You are viewing 1 of your 1 free articles
The increase in PWLB borrowing rate will slow down councils’ building
The Treasury’s decision to increase borrowing rates for councils can only have a chilling effect on development. It must act to make it easier for town halls to raise funds, writes Simone Hines
The email that landed in my inbox early one morning a couple of weeks ago came as quite a shock. It was an announcement from the Treasury of an immediate increase of one percentage point in the Public Works Loan Board (PWLB) borrowing rates – a reaction to the significant increase in borrowing by local authorities this year, particularly over the summer.
There isn’t any data available on exactly what all this borrowing has been for, but it’s likely a significant proportion of it will have been for housing and regeneration schemes.
The decision to lift the Housing Revenue Account (HRA) borrowing cap last autumn, as well as the wider growth incentives in the local government finance system, have encouraged development. This seems at odds with the Treasury’s rate increase, which is likely to slow down the pace of borrowing.
READ MORE
Many stock-holding authorities welcomed the lifting of the HRA borrowing cap. It meant we could increase or bring forward the building of council houses, although the cost of that borrowing still needed to be affordable and sustainable.
We’ve had a new build programme for some time, making use of innovative modular construction techniques, and we had planned to scale this up, funded by borrowing.
Our plans to increase our stock are particularly important, given the continuing impact of Right to Buy – even with a business plan that maximises borrowing, we still cannot keep up with the loss of stock through Right to Buy.
“The knock-on effect of the PWLB rate rise is an increase in interest costs of around £12m – which we have estimated is the equivalent of around 100 properties that we will potentially not be able to build”
We were aiming to increase our stock by around 1,000 over the life of our business plan – an almost 20% increase – through a mix of new build and acquisitions. But we also estimated that we could lose around 1,200 properties during that time through Right to Buy sales.
Since the announcement, our authority has been reviewing our HRA business plan to see what it means for our new build programme.
The knock-on effect of the PWLB rate rise is an increase in interest costs of around £12m – which we have estimated is the equivalent of around 100 properties that we will potentially not be able to build.
To put that into context, we usually average around 75 families in temporary accommodation at any one time. We also need to balance our new build programme with the need to improve and regenerate our existing stock, which we had also planned to borrow for.
Nuneaton & Bedworth Borough Council is not alone in this. The Society of District Council Treasurers has been working alongside the Local Government Association to gather some hard evidence on the impact of the PWLB rate rise, in order to present the issues to the Treasury, as it seems clear that an assessment of the impact of the decision was really lacking.
Other authorities are looking at their HRA business plans in the same way and reviewing whether schemes can still work. Do they represent value for money? Do they need to be scaled down? What else might not get done, to cover higher interest payments?
“One way or another, I hope the sector can convince the Treasury of the need to rethink the decision or put some mitigations in place. Otherwise, the inevitable decrease in borrowing will undoubtedly lead to a slowdown of much needed new council housebuilding”
One authority, for instance, is looking at an increase in rent of almost 20% to make new build projects viable. The 100 or so properties that Nuneaton & Bedworth may not be able to build is replicated in many local authorities up and down the country.
Local government is creative and innovative, and will try hard to look at alternative options. One of the possible measures that we are asking the Treasury to consider is a lower borrowing rate for specific types of projects – housing and town centre regeneration schemes for instance. This could work in a similar way to the previous Local Infrastructure Rate, where local authorities bid for a significantly lower rate for certain types of project.
One way or another, I hope the sector can convince the Treasury of the need to rethink the decision or put some mitigations in place. Otherwise, the inevitable decrease in borrowing will undoubtedly lead to a slowdown of much needed new council housebuilding.
Simone Hines, executive director of resources, Nuneaton & Bedworth Borough Council