Councils could approach the bond markets to raise more than £13bn by April next year, finance experts have predicted, after the Treasury increased interest rates for its loans service.
Councils have not gone to bond markets en masse since the mid-1990s but with council finances under extreme pressure and the Public Works Loan Board’s (PWLB’s) rates increase, another period of intense activity could be on the horizon, according to Barclays Corporate.
One of the main drivers will be councils needing to raise funds to buy their way out of the council housing finance system following ministers announcing the abolition of the housing revenue account subsidy system.
Barclays Corporate head of education and local authorities, Chris Hearn, said for many local authorities, it will be the first time they have taken on on large amounts of external debt and the implications, costs and benefits will need to be carefully considered.
Mr Hearn added: “The strong credit profile of the broad local authority sector, together with current investor appetite for bonds, means that local authorities are expected to be able to issue long-term debt at a lower cost than the newly increased PWLB rate.
“Accessing the capital markets would therefore diversify the local authorities’ funding base away from the PWLB - surely something that should be applauded in the current environment.”
Councils could approach external investors via the bond market either on their own or potentially in combination with other authorities in similar positions.
The news follows LGC revealing that borrowing from the PWLB had slumped following an increase in rates.
If councils do not opt for the bond markets, other options are to utilise current cash balances or borrow from the PWLB.