Falkirk’s borrowing is ‘sustainable’ as watchdog warns of crisis looming

Falkirk Council has borrowed more than £200 million, figures show, as experts warn councils are risking taking on too much debt.

By The Newsroom
Wednesday, 10th April 2019, 4:12 pm
Updated Wednesday, 10th April 2019, 4:19 pm

The Chartered Institute of Public Finance and Accountancy says delivery of public services could be put at risk by unsustainable borrowing, after debt among UK local authorities rose to more than £100 billion.

However, Falkirk Council leader Cecil Meiklejohn says the council is only borrowing what is “prudent, sustainable and affordable” and only to fund vital services.

By the end of December, Falkirk Council’s outstanding loans stood at £229.3 million, according to figures from the Ministry of Housing, Communities and Local Government.

Long-term loans accounted for £216 million of the borrowing.

These last for more than one year and are used to finance large projects or purchases.

The council also took out £14 million worth of shorter-term loans, which are normally used to help manage a council’s cash flow.

The Chartered Institute says many cash-strapped councils are taking out large loans to buy property, as the rent they collect can be higher than the interest they pay on the loans.

Funding for councils fell by almost half between 2010-11 and 2017-18, according to the National Audit Office.

“With government funding in decline, it is unsurprising councils are having to adapt and find alternatives,” said Don Peebles, head of policy at the Chartered Institute.

“While councils are borrowing for a wide range of purposes, such as building houses and investing in major infrastructure, one trend which has been concerning is the growth in investment in commercial property - which exposes public finances to new risks.”

He added that councils could be in breach of the Institute’s guidance – which they have to take into account when developing investment plans – by borrowing too much, or borrowing in advance of their needs.

The government’s Public Works Loan Board was the main lender to Falkirk Council as of December, followed by UK banks, then other local authorities.

The loan board offers low-interest loans to councils, without requiring them to prove they can afford the repayments.

There is no limit to the amount councils can borrow from it.

However, Falkirk Council leader Cecil Meiklejohn said Falkirk was not at risk of falling foul of the CiPFA warnings.

She said: “Falkirk Council does have loan debt but this is used to finance assets such as council houses, schools, roads, old peoples’ homes etc which deliver vital services, many of them which are statutory.

“Our property assets have an insurance value of circa £2.7B which dwarfs the debt outstanding.

“The CiPFA warning is not targeted at the likes of Falkirk nor in fact the majority of councils but directed at a specific few.

“Falkirk does not borrow to spend on investment properties, but only to provide assets for service delivery.

“Councils are required to operate within a statutory Prudential Code which is designed to ensure councils borrowings are prudent, sustainable and affordable and Falkirk Council is very diligent in any new borrowing it undertakes ensuring that the appropriate resources are available to service the debt”

A Falkirk Council spokesperson said: “The Council, like all large organisations, has loan debt which is used to finance assets such as houses, schools, roads and care homes, which deliver vital services in our communities.

“We are very diligent in any new borrowing and operate within a statutory Prudential Code designed to ensure borrowings are prudent, sustainable and affordable.”