Local authority infrastructure financing
A complex system of local government has developed across the UK as a result of reorganisations and changes to funding regimes.
This section explores the various ways local authorities finance infrastructure projects, detailing the sources of funding available, as well as the difficulties and potential pitfalls of the system.
It begins with an overview of local government and infrastructure, before moving on to explore the different funding options available to local authorities. It then turns to the subject of credit risk and debt, before concluding with issues of localisation and devolution, and pension funds.
Key updates include:
- Central government is expected to increase financing for local infrastructure across cities and regions, in particular to help rebalance the UK economy.
- Loss of EU grants that benefitted UK local authorities are expected to be replaced with alternative UK funds.
- Local authorities have increased borrowing in recent years and are expected to continue to grow their levels of debt.
- The UK government has increased the cost of borrowing from the Public Works Loan Board (PWLB) to discourage borrowing for investment in more speculative assets.
- It is expected that there will be more borrowing from commercial lenders by local authorities in the future.
- Local authorities have started to respond to the greater flexibility given to them to invest in local housing development.
- The funding model for local authorities has undergone significant change in recent years. The move to 75% business rate retention, however, has been delayed for a year.
- Local authorities have increased their levels of reserves in recent years in response to financial uncertainty.
There remains uncertainty around the financial sustainability of many local authorities. However, given the strong framework of support in which they operate, local authorities remain highly creditworthy and attractive borrowers for most lenders.