Local authorities should step in to fill the funding gap in public building projects left by the Government’s austerity drive, a think-tank report said today.
With state investment in such schemes expected to decrease by 50% over the coming four years, some £12 billion of building projects are under threat, said the New Local Government Network.
It urged local authorities to plug the shortfall by using alternative sources of funds, such as the Local Government Pension Fund, municipal bonds and council reserves.
With traditional forms of investment, like the Ftse 100, delivering poor returns over recent years, the NLGN said that building projects could deliver stable and long-term investment opportunities for the estimated £97 billion in the pension fund, as well as supporting job creation and the local economy.
In March, just 0.7% of the UK’s total pension fund assets were invested in infrastructure, said the report. There is no mechanism at present for local government pension funds to invest directly in pooled local authority infrastructure projects.
The report, entitled Capital Momentum, also warned the government not to curtail councils’ ability to raise money through the Public Works Loan Board, as happened in previous recessions.
And it argued that US-style municipal bonds may have to be issued to fund projects with a defined future revenue stream, like leisure centres and transport systems.
NLGN senior researcher Tom Symons said: “There is a real risk that future economic growth will be undermined by infrastructure that is unable to meet the demands of a modern, globalised economy.
“This provides a key imperative to find or design mechanisms that can sustain investment throughout a period of national fiscal consolidation.”