Council borrowing is manageable and benefits city - letter by Finance Convener

Letter published in today’s Evening News in response to an article last week on levels of Council debt.

You can also view a much more detailed response by the Director of Finance after the Convener's letter.

Dear sir

In response to your article on 24 February, 'City plunges £1.1bn into red', I need to restate some important points.

The vast majority of the Council's loans are long-term, fixed-rate deals.

There are strict controls on borrowing by councils and we fully comply with these.

Major decisions have to be approved by Council and all our finances are subject to audit and other scrutiny.

Our borrowing is affordable, sustainable and the most appropriate way of carrying out major capital improvements, such as flood prevention works, new care homes, the Royal Commonwealth Pool refurbishment, the new Portobello High School and the Usher Hall upgrade.

If those quoted in your rather alarmist article have specific grounds for concern then perhaps they would be better advised raising those at Council or with me directly.

Debt is not automatically a bad thing. It has to be for a good purpose and it has to be managed well. This Council's borrowing is both of those.

Cllr Phil Wheeler

Convenor of the Finance and Resources committee

From the Director of Finance, Donald McGougan:

All borrowing by the City of Edinburgh Council is fully compliant with the Local Authority Prudential Borrowing Code which requires councils to demonstrate that all borrowing is prudent, affordable and sustainable. This includes the requirement to set out operational and authorised limits for external debt for the next four years.

In the last eighteen months, the Council has been able to take advantage of falling property values and historically low interest rates to undertake transactions such as the purchase of assets from Council companies and the Council Headquarters building, which received the 'Deal of the Year' Award at the 2009 Scottish Property Awards. All of these transactions were subject to business cases which demonstrated best value by purchasing the assets with the revenue consequences of the borrowing being fully funded from the previous rental budgets or from the new income streams received. These purchases were reported to and unanimously approved by all members of the Council.

Major projects included in the Council's capital budget include Flood Prevention works, new residential care homes, Royal Commonwealth Pool and Glenogle baths refurbishments, new Portobello High School and Usher Hall upgrade.   

In respect to the Council being susceptible to increases in interest rates it should be stated that the vast majority of the Council's borrowing has been undertaken at fixed interest rates from the Public Works Loans Board with an average weighted loan maturity of 22 years. This thus provides a shelter from short term volatility in interest rates.

In the article a comparison is made between the debt level of Glasgow and Edinburgh, but it should be clarified that the Edinburgh figure includes £300m Housing Revenue Account debt whereas this debt is excluded from the Glasgow figure following the housing stock transfer.

The Council is progressing a Tax Incremental Financing (TIF) project at Leith Docks with the Scottish Government. The proposal is that the cost of capital infrastructure will be funded from the increase in non-domestic rates generated as a result of the investment, and that vital economic development progresses. The TIF business case sets out a phasing of the project, with the risks clearly identified and gateways reviews being undertaken in order that delivery of the project and financial implications are carefully managed. 

 Finally, all borrowing is undertaken in accordance with the Council's Treasury Strategy which is considered by both the Council and Finance and Resources Committee at the start of each year and provides a comprehensive framework in regards to managing the Council's borrowing requirements.  This ensures that overall levels of debt are under continuous review to make certain they are affordable in the short, medium and longer terms.


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