New platform needed to cut cost of inter-authority lending

Councils should consider establishing a platform to reduce the cost of short-term inter-authority lending, delegates to this year’s Local Authority Treasurers’ Investment Forum heard this week.

Carl Rushbridge, chief finance officer at the Office of the Sussex Police & Crime Commissioner, made the suggestion during a panel session at the annual conference at the Stock Exchange in London.

He said that longer term lending between authorities could become riskier if government follows through with mooted moves to force councils to spend their reserves.

“Given we have close to £40bn of reserves within the public sector, and we won’t all be losing that at the same time, how are we making the best use of each other’s funding and allowing that inter-authority lending to happen in a more sensible way? It will be mostly short and medium term, and I know that happens at the moment in pockets but it feels very ad hoc.

“It’s very much picking up the phone and asking ‘have you got any cash to tide us over for a week?’”

He suggested that the emerging Municipal Bond Agency or PWLB may be in a position to offer such a platform, but also said that it could be put out to the private sector, or initiated by one of the larger platforms.

Speaking during the same panel session, Aidan Brady, chief executive of the bond agency, said that his organisation was already working on plans to offer a platform for medium-term borrowing.

He said: “One thing I feel strongly about is that the inter-authority lending market has substantial untapped opportunity.

“I know local authorities are lending to each other a lot shorter term, I think they could do more at a slightly longer term. I hope that the agency can be there to help facilitate that as we move forward, especially in the one to five years territory.”

But Rushbridge warned that government moves to cap reserves could scupper such a market.

He said: “For those using inter-authority lending borrowing, it could be a risk. You are expecting a three or four year position you can easily forecast, and if suddenly the reserves are coming down then will people to be rushing to the market to borrow externally much sooner?”

Government figures show that councils had £3.1bn in short term borrowing from other local authorities at the end of 2014/15, with £1.7bn in longer term borrowing.

This compares to levels of £3.2bn and £1.4bn respectively held the previous March.

During the session, Brady added the bond agency’s board last week rubber stamped a move to become a public limited company.

He also said that all 56 council shareholders have now approved their investments into the launch.