Research Project

Investing Together: The case for a Local Authority Mutual Fund
18 December, 2008

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Investing Together: The case for a Local Authority Nutual FundLocal councils will have the opportunity to deposit their financial reserves in a “safe haven” council bank according to plans published today by a national think tank.

With some local authorities having lost millions of pounds of savings when Icelandic bank IceSave collapsed, the New Local Government Network is encouraging councils to join a new mutual bank which would hold some of their reserves. The funds would then be used to lend to other local authorities to invest in infrastructure projects. It is estimated that between £15-20billion could be held by the bank.

The NLGN is also publishing the results of a survey of local authority Directors of Finance which shows strong support for a mutual fund. Over 80% said that they were in favour of the idea, with 64% showing interest in borrowing from the bank.

With councils finding it more difficult to access funds from the private sector – both because of the credit crunch and a decline in companies wanting to invest in PFI projects – the mutual fund would offer a vital opportunity for councils to borrow money to allow key infrastructure projects to continue.

Director of NLGN, Chris Leslie, said that in the aftermath of the IceSave controversy, now is the time for local authorities to come together to support each other financially. In today’s proposal, Investing Together, he argues:

“The Icelandic crisis revealed that very substantial council reserves are held in random and uncoordinated funds worldwide, which could be better applied to more productive benefit here at home. Intuitively the case for a pooling of council reserves to be reinvested in projects yielding a modest but stable return would match the expectations of many authorities.”

“With estimates of total council reserves of between £15-£20billion today, even a fraction of this sum invested in a cooperative manner could yield millions of pounds of capital, regardless of the state of the private interbank market’s willingness to lend.”

NLGN has already agreed to explore the proposal with Kent County Council and is currently speaking to a wide range of local authorities about coming on board with the venture. They are looking to launch the mutual fund in summer 2009.

Publication Date: 18 December 2008