments together in an attractive investment offer.”

The LGA outlined the size of the challenge in the report. “The scale of investment required to meet the country’s infrastructure needs has been credibly estimated to be at least £500bn by 2020, or an annual investment programme of £50bn per year for the next decade,” it said.

“Yet this is beyond what can be afforded by the public or private sector under current policy assumptions, so we need a radically different approach.”

Baroness Margaret Eaton, chairman of the LGA, said: “Despite the extremely tough financial climate we need to avoid storing up big bills for the future. Councils want to make sure there are homes that people can afford, roads and public transport that ensure people can access jobs, and many other things like schools, hospitals and green space that will attract employers and businesses to help the economy recover.

“Our proposals could allow councils to raise money prudently and sustainably to keep our roads free from potholes, fund better public transport and make sure schools and community centres do not crumble.”