Treasury cuts loan rates to aid councils moving to self-financing

Published by Ross Macmillan for 24dash.com in Housing and also in Communities, Local Government

Chief Secretary to the Treasury Danny Alexander has cut the interest rate offered to stock-holding councils to borrow cash from the Government-backed Public Works Loan Board (PWLB) in a bid to support their transition to self financing.

The move to self-financing has seen the Government announce the scrapping of the Housing Revenue Account (HRA) system which will allow councils to keep rents and receipts from housing sales, although 75% of Right to Buy receipts will still have to be handed to the Treasury, as is currently the case.

In return councils will have to take on a slice of the national housing debt, which will reflect the value of a council’s housing stock, which will in turn, be calculated by assumptions about housing income and expenditure over a 30-year period.

Earlier this month, Wandsworth Council announced plans to snub the PWLB and issue a £250m bond to pay the debt it will inherit which is close to £500m.

It said the rates available from the markets are better than the "higher interest rates" offered by the PWLB - which has been the traditional way councils have raised finances.

Mr Alexander said yesterday: "To support local growth, I can today announce my decision to reduce the interest rate offered to local authorities by the Public Works Loan Board to finance the £13bn of debt needed to leave the Housing Revenue Account subsidy system.

"I've listened to local authority concerns that this is a one-off transaction within the public sector and should be financed as such.

"Let me put it simply – an extra £100m every year that councils can then reinvest in housing."

Stock-retaining councils will make or receive a payment from Government on 28 March 2012 to enable self financing, which will go live from 1 April 2012.