Council considers loans bid to help smooth out costs
AUTHORITY IS IN TALKS WITH GOVERNMENT OVER SUPPORT
NOTTINGHAM City Council has said it is considering taking on new loans from the Government to help balance its books.
It comes after a Government report found it was unable to balance its books in time for the upcoming financial year without Government support.
At the time of the report, council bosses were looking at how to make £50 million in cuts.
The financial situation has improved slightly since then, and plans outlined this week show how the council intends to make £15.6 million in savings, with a further £7 million still to be found in time for the budget to be set in March.
Now, the council has revealed it is having ‘conversations with’ the Government about taking out new short term loans.
The scheme, known as ‘capitalisation’ would give the council the ability to invest in projects which would save money in the long term.
For example, upgrading an IT system or buying electric vehicles may cost more up front, but could save money in the long term.
The idea is that the savings would then be used to pay back the Government loans.
The talks are still at an early stage, and the Government or the council may decide not to proceed if either feels the numbers don’t add up.
Normally, loans are used for big oneoff projects like rebuilding the Broadmarsh, and can’t be used for day-today spending, for example on paying staff costs.
But with capitalisation, short-term exceptions to that rule can be made, if all parties are convinced long-term savings can be achieved.
Asked about this strategy, the city council’s head of finance Sam Webster, said: “There is transformation and modernisation required, to make sure the council is on a sustainable footing we’re going to need to invest in changing some of the ways, and to do that we are in conversation with the Government about capitalisation.
“We’re basically asking them if we can borrow an additional amount of money to be spread over a number of years.
“Several councils are doing this, several councils have asked and then decided not to go ahead, others are still having negotiations and I believe more will seek this route as well.
“So it will allow us to smooth costs over the next few years.
“We’re looking at that option at the moment, nothing is settled and we don’t know what the view of Government will be, we don’t know what proposal we’ll end up with, but that’s a conversation that we’re having at the moment with the Ministry for Housing Communities and Local Government.”
Money for day-to day spending is referred to by councils as revenue spending, whereas money for longterm projects is known as capital spending.
Clive Heaphy is the newly-appointed director of finance at the Labour-run council, and said: “We can’t normally use day-to-day money from capital spending, we can’t borrow from that we have to get it from council tax, business rates etcetera.
“Capitalisation allows us to borrow in the short term in order to meet those costs and protect reserves, and make sure in the longer term and medium term we’ve got that stability.
“Having got that capital spending, it wouldn’t be long term borrowing it would be short term, and as soon as the council has created some money either through revenue savings or through asset sales, it would pay that money
back.
“So there’s no intention to retain this as a long term debt, it just helps us to spread costs over a number of years, protect the reserves and allow us to go through that transformation process. “It’s a similar process many companies would go through as they do a little bit of restructuring.”
To make sure the council is on a sustainable footing we’re going to need to invest. Sam Webster