Following criticism by MPs, the Public Works Loan Board (PWLB) is consulting on procedural changes which could reduce the cost of early repayments – a move that should save local authorities millions of pounds. A consultation letter, sent by the PWLB to councils late last month, reveals it is considering resetting loan rates at intervals during the business day, rather than at the start of each day. Market fluctuations in the daily cost of borrowing currently make it more difficult for councils to obtain the best rates. The letter, sent by PWLB secretary, Mark Frankel, states that ‘depending on the changes that might be adopted, it is anticipated that the differential between loan rates and pre-payment rates would diminish, particularly for longer maturities.' That would lower the cost of local government's PWLB borrowing, which is already significantly lower than borrowing on the open market because it enables town halls to obtain loans at rates equivalent to those secured by central government. Under the current regime, councils wishing to pay back loans early must pay a premium when existing interest rates are lower than the rate at the time of the original loan. While the PWLB is under no obligation to accept early repayments, it is unusual for a request to be turned down. But, during a recent investigation into local authority investments by the Commons CLG select committee, the PWLB came under fire for ‘changes to the arrangements for the early repayment of PWLB loans from November 2007 [which] meant that a more penal interest rate applied to premature repayments, which made the costs of repayment higher'. In a submission to MPs, Leeds City Council claimed the PWLB changes ‘restrict the effective management of the council's long-term debt portfolio, and reduce opportunities to fairly take advantage of movements in markets and generate discounts and interest savings for the council and, through housing subsidy, the Government'. The council added that the changes ‘also limited the ability to come out of high rate loans'. An LGA source said moves to ease costs to councils ‘followed heavy lobbying by councils'.
