Northumberland County Council borrowing set to hit £850million next year as covid bites

Northumberland County Council’s borrowing is set to hit almost £850million next year, but it is benefiting from a major fall in interest rates.

By Ben O'Connell
Friday, 27th November 2020, 6:47 pm
County Hall in Morpeth.
County Hall in Morpeth.

A report to the Wednesday, November 25, meeting of the authority’s audit committee explained: ‘Given the dramatic downturn in the economy, the accompanying fall in interest rates and the expectation of these rates remaining low for a prolonged period of time, a decision was taken early in the new financial year to shift the emphasis for meeting the year’s external borrowing requirement to shorter, rather than longer, term loan facilities.’

Members heard that nine ‘forward deals’ have since been agreed to borrow £75million from other local authorities between December 2020 and February 2021 – when the money is expected to be required – which have a combined average interest rate of 0.66%.

It is also estimated that another £40million will need to be borrowed before the end of the financial year in March 2021.

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The update related to the mid-year position – up to the end of September – a six-month period where total external borrowing dropped by £37.3million, from £825million to £787.7million, due to maturing existing loans. By the end of 2020-21, overall borrowing is projected to hit around £845.4million though.

However, previously reported delays to a number of schemes in the capital spending programme plus the ‘significantly lower than budgeted’ interest rates should mean an interest bill for the year of £25.7million – £2.6million lower than forecast.

In terms of overall external investments, these reduced during the first six months of the financial year from £191.1million to £176.1million, and are set to drop to around £99.6million by March 31, 2021.

Concerns were raised by vice-chairman, Cllr Mark Swinburn, that almost a quarter of the investments recorded in the mid-year position – £41.3million – are with other local authorities, given recent news about councils elsewhere facing extreme financial difficulties, for example, Croydon, which in effect declared itself insolvent earlier this month.

He accepted that it is standard practice for local authorities to lend each other money and up until March this year, these investments were considered low-risk, but he suggested this is no longer the case.

“I’m not going to say we shouldn’t lend that money out and look for a positive return,” he said. “But I would ask that we look at that as something which should be considered as a risk given the current climate.”

Council officer Andy Stewart, who was presenting the report, said that it was fair to say risk had increased and the team would monitor the situation, but suggested it was mitigated by the unlikelihood of the Government allowing a local authority to go bust to the extent that it could not honour its commitments.

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