§ Mr. David Howell
asked the Secretary of State for the Environment what protection Her Majesty's Government provide for lenders and other creditors in the event of default by a local authority.
§ Mr. Ridley
A local authority's debt and its creditworthiness have always been its own responsibility. The Government do not stand behind local authority debt. The great majority of local authorities understand the importance of maintining their creditworthiness and behave in accordance with the rules of financial good practice.
All loan debt is a statutory charge on all the revenues of an authority. If a local authority were to default, creditors—including those who have provided finance for authorities under arrangements such as deferred purchase schemes which do not legally constitute borrowing—might have to take action in the courts to recover their money. The Public Works Loan Board could not lend to an authority which chose to act illegally or which appeared unable to service and repay the debt, even under its lender of last resort facility.