PWLB interest change ‘too market sensitive’ to put to LGA

Commons question confirms LGA informed of change said to have stilled council housing plans only after market closed.

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The government saw it as too market sensitive to talk to the LGA about the one per cent interest rate increase on new loans from the Public Works Loan Board (PWLB) said to have stilled council plans to build social housing.

Confirmation comes in the response to a written Common questions from Labour’s Andrew Gwynne who asked what talks the Treasury had with LGA representatives ahead of the announcement earlier this month.

Treasury minister John Glen said that though the Government engages sector representatives in policy development where possible, it was not possible to do so over the PWLB interest increase because the change was “market sensitive”.

Glen confirmed that the LGA was instead notified of the decision after markets closed on October 8.

In a second question, Gwynne what assessment the Treasury made of the effect the increase on the capital investment plans of councils.

Glen said the potential impact was assessed, with the increase returning PWLB rates to levels that were available in 2018.

“The Government will continue to work with individual authorities on a case-by-case basis if they raise concerns over their finance position,” he said.

As reported by 24housing, Housing Secretary Robert Jenrick this week told the HCLG committee that he “doesn’t expect” the PWLB rate hike will have a significant impact on housebuilding.

Some councils have “abused” PWLB and a “degree of reform” is probably necessary, he said.

The LGA estimates the unexpected government-imposed rate rise will add about £70m to financing costs for all new loans to English councils – tipping housing projects already on the edge of viability into ‘pending’ purgatory.

On paper, the increase – applying to new loans only – pushes the rate up from 1.81% to 2.82%.

The Treasury also emphasizes that it has legislated to increase the lending limit of the PWLB to £95bn, as part of the government’s ‘commitment’ for councils to access financing to support their capital-spending plans.

But the LGA believes that, in the current climate, the “out of the blue” rate rise represents a real risk that capital schemes, including housebuilding projects, will simply cease to be affordable.

Just a year ago as many as 60 councils were saying they would use new powers to borrow more money to boost housing stock – with scope said to be in the thousands or the biggest social housing build programme since the 1970s.

Official stats show the number of new homes built for social rent has fallen by almost four fifths in a decade and only 6,000 constructed in 2017-18.

A recent surge in council borrowing has, however, been driven by investment in office blocks and shopping centres, with a view to new revenue streams that could cover what was lost to cuts.

And Whitehall is worried that the multi-billion-pound exposure of councils to the commercial property market could crash many out in the event of an inevitable post-Brexit economic downturn, a prospect already under inquiry by the National Audit Office (NAO) – with a related report due by the end of the year.

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