Treasury slaps 1% interest on PWLB borrowing
The Treasury has put a 1% surcharge on interest rates from the £95bn Public Works Loan Board, threatening development projects across the country.
It said the increased prudential borrowing rates would apply to all new loans with immediate effect.
The PWLB is the main source of local authority borrowing, with lower interest rate loans for construction and maintenance projects.
The Treasury has put a 1% surcharge on interest rates from the £95bn Public Works Loan Board, threatening development projects across the country.
It said the increased prudential borrowing rates would apply to all new loans with immediate effect.
The PWLB is the main source of local authority borrowing, with lower interest rate loans for construction and maintenance projects.
The hike will see the rate rise to 2.85% for a new 50-year maturity loan.
In a letter to the chief finance officer, the Treasury said: “Some local authorities have substantially increased their use of the PWLB in recent months as the cost of borrowing has fallen to record lows.
“HM Treasury is therefore restoring interest rates to levels available in 2018, by increasing the margin that applies to new loans from the PWLB by 1% on top of usual lending terms.”
The Treasury said it would work with individual authorities “on a case-by-case basis if they have concerns over their financial position”.
Stevenage Borough Council leader Sharon Taylor said on social media: “In another hideous swipe at local government finances today and with no prior notice the government has stuck 1% on borrowing from the Public Works Loan Board, trashing our housing business plans and requiring huge revision of our financial planning.”
The Local Government Association said the increase could cost councils an estimated £70m a year. An LGA spokesman said: “It presents a real risk that the capital schemes, including vital council house building projects, will cease to be affordable and may have to be cancelled as a result.”
PWLB borrowing surge
In the financial year 2018-19, the PWLB advanced 1,308 new loans totalling £9.1bn. This is almost double the previous year, when it issued 780 loans totalling £5.1bn.
As of March 2019, the PWLB held loan assets of £79bn. The government has increased the lending limit from £85bn to £95bn.
Rachel Kelly, senior policy officer at the British Property Federation, said: “While additional headroom in borrowing levels is welcome, increased finance costs as a result of the 1 per cent hike in interest rates will have a knock on impact on the viability of infrastructure investments and housing delivery targets.”
A spokesman for the Mayor London said: “We are hugely disappointed that the government has chosen to increase Public Works Loan Board interest rates. We are now looking actively at ways in which this increased cost can be mitigated by borrowing from alternative sources for essential infrastructure projects such as the Northern Line Extension and the regeneration of the Royal Docks.”
The news comes as several local authorities have ramped up ambitions for major regeneration projects. Spelthorne Council has approved a further £500m in prudential borrowing to fuel its commercial investments and, this week, Hammersmith & Fulham Council set out plans for the largest local authority acquisition to date, estimating it will need £650m to acquire the 7,500-home Earls Court regeneration scheme.
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