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  • Writer's pictureDavid Marlow

Has the Public Works Loan Board contributed to the local government S114 crisis?

Updated: Feb 22

Seven English local authorities have now issued S114 notices (at the time of writing) – effectively declaring themselves technically bankrupt. Many more are under real threat of being compelled to do the same. For their first Espresso Shot episode of February 2024, David and Mike discuss how HM Treasury’s Public Works Loan Board (PWLB) has played a huge, largely unscrutinised role in incubating financial crisis. This lack of Treasury accountability needs to change…

Accountant scrutinising financial statement

What is the Public Works Loan Board and why is it important?

The PWLB has a lengthy history as Government’s major lender of funding to local authorities (LAs) for infrastructure, housing programmes, and in practice any other purposes for which LAs seek marginally concessional capital financing. It is a facility nestled in the Debt Management Office, so a department of the Treasury. As of March 2023, the PWLB reported 15,998 current loans in the UK local government sector, with a total maturity value of over £95.6bn. This amounts to 78% of long term local government borrowing.

Why is this relevant to LAs issuing S114 notices?

Research undertaken by David in late 2023 with CURDS colleagues from Newcastle University, using the PWLB’s own published figures, showed that in March 2023 the six S114 councils had 726 loans outstanding with PWLB with a book value of £7.5bn. To give one extreme example, Woking, a council with core spending of only £15m per annum had borrowed over £2.1bn in 142 PWLB loans. Whilst Woking must be accountable for their borrowing decision, Mike and David argue that someone in the Treasury should also be accountable for why they lent a Surrey District more than 140 times its annual core spending. To give the example of Nottingham City Council, who issued its S114 notice after the initial research, its S114 notice was in response to an unfunded spending gap of £24m – yet its expected interest payments to PWLB are over £27m this year, and it had ‘repaid’ more than £340m in 2022/23.

What does all this mean for LA financial intervention by national government?

The question is whether the current financial recovery menu is fair and whether it is sensible. Sending in Government appointed commissioners to cut services to vulnerable people, sack staff, raise local taxes, and fire-sale prize assets are, on the face of it, more economically and socially costly than repayment freezes on PWLB loans. This is especially the case if Treasury due diligence failures made that lending ‘reckless’ or at the least complicit in the LAs financial failure. David and Mike’s point is that these needs investigating, and Treasury should share some accountability with individual LAs if found to have been irresponsible – perhaps more so if there has been a PWLB system failure.

What are the solutions in the long term?

Part of the solution of LA financial sustainability needs to be major changes in the way public investment finance is funded and accessed. Much stronger business cases and appraisal are required, akin to those that were required for previous EIB or even current UK Infrastructure Bank (UKIB) lending. Whether this is a significantly expanded UKIB, regional development banking, or some other solution, it must surely include radical reform or even replacement of PWLB.


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