One thing I’ve been clear about since becoming leader of Birmingham City Council in December 2015 is that the government isn’t going to come to the financial rescue of local authorities any time soon.
There’s little point in sitting back and complaining endlessly about the impact that austerity has had on council balances, even though the harm is immense and the figures colossal – in Birmingham we expect to have taken almost £800m out of the council’s budget between 2010 and 2020.
So, we must look for new, imaginative ways to rebuild our funds. By attracting private sector investment councils can build homes, generate employment and create the inclusive growth our communities so desperately need.
I’m delighted that months of planning and hard work paid off this month with the launch of the first “Brummie Bond”, with Birmingham city council borrowing £45m from a locally-based institutional investor Phoenix Life at a favourable rate of interest.
Phoenix will lend in three tranches of £15m and the money will mainly be used to deliver housing. The tranches have durations of 18, 20 and 24 years, enabling us to save £1.4m in interest over the life of the bond compared to the current rate charged by the Public Works Loan Board.
This is Birmingham doing what it does best. Buckling down, being pragmatic. As you might expect, Brummies are typically doing it for themselves.
It is important to be clear that this amounts to a vote of confidence in Birmingham from the private sector. Phoenix has concluded that Birmingham city council is well-run and a sound financial bet, and I anticipate that other institutional investors will follow suit.
My aim is to do everything possible to get the council to understand its economic power and the potential it has as a player in bringing investment to Birmingham. The authority I lead is a major landowner and has a huge property portfolio — these are assets we can, and must, put to use for the public good.
I regard this as very much the first bite of the cherry. Work has already begun on looking at launching more bonds and the possibility of developing savings accounts for citizens. These ideas will generate new income to pay for public services that are under threat from the government’s unprecedented squeeze on local authority funding.
In future bonds could be targeted at specific areas such as Birmingham’s fast-growing life sciences sector, as well as small and medium sized businesses. I’m very keen to establish a direct link between our citizens and the council’s ability to raise finance.
If we can get retail bonds off the ground then it will be possible to encourage public buy-in to fund specific projects, housing for example. Bond-holders will be able to see how their money is being used to improve the city, and benefit from a regular return on their investment.
Five years ago, when I was writing about the possibility of councils replenishing their finances through private sector bonds I described the strategy as “a confident act of local economic self-determination”. There were plenty of “experts” who talked down the idea, claiming it couldn’t be done.
But it has been done. Birmingham is once more leading the way in local government innovation by developing practical ways to address seemingly intractable problems. My prediction is that we’ll be hearing a lot more about Brummie Bonds over the coming months and years.
John Clancy is the leader of Birmingham City Council.
