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In a new research paper, NLGN warns that the decision to increase the cost to councils of borrowing from government could threaten local authorities’ ability to boost local economic growth. Localism think tank The New Local Government Network (NLGN) also suggests that much-needed investment in community development and regeneration could suffer unless councils are able to access vital investment through new sources of borrowing.
NLGN will lead a high-level taskforce consisting of local government and financial sector leaders to map out a new capital financing landscape for councils. The group will look for new means to ensure that councils can source the necessary investment to help deliver the infrastructure required for local economic growth as well as the provision of essential social infrastructure such as high-quality schools and housing.
Local government has traditionally relied heavily on grants from Whitehall to fund local capital investment projects, but the squeeze on public spending and the increased cost of borrowing from the Public Works Loan Board mean that councils will have to look to new sources for much-needed infrastructure finance.
NLGN Senior Researcher Tom Symons, said:
“Our research will explore what powers and freedoms councils will need to support Government’s local growth strategy. We will be looking at a range of measures, including Scandinavian-style ‘bond clubs’, to help councils continue capital investment in an environment where they can no longer depend on central government grants”
“By making traditional borrowing methods more expensive for councils, ministers have effectively encouraged them to explore new ways of borrowing to finance development. However, it’s possible that existing prudential borrowing powers won’t be enough for councils to maximise the benefits of new sources of finance for vital development”
“Accessing new supplies of capital will be a significant challenge and will require councils to be equipped with a full capital finance toolkit – potentially including the use of derivatives and other financial instruments – to effectively manage risk and get the best deals for their taxpayers and communities”
The research will examine how the relationship between local authorities and capital debt markets can be developed to allow councils to access investment financing from new sources in a low-risk and low-cost way.