from 2 finance correspondent
Many local authorities are considering cutting down (or even completely stopping) their programme of loans for house purchase. The reasons for this are two-fold: the general credit squeeze, and now fact that most of them are convinced that the Government is not to extend the scope of the Public Works Loan Board.
The withdrawal of foreign money from the money market has left it short of cash and at the same time local authorities are faced with the demand for quick overdraft repayment from the banks. This is because the latter's liquidity position is tight (that fhe ratio between the money they have ‘out! and 'in'). On December 183 money at seven-day notice was beiny taken at aye interest on large loans and 8% for smaller ones, This has put pressure on the local authorities and they have in turn gone to the Public Jjorks Loan Board. This year regulations have allowed them to borrow up to 20%of their total debt from the Board. Those who had not fully draw on this have, since the bank rate went up, been hurrying to draw the balance. In the fortnight after the rise in the bank rate, Exchequer lending to local euthorities totalled £40 million; this compares with only £11 million in the fortnight previous.e
As announced by the Government, rates for borrowing from the PLB have not gone up in line with the bank rate. However, many suthorities hoped that the PWLB would either increase the quota or be more willing to lend money over and above the quota as a last resort to councils who had used up their quota. The Government, however, has made it clear that the quota will not be increased and only in very exceptional circumstances will the Board be willing to help an authority to find more money beyond its quota.
According to the Finencisl Times of December 19th, this reluctance is due to its fear that a bigger budget deficit would not be in accord with the policy of "assuring foreign opinion of the U.K's intention to hold the economy in check." All this may seem a rather abstract subject but the consequences can be very serious. Apart from anything else if these reports are true it means the Government has gone back on a very important aspect of its election programme in relation to local government. In practical terms it means that Labour authorities all over the country will be faced with precisely the same difficulties in the fields of housing, education, etc., under Labour as they did under the Tories,