Debt is a major concern of local residents and the current Labour Administration is borrowing heavily to invest, whilst investing is usually a positive thing, taking on excessive long term debt is not. This is an area we in the Conservative and Labour disagree strongly on.
Debt at the end of the last Conservative Council and around the time of Labour’s 100 Day budget stood at approx £90m it is now approx £270m so a very considerable increase over the last 8 years.
Interest rates in the UK have been very low, unusally low, whilst there is talk of a new normal for interest rates and rates may be lower for the foreesable future than we were used to in the 1980’s and 1990’s they are going to rise and when they do the £270m the Council owes will become more expensive to borrow. Now T&W has a mix of shortterm spot rate debt and longer term fixed rates, but these rates and debts mature and will in the future need re-financing.
This is the area we are most concerned about, whilst interest on the current debt levels account for around 8.2% of the net Revenue Budget, this will rise as interest rates rise, meaning a growing future squeeze on Revenue budgets.
Here is an extract from Telford and Wrekins most recent Council Treasury report.
“Following discussion with the Council’s external treasury advisors, Arlingclose, we have started to lock into some fixed term borrowing during 2018/19 to reduce the exposure to future interest rate increases which are now predicted. It should be noted that the Council’s budget for 2018/19 and proposals issued for consultation in January 2019 for 2019/20 include allowance for locking in all anticipated financing requirement at fixed interest rates that are higher than current PWLB rates for any duration (from 1 year to 50 years) which ensures that the Council’s budget in relation to Treasury Management is robust. The Council is very well placed to lock in to longer term fixed rates. The Council will continue to receive regular advice from Arlingclose who are a firm of expert advisors specialising in all aspects of local government treasury management and we act in accordance with the advice received.
The report also sets out expected external financing requirements. We have an excellent track record of complying with all the prudential indicators and limits agreed by Council and are operating well within the overall approved credit ceiling. The proportion of the Council’s net revenue budget used to service loan repayment is 8.2% in the current financial year. This compares to 9.5% for the average unitary authority. The Council has increased its external financing requirements in recent years as it follows a more commercial approach. This has included investment in NuPlace which provides high quality homes for rent from a reliable landlord, mainly at market rent levels and an expansion of the Property Investment Portfolio. These investments are expected to bring long term capital growth which will strengthen the Council’s balance sheet as well as generating revenue returns well in excess of the associated loan repayment charges. They will also bring other direct and indirect financial and other benefits to the residents of the Borough including additional income from council tax, business rates and new homes bonus, as well as protecting and creating jobs for local people. The Council’s solar farm generates an index linked surplus of around £200k pa the surplus is used to help support front line services.
This report and the Prudential Indicators report, which will be considered by Full Council on 28 February, set out our overall approach to treasury management and the controls that are put in place to ensure that council taxpayers’ interests are protected and risks are managed as effectively as possible.”
As you can see whilst 8.2% appears reasonable compared to 9.5% for other authorities that doesn’t mean it is a good idea, and many of us remember when the Building Societies got their freedom to borrow, they heavily expanded their balance sheets and guess what they all with some notable exceptions ended up going bust! Of course that is not going to happen with a Local Government area such as Telford and Wrekin but if the going gets touch, then the Council tax and Business rates will get going even higher and future services will have to be reduced to offset the rising cost of debt.
This is the area we feel Labour are overlooking, Telford is naturally becoming more of a Conservative Borough but this future will include a large legacy debt which be a burden on us all and for our Children for generations to come.
Labour always put forward the debate in the form of what Investment would you not undertake, the answer is not always a choice, as some things can be done then passed over to the Private sectors, so the Solar Farm if sold would still exist and generate cleaner energy but the funds from a disposal could be used to clear down debt.
If elected on 2nd May 2019 we commit to producing a 100 day budget and will set about changing the direction of the Council.