OXFORD could join with other local councils across England and Wales in a radical new financing scheme potentially worth billions of pounds.

As the Coalition Government continues to slash public funding to local authorities, the Local Government Authority (LGA) is rallying councils to support a Municipal Bonds Agency that would enable them to source alternative financing at a potentially lower cost.

Councillor Craig Simmons, Oxford City Council’s Deputy Lord Mayor and chairman of the finance panel, said of the LGA’s proposal: “We have already expressed an interest.”

The city council is one of 48 local authorities in England that have so far signalled they are interested in being involved in the project.

The LGA has been advocating a municipal bonds scheme, which is common in the United States, Sweden, Finland, and other countries, in order to create a degree of financial independence for local authorities.

The LGA has asked councils to sign up as shareholders to the bond scheme’s commercial vehicle, the Local Capital Financial Company (LCFC) - which will trade as the Municipal Bonds Agency - by February 20.

Under the existing system, 75 per cent of the local authorities’ long-term borrowings, which totalled £84.5 billion in 2013, came through the Public Works Loans Board (PWLB). The PWLB’s interest rates are set by the Treasury.

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The LGA believes its bond scheme can offer interest rates of 20 to 25 basis points (or 0.2 to 0.25 percentage points) below the PWLB’s rate.

The LGA argues that its scheme would break even at £2 billion in lending volume. It would issue bonds in sizes of £250m to £300m, possibly as early as April or May 2015.

Councillor Simmons, who is also Deputy Leader of the Green Group, said Oxford City Council’s finance panel would discuss the issue again on March 25.

“It’s difficult to commit at this stage because we don’t know who else is going to be involved,” said Councillor Simmons.

The Deputy Lord Mayor said that because the city council did not currently need to borrow money, another alternative was for it to issue community bonds on its own, without participating in the LGA’s scheme.

A community bond scheme would initially raise money “in the low millions” of pounds for specific projects, he said.

However, Aiden Brady, the LCFC’s interim managing director, said: “We can get lower borrowing costs than individual councils on their own.”

Councillor Jean Fooks, a Liberal Democrat on Oxford City Council’s finance panel, warned against inaction, saying the LGA’s proposal “looks like an opportunity we might regret missing”.

She said: “This is something which has been shown to work in other countries. It is a way of borrowing that is cheaper than what is available at the moment.”

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