Councils borrowing costs will rocket 25% as a result of an interest rate hike by the Public Works Loan Board (PWLB), the Local Government Association has estimated.
The 1% rate hike was outlined in the spending review document which said loans to local authorities needed to “better reflect the availability of capital funding”.
“Interest rates on Public Works Loan Board loans have been increased to 1% above UK government gilts,” it said.
LGA finance director Stephen Jones said: “I reckon that means a 25% increase in councils borrowing costs. That’s not very nice. At all.”
The New Local Government Network said the move was concerning. It added: “Higher interests rates will drive councils to examine new models of capital financing such as drawing on local government pension funds and accessing money from the municipal bond markets.”