Meeting of the Parliament

Meeting date: Thursday, January 30, 2020

Official Report 1116KB pdf

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Public Works Loan Board Rate

The next item of business is a members’ business debate on motion S5M-19810, in the name of Keith Brown, on the Public Works Loan Board rate. The debate will be concluded without any question being put.

Motion debated,

That the Parliament condemns the recent UK Treasury announcement of an increase in the rate of borrowing from the Public Works Loan Board (PWLB) by one percentage point; understands that the PWLB lends money to local authorities for community infrastructure projects; is concerned by the implications of this percentage-point hike in interest rates on Scottish councils’ abilities, including Clackmannanshire Council, to carry out crucial infrastructure developments, such as affordable housing, schools, leisure and regeneration projects; agrees with a number of local authorities that this increase is paramount to the UK Government “profiteering at the expense of council tax payers”; recognises the detrimental impact that this move will have on infrastructure projects in Clackmannanshire and Dunblane and other local authority areas across Scotland, and acknowledges calls on the UK Government to reconsider its decision.

12:48  

I am grateful for the opportunity to lead today’s debate on the Tory-imposed increase in the rate of borrowing from the Public Works Loan Board by a percentage point, and the negative impact that that will have on the local authorities of Scotland. I am also grateful to the Labour, Green and Scottish National Party members who signed the motion.

I recognise that many who are listening to this debate may not be familiar with the Public Works Loan Board, or the interest rates for borrowed capital funding; however, they will be aware of the many benefits that it delivers for them and their communities.

Money that local authorities borrow at an affordable rate from the Public Works Loan Board is invested in improving our schools and the futures of our children, in the regeneration of our communities, and in improving our roads and infrastructure, stimulating local economies across Scotland.

Following the worrying introduction of this Tory tax—for that is what it is—I asked a question in the chamber about the impact that the rise in the cost of borrowing would have on local authorities. It was clear from the answer by the Cabinet Secretary for Finance, Economy and Fair Work, Derek Mackay, that this rise—imposed by the Tories overnight, with no warning—will have a disastrous impact on the affordability of key infrastructure projects, with the effect that crucial investment could be delayed or scrapped.

What is this move if not a prohibitive tax on the rightful ambitions of local authorities for their areas and communities, and on ambitions to improve the quality of life for our constituents and boost local productivity? For Scottish local authorities with tight financial restrictions, the Public Works Loan Board is a key tool in accessing funds to invest in important capital projects. The 1 per cent increase by the Tories may appear small, but it will play a substantial part in projects costing extra millions of pounds. For example, a typical 25-year loan for a secondary school costing £30 million will now cost councils an additional £5 million. With few other options available, councils will be forced to make difficult decisions. Do they take on the costs of capital projects that have suddenly and significantly increased overnight, or will they, when faced with those costs, have to scale back on those plans or other ones? Will councils be forced to choose which members of their communities will lose out?

At a time when borrowing costs remain low and the Scottish Government has provided local authorities with more than £200 million in additional capital funding, the Tories’ decision to impose this tax is both punishing and indefensible. The Tory justification for the increase is that it is to restrict the amount of speculative spending that is undertaken by some local authorities in England, which I note are desperate actions to make up for chronic underfunding of councils by the Tory United Kingdom Government. Scottish local authorities are prevented by regulations from undertaking speculative spending. I have been in contact with the councils in my area—Stirling Council and Clackmannanshire Council—and it is obvious from what they say that the increase in costs will be key to the consideration of the affordability of future investment projects.

How can the decision be justified to my constituents? Decisions on spending on roads or other facilities that they rely on will be taken not on the basis of merit or need but on the back of cuts to local government funding in England by the Tory Government. The Convention of Scottish Local Authorities and the Scottish Government have made strong representations to the UK Government to argue that this Tory tax will have serious financial implications and will impact on the affordability of crucial local projects. At its core, this Tory tax is nothing more than profiteering at the expense of Scottish council tax payers, feeding the ideological fascinations of a Tory party that is determined to deprive local authorities of the funding that they desperately need.

Again and again, the people of Scotland are left to pick up the Tory tax bill. Take, for example, the high speed 2 project disaster, the cost of which started off at around £30 billion but is now estimated to be more than £100 billion; the botched Airwave emergency services infrastructure; or the new aircraft carriers that cost at least £3 billion more than the original estimate. Those are all major projects that are over budget and over time and they all affect people in Scotland. Continued Tory incompetence is in itself a tax that is too often endured by the people of Scotland.

The nature of the Public Works Loan Board announcement, with no forewarning, and the Tory response in its communications are shameful and show inability and unwillingness to offer creative or custom flexibility for the specific needs of Scottish local authorities. That is utterly symbolic of the contempt that the Tories continue to show for devolution and the people of Scotland. That contempt is illustrated time and again. For example, the UK Treasury budget is to be announced on the same day as local authorities here have to set their budgets and, most vividly, tomorrow, we will be dragged out of the European Union against the express wish of the Scottish people.

It is symbolic that no Tory or Lib Dem MSP signed the motion and that few members from those parties are here to take part in the debate. Despite all the hand wringing over yesterday’s debate on the EU flag, how many Tories are here today to discuss an issue that will have a material impact on the people and communities that they represent? How easy it must be to be a Tory MSP and to stand up in the chamber week after week to ask for larger spending commitments while their bosses in Westminster cut budgets with abandon; to talk the talk of local empowerment while backing wrecking amendments to finance bills, axing crucial support for small businesses and jeopardising local government funding; and to work themselves into a fury over a flag while their Prime Minister embarrassingly sought to crowdfund for Big Ben to bong this Friday night.

This Tory tax is an issue that will really matter to the lives of their constituents, who are the ones who will use local community spaces, roads, schools and libraries. A lack of investment caused by this Tory-imposed tax will be keenly felt, and more so by those who rely most on public services.

Tory MSPs show their constituents contempt when they refuse to turn up to justify or even attempt to defend this indefensible policy. The UK Government has, as usual, neglected to consider the needs of the people of Scotland, and when its attention has been drawn to that fact, it has predictably chosen to double down.

Our communities and the people who live in them deserve this investment. Fundamental decisions such as this will impact on millions of people across Scotland, and they should not be made on a whim by uncaring Tory politicians in Westminster, far removed from the consequences of their actions.

Frustratingly, this is a UK Government matter, outside the control of this Parliament. So, it falls to the union, if it has any meaningful purpose or any interest in its self-preservation, to show the necessary flexibility for Scottish councils. The Tories must, without delay, either reverse this punitive tax or create the conditions so that Scottish councils can access the funding that they need to deliver for the people whom they serve. To refuse to do so—or to refuse to even consider to do so—only further strengthens the argument, which grows more persuasive by the day, that there exists no other option than that this Scottish Parliament must hold the full powers over its own affairs, and that Scotland must become an independent and equal country, so that we can make the necessary changes to better empower and deliver a more positive future for the people whom we represent.

12:56  

Thank you, Presiding Officer, for the opportunity to contribute to Keith Brown’s members’ business debate.

The Public Works Loan Board is one of the main sources of local government borrowing. Its purpose is to allow councils to access finance at a relatively low rate in order to fund infrastructure projects. Although there is an overall cap on the amount that local government is able to access, in October 2019 that was increased by £10 billion, from £85 billion to £95 billion. The Public Works Loan Board does not ask councils what the money will be used for. Neither does it undertake any due diligence or business case checks as to whether the borrowing is prudent. Loans can last for up to 50 years. Regardless of the council’s credit rating, all that is needed for the loan board to supply the funds is a reference number and the required amount.

As a result, councils have borrowed huge sums to invest in commercial property, as the Public Works Loan Board’s low interest rates have given them an immediate advantage over potential competitors in the private sector. The prudential code, which provides guidelines to local authorities, prohibits borrowing for the sole purpose of making a profit, but in practice it has been up to councils to decide whether they wish to do so, and whether that is correct.

That has been questioned, because many believe that full scrutiny and governance may be required. Holding councils to account is left to the electorate, many of whom are unlikely to be informed of or understand the consequences, because councils can and do withhold key details under the auspices of commercial confidentiality.

Therefore, the UK Government took the view that a review was required. Many councils in Scotland have vastly depleted funds as a result of budget cuts—we know that COSLA and many others have made strong representations about that. However, the decision was made to have a 1 per cent increase. The intention was to put a limit on the amount that councils are borrowing, because some of the borrowing has been for commercial investments and much of it has been for refinancing debt portfolios that many councils have.

Will the member take an intervention on that point?

I would like to continue.

The consequence of that borrowing can be that councils struggle to repay the debt that they take on. Indeed, Her Majesty’s Treasury recognises that such borrowing might impact on the ability to invest in infrastructure.

It is important to note that the 1 per cent increase will take the rate back only to the level that was available in 2018. The Chartered Institute of Public Finance and Accountancy’s associate director, Andrew Burns, who is himself a former finance director, said that there has been an overreaction to the change. He said:

“the November move to increase the cost of borrowing by one percentage point was unsurprising given the widespread expectation that the government was close to having used up all its borrowing ‘headroom’.”

Analysis of Scotland’s 32 local authorities showed that they owed £11.5 billion of these moneys to banks or the scheme set up by the UK Treasury. A typical council will spend the equivalent of 42 per cent of its council tax money to service those debts. Clackmannanshire, Dundee, Edinburgh, Glasgow, Highland, Inverclyde, South Lanarkshire and West Dunbartonshire will all spend at least half of their council tax revenues on servicing such debt.

I recognise that the increase may be perceived as adding pressure on Scotland’s local authority finances. However, councils will still have the opportunity to borrow funds that will secure investment for projects that will benefit the quality of life of communities and constituencies across Scotland.

13:00  

I thank Keith Brown for giving us the opportunity to debate this important subject.

Before I move to the central thrust of what I want to say, I will respond to a few things that were said by Alexander Stewart. He said that the aim is to put a limit on what councils borrow, so why not change the rules on what they can borrow for rather than put costs up? He also said that councils are struggling to service debt. I am sure that increasing the interest rate by 56 per cent will not help them to do that. Under the prudential borrowing rules that councils work within, they will have to reduce the number of projects that they fund by that mechanism by a third in order to pay the same interest as they are currently paying. Therefore, the effect of this small change in terms of the amount of interest that might be paid each year is fundamental to the way in which councils are able to renew public infrastructure.

Let us remember that it is the Public Works Loan Board: the money is for public works. It is simply unacceptable that, in hard times, the UK Government is making it fundamentally more difficult for councils in Scotland—indeed, across the UK—to do what their local communities require. Many councils, including my own, rely on the PWLB.

Last year, £819 million was borrowed, so the increased rate is going to have an impact—members can work that out for themselves. Fife wanted funding for a new campus for Woodmill high school, St Columba’s high school and Fife College. Clackmannanshire and Dunblane needed funding to increase affordable housing and improve their schools. Aberdeen budgeted for £481 million to be spent on capital projects over the next five years, of which £293 million was to be borrowed. All those plans may now be delayed or halted altogether. That is the real, on-the-ground effect. Alexander Stewart said that councils are suffering—how does the increase help them and the communities that they serve?

The underlying cause of the increase—I recognise that it is a valid issue—is illustrated by Spelthorne Borough Council, in Surrey, which borrowed £1 billion. For what? For a school or a community centre? No, it was used for commercial investments. I do not think that any of us would defend that council’s use of the money for that purpose. However, if councils’ doing things like that is the problem, increasing the interest is hardly the solution. The solution is to change the basis on which councils can borrow.

Woking Borough Council, which is also in Surrey, borrowed £1.2 billion, a large proportion of which was used to buy the town’s main shopping centre. Those are risky commercial investments that are not central to public works, the development of new facilities or the improvement of existing ones. The funds are meant for sustainable community development that will directly improve the lives of residents. If a main road requires to be built, a council has to find the money. Borrowing costs are a significant part of councils’ costs—that is for sure—but increasing the PWLB rate is simply going to increase that significant burden.

The PWLB places all authority to determine the usage of its loans on the councils, and most councils behave responsibly. Let us not allow the majority of our councils to be penalised for irresponsible spending by the likes of Spelthorne Borough Council. Let us make a distinction between that and loans being taken out for proper purposes. It is time for the UK Government to rethink the matter and take a different approach to solving the genuine problem that led to this issue.

13:05  

I, too, put on record my thanks to Keith Brown for raising the issue, lodging the motion and securing the debate. It is right that the Scottish Parliament condemns the recent UK Treasury announcement of an increase of one percentage point in the rate of borrowing from the Public Works Loan Board. I hope that, if it has not already done so, the Scottish Government makes the views of the Parliament known to the UK Government.

As the motion states,

“the PWLB lends money to local authorities for community infrastructure projects”,

and

“the implications of this percentage-point hike in interest rates on Scottish councils’ abilities, including Clackmannanshire”

and Stirling, Fife and Perth and Kinross councils,

“to carry out crucial infrastructure developments, such as affordable housing, schools, leisure and regeneration projects”

will be greatly reduced. It is not only a matter of the UK Government profiteering at the expense of council tax payers. The detrimental impact that the move will have on infrastructure projects across Scotland is why the Parliament must unite in its call on the UK Government to reconsider its decision.

I note, as Alexander Stewart did, that Andrew Burns, an associate director at CIPFA, said that the increase was a

“clever way of curtailing commercial property investments.”

It seems that the UK Government was motivated by the desire to curtail councils’ buying up property to create income streams that would offset Government cuts to their budgets. Stewart Stevenson gave the example of Spelthorne Borough Council, in Surrey, which borrowed £1 billion to buy office blocks. That is madness. More important, it is not acceptable that all councils have to pay additional interest because the Government is not happy about some councils’ borrowing. As Stewart Stevenson rightly said, that is what the UK Government needs to address.

In March 2017, I led a members’ business debate in support of the campaign by Unite Scotland to have all Scottish councils’ historical debt written off by the UK Treasury. In that debate, I said:

“An amnesty is a matter of political will and there is certainly precedence, as witnessed by the UK Treasury write-off of a £900 million housing debt in Glasgow City Council—it can be done.”—[Official Report, 7 March 2017; c 87.]

Let us be clear that the issue is about political choices. Keith Brown is correct to raise the increase in the interest rate, and I am happy to stand alongside him in fighting to get the UK Government to change its mind. I look forward to discussing what more we can do on the issue on a cross-party basis.

Yesterday, I heard the deputy leader of Inverclyde Council, Councillor Jim Clocherty, being interviewed on the BBC about the fact that an area in the centre of Greenock is now the poorest and most deprived in Scotland. He said that the council is investing £3 million in the area. However, when he was asked what would make the biggest change to the area, he answered, “Ending austerity.”

Let us be clear that failed Tory austerity is the root cause of many of the problems that councils face. Not content with causing those problems, the Tories are now trying to make it more difficult for councils to support communities who are experiencing the impacts of that failed Tory austerity. Let us unite against these measures and stand up for people and communities across our country. Let us bring an end to failed Tory austerity once and for all.

I call Kate Forbes to respond to the debate.

13:09  

I welcome the opportunity to respond on behalf of the Government, because the motion for debate is critically important. At first glance, the issue might appear to be somewhat dry and technical, with only a marginal financial impact, but, as Keith Brown set out in his opening remarks, the UK Treasury’s decisions have had a profoundly damaging impact on local authorities.

At issue are two concerns. The first is that, time and again, the Treasury makes a decision solely in the light of a situation in England that then has a very negative impact on Scotland. Secondly, as Alex Rowley said, the rate rise highlights the impact of austerity, which at its root is based on policy decisions by the UK Government. As the motion highlights, the recent UK Treasury announcement of an increase in the rate of borrowing from the PWLB is already having a detrimental impact on plans for local authorities’ infrastructure, which affects us all. Those are not just my views, but what local authorities are telling us.

The PWLB rate rise was significant. On 8 October 2019, the 25-year annuity loan rate was 1.6 per cent; the next day, it was 2.62 per cent; and last week, it was 2.87 per cent. From any viewpoint, that is a significant rise. To put it in context: for a £10 million loan, the extra interest is about £1.3 million over the life of the loan. If we scale that up to the multimillion pound projects that our local authorities undertake, the increase in the cost of borrowing is clearly evident.

Alex Rowley asked me to make sure that I made this Parliament’s views known to the Treasury. I have already done that, but I will happily do it again. In response to the PWLB rate rise last October, I wrote as a matter of urgency to the UK Treasury to express my concern, and I know that some local authorities have done likewise. My letter set out that the capital investment plans of local authorities will have been based, quite understandably, on the prevailing interest rates and that the increase would affect the affordability of those plans and might lead to local authority investment plans being scaled back or delayed.

In real terms, those are plans for infrastructure projects, transport projects, schools and other community infrastructure. I am sure that members across the chamber will agree that such a move to scale back or delay investment plans would have a detrimental impact on the ambitions of our local authorities and the aspirations of our communities. Those ambitions improve the outcomes for the day-to-day lives of the communities that we and local authorities serve, across the spectrum of the critical services that they deliver, including housing, education, social care, transport and tackling the climate emergency. If we couple that with the negative economic impact of any scaling back of investment plans, we can see how there is a knock-on impact on the economy, particularly at a time of continuing budget cuts from the UK Government.

I was sorely disappointed by the response that I received to my two letters, because the UK Treasury confirmed that its decision had been taken in light of the situation in England and without an understanding of the knock-on impact on Scotland. The Treasury refused to change its position and advised that the rate increase only restored the rates to those available in 2018, as Alexander Stewart mentioned, and that local authorities made significant and valuable capital investments at those rates in 2018. However, that response singularly fails to recognise that lower rates mean more capital investment is possible, as the revenue consequences of borrowing are less.

I do not fully support the proposition that the UK Government is profiteering at the expense of council tax payers, but the UK Government fails to understand the impact of the rate increase. I suggested in my letter to the Treasury that one of the reasons for the increase in the PWLB rate was the significant increased borrowing by English councils to fund commercial investment for financial return, rather than to invest to deliver services. Although the Treasury acknowledged that, in Scotland, different rules apply to such investment, I was advised that the increase applied to Scotland, as the significant amounts of lending that the Treasury saw over last summer also came from local authorities in Scotland. That is a very narrow view of Scottish local authority borrowing. The PWLB annual reports show that Scottish net borrowing over the prior four financial years was only £549 million.

In addition, an Office for Budget Responsibility report last July raised concerns about the expansion of borrowing by English councils on potentially risky investments. The report identifies that a single small council in England acquired £1 billion of PWLB debt in just three years. I am not aware of any such borrowing by councils in Scotland.

If I step back from the technical arguments of the UK Government’s decision, it is clear that, once again, local authorities in England are responding to the crisis in which they find themselves. That crisis was confirmed again just a few weeks ago by a COSLA spokesperson on finance who highlighted to a parliamentary committee that local authorities in England are cash-strapped and struggling.

That is not the case for Scottish local authorities. However, the Treasury’s decision—which it made without a thought to the impact on Scottish local authorities—will certainly make it far more difficult for local authorities in Scotland to invest in the infrastructure on which our communities rely.

I am disappointed that, despite my two letters to the Treasury, it has not chosen to revisit the issue. It has dismissed the legitimate protest that I raised on behalf of Scottish local authorities. Essentially, it has said, “Grin and bear it, because we don’t care.”

I support the motion in the name of Keith Brown. I hope that members across the chamber recognise that the PWLB interest rate rise has made capital investment for local authorities more difficult, which affects the affordability of their plans. Ultimately, the Treasury made the decision and responsibility lies with it. I think that all members should be united in condemning the Treasury.

Thank you. Before I close the debate, I highlight that the minister may have said something inadvertently. I clarify that it is the views of the Scottish Government that have been made known to the UK Government and not the views of this Parliament, which has not debated the issue.

I am sorry.

That concludes the debate.

13:16 Meeting suspended.  

14:00 On resuming—