Birmingham City Council’s original plans to set up a municipal bank are unworkable due to the legal confusion surrounding councils’ ability to act in the interest of their areas, councillors have claimed.
The council planned to establish a municipal bank to provide loans to businesses, mortgages and a savings and deposits service.
However, it received legal advice that a deposits service would have gone beyond its legal powers.
An overview and scrutiny committee review found the savings bank would have been undermined by the Court of Appeal’s recent ruling that the wellbeing powers were insufficient for a group of London boroughs to set up a mutual insurance company.
Helen Bonham, Birmingham’s head of legal projects, told the committee the project needed to be reviewed against the ruling.
She relayed counsel’s opinion which found: “I am by no means persuaded, on the information presently before me, that the establishment of a bank would be a lawful exercise of the council’s undoubted wellbeing powers”.
Chief executive Stephen Hughes insisted the savings aspect “was always the lower priority” of the proposals.
The council will pursue plans to offer loans to businesses through Advantage West Midlands, the regional development agency.
LGC’s Untie the Ropes campaign has seen an open letter signed by council leaders and officers, MPs and thinktanks demanding legislation to clarify councils’ legal powers in the wake of the ruling.