News round-up: PWLB borrowing drops, Brexit threatens rating, abolition call for LA taxes, housing association strategies
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PWLB borrowing slumps in October
Local authorities borrowed £20.7m from the Public Works Loan Board during October, a substantial drop from the September figure of £547.7m. Half of October’s total (£10.7m) was advanced to West Berkshire District Council, which took out five loans ranging from 0.87%(four years and six months) and 2.3% (49 years six months). Last month’s figures were dominated by loans totalling £377.5m to Spelthorne Borough Council for a major property deal.
Brexit ‘could lead to ratings downgrade’
Leaving the European single market could lead to the UK losing its Aa1 sovereign rating, according to Moody’s Investors Service. “We would downgrade the UK’s sovereign rating if the outcome of the negotiations with the EU was a loss of access to the Single Market as this would materially damage its medium-term growth prospects”, said Kathrin Muehlbronner, a Moody’s senior vice president. In June, Moody’s downgraded their outlook for four local authorities, Transport for London and 42 housing associations, days after changing its outlook on the UK’s long-term issuer and debt ratings to negative from stable.
Social housing REIT ‘could boost council coffers’
The UK’s first Real Estate Investment Trust (REIT) for social housing could buy properties from councils. Civitas Social Housing this week applied for listing on the London Stock Exchange, and said it would target a 5% yield for investors. Michael Wrobel, chairman of the trust, said: “The reduction in government grant for social housing, coupled with the social housing sector’s ongoing drive to improve efficiencies provides Civitas Social Housing PLC with a strong opportunity to assist housing associations and local authorities to free up the capital required to build additional Social Homes.”
Ratings agency warns on housing association strategies
Housing associations moving towards market sales to raise income are exposing themselves to higher risks according to ratings agency Standard & Poors. In a report this week, the agency said that building homes for sale carries higher risks than sub-market rental homes due to their link to consumer confidence, disposable income, employment levels, economic growth and household formation. Uncertainty over Brexit terms could also erode profitability and liquidity over the next two years, according to S&P.
L&G wins London pensions mandate
London Borough of Hillingdon has appointed Legal & General Management to run a £215m index fund mandate. It has replaced incumbent State Street Global Advisors in a deal which will also benefit from a commercial agreement with London boroughs participating in the London CIV pool.
Think tank calls for abolition of local authority taxes
Council tax and business rates should be among 20 taxes abolished and replaced with a flat rate income tax, according to a think tank. The Institute of Economic Affairs said that a radically reformed system should be designed to raise around 20-25% of national income, and include a new land value tax. The report said: “Because lower taxes would lead to higher growth and because there would be a tax system that led to far fewer distortions of economic decisions, it is likely that employment, productivity and wage levels would rise considerably.”
