By Richard Johnstone | 21 March 2014
Plans to create a municipal bond agency could save councils nearly £1.5bn in lower borrowing costs, according to the latest analysis by the Local Government Association.
The LGA’s executive today endorsed plans to establish the agency – first confirmed last November – after a revised business case for the plan set out savings across the sector of between £1.2bn and £1.45bn over 30 years.
Local authorities currently borrow from the Public Works Loan Board at 0.8 percentage points above the level charged on government gilts.
The agency would issue bonds to raise money that could then be lent to councils. Savings projected by the LGA are based on half of the outstanding debt with the PWLB being transferred to the new agency.
LGA chair Sir Merrick Cockell said the potential savings made the business plan ‘compelling’ and the opportunity was too big to ignore.
He added: ‘The huge savings councils stand to make by directly raising the money we need for new roads and housing support a convincing argument for recreating a thriving market in municipal bonds.
‘Different types of council from right across the UK have told us they would consider using the agency and the markets want to invest in these bonds.’
The LGA has been working on the development of the agency since 2011, however there have been concerns that it could be ‘strangled at birth’ through opposition from the Treasury.
Councils have also been warned that the scheme could require local authorities to set out some spending plans up to four years in advance.
