Local authority bond agency gains momentum

The Local Government Association has agreed to move forward with plans aimed at creating a municipal bond agency after 18 local authorities pledged support.

At a meeting last week, the LGA’s executive board rubber stamped the next phase of the process, which will re-examine the outline business case, produced in 2011, to ensure that it still stacks up. The association will also seek firm financial commitment from the 18 authorities towards the cost of establishing the agency, which is being created to allow councils to borrow at lower rates than the Public Works Loan Board.

John Wright, senior adviser at the LGA, who is managing the project, told Room 151: “The councils we have named are the ones who are committed to work with us. But there is a difference between working with us and putting their hand in their pocket to pay to set it up.” He said that the business case had envisaged that councils would pay 0.6 per cent of the amount they wanted to raise through the agency towards set-up costs. Councils would earn interest on their contribution to set up costs, and would most likely recoup the investment after 10 years.

Wright said that the proposed level of contributions will be re-examined as part of the phase two review, along with the effect of recent legislative changes and changes to the PWLB borrowing rate. He added that a number of other councils have already expressed informal interest in joining the scheme, and that the LGA was attempting to attract Scottish local authorities. The business case review is planned to be complete by the end of January. If the plans are found to be robust, then phase three, which would see the establishment of the agency, could be complete by the end of the 2014-15 financial year, Wright said.

Alex Colyer, section 151 officer at South Cambridgeshire District Council, one of the 18 councils to sign up, said that the council was interested, with its sub regional partners, in using any new money raised through the agency to provide funding for infrastructure development. He said: “Even if the PWLB responds and cuts its rates in response to a new agency, then we have achieved our aim of getting lower borrowing rates.” The LGA said that its modelling work shows that a council borrowing £100 million through the municipal bonds agency could save as much as £4.7 million in interest payments over 20 years, compared to the PWLB.

Sir Merrick Cockell, chairman of the LGA, said: “The local government debt market is not operating in the best interests of local taxpayers and it is clear that we need to inject some additional competition into the system.”

The councils which have agreed to work with the LGA on creating the agency are:

Birmingham City Council
Cambridgeshire County Council
Cheshire West and Chester Council
City of London Corporation
East Dunbartonshire CounciL
Ipswich Borough Council
Lancashire County Council
London Borough of Lewisham
London Borough of Southwark
London Borough of Sutton
London Borough of Richmond upon Thames
Newcastle City Council
Rochford District Council
Stevenage Borough Council
South Cambridgeshire District Council
Warrington Borough Council
Westminster City Council
Royal Borough of Kensington and Chelsea