Surprise increase to some Treasury loans forces BCP Council review

On Wednesday the Treasury wrote to all local authorities outlining the immediate one per cent rise for Public Works Loan Board (PWLB) borrowing.

The change prompted a warning from the Local Government Association that it could put some council projects at risk.

“The one per cent rate increase could cost councils an extra £70 million a year for borrowing to be undertaken in the next year,” its spokesman said.

“It presents a real risk that capital schemes, including vital council house-building projects, will cease to be affordable and may have to be cancelled."

The change will not apply to already agreed loans, including those Bournemouth council took out, including for the purchase of the Mallard Road retail park.

Speaking at Thursday’s meeting of BCP Council’s audit and governance committee, chief finance officer Adam Richens said the council had no immediate plans to borrow through the PWLB.

“It’s something that’s sent a number of local authorities into a tailspin where they have active projects that they were about to borrow for,” he said.

“We will have to review any schemes we have got and ensure they are still viable based on those interest rates.”

Some councils have made more regular use of the PWLB, including Spelthorne council in Surrey which has borrowed £1 billion.

It prompted the government's change outlined in a letter sent to the chief finance officer at every council on Wednesday.

The Treasury said it would monitor the impact of the change.

Cabinet member for finance, councillor David Brown, said: “Any loans taken out from the PWLB by the three councils preceding BCP Council have been at a fixed rate of interest, so the recent increase will have no impact in the short term.

“If BCP Council was to consider any further borrowing in the future, we would look at all the options available to us at that time – which will include the PWLB – in order to make a fully informed decision.”