A little local optimism….

There is an interesting but little publicised article here, which shows that the Public Works Loan Board (PWLB) – which is, effectively, a method whereby Local Authorities can borrow money at ‘beneficial’ rates, has just put up its rate by a whole 1%.

Apparently, the Treasury sent a letter to Finance Officers in all local authorities saying that:

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 100bps (one percentage point) on top of usual lending terms.

Now local authorities are of course financially starved, so one would imagine this will go down like a lead balloon. When interest rates are on the floor, what possible justification can there be for doubling them?

Well first, the PWLB is part of the Debt Management Office (DMO) of the Treasury. Many of us will know that this is no different from the National Savings and Investment (NSI) ‘Office’. It is just different marketing. The NSI is marketed at individuals – hence ‘saving’, the DMO, at banks and pension companies – hence ‘debt’. Both are, of course, from our – or any- government’s point of view, exactly the same thing. It is basically an asset that is all of ours…

Local authorities are not allowed to use the PWLB money for certain purposes (particularly housing) yet can speculate in commercial property without problem. (Yet another definition of Neoliberalism, perhaps?)

A council in Kent is rumoured to be completely solvent without any council tax being paid. Well done! – but does gambling actually assure – or even reassure public service provision?

This is, in effect, governmental failure.

And by arbitrarily increasing the interest rate by a whole 1% it gets even worse.

Or, well, does it?

There is a PLC called the UK Municipal Bonds Agency (MBA) which is a PLC owned by the “Local Government Association and Local Councils” and as they indicate:

While a municipal bonds agency has not previously existed in the UK they have been successfully established throughout Europe – in France, the Nordics, Scandinavia and Holland as well as in Japan, New Zealand and Canada. In each case, borrowing costs, transparency and efficiency were improved by the creation of a municipal bonds agency.

So not too radical and now almost definitely at a considerably lower interest rate than the PWLB.

So intentionally or not, this is likely to throw Local Authorities into the hands of the MBA.

The great advantage of bonds and thus the MBA is that they issue bonds for purpose – no purpose, no bonds…

And who wouldn’t wish to finance a local authority? When Northamptonshire went bust it was in effect, actually backed by the government.

So the government – I suggest with the intention of driving down the Public Sector Borrowing Requirement – may well have gifted a Local Authority initiative, the MBA, with its well-justified start in life.

That, at least, is something to be optimistic about…


  1. Bill Hughes -

    The whole of government policy since 1979 has been to stifle local government and to prevent the development of social housing producing housing price inflation and lining the pockets of the rich at the expense of an expanding under class. The 1% increase in local government borrowing costs is to be deplored. If there is a cheaper borrowing option as you suggest it will not be long before legislation is brought in to stop this.

    1. Peter May -

      I hope you’re not right!

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