Will Public Works Loan Board interest rate rise of 1% alter Wirral Council’s business case for purchase of shops in Milton Pavement, Birkenhead?

                                    

Cabinet (Wirral Council) 4th November 2019

Wirral Council’s Cabinet on Monday agreed recommendations to agree “in principle” to the purchase of shops in Milton Pavement, Birkenhead and a unit at 13-15 St Werburgh’s Square. A consultation is expected to start on the 7th November 2019.

Although the business case for this “in principle” purchase has been kept out of the public domain, Wirral Council has borrowed money from the Public Works Loan Board for previous purchases of property.

The deadline for reports to the meeting of Wirral Council’s Cabinet on the 4th November 2019 (including the one on Milton Pavement) was 1st October 2019.

This date predates a letter dated 9th October 2019 to Wirral Council’s Chief Finance Officer Shaer Halewood informing Wirral Council that the interest rate on future loans from the Public Works Loan Board to Wirral Council is increasing by 1%.

It is unknown whether Wirral Council’s Cabinet was informed of this prior to their decision or even whether the source of funds for the “in principle” purchase is the Public Works Loan Board.

The text of the letter from the Local Government and Reform Team in Her Majesty’s Treasury is below:-

“Public Works Loan Board (PWLB) Interest Rates

1. The Government recognises that the freedoms for local authorities to borrow under the Prudential Framework are fundamental to supporting local capital strategies and authorities’ organisational objectives, including regeneration, supporting local growth and service delivery. The PWLB supports this activity by on-lending Government borrowing from the capital markets to local authorities to deliver capital investment.

2. The maximum net amount of PWLB loans that can be outstanding at any time is subject to a statutory limit. In order to ensure that lending continues to be available for local authorities that need it, the Government has legislated to increase the lending limit from £85bn to £95bn.

3. PWLB lending is offered at a fixed margin above the Government’s cost of borrowing, as measured by gilt yields. The Treasury raised the margin over gilts to 100bps (one percentage point) in 2010, to better reflect the availability of capital finance, and lowered it to 80bps over gilts in 2013 for qualifying authorities.

4. 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.

5. This restoration of normal PWLB lending rates will apply to all new loans with immediate effect. The Government will monitor the impact of this change and keep rates policy under review.

6. As always, the Government will continue to work with individual authorities on a case-by-case basis if they have concerns over their financial position.”

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