Inter-authority lending leapt 40% to almost £7bn in 2016/17, as local authorities continued to lose patience with bank and building society deposits, and certificates of deposit.
Annual figures released by the Department of Communities and Local Government (DCLG) show that investments with other local authorities stood at £6.979bn, up £2bn from £4.980bn the previous year.
Meanwhile, deposits in building societies and banks dropped by £2.1bn from £16bn to £13.9bn, while certificates of deposit held with banks and building societies dropped from £1bn to £765m.
David Green, client adviser at treasury adviser Arlingclose, said: “The fall in bank and building society deposits and CDs is a combination of people managing bail-in risk and being fed up with the very low returns.
“Nearly every other investment option has a better risk-reward balance.”
The DCLG figures illustrate a surge of loans between councils in the final quarter — around half the annual rise came between January and March this year.
Inter-authority lending now makes up 19% of total local authority investment — more than double the proportion in 2010/11, when it stood at just 8.8%.
Earlier this year, Greater London Authority chief finance officer Luke Webster said that he thought the amount of inter-authority lending could go higher still.
He told delegates at the CIPFA’s Treasury Management Network Annual Conference: “If we had some means of sharing information a bit better I would like to see the amount go above 50%.”
He said that to increase the volume of authority-to-authority lending to those levels would require a more detailed knowledge of each organisation and a degree of consolidation of treasury management functions. But, he added: “Just market forces can get us to quite a high level anyway.”
Elsewhere in the latest figures, investment in treasury bills plummeted from £2.2bn to £671m, of which a significant proportion came from Transport for London reducing its exposure from £1.3bn to £481m over the year.
Loans to public corporations (which includes loans to local authority subsidiaries and other public bodies, rose from £715m to £1bn.
Much of this rise was attributable to Northumberland County Council raising its exposure from £237m to £413m.
In 2013, the council agreed to lend a local NHS trust £100m to end its PFI contracts for hospital building projects.
In the money market fund category, which takes in all pooled investment funds including property funds, investments rose from £5.3bn to £6.3bn.