Public Bodies (Abolition of Public Works Loan Commissioners) Order 2019

Earl of Courtown Excerpts

Tuesday 11th February 2020 Grand Committee

Moved by

[The Earl of Courtown]

That the Grand Committee do consider the Public Bodies (Abolition of Public Works Loan Commissioners) Order 2019.

Relevant documents: 2nd Report from the Joint Committee on Statutory Instruments, Session 2019, 3rd Report from the Secondary Legislation Scrutiny Committee, Session 2019, 1st Report from the Secondary Legislation Scrutiny Committee

[The Earl of Courtown (Con)]

My Lords, the draft order, which is being introduced under the Public Bodies Act 2011, abolishes the office of the Public Works Loan Commissioners and transfers their power to lend and all other functions to Her Majesty’s Treasury, including interests in land, liabilities, property and all other rights. This draft order does not affect the essential role of the Public Works Loan Board as a lender to local authorities. Instead, it will resolve ambiguities in the governance and accountability arrangements of this vital body to ensure that it can continue to support local capital investment across the country.

As noble Lords may be aware, the PWLB was formalised by an Act of Parliament in 1817, and has supported local authorities in England, Scotland and Wales through major historical events, from the Napoleonic Wars and the formation of Trafalgar Square to our recovery from two world wars, as well as the construction and maintenance of essential infra- structure projects. By funding public utility and sanitary improvements, conservation of harbours and housing developments, the PWLB has created employment prospects and enhanced the quality of life for our citizens over generations.

Over the years, the role and legal basis of the PWLB has transformed. It is now a statutory body of up to 12 independent commissioners that issues loans from the National Loans Fund to local authorities and other specified bodies. The PWLB operates within a policy framework set by Her Majesty’s Treasury and delegates the practicalities of lending to the UK Debt Management Office.

It is important to note that, since 2004, all borrowing decisions have been devolved to the local authorities under the prudential regime. The commissioners no longer assess applications and retain only a ceremonial role, serving in office so that central government lending complies with statute, rather than serving any executive purpose. The recruitment of commissioners for these posts has predictably become more difficult as the role has diminished over time. Were the board of commissioners to become inquorate, the PWLB would be unable to lend or collect repayments. This would have substantial repercussions on local authority budgets and financing plans, jeopardising essential capital works.

--- Later in debate ---

[Lord Tunnicliffe (Lab)]

My Lords, the Labour Front Bench does not intend to oppose these statutory instruments but the essence of the case for getting rid of the commissioners is that, essentially, they do not do anything and taking them away will have no impact or a benign impact. That is quite an attractive argument, until it alerts one to the question of how these loans are actually managed and controlled.

So, my first question is: can the Minister flesh out a bit more how loans to local authorities are managed and controlled? I realise there is a letter from John Glen that may answer this question but there is a crucial difference between a letter that floats around among Peers and a record in Hansard. Local authorities will be reading this debate—poor souls—and a clear statement by the Minister in the record is worthwhile, so can he explain how loans to local authorities will now be managed and controlled?

Secondly, I come to the exact point that was made previously. I do not know, but it sounds as though it is true that some local authorities have been taking loans and investing their money in property, perhaps as a straightforward business exercise to support their other incomes. If the answer to that is yes—it seems that it is—is this practice legal, or at least is it seen as undesirable? In the light of the fact that it has been debated in other places, has it now been stopped?

My next question is: why were interest rates raised—last autumn, I believe—from 1.8% to 2.8%? I do not know the system, so does this apply to current loans or just to new ones?

[The Earl of Courtown]

My Lords, I thank noble Lords for their contributions and questions.

My noble friend Lord Deben asked how Parliament will be kept informed. I may have to write to him with the exact details on that issue, but I will take it back to the department and try to get some clarification on it.

First, I will deal with the point made by the noble Lord, Lord Tunnicliffe, and explain how loans to authorities will now be managed and controlled. The statutory instrument does not change how loans are managed or controlled. The purpose of the statutory instrument is to resolve to administrative risk around the recruitment and maintenance of a quorate board of commissioners, as I said earlier. There is no change to existing debt or to lending terms. Day-to-day operation of the PWLB will continue to be managed by the Debt Management Office. No action is required by local authorities. The Government consulted on this change in 2016 and found widespread support.

[Lord Tunnicliffe]

With respect, that does not answer the question. To be fair, I gave him a few hours’ notice of it. Subsequent questions suggest that it has not gone exactly right—that this money has not been used for general purposes. I cannot take a view on that unless I know how the Debt Management Office does its job. For example, what criteria does it use? How much direct control does it have, or is it a big bag of money? I know that I should know that, but given the number of portfolios I have, please forgive me for not knowing the answer to my own question.

[The Earl of Courtown]

I understand that the noble Lord is for ever on his feet on a wide range of issues. I am probably putting the cart before the horse. If we go to the cart, I will come on to aspects of the management of the governance relating to these loans.

The noble Lords, Lord Shipley and Lord Tunnicliffe, and my noble friend Lord Deben referred to property investments being made by local authorities. Decisions on borrowing and spending capital are devolved to local authorities. They pick capital projects in line with local priorities and choose how to pay for those projects, including whether to borrow. Where local authorities borrow, they must have regard to the prudential framework—as set out by CIPFA and MHCLG, or the respective devolved Administration—to ensure that they borrow prudently.

[Lord Deben]

If I may say so, the phrase “to ensure that their borrowing is prudent” covers a multitude of sins. My issue is not that local authorities should not be able to borrow or to make their own decisions, but if they make a number of decisions that mean that there is a change in the way in which the Public Works Loan Board is being used, does my noble friend not think that that issue should be raised in Parliament, not just left to the local authorities?

[The Earl of Courtown]

My Lords, my noble friend makes a good point. I will come to that issue in a couple of paragraphs and will point it out when we get to it.

Under the prudential system, local authorities should not look to take on disproportionate levels of financial risk, especially when that is funded by additional borrowing. On the point raised by my noble friend and the noble Lords, Lord Tunnicliffe and Lord Shipley, the Treasury is concerned about local authorities investing in commercial assets that do not directly serve policy objectives, especially when these investments are financed by debt, including from the Public Works Loan Board. The National Audit Office is currently reviewing the issue and intends to publish a report into this activity in the coming weeks. We will continue to keep this situation under review.

In his intervention, the noble Lord, Lord Tunnicliffe, asked for an explanation of how loans to local authorities will now be managed and controlled. Decisions over whether to borrow and how to spend borrowing are devolved to individual local authorities. Each council must appoint a qualified finance officer and have regard to statutory guidance published by MCHLG and CIPFA. This is called the prudential regime, as I mentioned earlier. As decision-making is local, the PWLB does not ask what loans are for. If there is anything more I can add on that, I will write to the noble Lord.

The noble Lord, Lord Tunnicliffe, also asked about the interest rate being raised. There is a statutory limit on the total amount of PWLB loans that can be outstanding at one time. Some local authorities substantially increased their use of the PWLB in 2019. If PWLB borrowing had reached the statutory limit, it would have effectively been unable to issue new loans. That would have been very disruptive to local authority capital plans. To ensure that lending continued to be available, the Government legislated to increase the statutory lending limit from £85 billion to £95 billion and raised the interest rate on new loans by one percentage point. In making this change, the Treasury restored rates to levels available in 2018. The cost of PWLB loans has fallen significantly over the past decades, even accounting for changing policy margins.

The noble Lord, Lord Shipley, asked about the impact on social housing. By ensuring that the PWLB can continue to lend, the rate rise supports social housing delivery.

On whether Her Majesty’s Government should have oversight, in general, it is right for decisions to be made locally by the elected council. Most borrowing is spent on schools, roads and waste services. I commend this instrument to the Committee.

Motion agreed.