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New ‘project rate’ borrowing deal laid out

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A discounted borrowing rate for local authorities has been unveiled as part of the government’s response to Lord Heseltine’s wide-ranging economic policy review.

The chancellor used his Autumn Statement last week to announce long-awaited details of a further cut-price loan rate from the Public Works Loan Board for £1.5bn of infrastructure projects that must be nominated by local enterprise partnerships.

The new ‘project’ rate will be set at 40 basis points below the board’s standard rate. This is lower than the ‘certainty’ rate, which was launched in January.

Chancellor George Osborne also announced backing for Lord Heseltine’s proposal of a single funding pot covering areas such as housing, skills, transport and efforts to tackle unemployment.

The peer’s review of how local government could work better for business had “captured the imagination of all political parties” he said.

LGC understands the new ‘project’ rate is a rebadging of the previously promised ‘scrutiny’ rate, which was announced in Budget 2012, alongside the certainty rate discount of 20 basis points. It will become available next November.

Treasury management advisers welcomed the new rate but said much needed to be done before projects could come forward.

John Whitehouse, associate director of Sector, said he was aware of only one project that was considering applying for the rate. But he added: “Anything that offers cheaper funding to local authorities is welcomed.”

Mark Horsfield, founding director of Arlingclose, said LEPs were “fairly new organisations, so clearly [ministers] have given them some time to come up with ideas. Further details are expected over the coming months”.

He warned that repayments under the new rate could still prove unaffordable to some authorities.

“The issue is still of affordability. It is a cheaper borrowing rate but there are clear and tightening restraints on the revenue side moving forward.”

Details of the single funding pot are to be set out in next year’s spending review and in place by April 2015.

The LGA has expressed concern about the creation of a competitive bidding process overseen by Whitehall officials with little experience of business or local areas.

The chancellor showed further support for Lord Heseltine’s approach by creating a £10m-a-year fund to support LEP capacity building, amid concern that some were falling behind.

“Not all LEPs are providing the local leadership needed,” said a Treasury document released alongside the Autumn budget state.

Each LEP can apply for up to £250,000 from the capacity fund.

LEPs will also be “encouraged” to become more closely involved with the provision of schools and further education.

Representatives will be encouraged to join further education college governing boards while accepting college representatives to sit on their own.

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