With interest rates at historic lows, councils are unable to escape costly repayment clauses

Councils are missing out on cheap government loans because of a decade-old rule change that means they face a bill of nearly £30 billion to refinance their borrowings.

Some local governments are paying 9 per cent interest rates to the Treasury because of the “exorbitant” penalties they face for early repayment.

An analysis of councils’ £62 billion debts by Risky Finance, a specialist financial website, found that the cost to authorities if they were to repay the money today would be £29 billion.

Although councils technically are allowed to borrow from any source, in effect the rules constrain them from accessing public debt markets, meaning that most rely on money from the Public Works Loan Board, a subsidiary of the Debt Management Office, itself part