Lancashire County Council leader defends borrowing increase in the name of improved services

Borrowing by Lancashire County Council increased by £82m over the last twelve months to stand at more than £1.1bn.

Figures from the Ministry of Housing Communities and Local Government (MHCLG) show that the authority’s outstanding debt rose by eight percent in the twelve months to the end of 2019.

The debt level at Lancashire County Council has increased over the past year

The debt level at Lancashire County Council has increased over the past year

According to papers presented to the council’s budget-setting meeting last month, the county will pay almost £25m in interest charges on its debts out of the £844m which it has to spend on day-to-day services over the next year.

Most of the money borrowed by the authority is used for funding capital projects like new, upgraded or repaired buildings and roads, as required by government rules which limit the reasons for which councils can go into debt.

The region’s roads will get the largest slice of capital investment over the next twelve months, with repairs and redesigns costing just over £40m. Schools are next in line, receiving £27m from the investment pot.

Conservative council leader Geoff Driver said that the authority was below the average percentage increase in debt which had occurred across all councils - and yet was still investing to improve services and facilities in the longer term.

County Cllr Geoff Driver says Lancashire residents are benefiting from better facilities and services bought by increased borrowing...

County Cllr Geoff Driver says Lancashire residents are benefiting from better facilities and services bought by increased borrowing...

“In every year since we took control in 2017, we’ve added an extra £5m to the budget for highways maintenance. And when we repair roads, we don’t just strip the top surface off, but - if it needs it - the hardcore underneath as well. That costs money and we borrow to do it.

“We’ve significantly increased the amount spent on repairs to schools and, of course, we create new assets - such as a new respite centre for children with sometimes profound disabilities.

“These things inevitably increase the debt - but because we’ve got the county council’s finances on a firm footing, we’re able to do that,” County Cllr Driver said.

But Labour opposition leader Azhar Ali said that the strategy was putting Lancashire residents in “huge debt”, but not repaying them with better services.

...but County Cllr Azhar Ali says the county is being loaded with debt without seeing any improvements for the cash spent

...but County Cllr Azhar Ali says the county is being loaded with debt without seeing any improvements for the cash spent

“This shows the smoke and mirrors of this Tory administration - they say they are reducing the county council’s spending, but actually they’re just maxing out its credit card.

“The people of Lancashire are not seeing major improvements in their roads or efforts to stop flooding, while adult and children’s services are crying out for resources.

“Lancashire County Council cannot carry on with the reckless actions of Geoff Driver,” County Cllr Ali said.

But County Cllr Driver said Labour’s comments “demonstrate that they don’t understand how the local authority should manage its debt to the best advantage of the people of Lancashire”.

The council has recently secured a lower interest rate for around a third of its debt.

Only around a fifth of the authority’s capital delivery programme during 2020/21 is expected to be funded by borrowing, with the majority being financed by grants secured for individual projects.

Outstanding council borrowing across England stood at £100 billion at the end of December – a nine percent rise from a year earlier.

FINANCE FIGURES

£1.025bn - Lancashire County Council debt (December 2018)

£1.107bn - Lancashire County Council debt (December 2019)

8 percent - year-on-year increase

Source: MHCLG

WHERE DOES THE CASH COME FROM?

Analysis by the Lancashire Post reveals that more than 60 percent of County Hall’s borrowed cash comes from other local authorities - a total of £682m as at the end of December 2019.

Like most of the local government sector, Lancashire County Council has historically turned to an organisation called the Public Works Loan Board (PWLB) in order to find the money needed for major projects. The body traditionally provided funding to councils at rates which were only marginally above those of which could be secured by central government.

But the last decade was bookended with two hikes to PWLB rates, which now leave them standing at 2.8 percent - and much more expensive for local authorities to service.

Mike Jensen, County Hall’s Director for Investment, described it as “monstrous margin” and said that it helped to explain the increasing volume of council-to-council lending.

“The credit assessment of UK councils is extremely good. The debt lives even beyond the life of a local authority - if another institution replaced that council, it would take on the debt.

“It also means that the money isn’t leaking out of the local government system,” explained Mr. Jensen, who said that brokerage fees were the only cost beyond interest, because councils had failed to come up with a service to match up their lending capacities and borrowing requirements.

Lancashire County Council has also sought a credit rating from the independent agency Moody’s. The authority secured so-called AA3 status - just one notch below that of central government - making it an attractive option for other councils looking to lend.

The authority recently became the first council to borrow money via the new UK Metropolitan Bonds Agency - which issues bonds on the open market to provide finance for local authorities.

The vast majority of County Hall’s borrowing is now done over the short-term, which Mr. Jensen shaves around four percent off the longer term interest rates being paid by the council until 2010 - saving between £8m-£10m a year.

WHERE IS THE MONEY GOING?

During 2020/21, Lancashire County Council’s capital delivery programme has earmarked £133m on areas including:

Highways - £40.1m

Schools - £27.1m

Corporate - £19.2m

Adult services - £16.2m

Transport - £15.3m

Vehicles - £4.6m