The Public Works Loan Board and the growth of the state in nineteenth century England

by Ian Webster

The Public Works Loan Board was formed in 1817, when the government was faced with a stagnant economy and rising unemployment after the Napoleonic wars. It was established to lend money to finance public works like road, bridge and canal building. Later in the nineteenth century, the PWLB became a major lender to local government to finance the building of workhouses, schools, sewers and water supply facilities. The PWLB still exists in the twenty first century, and is the major provider of loans to local government.

During the nineteenth century, the PWLB survived two attempts by chancellors of the exchequer to abolish it. Sometimes its decisions were overruled by Parliament which directed the PWLB to make loans which were unlikely to be repaid. The Treasury preferred to see the PWLB as a high-cost ‘last resort’ lender when the private sector wouldn’t lend. But the prevailing view of the PWLB was as a low-cost lender to reduce the cost of national public health and education policies to local ratepayers.

These debates continue today. A recent chancellor of the exchequer sought to increase the PWLB’s interest rates closer to market rates, in order to encourage more private sector lending. He also proposed the abolition of the PWLB as a body of commissioners. There is still a debate about the merits of government borrowing to improve public infrastructure.

PWLB profits and losses 1817-76
Sums lent Profits(losses)
£M £M %
Lending decisions made independently of Parliament 37.9 3.4 9%
Lending decisions made by Parliament 4.2 (2.3) (55%)
Totals 42.1 1.1 3%

 

The research reached three main conclusions. First, 90 per cent of the PWLB’s lending was profitable, in spite of the fact that most loans were made at below market rates of interest. The critical factor is that lending decisions were made independently and with a prime concern about the security of the loan. The remaining 10 per cent of loans were made at the direction of Parliament. In these cases, social or economic reasons overcame the PWLB’s concern about repayment, and large losses resulted. Second, seeing the PWLB as a low-cost loan provider was a victory for local interests and national spending departments, over the Treasury desire to minimise the national debt. Third, the story of the PWLB highlights five key decisions between 1859 and 1876 that contributed to the substantial growth in government activities in the late nineteenth century. Without the PWLB’s cheap loans, it would have taken longer for elementary education and constant clean water supplies to become universal services.

To contact the author: ian.webster1954@gmail.com

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