Long-term borrowing

Councils can borrow from any willing lender. The amount and sources of long-term borrowing vary for each council but overall, local government in 2020/21 held £116.4bn of outstanding long term debt in the form of: 

  • loans from central government via the Public Works Loan Board (74%)
  • loans from private banks (16%)
  • bonds and securities (5%)
  • loans from other councils (2.5%)
  • loans from other sources (2.5%) 

Most of the private bank debt is in the form of LOBO loans which were taken out between the 1980s and the 2010s, even if it was more expensive and risky than borrowing from the Public Works Loans Board (PWLB). As a result, profit on lending is going to private banks rather than re-circulating in the public sector.

The cost of borrowing from banks

Councils spend a significant amount of their income on interest payments – sometimes more than 20% of what they receive in council tax income. Interest payments are ring-fenced in councils’ budgets, as the failure to service debts would lead to hefty penalties and the imposition of government administrators. This forces councils to prioritise paying banks above everything else.

In addition, every time a bank loan is signed, restructured or renegotiated by a public body, advisors and brokers make large profits by way of additional fees and charges, unnecessarily wasting public funds.

Local government debt is highly prized by private investors because councils theoretically cannot go bankrupt: should a council get into trouble, central government could intervene as lender of last resort

Local government bank debt lays bare the power dynamic between the public sector and financial institutions. Banks get paid whatever it takes, while councils reduce services as they struggle with central government cuts – a result of saving the financial sector in the first place.