Scotland's High Interest Rates on Local Government Debt Bomb
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Scottish Labour Run Councils Charged Higher Interest Rates by Government PWLB Than Conservative Councils in England

Following publication of a Scottish Local Government Debt report by the Scottish Green Party, calling for the cancellation of local government debt, Scottish media has been awash with commentary on the relative merits and practicalities of cancelling council debt.

Curiously absent from the media discussion, is the mention, let alone analysis, of the interest rates actually being paid by Scottish citizens on local government debt.

Scottish local government debt is accumulated from three main sources, in order of prominence and the applicable interest rates payable for each type of debt vary significantly.
  1. HM Treasury Public Works Loan Board (PWLB)

  2. Lender Option, Borrower Option (LOBO) loans, via banks such as RBS and Barclays, and

  3. Private Finance Initiative (PFI/PPP) financed via private banks

As you progress from PWLB Government debt to LOBO lending and PFI debt from banks, each form of lending represents a significant step up in terms of the inherent risk borne by taxpayers and the rates of interest payable.
PWLB borrowing is historically undertaken at the Bank of England gilt rate, plus a margin which is dictated by the Chancellor of the day. Under George Osborne in 2010 - PWLB lending margins were increased from 0.15% over Gilts to 1% over gilts . In effect, the cost of borrowing from Government increased by 25% - overnight.

Comparison of the actual rates payable to the PWLB on borrowing from Government undertaken by Scottish Councils shows significant variation in lending rates, based on both regional location and political control of the council.

An analysis undertaken by Nicholas Dunbar for C4 Dispatches “How Councils Blow Your Millions” found HM Treasury charge Labour controlled councils on average 0.6% more to borrow than Conservative councils, for loans taken out from Government between 2012-2015.

For example - West Dunbartonshire is near the top of the pack, paying a weighted average PWLB rate of 6.3% interest.

West Dunbartonshire.png
Also paying significantly higher PWLB interest rates is Stirling Council at an average of 6.7% p/a.


Despite its considerable size, as Scotland’s largest City, Glasgow is paying considerably higher PWLB interest rates than its English peers at 5.3% p/a.


However the Labour council with the highest PWLB rates for borrowing is Merthyr Tydfil in Wales, the former Welsh Capital and birthplace of the Labour and Trade Union movements.
Merthyr Tydfil Council pay an annual interest rate on their PWLB debt of 8.7% - more than 4x the interest rates paid by lowest ranked Conservative run Council - Wandsworth in London, which pays just 1.9% interest on its borrowing to the Treasury.

Merthyr Tydfil.png

At the core of this issue - lies the fact that all councils enjoy a sub-sovereign rating which is effectively the same as the UK Government - a rock solid AAA credit rating.

If council debt is so safe and highly prized by investors, due to the low risk of default - why are councils paying interest rates which are 2-3x the rates you or I might pay for our home mortgages?

Taxpayers are stuck servicing unsustainable high interest rates on historical lending, because Government policy, despite the rhetoric of repaying our debts in a time of austerity, has actually made these debts more expensive to refinance and repay.
When Channel 4 Dispatches asked Newham residents in East London to name the interest rates they thought Council were paying on LOBO loans borrowed from the banks, most residents guessed somewhere between 1% and 3% based on 0.5% Bank of England rates and their own home mortgages.
Newham residents polled by Dispatches in 2015 were shocked to find Newham Council paying 7.6% interest on “range” and “inverse floater” LOBO loans from Barclays and RBS respectively. This margin over and above the PWLB rates available at the time amounts to an annual premium of between £7m -£13m - being paid by Newham residents to the banks, each year until 2060.

Screen Shot 2016-03-30 at 10.43.04.png

 On Private Finance Initiative (PFI) debt - The Treasury Select Committee in 2011 found average rates of interest payable are around 8% - on average double the interest rates payable by Government.
Before we call for all local government debt to be written off - perhaps a sensible starting point would be to ask policy makers in HM Treasury the following questions.
  1. Why are councils borrowing from banks, when it is always cheaper to borrow from central government?

  2. Why are successive Chancellors and central government making it more expensive for councils to borrow from the PWLB, encouraging further borrowing from banks?

  3. Why are Councils in Scotland and Wales charged significantly higher interest rates to borrow from the PWLB than English Councils?

  4. Why are Labour Councils charged 0.6% more on average to borrow from the PWLB than Conservative Councils?

Once we have plausible answers to these questions from the Treasury - we may find ourselves in a more informed position from which to argue which local government debts should be cancelled, which debts should be refinanced at lower rates of interest, and which debts can and should be repaid.

Debt Resistance UK spokespeople are available for comment. 

For press inquiries
Email:  Phone: 07429637423
Links to further information:
UK Local Authority Debt Audit website:
Debt Resistance UK website:
Interactive map of local authority debt:
What is a LOBO loan?
LOBO Loans are potentially illegal
Conflicts of interest


As covered in the Media
Financial Times: Local Councils suffer after taking out exotic loans
Evening Standard: Council faces probe into “time-bomb” Lobo loans from City amid cuts in children’s services
Sent loco by Lobos? The great council loan controversy
RBS and Barclays made more than £300m selling questionable loans to UK councils
MPs call on City regulators and Parliament to look at ‘lobo’ loans

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