Big news for local councils yesterday as the Treasury unexpectedly increased the Public Works Loan Board (PWLB) interest rate by a full percentage point. Doesn't sound like a big deal? Think again
The PWLB is the main source of local authority borrowing. Its low interest loans help councils finance the construction and maintenance of things like schools and roads. Such a significant increase to the rate of borrowing will have a huge impact on the sector
In a letter to chief finance officers at councils across the country, the Treasury said the decision came after "some local authorities have substantially increased their use of the PWLB in recent months". But if they're building schools and fixing roads, so what? Well...
As @bureaulocal reported last December, councils are increasingly turning to multi-million-pound property deals to bring in extra income. How are most of these purchases funded? By loans from the PWLB thebureauinvestigates.com/stories/2018-1…
@bureaulocal When done proportionately - as most councils do - the risks are relatively low. Some authorities, however, have borrowed well beyond their usual means. For example our research found four councils had borrowed the equivalent of ten times (and far more) of their spending power
@bureaulocal So there's a strong suspicion today that all councils are being penalised by the spending sprees of the minority. Or to put it another way.
It's.....Spelthorne Borough Councils' accounts. thebureauinvestigates.com/stories/2019-0…
It's.....Spelthorne Borough Councils' accounts. thebureauinvestigates.com/stories/2019-0…
@bureaulocal Spelthorne (much to their annoyance) as become the poster boy for commercial property investments, having borrowed around £1 billion from the PWLB to fund them. To put that in context, that's around 50 times the council's spending power
@bureaulocal They're by no means the only big spenders (Woking and Runnymede - also in Surrey - among the others) but it's Spelthorne that keeps getting raised at the highest levels. Here's two examples from recent reports published by MPs 
@bureaulocal But it's not arguably the Spelthornes that will be hardest hit by the Treasury's decision. For them the horse has bolted. Instead other, more prudent, councils will see increased costs if they want to borrow to fund infrastructure (as hike is to new not existing loans)
@bureaulocal And, in fairness to Spelthorne and others, why are they to blame for taking advantage of a source of financing which essentially offers a no questions asked, no checks undertaken approach to lending money to local authorities?
@bureaulocal The PWLB has no interest in what councils intend to do with the money and makes no assessment of the prudence of the borrowing. Instead all the responsibility to placed on the councils themselves to decide and on voters to hold them to account
@bureaulocal As one treasury adviser told me: "Councils are asked three questions: Who are you? What’s your PWLB number and when are you going to spend the money?”
@bureaulocal And while there's an overall limit on local government borrowing from the PWLB (raised yesterday from £85bn to £95bn) essentially there is no limit on what an individual council can borrow. Hence a relatively tiny council like Spelthorne can get hold of £1 billion
@bureaulocal Add into the mix the flaws with the audit system, the abolition of the Audit Commission, the general lack of transparency/accountability and, most importantly, a decade of funding cuts, and no wonder some councils have turned/been able to turn into major property investors
It should be said the PWLB rate remains lower than other sources of long-term finance, and there could be other options on the horizon. But for now the hike will have councils scrambling to review & even scale back their infrastructure plans, which seems pretty counterproductive
Here @Cipfa's Andrew Burns says the PWLB rise is "clearly to temper the levels of more speculative borrowing" adding the rules are clear that "authorities must not borrow more than or in advance of their needs purely in the interests of profit" newstartmag.co.uk/articles/treas…
That's called Borrowing in Advance of Need. It's prohibited under the Prudential Code and Statutory Guidelines but many councils are doing it, some on a huge scale (and not just to invest in property). And they're doing it with impunity
@CIPFA Just spoken with the Treasury and they won't be drawn on linking the rise to increased property speculation by a small number of councils. Funnily enough they say what I pointed out earlier: the PWLB does not know what councils spend the money on
@CIPFA And as for suggestion they are penalising the many for the actions of a few, all I was told was rates are returning to their 2018 levels and that government remains "committed to helping local authorities access financing to support their capital spending plans"
@CIPFA More reaction to the PWLB rate increase in this story by @patrickjbutler for the @guardian theguardian.com/society/2019/o…
