Councils plead for discount PWLB rate to save housing and regen schemes
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The Society of District Council Treasurers has asked the Treasury to create a new Public Works Loan Board discount rate, as councils reassess the viability of their regeneration and housing schemes in light of this week’s rate rise.
Many in the sector believe concerns over the recent rise in council PWLB borrowing to fund revenue-raising commercial property investment played a major role in this week’s rate hike.
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But the move has caused widespread concern that responsible councils funding regeneration and housing projects on tight margins will be forced back to the drawing board.
Speaking to Room 151, Simone Hines, president of the Society of District Council Treasurers (SDCT) and director of finance and procurement at Nuneaton and Bedworth Borough Council, said: “We have made representations to Treasury that they introduce a new lower rate that local authorities could apply to in order to fund housing and regeneration schemes.
“This would be similar to the existing infrastructure discount rate, which is very tightly restricted at the moment.”
The SDCT has already been in touch with Treasury officials, and has agreed to gather examples of schemes which are under threat from the PWLB rate rise.
Hines said that the impact of the Treasury’s decision was already being felt at her own authority.
“We have a town centre regeneration scheme that relied on PWLB funding that was already on the cusp of viability.
“We have done some work on viability in the past 24 hours and it will be more difficult to achieve now. We are back at the drawing board.”
Many councils, she said, were funding regeneration schemes on tight margins because there is not enough profit for private sector developers to take them on.
She also said that her council will have to revisit its housing revenue account business plan in the light of the rise in the PWLB rate.
“We have got about 1,000 new builds in the plan. We are going to look at what we can afford to provide now and I am sure the number of homes will drop.”
Sharon Taylor, finance spokesperson at the District Councils Network and leader of Stevenage Borough Council, told Room 151: “At my own authority, we had hoped to borrow £300m over 30 years to invest in council housing.
“We need to get a quick development of good quality affordable council housing. This will put a big obstruction in the way of delivering it as quickly as we want.”
Taylor also said that her council’s plans to raise money for services through commercial investment will also be hit.
She said: “We have had nine years of austerity and are on a knife edge anyway.
“To face the prospect of cutting jobs again when we could deliver additional funding through commercial investment seems crazy and short sighted on the part of government.”
A spokesperson for the Local Government Association said: “This 1% PWLB rate increase could cost councils an extra £70m a year for borrowing to be undertaken in the next year.
“It presents a real risk that capital schemes, including vital council house building projects, will cease to be affordable and may have to be cancelled as a result.”
Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, told Room 151: “The government is saying one of its priorities is to provide more social housing and this will have an effect on council business cases to do that.
“A lot of local authorities will find this a very difficult decision by government because they will be in the position of trying to deliver business cases for infrastructure and housing and all the range of innovative things local government wants to do.
“They will be disappointed and concerned about these business cases after the goalposts have changed.”
A briefing paper from treasury adviser Arlingclose to its local authority clients went even further, saying that the Treasury used “the proverbial hammer…to crack a nut”.
It said the rate rise would “cause issues regarding the viability of many projects but particularly the “borrowing to invest” schemes where margins are thin and risk to the authority is higher”.
John Bibby, chief executive of the Association of Retained Council Housing, said: “Coming shortly after the government lifted the cap on HRA borrowing, this move is not helpful. It is going to force a few councils to look at their borrowing strategies.”
Reacting on Twitter, Labour’s shadow minister for local government, Jim McMahon, said the move to increase the PWLB rate “will hit councils even harder and could stall regeneration and housing schemes.
He said it “shows contempt for local councils not to give reasonable notice to allow full assessment” of the move.
More from Room 151 on the PWLB rate increase:
PWLB rate rise: Market makers step in to signal new era for council finance
PWLB rate hike sends shockwaves through council finance sector
PWLB bombshell: ‘Best day for a long time’ for bonds agency
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