0370 270 6000

already registered?

Please sign in with your existing account details.

need to register?

Register to access exclusive content, sign up to receive our updates and personalise your experience on brownejacobson.com.

Privacy statement - Terms and conditions

Forgotten your password?

Rise in the cost of borrowing from the Public Works Loan Board - to harm project viability?

26 November 2019

This article is taken from November's public matters newsletter. Click here to view more articles from this issue.


Decision

The Treasury’s recent decision to raise the borrowing rate from the Public Works Loan Board (PWLB) (from 1.8% to 2.8%) will inevitably increase the cost of infrastructure projects as councils face higher interest rates. The PWLB is the primary source of borrowing for local councils to access lower rates of interest, to finance and fund infrastructure projects, including regeneration schemes.

Impact

Whilst the national impact of this decision is unknown, it is predicted by the Local Government Association that the change in the PWLB borrowing rate could cost councils an extra £70 million a year. Manchester City Council has also estimated that the PWLB rate rise would equate to an additional cost of £18.9 million for planned borrowing on capital projects up to 2024.

The new PWLB rate is likely to have negative consequences on housing and regeneration schemes, especially projects which are considered borderline in terms of viability. These projects are likely to have to be scaled back or suspended, resulting in fewer affordable homes being built.

Opposition

Councillors and Mayors across London have submitted a written request to the Treasury for the decision to be reversed, or for there to be an exemption where funds are borrowed to fund house building and regeneration schemes. Councils are currently eligible to apply for a discounted PWLB borrowing rate of 60 basis points above gilts for non-housing infrastructure projects. It is proposed that a similar approach is taken to ensure accessibility to funding continues for housing and regeneration schemes. Despite the opposition, the Treasury has defended its decision and increased the overall cap on the amount local governments can borrow from the PWLB, from £85 million to £95 million.

Alternatives 

Local councils may instead have to consider alternative sources of funding for projects such as pension funds, bank lending or private investors, which may now be able to offer cheaper rates of borrowing than the PWLB. However, the credit rating agency Moody’s considers that the PWLB will remain councils’ primary source of finance despite the rate rise. If local authorities decide to take advantage of cheaper borrowing rates offered by the private sector, they will need to carefully review any terms and conditions to consider any additional covenants which may apply.

Receive our latest government sector news

Choose the way you want to keep up to date with our latest updates and insights. Sign up to our monthly newsletter or join the conversation with our team on LinkedIn.

Sign up to receive updates >

Follow our LinkedIn showcase page >

<>

Training and events

9Sep

In house lawyers: our sustainable future Online

This might be the greatest challenge facing C-Suite and legal teams over the next few years. What does that mean for you?

View event

7Oct

In house lawyers: skills and networking session Online

As the pandemic recedes, we'll be getting back together, taking a look at what it means to be a lawyer in 2021 and to have a work-life balance.

View event

Focus on...

Legal updates

The Building Safety Bill – what does it mean for you?

Earlier this month the Government published the Building Safety Bill as part of its continuing efforts to respond to the Grenfell disaster and recommendations made following the Independent Review of Building Regulations and Fire Safety led by Dame Judith Hackitt.

View

Legal updates

Japanese knotweed – a diminishing risk?

The Royal Institution of Chartered Surveyors (‘RICS’) is in the process of updating its guidance to surveyors on their approach to Japanese knotweed when valuing a property.

View

Legal updates

Local authority leisure provision in a time of Covid

It was no surprise that the leisure sector was one of the hardest hit by the pandemic, and that many local authority leisure contracts required significant intervention.

View

Legal updates

Special Severance Payments

It took over 5 years for secondary legislation implementing the £95,000 cap on public sector exit payments to be brought into force; only a few months after their implementation, the Government announced in February of this year that the Public Sector Exit Payments Regulations 2020 would be revoked, citing ‘unintended consequences’ which had been identified after ‘extensive review’.

View

The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

Mailing list sign up

Select which mailings you would like to receive from us.

Sign up