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

Jonathan Reynolds Excerpts

Monday 3rd February 2020 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

It is always a pleasure to see you in the Chair, Mr Sharma, and it is nice to see the Minister in his place once again.

As the Minister has outlined, the draft order will make a change to the governance arrangements of the Public Works Loan Board. Abolishing the unpaid role of commissioner will mean that the body ceases to exist. My understanding is that, as he described, in reality, the board’s function is already managed by the Debt Management Office, so there should be no impact on lending policy.

A consultation on the subject was undertaken in 2015, and the issue was addressed in the Infrastructure Bill of the same year. The public consultation returned a consensus in favour of this move, without substantive objections. I am minded to say that Labour has no reason to oppose the draft order, but I will listen to the contributions from other Front Benchers before making that commitment. However, I want to ask the Minister a number of questions about Treasury policy on how the ongoing functions of the Public Works Loan Board will be exercised following the passage of this instrument.

First, the Minister may remember that in October 2019 he and I debated a statutory instrument that increased the cap on the funds that local authorities could borrow in this way. In that Committee, I raised some of the funding challenges that local authorities face as a result of their budgets having been significantly reduced in recent years; he will know that there is a widespread practice whereby borrowed funds are invested in assets that pay a higher return. According to research last year by the Library, which examined the use of commercial property investment as a source of revenue, local authorities are turning to different financial methods to seek to alleviate the strain; in effect, they are borrowing money at a low rate from the Public Works Loan Board and investing it in higher-return asset classes, such as commercial property. Following the passage of this instrument, will it still be Government policy to permit that practice without formal restriction?

Will the Minister please elaborate on whether any further assessment has been conducted of that type of activity, and on the Government’s plans for regulation in this area? Surely, that practice exposes all of UK local government to a downturn in the commercial property market, for which, ultimately, the taxpayer would be on the hook.

Secondly, local authorities were shocked when the interest rate on loans from the Public Works Loan Board increased from 1.8% to 2.8% in October 2019. I tabled a question about that in the last Parliament, but I did not receive a response—although we did have several other things to discuss at the time. Will the Minister explain the rationale for that decision, given that the overall cost of borrowing remains low? Given that the instrument relates to the oversight of lending, it is important that we have full transparency about Government policy in this area.

The Opposition are not alone in raising these concerns; the Chair of the Treasury Committee wrote to the Minister in October last year to raise similar issues—specifically the oversight of loans and the impact of the rate hike. The Minister’s response insinuated that the rate hike was a deliberate effort to reduce the volume of borrowing. It seems to me that the Government are not being absolutely clear about their policy. Ultimately, of course, the only real answer is to address the underlying issue by seeking to reverse the 10 years of cuts that have affected local government. If the Minister clarified the Government’s position, that would be to the satisfaction of everyone involved.