The Application of Municipal Bonds to fund Local authorities projects in England; Barriers and Solutions

After the Global Financial Crisis, local authorities in England have suffered drastic cuts in their fundings that comes from the central government. With the ever-growing pressure on local authorities to continue to provide services while being hit hard by various austerity measures, they are ought to look for new sources of income streams. Projects that provide such streams require capital funding that is mostly sourced via borrowing. With the limitations in either lenders variety or products suitability, bond issuance is one of the options that is under researched and underused in England. An investigation into the provisional development of municipal bond market in England is therefore of a significant importance. Different studies and reports have been conducted on municipal bond market development but very few focused on the context of England and little empirical work is done to assess municipal bonds.

This research is exploring the development of municipal bond market in England by analysing its different stakeholders’ positions from an institutional perspective. This research uses qualitative methods, the Historical Institutionalism theory, and subsequently a conceptual framework that guides the inquiry of revealing the key barriers prominent in the bond market and methods to overcome those barriers. This research focuses on the formal and informal rules that influence different stakeholders’ groups behaviour and strategies in the market and the dynamics of the relationships between those groups that affects such market development.

This thesis reveals certain bond market barriers that affects bond market development in England. The barriers revealed are bonds uncertainties, efficiency, transparency, credit rating, and liquidity. The research has found that the process of municipal bond market development in England is multi-dimensional whereby different stakeholders groups need to come together to overcome those barriers. Overcoming such barriers is found to be possible for local authorities when building a long and meaningful relationship with two stakeholders in the market being the UK Municipal Bond Agency and market makers. Another key finding is that issuing thematic bonds, such as green and social impact bonds, is best suited with local authorities and can assist them in overcoming most market barriers. On the theoretical approach of this research, the Historical Institutionalism theory is found to has lent itself well to the analysis of the complexities of bond market development in England. The research suggests a new analytical framework as well for the municipal bond market development for future applications.