The
Chairman: Order. Some of the questions—on plans to
raise the £70 billion at a later date, the work of the Public
Works Loan Commissioners, and the procedures for dealing with loan
applications—are strictly outside the terms of the order. While
I have let those questions go, I would appreciate it if the Minister
answered them very briefly and stuck to the core of the
order. 4.54
pm
Ian
Pearson: Thank you for your guidance, Mr.
Taylor. I will stick to what the order does but will, in the spirit in
which they have been raised, provide answers to some of the questions
asked by the hon. Members for South-West Hertfordshire, for Taunton,
for Aldridge-Brownhills and by my hon. Friend the Member for
Midlothian. To answer the point raised by my hon. Friend, Scottish
local authorities approach the Public Works Loan Board
in the same way as English and Welsh ones. Scottish local authorities
work with a similar prudential regime to English and Welsh local
authorities.
On the future
forecasts and the actual limits of the PWLB, the balance of principle
outstanding loans was £47,170 million in the 2000-01 financial
year and £47,045 in 2001-02. The figures for 2002-03 to 2007-08
are: £44,589, £41,307, £42,070, £47,084,
£47,911 and £57,046. As I indicated in my opening speech,
in this financial year there is about £50.7 billion in
outstanding loans with the PWLB. From the figures, we can see that it
is variable year-on-year depending on local authority capital projects
and their various positions. The estimate this year is that the net
change will be an increase of £2.2 billion, which
will be about the same for the next two years of the comprehensive
spending review period.
I was asked
where the figure appears in the accounts. The figure of £2.2
billion PWLB net lending for 2008-09 is shown in the 2008 Red Book at
table C12, which concerns the public sector net cash requirement.
Figures are not traditionally disaggregated beyond 2008-09, but we
think that a similar increase in spending is likely, which is one
reason why it is necessary to raise the £55 billion
limit. Hon. Members asked why now and why the increase to £70
billion. It is necessary to increase the figure, given current
circumstances and likely future demand on the resources of the PWLB
from local authorities. I accept that we could increase it to
£60 billion or £65 billion and come back with
a statutory instrument at a future time, but we decided to increase it
to £70 billion for flexibility. We see no good reason
not to set it at the maximum level that we can under legislation. Any
future decision to go beyond that, if it was necessary, would depend on
primary legislation, which would normally be a Finance
Bill. Hon.
Members asked about the factors that have led to the increase. There
have been changes from year to year. I remind the Committee that, as I
said in my opening remarks, there has been a 220 per cent. real terms
increase in local authority capital spending over the past 10 years and
that is welcome. I remember when local authorities had very strict
impositions placed on their ability to borrow, and it was a cause for
concern that schools, council houses and other buildings were falling
into disrepair due to a lack of capital spending because of the
decisions taken by a previous Administration. We have also seen
significant sales of council houses over the past 20 years, the peak of
which occurred a long time ago and we have seen a downward trend for
years. Those asset sales have normally been put against debt—it
was a requirement—and that has reduced the net position of the
PWLB, which is one reason why we have not had to come to the House to
debate a statutory instrument before. Some of the changes, such as
extending the Public Works Loan Board maximum term for loans from 30 to
50 years, also have potential financial effects for obvious reasons
which I can go into, if people wish.
As
I mentioned, the prudential borrowing regime was introduced in April
2004. The Local Government Act 2003 said to local authorities that to
some extent we trusted them to make sensible borrowing decisions; that
regulations would be imposed through the CIPFA code on prudential
borrowing but that they were best placed
to take decisions on local investment. That has been widely welcomed by
local authorities and is one reason why we have seen a rise in
borrowing in recent years from about £47 billion in 2005-06 to
an estimated £53 billion in 2008-09. This is a good
thing to do. The hon.
Member for Taunton asked why this is happening now and whether it has
got anything to do with current economic conditions. This statutory
instrument has not been designed in the light of the current economic
climate. We have not asked whether we could magic up a quick wheeze to
enable local authorities to borrow more. That is emphatically not the
case. Quite simply, the limit that had been set for a period of time
has been approached, and this is a prudent thing to do for the future.
On margins, the Public Works Loan Board rate is extremely competitive
compared to commercial loans. It is marginally above gilt rates, so as
to ensure that the PWLB does not operate at a loss. It is not
demand-constrained or a competitive system. I know that this is outside
the terms, Mr. Taylor, but a local authority has to satisfy
the commissioners of the PWLB that it wants to borrow responsibly, that
it is prudent and that it can afford it.
We are aware
of the recommendations of the Treasury Committee regarding the role of
the commissioners. Those recommendations would require primary
legislation if they were to be implemented. We think that the situation
works well at the moment. In statutory terms, the commissioners are
responsible for deciding loan applications. They ask key questions such
as, “Is your local authority complying with the appropriate
requirements of the board’s current
circulars?”—that is, is it acting in a prudential
way?—or, “Is this application within the relevant
legislation and your council’s borrowing powers?” In
particular, since the introduction of the prudential regime, the
commissioners’ role in approving local authorities’ loan
applications has reached the stage where most decisions are of a
technical nature and therefore delegated to the PWLB’s officers,
although there is overall supervision.
A question
was asked specifically about whether this order could be used to deal
with the situation of some local authorities that have money in
administration in Iceland as a result of their investment policies. I
confirm that the borrowing is for capital purposes and that PWLB funds
could not therefore be used in such
circumstances. I
think that that covers the points raised by hon. Members. I finish by
emphasising that the PWLB’s outstanding loans limit is not a
control on local government capital spending, nor is the increase in
the limit being sought to allow or encourage great capital expenditure
and hence the borrowing to finance that. The increase is necessary to
accommodate existing forecasts for borrowing, and to allow local
authorities to continue to obtain value for money when financing their
planned capital investment. I hope that the Committee is
minded—as it seems to have indicated—to approve the
order. Question
put and agreed
to. Resolved, That
the Committee has considered the draft Local Loans (Increase of Limit)
Order
2008. Committee
rose at six minutes past Five
o’clock.
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