Elected Member Briefing Notes 2022, Issue 28
About this briefing note
Report by: John Jennings, Senior Accountant
Date: 2 September 2022
Subject: Impact of 1% increase in PWLB rates on Council finances
Responsible Officer: Stewart Mackenzie, Head of Finance
Publication
This Briefing Note has been published on the Council's website following circulation to Councillors. Its contents may be disclosed or shared outwith the Council.
Details
Purpose
This Briefing Note is being issued in response to a question in the Finance and Resources Committee on the impact to Council Finances of a 1% rise in the Public Works Loan Board rates.
Briefing information
A short (and simple) answer would be £1.65M - based on next year's borrowing requirement of £165M.
However, an increase in PWLB rates would have no immediate impact, on the basis that the Council is not anticipating undertaking any PWLB borrowing in the current year.
The borrowing required to fund this year's Capital Programme was borrowed last year when PWLB rates fell to low levels. Consequently, the Council currently has surplus cash balances in the current year which have been invested at the current higher (and still increasing) investment rates.
This has led to savings in the current Loan Charges budget, which will support loan charges in future years by use of the Capital Fund strategy. The current surplus cash balances are estimated to be fully utilised by May/June 2023.
Further mitigation measures could then be applied when considering next year's borrowing requirements. If PWLB rates remain at elevated levels, short-term/temporary borrowing could be undertaken, and subsequently replaced with longer PWLB borrowing when rates reduced.
It should also be noted that an increase in PWLB rates does not impact existing loans with the PWLB, which have all been borrowed on fixed terms. Therefore the interest rate on these loans will not change over the whole life of the loans.
For reference
- 50-year PWLB rates in December 2021 (lowest point) - 1.25%
- 50-year PWLB rate today (25 August 2022) - 3.50%
- Short-term borrowing rate assumed at an average of 3% over the next year
- 50 Year PWLB rates forecast to start reducing from the end of 2023
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