Some caution has been expressed over the proposed hike in borrowing by Northumberland County Council to fund capital spending in the coming years.
A treasury management update to Northumberland County Council’s audit committee on Wednesday (January 23) revealed that the authority’s borrowing is set to be £747million by the end of the financial year.
It decreased by £64.3million from £772.1million at the start of 2018-19 to £707.8million at November 30 last year, but will rise again up to April.
But what concerned some of the committee members is the coming increase in the council’s capital financing requirement (CFR), which is forecast to rise by more than a quarter in the next three years – from £911.9million at the start of 2019-20 to £1.17billion by the end of 2021-22.
This is to help fund a £589million capital-spending programme of investment in the likes of schools, leisure centres and other infrastructure projects.
CFR is a measure of the council’s long-term borrowing requirement that represents the total historic outstanding capital expenditure which has not yet been paid for. It is repaid over time by an annual charge to the council’s revenue spending, known as the minimum revenue provision (MRP).
Coun Nick Oliver, the cabinet member for corporate services, said: “The fact that borrowing has fallen is important. It will rise again, but it will rise in a very measured way and in a more affordable way.”
Responding further to questions about the increase in capital spending and borrowing, he added: “It’s a much more measured programme than before (under the previous Labour administration) when it was going to be £1.5billion.
“It will be invested in areas such as education which will improve the long-term economic prospects of the county. There’s also investment which will make a contribution to bring down revenue spending – what’s known as invest to save.
“We are very mindful that every £1million of borrowing costs £60,000 to service. It’s about trying to get a balance between proper investment in the county and sound financial management.”
Alan Hall, a committee member who is not a councillor, said: “Can we mention our cautious concern about the rise in capital spending, even though we have been given a full account of it and I know it is a policy area, but we have also heard about the uncertainty interest rates and the economic climate.”
The report to councillors also shows that the council is owed a significant amount of money in the form of loans to third parties, with a total estimated balance at April 1 this year of £428million, with the main creditors being Northumbria Healthcare NHS Foundation Trust and the council-owned regeneration company Advance Northumberland.
This balance has an average interest rate of 4.7 per cent and interest payments should bring in £20million for the council in the coming financial year.
Coun Oliver pointed out that while the authority’s spending plans for the next three years (2019-22) includes a provision of £22million a year for further loans to third parties, this is far lower than the previous administration’s plans for £150million a year for loans to third parties, including the now-scrapped development company Arch.
He also highlighted that these loans are ‘considered and approved to support the council’s service and policy objectives, not to generate a financial return for the council’.
Ben O'Connell, Local Democracy Reporting Service