0370 270 6000

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

10Oct

Health & Care Connect East Midlands Conference Centre, Beeston Lane, Nottingham NG7 2RJ

Our conference will connect leaders, executives and professionals from across the health and care sector to discuss the challenges, opportunities and strategies for delivering services, resilience and looking after our people in the new world.

View event

Focus on...

Legal updates

Public Matters - September 2022

Welcome to our September edition of Public Matters, our monthly round-up of legal updates, news and insights for the public sector.

View

Blogs

IR35 rules to be scrapped from April 2023

The Chancellor’s recent mini-budget provided a significant announcement for business as it was confirmed that the off-payroll working rules (known as “IR35”) put in place for public and private sector businesses from 2017 and 2021 will be scrapped from April 2023.

View

Legal updates

Data reform in the UK

Since the UK left the EU and are now able to move away from the EU data protection regime, the UK government have implemented a national data strategy with the aim of reducing the burden on organisations but maintaining a high data protection standard.

View

Legal updates

The reality of the future of devolution arrangements in England

Devolution is the transfer of powers in areas like transport, housing and skills in England and since the Cities and Local Government Devolution Act 2016 has been a much-discussed topic.

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