COUNCILS in England and Wales are drawing up plans for a national bank to pool billions of pounds of cash they hold on deposit and to invest it in stalled infrastructure projects.

The fund would pool some of the £15 billion - £20 billion belonging to the 430 local authorities in England and Wales, and offer a safer haven than commercial banks, a sore point for councils that had millions on deposit with collapsed Icelandic banks. Such a fund could help improve use of their reserves and triple A investment status, said Chris Leslie, director of the local government think-tank, the New Local Government Network.

Finance leaders from some councils met two weeks ago to discuss the idea, but a working group needs to be set up to flesh it out further, said Nick Chard, cabinet member for finance at Kent county council, who has sent the proposal to local government minister John Healey.

Exactly what form this fund will take is yet to be decided, said Chard. “Whether it would be a mutual or cooperative-type bank is unclear, but there seems to be a general consensus the principle is a good one.”

At its simplest level, the local authorities of England and Wales, representing more than 50m people with spending power of about £113 billion a year, could use the bank to offset their savings against borrowings, he explained.

Tony Travers, a local government expert at the London School of Economics, said councils could also use the fund to raise money through bond issues to fund local infrastructure projects.

“A number of local authorities’ regeneration schemes with private-sector capital elements have stalled because they cannot raise capital,” he said. “Local authorities could use their reputational advantage to raise money using bonds, which would be a safe way for people to get a good return. They could raise municipal bonds to fund local projects.

“I’m not advocating spending money on crazy schemes but making sure well-consid-ered projects go ahead.

“They could use the funds to buy land when it’s cheap or keep city regeneration projects on track at a time when private-sector capital does not exist.”

A group of councils, including Portsmouth, Liverpool, Manchester, Bristol and Lam-beth, is also exploring ways to use their financial clout to become mortgage lenders. There is a precedent for this, said Leslie.

“In the 1980s local councils had 600,000 mortgages until the Thatcher government forced them out of that area.

“We’re at a stage where we can’t wait for the Treasury to drive everything, and with good local leadership there’s no reason why local councils can’t do it themselves.”

Richard Stay, deputy leader of Bedfordshire county council and its cabinet member for finance, said councils already had freedom to do much of what is being proposed without central government approval, although some change in the law might be required to enable them to raise bonds.

“This idea has legs and people in the sector are in favour in principle,” he said. “It’s not something that requires every authority to agree to, so a core group of pathfinders could forge ahead with it.”

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