My Lords, my noble friend makes a good point. I will come to that issue in a couple of paragraphs and will point it out when we get to it.
Under the prudential system, local authorities should not look to take on disproportionate levels of financial risk, especially when that is funded by additional borrowing. On the point raised by my noble friend and the noble Lords, Lord Tunnicliffe and Lord Shipley, the Treasury is concerned about local authorities investing in commercial assets that do not directly serve policy objectives, especially when these investments are financed by debt, including from the Public Works Loan Board. The National Audit Office is currently reviewing the issue and intends to publish a report into this activity in the coming weeks. We will continue to keep this situation under review.
In his intervention, the noble Lord, Lord Tunnicliffe, asked for an explanation of how loans to local authorities will now be managed and controlled. Decisions over whether to borrow and how to spend borrowing are devolved to individual local authorities. Each council must appoint a qualified finance officer and have regard to statutory guidance published by MCHLG and CIPFA. This is called the prudential regime, as I mentioned earlier. As decision-making is local, the PWLB does not ask what loans are for. If there is anything more I can add on that, I will write to the noble Lord.
The noble Lord, Lord Tunnicliffe, also asked about the interest rate being raised. There is a statutory limit on the total amount of PWLB loans that can be outstanding at one time. Some local authorities substantially increased their use of the PWLB in 2019. If PWLB borrowing had reached the statutory limit, it would have effectively been unable to issue new loans. That would have been very disruptive to local authority capital plans. To ensure that lending continued to be available, the Government legislated to increase the statutory lending limit from £85 billion to £95 billion and raised the interest rate on new loans by one percentage point. In making this change, the Treasury restored rates to levels available in 2018. The cost of PWLB loans has fallen significantly over the past decades, even accounting for changing policy margins.
The noble Lord, Lord Shipley, asked about the impact on social housing. By ensuring that the PWLB can continue to lend, the rate rise supports social housing delivery.
On whether Her Majesty’s Government should have oversight, in general, it is right for decisions to be made locally by the elected council. Most borrowing is spent on schools, roads and waste services. I commend this instrument to the Committee.