Local government bonds enters launch phase

15 Dec 14

The first issue of a cross-sector local government bond is expected to take place next year after nearly 50 councils signed up to invest in the Local Government Association company that is developing the plan.

By Richard Johnstone | 15 December 2014

The first issue of a cross-sector local government bond is expected to take place next year after nearly 50 councils signed up to invest in the Local Government Association company that is developing the plan.

The LGA, which has been working on the proposal for more than three years, today announced that approval had been given to move the Local Capital Finance Company into a launch phase. This firm was formed in September as the LGA entered into discussions with councils about raising the required capital for the scheme.

In total, 48 councils have backed the scheme, which is intended to cut borrowing costs for town halls by lending on money raised from bonds at cheaper rates than the Public Works Loan Board. It has been estimated that if half of the outstanding debt with the PWLB was transferred to the agency, as much as £1.45bn could be saved over 30 years.

 

Announcing the backing for the scheme, LGA executive director Michael Lockwood said support had come from a cross-party group of councils, including cities and unitaries, counties, districts and London boroughs.

 

Although the councils have not been named, it is known that Birmingham City Council is among the town halls that have pledged to invest in the costs of forming the company.

 

All prospective shareholders will now have until the end of February 2015 to finalise their equity investment. At this point it is hoped that preparations will be under way for the issuing of the agency’s first bond.

 

The decision to move into the launch phase ‘reflects the overwhelming appetite among local authorities for us to make this happen’, Lockwood said.

 

The response from councils has been hugely positive, and the momentum behind this exciting venture continues to build,’ he added.

 

‘There is no doubt about the support for a local government owned bonds agency that saves taxpayers money by making borrowing cheaper. We’re now entering the crucial final leg where we will be looking for councils to finalise their equity investment.

 

The LCFC will have the single purpose of reducing councils’ long-term capital financing costs, Lockwood added.

The introduction of a council-owned competitor into the lending market can be a great showcase for local government’s strength and ambition while demonstrating the very real benefits of local independence.’

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