AM backs local bonds to fund new schools and hospitals

Jan 28 2008 by Martin Shipton, Western Mail

Labour AM Alun Davies has become the first member of his party in Wales to advocate the sale of bonds as a way of building new hospitals and schools.

Under such a scheme, public sector bodies would raise cash on the money markets by issuing bonds, redeemable after a specified number of years. Theoretically, individuals would be able to buy bonds guaranteed by the Welsh Assembly Government for repayment in future years.

Mr Davies, who represents Mid and West Wales, said selling bonds could be a value-for-money alternative to the Private Finance Initiative, where private companies are paid to build and maintain public services for decades.

He said, “The Assembly’s finance committee, on which I sit, is currently looking at whether Wales should use PFI more. I am not convinced that PFI represents good value for the taxpayer, and I would like to see the case for selling bonds seriously examined.

“There is no private body in the world that can borrow money more cheaply than the public sector, and private companies need to make profits for their shareholders.

“We may need a change in the law to enable us to issue bonds, but it shouldn’t be too complex. I believe that if we decide to do this, we could be ready to do so by 2010.”

Transport for London, the public body answerable to London Mayor Ken Livingstone which owns the London Underground, had wanted to raise money via bonds, but the UK Government denied permission for such a scheme.

Instead, TfL was forced to enter contracts with private sector firms to maintain and renew the Under- ground’s infrastructure for 30 years.

It is accepted that issuing bonds would have saved £90m a year due to lower borrowing costs and the lack of need to pay dividends to shareholders. But the UK Government took the view that, “private sector management of the infrastructure was more likely to be effective than public sector contract management, and that the extra cost of private sector finance would be outweighed by the benefits, including better risk control”.

Since 2004, new rules have been introduced that potentially could allow public sector bodies in Wales to borrow money on the bonds market. But because of Treasury restrictions on the amount the public sector is allowed to borrow, it remains likely that the Treasury’s permission would be required.