Analysis claims Labour councils secure worse PWLB rates
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Labour councils are paying 48 basis points (bps) more than their Conservative counterparts for Public Works Loan Board debt, according to a new analysis.
Nick Dunbar a financial blogger and journalist says that data for March 2015 from the Debt Management Office also reveals the gap between Tory authorities and those under no overall control is 62bps.
Dunbar says that his analysis raises the question of whether Conservative councillors are better at challenging the borrowing decisions made by officers.
Speaking to Room151, he said: “The decision to borrow over a particular horizon relates to the council’s perception of what rates are going to do in future.
“The decision they make is whether it is a good time to borrow or not.
“If you think rates are cheap today compared to in the future, then you might tie yourself in for longer.”
Dunbar said that the fact that hung councils perform the worst suggests that the ultimate reason for the difference in borrowing rates is connected to governance.
He said: “Elected councillors don’t make day-to-day borrowing decisions; they delegate this power to staff in council finance departments.
“What they can and should do is scrutinise these decisions and push back against the group-think that seems to afflict council finance professionals and their advisers.
“Are councillors at hung councils too busy bickering to do this? Are Tory councillors, who are more likely to have a financial background, better at challenging officials on borrowing decisions than their Labour counterparts?”
He also suggested that Conservative councils had been forced into taking on a lot of debt in the low rate environment of 2012 after inner city Labour authorities benefited from payments made to them as part of housing revenue account reforms.
However, he said that firm conclusions were difficult to draw because the PWLB does not publish details about when loans were taken out and their original length – only their remaining duration.
David Green, client director at adviser Arlingclose, said that the HRA reforms could form part of the story but on the overall picture, he said: “I suspect this is a case of correlation not proving causation”.
Mike Jensen, chief investment officer at Lancashire County Council, said: “Intuitively I would say that it was likely to be a function of the relative wealth of the tax base in the two areas and the higher levels of deprivation in traditional labour areas, but I have no evidence for that.”
Stephen Fitzgerald, director of consultancy Tamar Consulting, said: “If Labour authorities borrow more over a period of time it is likely that some of those deals will have higher interest rates than the rates for authorities that borrow less. To claim this could be an indication of good or bad management is slightly stretching credulity.”
In a submission to the Communities and Local Government select committee inquiry on Lender Option Borrower (LOBO) loans this week, campaign group Debt Resistance claimed that the figures suggested apparent “political bias in PWLB lending rates”.
But a statement from the Treasury pointed out that the same rates are applicable to all lenders.
It said: “The PWLB applies the same high standards of impartiality consistently across all local authorities regardless of political complexion.
“They vary depending on the type and length of loan and repayment method, which is down to individual authorities to decide upon.
“The PWLB does not take into account the political control of a local authority.”
Under the prudential regime, local authorities are allowed to borrow without government consent, provided they can service the debt from within revenue income.
Hmmm…I’d be interested to see how the rates correlate against the initial letter of the S151 officer’s surname. I’ve always been suspicious of A-M groupthink, and wonder if its costing the taxpayer £££££s a year.