No wait for funds with local bonds

The author Gabriel Chevalier once wrote about a cash- strapped French village whose residents clubbed together to buy a communal pissoir. All very fascinating, you might think, but hardly the spark for a review of the interplay between public and private sector finance in Britain.

Yet within Chevalier's story lies the concept of a new type of investment vehicle that is currently generating considerable interest in the City and among local authorities across the UK.

The idea is, in essence, a simple one - that central or local government should finance specific projects by selling bonds to small investors. They could be sold direct to the public via high street outlets along the lines of the share shops that proliferated during the mid-1980s.

The bonds, tradeable like any other such instrument, would offer a fixed or variable return. As investments go, these would be about as exciting as a gilt: entirely dull but extremely safe.

What makes them interesting, and why they have the potential to capture the imagination of investors throughout the country, is the unique nature and purpose of each bond. An M25 Bond, for example, to meet the cost of widening London's orbital motorway - or a Regeneration Bond to create a new industrial infrastructure. Or how about a Beach Bond to help a seaside resort to improve its facilities.

Private money for public works is, of itself, nothing new. Private capital in the form of institutional funds has already helped to pay for an array of large construction projects ranging from the Channel Tunnel and part of the Docklands Light Railway to the Manchester metro.

These funds have been raised through the Government-backed Private Finance Initiative, aimed at securing investment from corporations and financial institutions.

What I would like to see is the creation of a Retail Private Finance Initiative, targeted at the retail - or small investor - end of the market.

The notion of an army of private investors financing everything from motorways to municipal playgrounds has attractions all round, addressing directly the capital shortage that results in the shelving of hundreds of desirable projects every year.

The emergence of a Retail Private Finance Initiative would enable central government to bypass the constraints of the PSBR, while local authorities would be spared the need to raise council taxes or run the risk of rate- capping.

The revenue flow would provide bondholders with their return. Even where no revenue was generated, the only drain on public finances would relate to the servicing of the bondholder, rather than the outlay on the project itself.

But where the Retail Private Finance Initiative truly stands out is its potential for offering a community a real stake in its surroundings.

Local councils routinely are forced by capital restraints to reject worthwhile proposals for improving the industrial, leisure or environmental infrastructure.

It need not be so. If residents want another ring road in Birmingham, science park in Glasgow, or opera house in Belfast, they should not have to wait years for Whitehall to come up with the money.

Financing such projects through the local sale of bonds would, almost by definition, mark a big step forward for community participation in the decision-making process.

There is an obvious downside to all this. It is an expensive way of doing things. Selling bonds to small investors is not the most efficient way to raise capital. There are significant costs associated with the marketing, promotion and servicing of bonds to the mass market. It is inevitably far easier to deal with three large bondholders than with three million small ones; but is it not better to involve a large section of the general public rather than just a handful of institutions. And the demand for capital for public projects still far outweighs the supply. Corporate and institutional investors have proved unable to bridge the gap.

Britain needs more public investment, and I believe that the Retail Private Finance Initiative signals an important way forward. It holds out the promise of big benefits in terms of regional policy and local democracy. For the moment, however, it remains just an idea.

What is needed now is for central and local government, and the public at large, to consider the merits of translating this concept into reality: to run with the idea and make it work.

And Gabriel Chevalier would have a sequel; the story of a capital-strapped country whose citizens clubbed together to create a new Britain.

Now that really would be something to write home about.

BEST DEPOSIT RATES

INSTANT ACCESS Telephone Account Notice Deposit Rate Interest

or term % interval

Buckinghamshire BS 01494 873064 Chiltern Gold Postal £1,000 6.20 Year

Skipton BS 01756 700511 3 High Street Instant £2,000 6.25 Year

Britannia BS 01538 392808 Capital Trust Postal £10,000 6.50 Year

Northern Rock BS 0500 505000 Go Direct Postal £20,000 6.70 Year

NOTICE ACCOUNTS

Bradford & Bingley BS 0345 248248 Direct Notice 30 Day (P) £10,000 6.90 Year

Coventry BS 0345 665522 Postal 50 50 Day (P) £2,000 6.55 Year

Scarborough BS 01723 368155 Scarborough 50 50 Day (P) £25,000 7.35 Year

Northern Rock BS 0500 505000 Postal 60 60 Day (P) £50,000 7.25 Year

TERM ACCOUNTS

Portman BS 01202 292444 Fixed Interest Bond 1 Year £500 7.00 fixed Year

Halifax BS 01422 333333 Guaranteed Reserve 1 year £10,000 7.50 fixed Year

Halifax BS 01422 333333 Guaranteed Reserve 2 year £10,000 8.25 fixed Year

Woolwich BS 0800 400900 3 yr fixed rate bond 3 year £500 8.50 fixed Year

MONTHLY INTEREST

Birmingham Midshires BS 01902 710710 First Class Postal £1,000 4.79 Month

Britannia BS 01538 392808 Capital Trust Postal £2,000 5.84 Month

£10,000 6.31 Month

£25,000 6.55 Month

TESSAS (tax-exempt special savings accounts)

Sun Banking Corp 01438 744500 5 Year £8,900 9.00 fixed Year

Manchester BS 0161 832 0101 5 Year £8,400 8.00 fixed Year

Market Harborough BS 01858 463244 5 Year £9,000 7.75 Year

Hinckley & Rugby BS 0800 774499 5 Year £3,000 7.65 Year

HIGH-INTEREST CHEQUE ACCOUNTS

Woolwich BS 0800 400900 Current Instant £500 3.85 Year

Halifax BS 01422 333333 Asset Reserve Instant £5,000 5.00 3 Months

Chelsea BS 0800 717515 Classic Postal Instant £2,500 6.00 Year

£25,000 6.50 Year

OFFSHORE (gross)

Portman Channel Islands 01481 822747 Instant Gold Instant £5,000 6.20 Year

Derbyshire IOM 01624 663432 Instant Access Instant £10,000 6.30 Year

Bradford & Bingley IOM 01624 661868 Island Ninety 90 Day £10,000 7.05 Year

Halifax JSY 01534 59840 Fixed Rate Intl 1 Year £50,000 7.70 fixed Year

NATIONAL SAVINGS

Accounts & bonds (gross) Notice or term Deposit Rate % Interest interval

INVESTMENT ACCOUNTS 1 Month £20 5.25 Year

£500 5.75 Year

£25,000 6.00 Year

INCOME BONDS 3 Month £2,000 6.50 Month

£25,000 6.75 Month

CAPITAL BONDS (Series I) 5 Year £100 7.75 fixed Maturity

FIRST OPTION BONDS 12 Month £1,000 6.40 fixed Year

£20,000 6.80 fixed Year

PENSIONER'S GUARANTEED INCOME BOND (Series 2)

5 Year £500 7.50% fixed Month

NS Certificates (tax free)

42nd ISSUE 5 Year £100 5.85 fixed Maturity

8th INDEX-LINKED 5 Year £100 3.00+RPI Maturity

CHILDRENS BOND (Issue G) 5 Year £25 7.85 fixed Maturity

P= by post only. All rates are shown gross and are subject to change without notice.

Source: Chase de Vere Investments PLC - 0171 404 5766. Compiled on 16 March 1995

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