Councils to seek PWLB alternatives to maintain capital programmes
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Almost nine in ten councils are planning to push ahead with planned capital projects despite the Public Works Loan Board rate rise – with more than half set to seek funding from alternative sources, according to a Room 151 survey.
Earlier this month, fears were raised about the future of housing and regeneration schemes after the Treasury hiked the rate of borrowing from the PWLB by a whole percentage point.
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March 25th, 2020, Manchester
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However, Room 151’s survey of senior finance officers, which had 120 respondents, found only 13% are planning to scale back capital projects, with none saying they would scrap plans completely.
- According to the results, 46% said their intention was to carry on with existing capital investment plans but find funding from other sources;
- Another 25% said they would carry on with projects because even with the rise interest rates, the costs of borrowing remain within budgeted levels;
- A further 15% said they would continue borrowing from the PWLB and fund the increase interest payments from within other areas of their revenue budgets.
Speaking to Room 151, Mel Creighton, director of finance and resources at Liverpool City Council said her authority was looking at a range of options.
She said the rise in interest rates is set to cost the authority £600,000 in interest payments on planned PWLB borrowing in 2020/21, rising to 3.6m in 2022.
She said: “Stopping regeneration schemes has another impact – pushing the projected business rates into the future or losing them altogether.
“What looks like a small change to the interest rate to government can have a much bigger impact on our future income.”
This week, the Treasury played down reports that it was already working on plans for a discount rate for housing projects.
Both the Society of District Council Treasurers and Local Government Association have lobbied the Treasury to implement the move following the rate rise to help save housing and regeneration schemes hit by the rate rise.
A source at the Treasury told Room 151 said that it is not working on any plans for a reduced rate but was keeping the impact of the rise under review.
The survey also provided encouragement for the UK Municipal Bonds Agency, which is hoping the rate rise will remove one of the main barriers to its previous failure to launch a bond.
More than half (58%) of respondents said they were more likely or much more likely to borrow from the UKMBA if it issues a bond.
The remaining 42% said there was no change in their attitude to using the agency.
This week, the UKMBA announced its proposals for the replacement of another barrier to participation – the problematic “joint and several guarantee”.
In another question, the survey asked whether councils would continue to borrow from the PWLB.
The results cast some doubt on the theory that the Treasury stands to make a substantial windfall from extra interest payments resulting from the rise, with only 13% saying they would continue to borrow from PWLB at the same scale as previously planned.
More than half (51%) said that they would continue to borrow from the PWLB, but not at the same scale they had previously been planning.
A further quarter (24%) said they would not borrow from the PWLB at the new rate.
Only 12% said that the rise didn’t impact them because they were not planning to borrow from the PWLB before the rise.
When asked which sources of borrowing councils would replace PWLB borrowing with, the most popular answer was other local authorities (27%).
Last week, David Blake, strategic director at treasury adviser Arlingclose suggested that councils consider borrowing at low rates on short-term loans from other councils until the market for longer-term borrowing stabilises.
Banks were the second placed alternative option favoured (17%) with pension funds and institutional investors in third place (13%).
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