15 February 2002
A statutory instrument amending existing investment regulations has been laid before Parliament and will come into force on April 1. From that time, local authorities will be able to put surplus funds in MMFs, which are short-term pooled cash funds invested in high-security portfolios.
Raynsford's confirmation of the change will delight town hall treasurers, who have long campaigned for more freedom to manage financial matters without central government control.
He also announced a pilot scheme allowing councils to place cash in the government's own debt management account, thereby accessing competitive rates of interest while being protected by the exchequer's triple A credit rating.
The DMA deposit facility, as the pilot will be known, will run for six months and involve a small number of authorities before being rolled out.
Raynsford said these new options offered authorities greater choice in how to manage their money. 'Both allow money to be deposited easily and withdrawn quickly when needed, as well as being secure investments and earning a good rate of interest.'
Christopher Oulton, head of MMF business development at Investec, which claims to manage 46% of cash reserves held by UK councils, said the risk represented by MMFs was very low because investments were spread across a diverse portfolio.
'Recent events at Allied Irish Banks show that a diverse portfolio of risk is better than concentrated risk exposure to one bank.'
He added: 'MMFs offer better liquidity, better security and better performance.'
PFfeb2002
