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Treasury backs ‘Brummienomics’ with pension-backed regional wealth fund plan

Treasury backs ‘Brummienomics’ with pension-backed regional wealth fund plan

🕔10.Oct 2016

Birmingham and the West Midlands could benefit from a multi-billion pound regional investment pot under Government plans to encourage pension funds to pay for new housing, public transport and other major infrastructure improvements.

Proposals being drawn up by the Treasury would see the £12 billion West Midlands Local Government Pension Fund given the green light to invest directly in local building projects, providing a much needed boost for the economy ahead of a probable slowdown after the Brexit vote.

A Government source said:

Pension funds need to invest their money; they don’t want it sitting in cash or government bonds. If you can put it into something that can get them a decent return, that is far better.

READ: What did the circus leave behind?

Chancellor Philip Hammond is also looking at whether large cities like Birmingham can raise their own bonds, with the proceeds spent on local infrastructure. One idea being considered is to give cities and city region metro mayors powers to create ‘city bonds’, raising up to £1 billion that would be underwritten by the Treasury.

The benefits of what’s being proposed are twofold – local government pension funds would enjoy a far better return on their investments, helping to reduce large deficits, and huge sums of cash would be generated at a time of town hall austerity to help deliver improvements to the public realm.

The proposals are identical to policy papers put forward two years ago by Birmingham city council leader John Clancy, who argued that billions of pounds sitting in poor-return public sector pension funds should be used to fund new homes, schools, railways and roads.

Cllr Clancy’s proposals were later adopted by former Tory Chancellor George Osborne for the 2015 Conservative General Election campaign.

Mr Hammond and Treasury Ministers are said to have been surprised at the extent to which foreign funds such as Canada’s Ontario Teachers’ Pension Plan have invested in British building projects. Ontario Teachers’ has a substantial stake in Birmingham Airport as well as HS1 and Camelot, the National Lottery operator – while UK pension funds have been unwilling to follow suit.

Cllr Clancy was a pioneer of city bonds and his proposals for ‘Brummie Bonds’, allowing financial institutions, businesses and citizens to invest directly in Birmingham, are at an advanced stage of development.

In his manifesto to become council leader a year ago he proposed a West Midlands regional wealth fund consisting of pension money and backed by billions of pounds in assets owned by local authorities. Birmingham city council alone is sitting on more than £5 billion in assets with land and property alone amounting to £2.5 billion.

The Government’s pension fund proposals emerged as it was confirmed that West Midlands’ councils are in talks with Whitehall departments about a second devolution deal for the region, on top of a £1.2 billion 30-year agreement signed last year.

Cllr Clancy told the Financial Times the ability to boost housebuilding and set the curriculum for secondary schools was vital.

I take the prime minister at her word. They really do mean the Midlands is something they are going to focus on. It is about the great regional cities being able to supercharge the UK economy.

We do need to have a sense of local ownership over the education and skills system. We need it to fit our local economy.

The wind of change in Whitehall was welcomed by Cllr Clancy who said a wealth fund would mean Birmingham would no longer have “to go cap in hand to London” for money. He has dubbed the Chancellor’s latest thinking “Brummienomics”.

Cllr Clancy said:

I have been arguing for years that we need to be much more innovative and creative about our assets in Birmingham and the West Midlands. They are mostly un-mined, unexploited and un-sweated. They sit as a locked network of resources which should now be fully accessed and harvested.

I’ve suggested a way of linking investment directly to positive assets in the city: housing, other infrastructure, and long-term venture capital investment in our own people in small and medium-sized businesses across the city – a 40-ward investment strategy.

An access-all-areas investment, not just for big commerce in the city centre but across all of our local centres delivering an inclusive economy that works for all.

My argument is that we need to use the great assets in the region to back up a much wider regional wealth fund over which we have control and which we do not have to go cap in hand to London for.

And this is not about borrowing to spend. It’s about rewiring and using out assets cleverly to make sure we use our wealth in our cities and regions to supercharge investment.

Cllr Clancy said he envisaged a “West Midlands triangle of wealth”.

This could be made up of:

  • Assets of councils and public agencies in sectors such as health, environment, education, law and order, highways and the arts.
  • The regional pension funds, including the West Midlands Local Government Pension Fund.
  • The wealth of the private sector in the region and whatever further private sector investment from outside the region which can be leveraged into the fund.

Cllr Clancy added:

The fund can draw into it such investment which currently goes elsewhere for want of a regional investment vehicle at present or which inevitably finds its way into the London financial, banking and commercial mixer.

This triangle of wealth and opportunity should not be seen as some sideshow in a combined authority: it should be its engine.

It can be a generator of economic activity which can rival any region of its size anywhere. It can be something the region owns and has control over, though the financial instruments, bonds, and economic pathways which it can create. It can generate new investment routes into and within the region.

With the Conservative Party Conference in our city last week, much of the talk was about Joseph Chamberlain who, according to Churchill, ‘made the weather’.

Chamberlain’s approach was all about confident acts of local economic self-determination and my message in 2016 is very simple: We’re ready to make the weather again. We want to control our own destiny and use our own assets to improve the lives and life chances of people across the city.

Paul Dale is currently Chief Blogger for Chamberlain Files and writes with scrupulous impartiality. He will be leaving to become chief spinner, sorry press secretary, for John Clancy in the coming days (ed.).  

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