Tweet
Councils are being urged to pool their cash reserves in a nationwide "mutual bank" worth up to £3bn, to support local infrastructure projects through the credit crunch and prevent a repeat of the chaos caused by the collapse of Icelandic banks.
Deposits of taxpayers' cash worth hundreds of millions of pounds have been frozen since the Icelandic banks Glitnir, Landsbanki and Kaupthing collapsed last year. Councils are negotiating with administrators to get their money back. Kent county council had £50m deposited in Icelandic banks, Haringey council in London £37m, and Dorset county council £28m.
The crisis has left council leaders struggling to explain why they had such large sums deposited overseas and thrown a spotlight on the way local authorities manage their money.
The New Local Government Network, a thinktank with close links to leading Labour figures, including local government minister John Healey, argues in a report that instead of hunting for high returns in risky foreign banks, councils should unite their financial strength and put their surplus funds to work at home.
In a survey of 27 finance directors and treasurers from local authorities, the thinktank found more than 80% were in favour of the idea. It estimates that if replicated on a national level, such high levels of support could create a "mutual bank" worth between £389m and £2.8bn.
Essex county council has proposed launching a "bank of Essex" that would use taxpayers' funds to make loans to small businesses struggling to raise finance from private banks during the credit crunch. A national scheme would serve a different purpose, making millions of pounds of dormant reserves held by councils available for investments by other local authorities, with profits ploughed back into the fund.
With the credit crunch constraining the availability of financing for local projects through the private finance initiative, the thinktank argues that a local government mutual fund could serve as a useful backer for infrastructure schemes. Two thirds of the finance directors contacted said they expected a greater than usual shortfall in financing for public projects over the next three years.
Chris Leslie, New Local Government Network's director, said he had been surprised at the levels of cash reserves many local councils hold, as revealed by the survey. "Quite a bit of it is earmarked, but quite a bit is unallocated. Even if you only had a small proportion of that pooled, you could do quite a significant amount with it. There are rates of return on some of these infrastructure projects that private finance has found quite attractive."
He has been discussing how a mutual bank might work with a number of councils, Whitehall officials and representatives of the Local Government Association, and will draw up detailed proposals in the next few weeks.
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
