Think-tank calls for UK pensions to bridge funding gap

The New Local Government Network, a UK think-tank focused on local government reform, has called for the mobilisation of pension capital to plug a shortfall in UK infrastructure spending over the coming years.

In its Capital Momentum report, the New Local Government Network (NLGN) think-tank argues that the £97 billion (€116 billion; $150 billion) Local Government Pension Scheme (LGPS), as well as municipal bonds and council reserves, should be encouraged to help plug the UK’s infrastructure spending gap.

NLGN, which was founded by former Labour MP Chris Leslie in 1996, predicts that investment in public spending projects will decline 50 percent over the next four years and claims that “£12 billion of building projects [are] under threat from government spending reductions”.

Although the LGPS currently has a deficit, the NLGN argues that “devoting some of its funding towards building projects would offer a stable and long-term investment for the pension fund whilst also supporting local job creation and the wider local economy”.

Report author Tim Symons stresses that pension portfolios should have a diverse range of investments, particularly following nosedives in traditional forms of investment, such as FTSE 100 companies, in recent years.      

The report points out that there is currently no mechanism for UK local government pension funds to invest directly in pooled infrastructure provided by local authorities. It says that, in March 2010, just 0.7 percent of total UK pension fund assets were invested in infrastructure.

The report warns the government not to follow actions taken by previous governments during an economic downturn by curtailing the ability of local authorities to raise money for infrastructure through the Public Works Loan Board (PWLB). The PWLB, part of the UK government’s Debt Management Office, provides loans from the National Loans Fund, the government’s main borrowing and lending account.

NLGN argues that it may be necessary to use US-style municipal bonds for projects with a defined revenue stream, such as leisure centres or transport projects. However, it says that municipal bonds would not represent an “economically sound form of borrowing” for local authorities as long as there are no restrictions on PWLB lending.