Town halls must reveal all borrowing plans to qualify for lower PWLB rates
By Richard Johnstone | 3 August 2012
Councils will have to give the government details of their borrowing plans to qualify for the lower Public Works Loan Board interest rates announced in the Budget, it has been revealed.
In a letter sent yesterday to all local authority chief finance officers, the Treasury confirmed that three-year spending plans to 2014/15 would have to be submitted if councils want to take advantage of the 20 basis point reduction. Announced by Chancellor George Osborne in March, this will cut rates from 1% above government gilts to 0.8% for authorities covered by CIPFA’s Prudential Code.
The lower rate – known as the ‘certainty rate’ – will be available from November 1 and authorities have until September 17 to return the information, the letter stated.
Councils are asked to outline their total proposed new long-term borrowing, as well as any borrowing planned to refinance existing loans, and the value of capital expenditure that will be financed by loans. This information should include any plans for bond issues.
They will also need to provide annual updates to continue to receive the lower rate, which will apply to ‘all loan types and maturities’.
The letter stated that as local authority borrowing affects public sector debt, the request for information forms ‘an important part of public expenditure planning’.
It added: ‘In order for forecasts to be as robust as possible, additional information is sought in return for access to the certainty rate.’
Responding to the announcement, Alison Scott, assistant director for local government at CIPFA, said: ‘CIPFA has been working with the Treasury to develop the information request. We welcome the Treasury’s acceptance that the Prudential Code is an effective way of ensuring that local authorities borrow responsibly.’
A Treasury spokeswoman told Public Finance that ministers are planning further talks with local government on the potential to establish an independent body that will offer PWLB lending at a further reduced rate.
Local authorities are also pursuing their own sources of borrowing. The Local Government Association’s plans for a local government bond agency have been sent to finance directors.
Mark Luntley, the LGA’s programme director for finance, has said that the ‘vision’ is for the agency to be set up by 2014 if finance directors back it.