Council debt closes in on £200m

Council debt closes in on £200m

Council debt closes in on £200m

First published in News
Last updated
Ledbury Reporter: Photograph of the Author by , Senior Reporter

HEREFORDSHIRE Council’s borrowing debt is edging ever closer to £200m as its use of short term “ends meet” loans from other authorities continues.

The final debt figure is feared to be far higher once accrued interest and other accounting adjustments are added on.

Latest figures show the council’s  total external debt to be £195.74m.

Another £40m alone needs to be borrowed over the coming financial year to cover costs related to the joint county incinerator project.

More millions are needed for other capital and contractual commitments.

In October last year the council’s own statement of accounts for 2012-13 warned of the council being exposed to “significant risk” over interest rate movements on its borrowings and investments.

Then, the borrowing debt topped £157m.

The current £195.74m sum specifies the principal outstanding, figures in the council’s soon to be published annual accounts will be higher as they include accrued interest and other accounting adjustments.

Former council leader Cllr Terry James feared that with all the add-ons the debt could rise to around a quarter billion – a figure that could crush the council if interest rates rose.

“I remember being lambasted when the debt reached £48m and much of that inherited from Worcestershire. It seems that debt is now the council’s default position,” he said.

Independent group leader Cllr Sebastian Bowen said the “binding” debt had to be brought down to a more manageable level.

“We have certainly become too reliant on short term borrowing,” he said.

As measured by the capital financing requirement (CFR), the council’s underlying need to borrow as at March 31 was £216.65m.

The difference of £20.91m between the CFR and total external borrowing represents internal borrowing from reserves and working capital.

In October 2012, the Hereford Times revealed Herefordshire Council’s policy of borrowing from other local authorities to help make ends meet or, in the council’s words, “provide additional liquidity at a time when balances were relatively low.”

Loans collectively worth millions of pounds have been taken from other councils and local authorities to date. 

With short-term interest rates being much lower than long-term rates, the council claims it is “cost effective” to take short-term loans from other local authorities.

By doing so, the council says it is able to reduce both borrowing costs and overall treasury risk.

But the council concedes that whilst such a strategy is “most likely to be beneficial” over the next 2-3 years as interest rates remain low, the policy will be kept under review and short-term loans will be replaced with longer term finance when it is deemed best to do so.

In 2013/14 the council’s weighted average cost of total borrowing was 3.48%. The weighted average cost of long term borrowing was 4.05% compared to 0.40% for  short-term borrowing - 0.40% being the gross cost including brokers commission of between 0.03% and 0.10%).

The council currently holds just over £23m in investments as instant access accounts, notice accounts and term deposits – an increase of £13.86m on £9.47m as at April last year.

Security remains the council’s main objective over investments, maintained by following the  a counterparty policy set out in its treasury management statement for 2013/14 which defined “high credit quality” organisations as those  having a long-term credit rating of A- or higher that are based either in the UK or a foreign country with a sovereign rating of AA+ or higher.

In March, market analyst Moody’s downgraded the long-term credit ratings of both the Royal Bank of  Scotland and NatWest Bank to Baa1.

As this rating is below the council’s minimum credit criterion of A-, the Royal Bank of Scotland was withdrawn from the counterparty list for further investment and NatWest, which is the council’s bank, will only be used for operational and liquidity purposes.

The council saw a surplus in the interest on its investments, the £332k up £73k on the £259k budgeted for.

Interest received in the year exceeded budget due to the amounts invested being higher than the budgeted amounts and the average interest rates achieved being  higher than budget for the first seven months of the year to October 2013.

However, interest rates on the council’s bank accounts fell sharply during the year with the result that the average interest rate achieved fell short of budget between November-March.

The average interest rate achieved during the year was 0.75% which compares  favourably with the generally accepted benchmark of the average 7-day London Inter-Bank Bid (LIBID) rate of 0.41%.

Comments (12)

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4:42pm Mon 9 Jun 14

megilleland says...

Reminds me of the football pools winner Viv Nicholson, who won £152,000 in 1961 (big money then) alongside her husband Keith, and promptly used it all to buy expensive clothes, cars and houses. Her famous quote at the time was "spend, spend, spend"

Anyone notice the similarity?

http://www.dailymail
.co.uk/news/article-
2507471/Viv-Nicholso
n-goes-spend-spend-s
pend-sell-sell-sell-
Sorry-tale-pools-win
ner-whos-auctioning-
memorabilia-shes-car
e-home.html
Reminds me of the football pools winner Viv Nicholson, who won £152,000 in 1961 (big money then) alongside her husband Keith, and promptly used it all to buy expensive clothes, cars and houses. Her famous quote at the time was "spend, spend, spend" Anyone notice the similarity? http://www.dailymail .co.uk/news/article- 2507471/Viv-Nicholso n-goes-spend-spend-s pend-sell-sell-sell- Sorry-tale-pools-win ner-whos-auctioning- memorabilia-shes-car e-home.html megilleland
  • Score: 3

6:16pm Mon 9 Jun 14

WYSIATI says...

reminds me of going to the bank to ask for a mortgage - my memory was that 20 years ago they wanted to lend no more than 3.5x my income - then it all went mad and people were borrowing 10x their income and look at the trouble we got into.

Hopefully the council with borrowings of £200M and an annual spend of £329M is able to use the loans carefully for capital investment and show the results of the investment.
reminds me of going to the bank to ask for a mortgage - my memory was that 20 years ago they wanted to lend no more than 3.5x my income - then it all went mad and people were borrowing 10x their income and look at the trouble we got into. Hopefully the council with borrowings of £200M and an annual spend of £329M is able to use the loans carefully for capital investment and show the results of the investment. WYSIATI
  • Score: -4

7:31pm Mon 9 Jun 14

redyoll says...

"Readers know they cannot spend more than their income and neither can the council. " Quote taken from Tony Johnson's letter in the HT. Have HC got assets worth more than £200m I suspect not. Thanks to the ineptitude of this council this county is in financial ruin. Not only is it nearly bankrupt it has never looked so neglected and unloved. Yet they still preach to residents about tight times are. What right have they to do this? They have lost the respect of the public and will have a very hard job to pull something out of the bag to regain it.
"Readers know they cannot spend more than their income and neither can the council. " Quote taken from Tony Johnson's letter in the HT. Have HC got assets worth more than £200m I suspect not. Thanks to the ineptitude of this council this county is in financial ruin. Not only is it nearly bankrupt it has never looked so neglected and unloved. Yet they still preach to residents about tight times are. What right have they to do this? They have lost the respect of the public and will have a very hard job to pull something out of the bag to regain it. redyoll
  • Score: 20

5:56am Tue 10 Jun 14

B the B says...

Wow that's bad but on another note, if ALL councils are having huge cut backs from Government spending and are themselves making cuts to services etc, how on earth are they lending Herefordshire money? .
Wow that's bad but on another note, if ALL councils are having huge cut backs from Government spending and are themselves making cuts to services etc, how on earth are they lending Herefordshire money? . B the B
  • Score: 1

8:11am Tue 10 Jun 14

probono says...

So when ae we going to become Shropshire and Hereford Council, ? Amalgamation is the only way out now, Worcestershire and Gloucestershire won't join with us, a foreign country is on our western side, so Salop it will be, sooner rather than later i suspect.
So when ae we going to become Shropshire and Hereford Council, ? Amalgamation is the only way out now, Worcestershire and Gloucestershire won't join with us, a foreign country is on our western side, so Salop it will be, sooner rather than later i suspect. probono
  • Score: 3

8:53am Tue 10 Jun 14

Rev.JohnnyElder says...

This is all down to having lady Councillors I'm afraid, it is always the same! They want lovely curtains when the roof is leeking. Why or why do I here yoursleves saying! Please ladies, there are some few good men, let them take back control and lead us down the path to stability for all our sakes, and the little animals too/

I'm hear if you need me.

Rev J Elder
This is all down to having lady Councillors I'm afraid, it is always the same! They want lovely curtains when the roof is leeking. Why or why do I here yoursleves saying! Please ladies, there are some few good men, let them take back control and lead us down the path to stability for all our sakes, and the little animals too/ I'm hear if you need me. Rev J Elder Rev.JohnnyElder
  • Score: -5

12:46pm Tue 10 Jun 14

William Rudd says...

It's as if Herefordshire Council are the only ones who borrow money .Most Councils do it,take Telford Council with their 360 million borrowing.Worcester Council 285 million.
It's as if Herefordshire Council are the only ones who borrow money .Most Councils do it,take Telford Council with their 360 million borrowing.Worcester Council 285 million. William Rudd
  • Score: -1

1:55pm Tue 10 Jun 14

mizza21 says...

Nice Work Johnny Elder. Made me titter at work.

Debt is not a bad position in times of extremely low interest rates. We shouldn't be too scared by this.
The scary part is what we do when interest rates rise. As they surely will.
We don't seem to have a plan to pay it off, or at least most of it.
Normally you'd have a five or ten year plan for that.
Nice Work Johnny Elder. Made me titter at work. Debt is not a bad position in times of extremely low interest rates. We shouldn't be too scared by this. The scary part is what we do when interest rates rise. As they surely will. We don't seem to have a plan to pay it off, or at least most of it. Normally you'd have a five or ten year plan for that. mizza21
  • Score: 5

5:56pm Tue 10 Jun 14

WYSIATI says...

B the B wrote:
Wow that's bad but on another note, if ALL councils are having huge cut backs from Government spending and are themselves making cuts to services etc, how on earth are they lending Herefordshire money? .
B the B that's a very good question.

I understand that the problem in Herefordshire is that we have a small county, small population and small tax base, low business rates and high costs. A rural county with people and property spread widely leads to higher costs - smaller schools, much larger distances for waste collection (and disposal) lots of roads to maintain etc etc. We also attract a lot of people who come out here to retire - not working but often needing social care of one sort of another.

I don't know the details but someone will - but think there was also an issue in splitting from Worcester which affected the levels of reserves.

The other thing that I think is really important is that levels of pay in Herefordshire have fallen a lot - a few years ago they were around the average for the west midlands, now they are well below. That means less money, less spend, less tax.

Other councils have yet to feel the full impact of the cuts from government but none is going to have an easy time (except possibly Westminster which is the opposite of Herefordshire - small, huge incomes, heaps of business, less older people, etc etc).
[quote][p][bold]B the B[/bold] wrote: Wow that's bad but on another note, if ALL councils are having huge cut backs from Government spending and are themselves making cuts to services etc, how on earth are they lending Herefordshire money? .[/p][/quote]B the B that's a very good question. I understand that the problem in Herefordshire is that we have a small county, small population and small tax base, low business rates and high costs. A rural county with people and property spread widely leads to higher costs - smaller schools, much larger distances for waste collection (and disposal) lots of roads to maintain etc etc. We also attract a lot of people who come out here to retire - not working but often needing social care of one sort of another. I don't know the details but someone will - but think there was also an issue in splitting from Worcester which affected the levels of reserves. The other thing that I think is really important is that levels of pay in Herefordshire have fallen a lot - a few years ago they were around the average for the west midlands, now they are well below. That means less money, less spend, less tax. Other councils have yet to feel the full impact of the cuts from government but none is going to have an easy time (except possibly Westminster which is the opposite of Herefordshire - small, huge incomes, heaps of business, less older people, etc etc). WYSIATI
  • Score: 5

10:30am Wed 11 Jun 14

Hereford person says...

I have just read the Councillors expenses list for last year, although the basic amount for each Councillor is one of the lowest in the country the leader, over £40,000 and nice little earners for the cabinet for all their wise rulings over the last year.
I have just read the Councillors expenses list for last year, although the basic amount for each Councillor is one of the lowest in the country the leader, over £40,000 and nice little earners for the cabinet for all their wise rulings over the last year. Hereford person
  • Score: 5

11:12am Wed 11 Jun 14

probono says...

The split from Worcstershire was badly dealt with by the Shadow leadership and CEO in waiting. All rush, no forethought and much self importance and blustering self interest. Interesting to note these same people were also looking at selling off HUFC ground and moving it to outskirts of City with a development like Worcester Warriors.
Sharing admin and some other services with Shropshire would be a start on the way to the full integration will will ave to come. Mr Pickles has not finished with Local Government annihilation yet
The split from Worcstershire was badly dealt with by the Shadow leadership and CEO in waiting. All rush, no forethought and much self importance and blustering self interest. Interesting to note these same people were also looking [behind closed doors] at selling off HUFC ground and moving it to outskirts of City with a development like Worcester Warriors. Sharing admin and some other services with Shropshire would be a start on the way to the full integration will will ave to come. Mr Pickles has not finished with Local Government annihilation yet probono
  • Score: 3

8:41pm Thu 12 Jun 14

Bindi2014 says...

Why borrow if you can't pay it back. disgracefulness. :(
Why borrow if you can't pay it back. disgracefulness. :( Bindi2014
  • Score: 2

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