Wednesday, 11 March 2015

The Borders 'business' with 51 separate bank loans

EWAN LAMB reports

It is an organisation with an annual budget of  more than £250 million, is the largest employer of labour in the Scottish Borders, yet it is currently burdened by a portfolio of 51 separate loans ranging in size from just £60,000 to £24 million requiring between them annual interest payments of close to £11.5 million.

It must be questionable whether any private sector company would survive under such a heavy level of debt. No doubt the bank would have called in receivers or administrators years ago and the firm would be a certain candidate for liquidation.

But the 'business' we are talking about here just happens to be Scottish Borders Council whose debts have featured in these columns on more than one occasion. The local authority - its debt level is by no means unique or any worse than its colleagues in the Scottish local government sector - is currently in hock to the Public Works Loan Board (PWLB) to the tune of £127.6 million, not to mention a separate assortment of bonds and mortgages adding up to more than £44 million which were sourced from the money markets. The indebtedness to the PWLB was £120 million five years ago.

Details of the 51 outstanding loans SBC have with the PWLB can be found on the Board's website alongside the huge deficits of every other local authority in the UK.

This is the type of information every public body should have to publish on an annual basis rather than requiring individuals to ferret around and pore over pages and pages of figures and tables to get at the facts.

The file on SBC shows that while some loans will be paid off by 2020 the final payment on others are not due until 2052, 2057 or in one case 2061. So future generations of local taxpayers will still be servicing their council's debts up to 45 years from now.

The largest outstanding sums are for £24 million (twice) and £10 million. According to the PWLB the combined 'fair value' of the 51 loans is estimated to be £187 million, up from £154 million in 2010.

Between them the 32 Scottish local authorities have 2,505 outstanding loans with the PWLB worth £8.764 billion (in 2010 the figure was £7.259 billion). In this instance the fair value is set at £11.056 billion compared to £8.764 billion five years ago.

No doubt Treasury and finance officials working in local government will tell you the huge raft of loans and debts is manageable and that individual local authorities have the situation under control. But to the layman the entire municipal edifice appears to be built on sand, and at some point the crumbling and inadequate foundations will be washed away.

We showed the collection of truly staggering figures to a financial expert who told us:" I would not like to put my name to a credit rating for a local authority now that I have seen the debt burden.

"It would be like awarding a credit rating to a black hole; the money just keeps getting sucked in and there seems to be no prospect of the councils paying off these loans without assistance from central government. That would only increase overall public debt. The situation already appears to be indefensible and completely unsustainable."

It is worth pointing out again that the £11.4 million in interest payments made by SBC in 2013/14 exceeds the council's entire net expenditure on cultural services ( £10.552 million and is way ahead of the annual budgets of both Central Services (£8.283 million) and Planning & Development (£4.972 million).

Perhaps this set of eye watering  numbers demonstrates again why Borders councillors were so blase and unconcerned about writing off the £2 million lost/squandered on the New Earth Solutions Advanced Thermal Technology project at Easter Langlee on the outskirts of Galashiels.

After all, a phone call or an online application to the PWLB is probably all it would require to fill the gap in SBC's finances left by the fruitless venture into the world of incineration.

FOOTNOTE: New Earth Solutions Group, the business selected by SBC in 2011 to mastermind the council's integrated waste strategy, currently has 24 mortgages and charges outstanding, according to information available from Companies House.

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