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Council leaders defend Stoke-on-Trent’s £420m debt as ‘good borrowing’

Stoke-on-Trent City Council’s debt has risen to over £420m this year, but leaders have insisted it is “good borrowing” with the city’s long-term future in mind.

The local authority has taken out a further £25m of long-term loans for projects such as private sector housing and improving highways which it calls “essential borrowing.”

It currently spends 9% of its revenue stream on servicing its debts, far above the ratio for similar authorities, and it will likely rise to 12% over the next two years.

Speaking to members of the corporate services overview and scrutiny committee, councillors defended the city council’s debt situation regarding.

As reported in Stoke-on-Trent Live, Paul Boden, the strategic manager for corporate finance, said: “If you look at the authorities we are more similar to, there are some which have financing costs which are 25% of their revenue stream.”

He said: “It’s important that we understand the financial consequences of our decisions.”

Councils can use the Public Works Loan Board (PWLB) to access cheaper loans than in the private sector.

Just last month, CIPFA issued a warning to local authorities not to borrow unnecessarily in order to make a profit, exposing public funds to “unnecessary or unquantified risk.”

It said it wanted to remind councils that the prime objective of a local authority’s treasury management investment activities is the security of funds.

The majority of Stoke-on-Trent’s debt is reportedly with the PWLB – £399.9m out of £419.9m. One councillor questioned whether the council was right to borrow this amount to invest into property.

According to Stoke-on-Trent Live, Mohammed Pervez, the chair of the scrutiny committee, said: “I am getting a bit nervous about whether this is the right strategy for the local authority to take.

“Is this a commercially sound this to do, given the concerns being raised at this moment in time?”

Whilst councillors assured the committee that council borrowing is focused on improving the city, earlier this year Stoke-on-Trent was named as the ‘debt capital’ of England and Wales, according to local figures.

Deputy council leader Abi Brown said: “Our revenue support grant is being cut, so we could reduce our organisation and closed things like care homes, libraries and swimming pools. But we don’t want to do that.

“This administration chose to be more aspirational. Four hundred homes are expected to be delivered by Fortior over the next few years. This will generate council tax and new homes bonus.”

In the government’s Autumn Budget announcement, Philip Hammond did announce that it would abolish the Housing Revenue Account cap.

Image credit - yorkfoto

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