Warrington Borough Council has shifted £100m of short-term debt borrowed from other councils into long-term borrowing from the government, following last months’ interest rate rise.
The rise of “local to local” lending has been one of the fastest growing sources of finance for local authorities, with the total sum leaping by 40% to £7bn last year.
Warrington’s major shift away from the strategy came after the Bank of England raised its official bank rate from 0.25% to 0.5%, the first increase since July 2007.
Danny Mather, corporate finance manager at Warrington, told Room151: “We had a lot of money on low rates in short-term borrowing to help fund our capital programme.
“But after the rise in rates we have taken the view that we could be exposed at the short end if there is a massive hike.”
In November, the authority took two loans of £50m from the Public Works Loan Board, one for 19 years at 2.71% and one for 39 years at 2.57%.
The rise in inter-authority lending had been continuing apace this financial year, with another £1bn added to the total lent, according to DCLG statistics for the second quarter.
The increasing popularity of the borrowing route led to treasury adviser Arlingclose last month launching the first trading platform allowing transactions to be conducted completely online.
David Green, client adviser at Arlingclose, said that it would be unwise for local authorities to fix too much debt into the long-term.
He said: “As local authorities become more exposed to the performance of their local economies, for example through business rates and council tax benefit localisation or letting property, it’s becoming more important to have debt that falls in cost during a recession to alleviate pressure on the revenue account.
“It is therefore usually appropriate to hold some short-term or variable rate loans in the portfolio.”
Warrington’s loan was at the top of the table for the size of loans taken during a bumper month for PWLB borrowing.
The total amount taken by councils was over £1bn for the first time since June 2016 in the run up to the Brexit referendum, when £1.326bn was borrowed.
Other notable loans taken during the months were £70m by London Borough of Newham.
A spokesperson for the council told Room151: “The money borrowed from the PWLB will be used to help fund the capital programme as set out in the council’s budget strategy.”
Ipswich Borough Council also took £74m to help fund a property transaction aimed at raising long-term revenue from rents.
It is understood that the authority is one of a number which decided to proceed with PWLB borrowing due to fears of a crackdown on PWLB borrowing to fund property purchases aimed solely at raising revenue.
Warrington itself spent £200m on a business park in September, aimed at raising £10m in rental income each year.
