Cost of borrowing rises for councils

Angus and Dundee may have to re-evaluate spending plans

Dundee and Angus councils could be forced to re-evaluate spending plans for projects including school building and council housing after the UK Government made a surprise hike to the cost of local authority funding.

HM Treasury wrote to finance chiefs across the UK informing them of the one percentage point increase to rates of borrowing from the public works loan board (PWLB).

The PWLB can be used by local authorities to support capital spending projects.

Increases to the borrowing rate are “effective immediately”, according to the Treasury.

Last night Dundee City Council leader John Alexander held talks with finance bosses to learn the full impact on spending priorities and Angus Council are “considering the implications”.

Hard-pressed council budgets could be thrown into disarray after the UK Government hiked the rate of borrowing on local authority funding.

The Treasury announced an increase on the rate of new loans by one percentage point, “effective immediately”, in a letter sent to every council finance chief in the UK.

Local authorities can borrow for spending from the public works loan board (PWLB) to pay for projects like school buildings and council houses

The PWLB is often a cheaper method of borrowing and can be paid back over longer periods of time.

In Fife, funding of the “schools element” of the new campus for Woodmill High, St Columba’s and Fife College would be paid for in part by borrowing from the PWLB.

Angus Council said the increase would have a bearing on any future capital expenditure plans.

Perth and Kinross Council has a borrowing requirement for capital projects of around £470 million over the next decade, which the council says is to finance major capital projects such as the Cross Tay Link Road and the replacement of Perth High School.

Borrowing from the PWLB is one of two types of funding Dundee City Council uses for capital projects.

Dundee City Council leader John Alexander said he is asking “immediate questions” to determine the extent this will affect future council spending.

He said: “The impacts are, right now, unclear. Some of the savings we were able to make on the last budget to reduce the impact of cuts to the revenue budget have been through reprofiling loans. So any increase on the rate will impact on the cost of borrowing.

“I will be sitting with the council finance team to find out fully how this will impact us. Inevitably, we will need to understand what this will mean across the council portfolio.”

According to the government, Dundee City Council has a debt of £442m to the Treasury, as of April 1 2019. Fife Council is £479m in debt to the Treasury, Perth and Kinross £340m and Angus Council £118m.

A Treasury spokesperson said: “This one percentage point increase takes rates back to levels that were available in 2018.

“Even with this change, the PWLB rates offer very good value to local authorities.”

An Angus Council spokesman said: “The change in interest rates will not affect the cost of borrowing previously undertaken but the finance directorate will be considering the implications for any potential future borrowing requirements.”

Laura Robertson, finance operations manager for Fife Council, added: “The existing loans that we have are at fixed rate so the increase will not impact on them.”

Minister for Public Finance Kate Forbes said: “This interest rate increase may lead to local authority investment plans being scaled back or delayed.

She added: “This is unfortunate at a time when local authorities are being encouraged to undertake capital investment.”

Picture: Kenny Smith. The Cross Tay Link may be affected by changes in council borrowing rates.