Treasury plans to ban councils from borrowing like Spelthorne

A DIRECT result of unwise borrowing by our council

Read the rest of the story: spelthornelibdems.org.uk/en/page/focus-on-borrowing-gamble

The Treasury has issued a consultation document about the future of the Public Works Loans Board (PWLB). The PWLB is the government body that makes loans to Local Councils and from which Spelthorne has borrowed over £1bn since 2016.

A change in lending policy has been required because of "a dramatic increase since 2016 in commercial activity that is motivated primarily for yield rather than for the direct pursuit of policy objectives".

The PWLB is not new, having been first in 1793, and its purpose is to support capital projects by local authorities and other specified institutions. The behaviour of Spelthorne and a few other local authorities has forced the Treasury to amend the rules to close off the loopholes.

The behaviour of the councils who have borrowed public money purely to generate income has been criticised in the consultation document:

• "When public money is diverted into assets that serve no direct policy purpose, the value for money of the system is undermined"
• "… it is a low-value use of public resources"
• "If an LA puts £1 into a debt-for-yield scheme for a 1% net return per year, that is £1 that cannot be spent on national priorities such as the NHS, police, or schools - in exchange for which the LA only gets 1p to spend on local services"
• "Should investments not perform as expected, local services could suffer, and the LA would need to find an alternative way of funding their planned services and meeting their repayments "
• "The rise of debt-for-yield activity removes some natural constraints that underpin the prudential system and means it is no longer working as intended"

In responses to these issues the Treasury is proposing that borrowing is restricted to a limited number of purposes and placing restrictions on investing out of the authority's area.

Borrowing would be allowed for the following purposes:

• Service spending e.g. transport, education or environmental services
• Housing - subject to some criteria
• Regeneration
• Refinancing (depending on circumstances)

Borrowing would not be allowed for

• Buying land to be let out at market rates
• Existing buildings for commercial letting
• Non-housing assets intended to generate income

These new rules would ban the type of investment Spelthorne has undertaken by buying commercial properties and becoming a commercial landlord. The new riles would not impact on any loans already in place.

Spelthorne Liberal Democrats are in favour of the changes as they encourage genuine infrastructure investment and will prevent the inappropriate use of public funds.

The consultation sets out how the Treasury will require the PWLB to behave in future and is asking for comments on the proposals. The full consultation document can be found here. The treasury is not asking for alternative proposals and it would be unusual for the policy to change materially from what is proposed.

Group Leader Cllr Sandra Dunn said: "We all recognise that future development will require significant investment and that the Council will have to obtain long-term funding. We are firmly of the opinion that the new Treasury guidelines will allow this type of borrowing whilst at the same time stopping further risky speculative investment of public money of the type that Spelthorne has undertaken.

For any new investments to be successful it is vital that the Local Plan and the Staines Masterplan are aligned with what residents want. We hope the Council reflect on its borrowing strategy and properly engage in a genuine dialogue with residents before committing our future to excessive development which will take place at a cost to the welfare of our neighbourhoods. We also vehemently believe that we need a commitment in place to the necessary social infrastructure before the bulk of development takes place."

The Bureau of Investigative Journalists has published an article on this subject - Treasury bans billion-pound council property investments revealed by the Bureau