Inviting but dangerous waters
Introduction
Victorian Bournemouth (220) explores how the town’s new corporation used sophisticated financial tools to manage its debt. As a priority, the first mayor began the procedure for issuing corporation stock to retire old borrowings and finance new ones at lower costs. Corporation stock became an attribute of successful towns; their image and reputation could affect the stock price.
Victorian Bournemouth (220): background
National framework
During the nineteenth century, the government passed several laws to improve national living standards and reduce mortality. These addressed the Poor Law, Education, and Public Health. Such laws required local governing bodies to improve their infrastructure, requiring them to spend money so doing. The cost of such improvements exceeded the ability of rates to provide sufficient finance. At first, towns raised loans on mortgage. These fixed-term funds often carried high interest. The government empowered the Public Works Loan Board to help fund capital projects at lower interest than mortgages. Corporation Stock offered governing bodies the opportunity to retire old debt and take on new. This enabled them to reach new pools of investors in a smooth but regulated process. Thus, corporation debts incurred to improve local infrastructure became marketable securities, available to national and international investors. Just as the capital improvements enhanced a town’s reputation, so did its handling of debt amongst financiers.
Debts at Bournemouth
After Parliament passed Bournemouth’s Improvement Act, the new commissioners encountered angry ratepayers. The bill included several features to enhance the town beyond drainage improvement. Proposals that such items as a pier, a market hall and so on would depend on ratepayers for funding met with furious rebuff. Thus, the Commission found it necessary to source funds through loans. Several insurance companies appear to have provided such loans, but they charged borrowers a high price. By the 1880s, Bournemouth’s borrowing had reached £80,000. The PWLB, however, had provided less than half of this, the rest consisting of ‘hand-to-mouth’ borrowing at 6% in some instances. For some, the pace and ambition of the town’s increase made a transition to Borough status a necessary strategic objective. Acquisition of this civic condition opened access to borrowing through issuing corporation stock on the public market. Smaller borrowing costs could fund larger civic appetites.
Victorian Bournemouth (220): floating the stock
Before the event
In November 1891, the second mayor, E. W. Rebbeck, soon after his election, called owners and ratepayers to attend a public meeting devoted to adding Bournemouth to the list of towns issuing corporation stock. A year later the matter had progressed to a meeting with the Local Board of Government. By this time, old borrowings, plus those sanctioned by the Board, plus those envisaged amounted to around £160,000. All told, they decided on £220,000 as the amount for the town’s first issue of Corporation Stock. This would happen in April 1893, the matter handled by Glyn, Mills, and Co Ltd through their local agent, the Wilts and Dorset Bank. Closer to the time, the amount had risen to a quarter of a million, the rate 3%. Capital projects included extending the pier, building a garden pavilion, an undercliff drive, and district drainage. Some concerns then surrounded the issue price.
After the event
In the event, the concerns proved needless. ‘ … the loan was very favourably received in London …’ Estimates of the float price, at first pegged at £96, moved upwards. The managers knew they had a ‘special success’ because they received an unusual number of tenders. Bournemouth’s first issue went oversubscribed to over £1.25 million. The average allotment price went above par, reaching £100-6s-8d. Bournemouth, thus, set a ‘record’ for 3% municipal loans, beating commercial towns, cathedral cities, and other health and pleasure resorts. The ‘main cause of its success was no doubt the present popularity of the town, and the general conviction that with its “all-the-year-round” advantages it is rapidly growing in wealth and importance’. Buoyed by the initial success and the price level steady around 100, the resort’s financial managers proceeded with at least two more issues. By 1901, projects envisaged at £300,00 required another issue.
Victorian Bournemouth (220): wider implications
A successful treadmill
The corporation’s accounts, sometimes published in the press, suggest that servicing the corporation stock took about 20% of expenditure. This comprised interest, dividends, and the sinking fund. The figures also show that the Council had already embarked on stock redemption. It ranked at the top of expenditure items, about the same spent on the roads. Thus, corporation stock, perhaps first seen as a repackaging of existing debt, entered into wider aspects within the Council’s thinking. Always an important part of the town’s tradition, albeit short, the marketing of its reputation amongst external audiences became even more necessary. The Council had to ensure its activities contributed to maintaining the price of existing stock while paving a smooth way for future issues. Earlier, the town’s marketing had attracted visitors, wealthy retirees, commercial people in their hundreds, and labourers in their thousands. Now, marketing had to include the City and investors everywhere.
Walking an expensive tightrope
Mistakes could happen in the new world of corporate finance. When the Registrar-General in 1899 had forecast Eastbourne’s population at 50,000, a corporation stock floated on that basis. In 1891, however, the Census reported the actual population at 44,000, shocking investors and advisors. In 1900, a journalist speculated about issues of corporation stock, on the “way they can remain prosperous, and have figures to show which will look well in the Corporation stock prospectus”. This revived the old chestnut about marketing watering-places: the “cheap, day tripper” or a “better class of visitor”. Only Brighton and a handful of others walked the tightrope between. This had racked Bournemouth for years, creating social division. Its managers, however, men of humble origin, had achieved commercial and civic success. They had created a designer mirage: a town appealing to respectable and leisured people presented and run by men who got their hands dirty.
Takeaway
Victorian Bournemouth (220) analysed how the resort’s civic leaders introduced it to the dazzling yet perilous realm of Corporation Stock. With support from the government and the Bank of England, towns took encouragement to venture into this dangerous area. However, unsuspecting civic leaders risked stumbling if their town’s image of prosperity wavered. This could lead to a drop in stock prices and an increase in interest rates, making future issuance more difficult. Leveraging Bournemouth’s history of successful marketing, the town’s Councillors perhaps had less to fear from this financial trap compared to managers of other towns.
References
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