The government has launched a consultation on the future of the Public Works Loan Board after some councils used it to buy ‘significant’ amounts of commercial property.
Chancellor Rishi Sunak revealed during his first Budget speech yesterday (11 March) that the government is launching the consultation, which will run until 4 June on the PWLB, which provides long-term loans for local authorities and other public bodies to fund large projects.
According to the consultation document, which is available on the Treasury website, the government is consulting on revising the terms of PWLB lending to ensure that local authorities continue to invest in housing, infrastructure, and public services.
The consultation follows a report by the National Audit Office (NAO) in February, which showed councils in England have spent £6.6bn on supermarkets, office blocks and warehouses between 2016 and 2019.
According to the NAO, this is 14.4 times more than councils spent in the preceding three years.
New Start has reported in the past how many councils are turning to property investment to make up for the shortfall in the money they receive from central government.
In 2018, a report by the Bureau of Investigative Journalism revealed Spelthorne Borough Council in Surrey had borrowed almost £1bn from the PWLB to buy a series of commercial properties.
Responding to the chancellor’s announcement, the chief executive of the Chartered Institute of Public Finance and Accountancy (CIPFA), Rob Whiteman, said: ’The Treasury’s rationale is to prioritise the use of PWLB for investment in services and local regeneration, and to reduce borrowing to invest in commercial property.
‘This represents one of the most significant interventions by government since the inception of the Prudential Framework in April 2004.
‘CIPFA advises all chief finance officers to adopt these new arrangements with immediate effect. When regulations follow consultation, we believe that they will apply to both financing and refinancing, and so councils should avoid the risks that could result if they borrowed from the PWLB for commercial purposes during the transition.
‘The proposed intervention by government could signal a move towards a more prescriptive framework, something all stakeholders will have an interest in avoiding. The most appropriate way to safeguard the current framework is to demonstrably have regard to the Prudential Code and to be advocates for the principles therein,’ added Mr Whiteman.
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