Councillors in Northampton have voted to lobby the Government to reverse an increase in interest rates on money loaned by councils.
The hike in interest for loans from the Public Works Loan Board (PWLB), announced last month, has seen interest rates rise from 1.8 per cent to 2.8 per cent.
The rise has sent shockwaves through local government finance. Northampton Borough Council has used its access to the PWLB for some major projects in the town, including lending the University of Northampton a sum of £46million to develop the new Waterside Campus.
However, critics have said that the low interest rates have also allowed local authorities to play the property market.
In a letter to local councils, the treasury said that ‘some local authorities have substantially increased their use of the PWLB in recent months, as the cost of borrowing has fallen to record lows’.
But a spokesperson for the Local Government Association (LGA) 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 as a result.”
And last night (November 4) councillors in Northampton agreed that the borough council should try and persuade the Government to reverse its stance alongside the LGA.
A motion submitted by Labour councillor Les Marriott, unanimously approved by members of all parties, noted the increase ‘with dismay’. It stated: “The one per cent increases the risks attached to regeneration and development and creates the need for revision of existing plans and business cases. We note this has led to, for example, a delay in borrowing for the Berkley House rebuild.”
Speaking at the Guildhall last night, Councillor Marriott said: “If we want to take out a £20million loan, which is not uncommon for a local authority, a one per cent increase over 25 years puts another £5million burden on this authority.”
Conservative council leader Cllr Jonathan Nunn responded: “I believe it was put up to discourage commercial property portfolios, but my view is that we need to differentiate. When it’s borrowing for housing projects we should be able to get the best possible deal.”
And Labour leader Cllr Danielle Stone added: “We need to be able to borrow cheaply and invest in our communities and not leave a legacy of debt for the councils that may come after us.”