District council has £86.8 million in outstanding loans to pay

PUBLISHED: 12:00 21 April 2019

Picture: PA Wire/PA Images

Picture: PA Wire/PA Images

PA Wire/PA Images

More than £86.6million in outstanding loans is owed by East Devon District Council (EDDC).

The amount the authority has borrowed has also increased by £3million in just one year.

Experts have warned councils are risking taking on too much debt while others say that councils are simply adapting to plug funding gaps made by Government cuts.

The Chartered Institute of Public Finance and Accountancy says delivery of public services could be put at risk by unsustainable borrowing, after debt among UK local authorities rose to more than £100 billion.

By the end of December, EDDC's outstanding loans stood at £86.6 million, according to figures from the Ministry of Housing, Communities and Local Government.

This was a four per cent increase compared to a year ago, and one per cent higher than at the end of 2013-14.

All the outstanding loans were long term advances, which last for more than one year and are used to finance large projects or purchases.

The Chartered Institute says many cash-strapped councils are taking out large loans to buy property, as the rent they collect can be higher than the interest they pay on the loans.

Funding for councils fell by almost half between 2010-11 and 2017-18, according to the National Audit Office.

The government's Public Works Loan Board was the sole lender to EDDC as of December.

The loan board offers low-interest loans to councils, without requiring them to prove they can afford the repayments.

There is no limit to the amount councils can borrow from it.

Don Peebles, head of policy at the Chartered Institute, said: “With government funding in decline, it is unsurprising councils are having to adapt and find alternatives.

“While councils are borrowing for a wide range of purposes, such as building houses and investing in major infrastructure, one trend which has been concerning is the growth in investment in commercial property - which exposes public finances to new risks.”

A spokeswoman for the MHCLG said: “Councils are responsible for managing their own finances and making the right decisions for the communities they serve – including making appropriate investments.

“Guidance on council investments was updated in April 2018 with new codes that strike the right balance between allowing councils to continue to be innovative while ensuring that taxpayers' money is properly protected.”

An EDDC spokesman said: “The annual increase in borrowing identified was used to finance the purchase of assets related to service delivery, these being assets required for recycling and refuse collection.”

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