Treasury mulls Public Works Loan Board discounts for housing schemes

A Treasury source told Inside Housing that government has not ruled out this possibility, adding: “This is something that has been raised with Treasury. The position is that we have heard them and we keep the policy under review.”

Councils are eligible to apply for a discounted PWLB borrowing rate of 60 basis points above gilts – compared with the now-standard 180 basis points – to build non-housing infrastructure in their areas. The SDCT has proposed that a similar mechanism is used for housing schemes.

In the aftermath of the PWLB rate hike announcement, London Councils also urged the government “to consider developing a more sophisticated approach that would continue to ensure access to funding for high-priority developments”.

Inside Housing recently revealed that councils intend to quadruple their housebuilding over the next five years, largely funded through borrowing after the Housing Revenue Account debt cap was abolished last year. However, there have been some fears that this figure could be reduced as a result of the increased borrowing rates through the PWLB.

Credit rating agency Moody’s said the hike is “credit negative” for councils. However, the agency also said it expects the PWLB to remain councils’ main source of finance in spite of the rate rise.

Local authorities had borrowed £9.6bn from the PWLB up to September 2019 – more than the £7.5bn taken for the whole of 2018.

Some councils have been investing heavily in purchasing commercial property such as shopping centres, aided by historically low borrowing costs. Concern about this activity is understood to be behind Treasury’s decision to raise PWLB rates.

The new PWLB rate is higher than that potentially on offer from private investors, leading to speculation that councils may start to look elsewhere for borrowing.