Birmingham to contribute to bonds agency start-up costs

9 Jun 14

Birmingham City Council is set to provide £200,000 in start-up costs for the municipal bonds agency planned by the Local Government Association, it has announced today.

By Richard Johnstone | 9 June 2014

Birmingham City Council is set to provide £200,000 in start-up costs for the municipal bonds agency planned by the Local Government Association, it has announced today.

The council said a proposal to invest equity in the agency, which is currently establishing interest from town halls ahead of a possible issue next year, will go before cabinet on June 16. If it is approved, this will be the first formal pledge of funds to help set up the agency. The agency is being established in a bid to offer cheaper borrowing to local authorities than the government’s Public Works Loans Board, which currently lends to most town halls at 80 basis points over government gilt rates.

Birmingham’s deputy leader Ian Ward said it was vital that the council did everything within its powers to get the best interest rate possible.

 

‘There are occasions when the council needs to borrow money to fund major projects, which is then repaid over a period of time, just like individual families do when they make large purchases for the home.

 

Increases to the PWLB's rates mean we have a duty to Birmingham’s taxpayers to look at alternatives. The Municipal Bonds Agency is a way of getting the best value for citizens, using a model that has worked successfully in other countries.’

 

The council’s £200,000 would help the LGA meet the start-up costs for the agency, estimated at around £800,000 in the business case that was approved in March.

Responding to the announcement, CIPFA’s technical manager for local government finance Mandy Bretherton said: ‘It is encouraging that local authorities are now coming forward with real support for a municipal bond agency.

‘CIPFA has supported its development and if the agency is able to provide new funding for councils who need it, at even lower cost than they currently face, it would give them even more options to sensibly manage the resources they have available to them.'

 

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