First local government bond issue set for next spring

9 Jul 14

The first issue of municipal bond is set to go ahead next spring after the Local Government Association confirmed it had raised more than seven times the necessary funding to launch the agency.

By Richard Johnstone in Bournemouth | 9 July 2014

The first issue of municipal bond is set to go ahead next spring after the Local Government Association confirmed it had raised more than seven times the necessary funding to launch the agency.

Outgoing LGA chair Sir Merrick Cockell confirmed at the association’s annual conference that the agency, which is intended to lower borrowing costs for town halls by as much as £1.45bn over 30 years, had raised the initial funding required.

After approving the scheme in March, the LGA set a target of raising £400,000 to set up the bond issuer, which would issue bonds and then in turn lend this money to councils.

 

Cockell announced that commitments worth £2.9m to form the agency had so far been raised for 22 councils, of all types and from different parts of the country.

 

A company – the Local Government Finance Company – has been created to house the agency, Cockell confirmed, and the first bond should be issued next spring.

 

‘We’re doing this in very short time – to actually see this happen well within three years I think is pretty astonishing,’ he said today.

 

‘The aim is to launch the first bond in spring of next year, and we need to get on with it – none of the solutions we’re looking at can wait for another generation to pass.’

 

Plans for a local government bond agency have been developed as a political solution to an economic problem of higher rates for borrowing from the Public Works Loans Board, Cockell said. Two rate changes for PWLB loans since the 2010 election had raised concerns about volatility that has not been faced in the past.

 

It also forms part of a wider plan to use the strength of the local government sector to fund investment, including making greater use of the ‘sleeping giant’ that is local government pension funds.

 

‘This does fit together – we can work collectively in the different areas we invest in, whether it’s infrastructure or housing, to do things that we haven’t been doing with that £180bn [of Local Government Pension Scheme assets] and are perfectly normal in places like Holland and Germany,’ he said.

 

‘We should be looking at that, and we have to work cooperatively across the agencies to do that.’

 

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