The Covid-19 crisis has increased costs for UK local authorities while revenue from property related taxes and from fees and charges is falling.  This will put many UK local authorities under greater financial pressure with an increased risk that some may run out of money.  The crisis has increased financial uncertainty for local authorities and highlighted some of the shortcomings of existing fiscal arrangements.

The UK government’s decision in October 2019 to increase the lending margin that the Public Works Loan Board (PWLB) charges to UK local authorities has encouraged a growing number of commercial investors to lend directly to the sector as well as to invest in long lease assets with rents underpinned by local authority covenants.

Lending to local government is considered as low risk, however the credit profile of the sector is weakening and the risks between individual councils are widening.  Investors may have to reassess their assumptions about sector risk, in particular the role of government support if the trend towards decentralisation and greater autonomy for local government is accelerated following the Covid-19 crisis.

Read more about how the Covid-19 crisis has impacted local government, how the sector may change after the crisis, and the implications for credit quality by downloading our report below.