20141215 councils pool resources to make borrowing cheaper for one another - public sector executive
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15.12.14
Councils pool resources to makeborrowing cheaper for one another
The UK’s first ‘municipal bonds agency’ has moved a step closer, with 48 councilssigned up to become investors.
The Local Government Association (LGA) says the new agency will give councils a‘viable lending alternative’ to the Treasurycontrolled Public Works Loans Board(PWLB), from which authorities currently source 75% of borrowing, potentially savingmore than £1bn in borrowing costs for investing in infrastructure.
After a successful start to the second round of equity raising by the new Local CapitalFinance Company (LCFC), the LGA Executive says there is enough council support tolaunch the agency.
Signedup councils include cities and unitaries, counties, districts and Londonboroughs, with crossparty political control.
The new agency will be independent, with its own governance structure, butaccountable to its council shareholders and the LGA.
According to LGA figures, if half of the outstanding debt with the PWLB was transferredto the new agency, the saving to the local government purse could be between £1.2bnand £1.45bn over 30 years.
Prospective shareholders will now have until the end of February 2015 to finalise theirequity investment, at which point it is hoped that preparations will be under way for theissuing of the agency's first bond.
Michael Lockwood, executive director of the LGA, and director of the LCFC, said: "Thedecision to move into the launch phase is a significant and important step. It reflectsthe overwhelming appetite among local authorities for us to make this happen.
"There is no doubt about the support for a local government owned bonds agency thatsaves taxpayers money by making borrowing cheaper. We're now entering the crucialfinal leg where we will be looking for councils to finalise their equity investment.
"This company will be owned by local government and will have the single purpose ofreducing councils' longterm capital financing costs. The introduction of a councilowned competitor into the lending market can be a great showcase for localgovernment's strength and ambition while demonstrating the very real benefits of localindependence."
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