LGA Executive approves work towards municipal bond agency

The Executive of the Local Government Association has given the green light to the establishment of a municipal bond agency for the sector.

A revised business case suggests that if half of the outstanding debt councils have with the Public Works Loans Board (PWLB) were to be transferred to the new agency it would lead to savings of between £1.2-1.45bn over 30 years.

Councils currently obtain 75% of borrowing via the PWLB. In this week’s Budget, the Chancellor of the Exchequer, George Osborne announced that the Government would take the legal powers needed to increase the current PWLB lending limit of £70bn to £95bn.

The decision by the LGA’s Executive means the next steps will be to raise the capital needed to establish the agency. Councils and related bodies, such as council pension funds, would then have the opportunity to become shareholders in the agency. 

Sir Merrick Cockell, chairman of the LGA, said: “The LGA’s decision to proceed having been presented with a compelling revised business case for setting up an agency marks an important milestone. 

“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.”

He added: “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. 

“This is a great low risk opportunity for local authorities and other pension funds to support investment in UK infrastructure, while receiving a better rate of return than from gilts. The huge potential for reducing local government’s borrowing bill by introducing diversity and a council-owned competitor into our lending market is too big to ignore.”