Plans have been revealed which would give local authorities the chance to put their financial reserves in a “safe haven” council bank. The proposal has come from the think tank the New Local Government Network, which has also published figures showing support from Directors of Finance.

Following the collapse of the Icelandic bank IceSave, when a number of councils lost millions of pounds in investments, the NLGN is encouraging authorities to join a new mutual bank which would hold some of their reserves and which would use the funds to lend to other councils to invest in infrastructure projects. It estimates that the bank could hold between 15 and 20 billion pounds.

It has also published the results of a survey of council Finance Directors which shows more than 80 per cent are in favour of the idea, with almost two thirds expressing interest in borrowing from the bank. The think tank says that with councils finding it more difficult to access private sector funds because of the credit crunch and the decline in companies wanting to invest in PFI projects, a mutual fund would give councils an opportunity to borrow money for key infrastructure projects.

In ‘Investing Together’, the Director of the NLGN, Chris Leslie, says, “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.”

The NLGN has already agreed to explore the proposal with Kent County Council and it is speaking to a number of other authorities about joining the venture. It hopes to launch the mutual fund next summer.