Value of PWLB loans to local authorities rises 75%

29 Jul 19

Local authorities’ use of the Public Works Loan Board has rocketed in the last year, figures have shown. 

The value of loans advanced from the body shot up by 75%  from March 31 last year to the same date this year - from £5.2bn to £9.1bn, according the PWLB’s annual report.

The £9.1bn figure shows the value of loans agreed by the PWLB up to 31 March has almost tripled in the last seven years. In 2012-13 local authority borrowing stood at just £3.2bn.

In addition, the number of loans also grew by 68% from 780 new loans in 2017-18 to 1,308 in 2018-19.

Part of the Debt Management Office – an executive agency of the Treasury – the PWLB is responsible for lending money to local authorities for capital projects.

The latest figures represents a continued trend of greater reliance on the PWLB to fund projects against a backdrop of cuts in funding from central government.

Real-terms funding for local authorities has fallen by 49.1% since 2010-11, according to the National Audit Office.

 

 

Joanne Pitt, head of local government at CIPFA, told PF that this continued rise has been in response to austerity introduced in 2010.

“Since about 2010, not just the quantity of money, but the amount local authorities are borrowing has risen and I think it’s a direct result of austerity,” she said.

Pitt said that before 2010 not all authorities would have considered borrowing from the PWLB but nowadays it has become more commonplace in lieu of central government funding.

She told PF since the onset of austerity there has been a “steady increase” in borrowing from the PWLB, which offers authorities the chance to borrow at low rates of interest.

Paul Dossett, head of local government at Grant Thornton, suggested that the rise of 75% in the last year could also be due to an increasing number of LOBO loans being redeemed.

These controversial loans – which became popular following the financial crash – offer rates below the PWLB but allow lenders to change rates at set points in the future. Refusing to pay updated interest rates requires the borrowing authority to pay the loan back in full, which can be costly.

“One factor that is in play is the redemption of LOBOs,” Dossett told PF.

“Several councils redeemed their inverse floater LOBOs based on some legal challenges over the last couple of years. Having redeemed them a lot of them were replaced with PWLB loans.”

He pointed to councils including Cornwall, Lancashire and Brent as examples of LOBO redemptions in the last year.

The ‘inverse floating rate’ type of LOBO has been subject to much controversy and a group of councils have taken legal action against lenders offering them.

Jonathan Werran, chief executive of the Localis think-tank told PF that using the PWLB “is very ‘route one’ and also suggests that there isn’t a sufficient deal of confidence in creative alternatives such as municipal bonds and the like.”

He added: “It is to be hoped that a sober, long-term analysis on how best to resource and fund local government would obviate the need to tap up the PWLB.  

“However, given the political tide and the lack of any understanding as to how and when the next Spending Review will take place and over what period, one can only forecast increased levels of PWLB borrowing when we scrutinise next year’s annual report.”

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