Bypass bonds? It may just work

Current Account: Budget cuts will force people to find other ways of funding local projects. One option is PEP investment

EVER FANCIED owning a bridge, picking up an odd piece of bypass, or even taking a stake in your local hospital? We already pay for the infrastructure of the UK through our taxes, but we can hardly say we own it. Things may have to change.

We have been told by the Government to expect further expenditure cuts. Not only will existing facilities be affected, but future projects that were planned are likely to be delayed, cut back or cancelled.

Some of these may be of national significance. Others may be regional or even local. Perhaps it was a new motorway spanning the nation, or a local bridge or tunnel. Perhaps, on an even more local basis, many communities want to push forward their projects to regenerate an old public park, or an industrial estate to create jobs.

The problem is we are an ageing population. More of us will be retiring and fewer of us working. Less working means less tax income for the Government - and there's the rub.

The pot is getting smaller, but the demand is getting larger. So there goes my local project then. Or does it?

In days of yore, if a city wanted a railway, then a local company would be established, capital raised on the local stock exchange (we used to have 45 such exchanges just after the Second World War) and the project went ahead. That route is no longer so easy. Local authorities used to issue bonds to help fund themselves, and their ads seemed to fill Sunday papers - again, gone.

But maybe there is a way in which local projects can get off the ground without 100 per cent central government control. We have, since the early 1980s, become used to popular share offers with the privatisations. We have become used to filling in coupons and sending off applications for shares.

Since 1980 we have collectively put our money into water pipes, sewage farms, electricity companies, telephones, aircraft, the concrete where they land, and even a long hole under the Channel. So why shouldn't we also put our money into local investments and projects?

If the Government can't pay for what we want, then maybe we will put up the money. But I am not pleading for charitable donations. I am talking about solid investment paying a solid return.

In July, corporate bonds were allowed into PEPs, making their investment returns tax-free to investors. So far the bonds involved have been pure corporates only. But what if a local project bond were established to raise capital for a local toll bridge or bypass?

Investors could, at best, put their money in tangible developments, with significant security and sources of income. Toll income wouldn't be sufficient and a top-up from central funding might be required but it would still reduce the cost to the central purse.

If such bonds could be Pepped, it would be a cheaper way of raising money while providing good returns to investors. What might be seen as a negative issue could become positive, as local investors and even residents could use the facility at a discount.

q Justin Urquhart Stewart is business planning director for Barclays Stockbrokers.