Councils ‘need more borrowing powers to fund growth’

19 May 11
Local government needs new sources of borrowing to support the government’s growth plans, a think-tank has said.
By Richard Johnstone

19 May 2011


Local government needs new sources of borrowing to support the government’s growth plans, a think-tank has said.


The New Local Government Network has launched a Capital Futures Taskforce to examine what new forms of capital funding councils will need to be able to invest in community development and regeneration at a time of government cuts.

The NLGN research paper released today, Localist capital finance: the challenges ahead, highlights the potential for local authorities to use bond issues more to raise finance, including ‘Scandinavian-style bond clubs’.

It points out that the government’s plans for localism allow councils to examine new funding mechanisms, following reductions in capital grants and government credits for Private Finance Initiative schemes.

The possible options, which might also include the use of financial instruments such as derivatives, will be investigated by the taskforce. It will report by the end of the year.

Members include two council chief executives - Ged Fitzgerald ofLiverpool City Council and John Mothersole of Sheffield City Council - as well as Alison Scott, the assistant director of local government at CIPFA.

Former prime minister Tony Blair’s son Euan, who works for the investment bank Morgan Stanley,is also a member.

NLGN senior researcher Tom Symons said the research will examine the powers and freedoms councils need to support the government’s local growth strategy.

‘We will be looking at a range of measures, including Scandinavian-style bond clubs, to help councils continue capital investment in an environment where they can no longer depend on central government grants.’

He said the need for new funding was compounded by the government’s decision in October 2010 to increase the cost of borrowing from the Public Works Loan Board.

‘By making traditional borrowing methods more expensive for councils, ministers have effectively encouraged them to explore new ways of borrowing to finance development.’

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