Process and Considerations in 2025 and beyond
Town and parish councils intending to borrow for capital purposes must complete a formal two-stage process. This regulatory framework ensures that borrowing is transparent, affordable and in line with statutory requirements.
Stage 1 – Borrowing Approval
The first step is to obtain borrowing approval from the Secretary of State (England) or the Welsh Government (Wales). Councils must apply through their respective County Association of Local Councils using the designated borrowing approval form.
The application must set out:
- The amount of borrowing sought and its purpose (restricted to capital expenditure)
- A business case or report to the council detailing the scheme’s rationale, estimated costs, and funding sources
- Evidence of council resolution approving the borrowing application
- The budget or cashflow showing provision for debt servicing
- Evidence of consultation with residents where precept increases are involved
It is essential that the councils demonstrate affordability, the necessity of the project, and the anticipated impact on local finances.
We recommend ensuring that the council is fully “loan‑ready” before submitting (i.e. project costings finalised, precept impact assessed, consultation completed) since delays often occur if the approval submission is incomplete.
Stage 2 – Loan Application and Drawdown
Once borrowing approval is secured, the council may apply to a lender. For most parish and town councils, the conventional route remains via the Public Works Loan Board (PWLB) Lending Facility operated by the UK Debt Management Office (DMO) on behalf of HM Treasury.
The Council’s Responsible Finance Officer must complete and submit Form LC1 to the DMO at least two weeks before funding is required, and once the loan is agreed, funds are typically drawn down in five working days.
Current interest rates and value judgement
Post 2008, we saw over a decade of ultra-low interest rates, and councils were able to borrow from the PWLB at rates averaging between 1% and 2%. However, in more recent years (primarily since coming out of the Covid-19 pandemic) we are seeing much higher levels, possibly representing the ‘new normal’. Current PWLB rates range between 4% and 6% depending on both the term and structure.
This elevated cost of borrowing means that councils need to be far more rigorous in assessing affordability, the lifecycle of the asset, alternative funding options and the impact on future precepts or reserves.
To discuss our parish council borrowing advice, please contact the Arlingclose team at info@arlingclose.com.
13/11/2025
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