Council borrows £20 million "after start of purdah"

EXCLUSIVE by DOUGLAS SHEPHERD

It has been revealed that Scottish Borders Council borrowed £20 million from the Public Works Loan Board (PWLB) last month, the largest single loan taken out by the local authority for 15 years.

And the arrangement which will require annual interest payments of £476,000 was made on March 23rd, barely a week before elected members held their final council meeting on Thursday of this week before demitting office in preparation for Scotland's local government elections on May 5th.

The ten-year loan which will run until March 2032 is the first cash advance requested from PWLB by the Borders local authority since September 2019 when the sum of £7.5 million was borrowed over 15 years. The largest single sum borrowed was £24 million obtained to fund capital projects in November 2007, one of over 50 separate loans in SBC's portfolio. That one runs until 2052.

The current council administration - an alliance of Conservatives and Independents - has been in office since 2017. When nominations for the forthcoming elections closed this week 12 out of 34 councillors had decided not to seek re-election. There will be 77 candidates from a range of political parties contesting the eleven multi-member council wards.

According to Scottish Borders Council - Pre-election Period Guidance Local Government Election 2022 a 13-page document posted on SBC's website: "What is the pre-election period? It is the period between the announcement of an election and the date of the count. It is generally taken to be from the publication of the notice of election until polling day, inclusive of both days. 

"This is the timeframe referred to in the Code of Recommended Practice on Local Government Publicity , which guides Councils on the issue of publicity. For the Local Government Election to be held on 5th May 2022, the pre-election period begins on 14th March 2022. 

"The main significance of the pre-election period is in the need for heightened sensitivity to ensure that public resources are not used in any way that might prejudice the result of an election. The pre-election period has in the past commonly been known as ‘purdah’. However, this is felt by some to be an inappropriate term because of its cultural and religious origins and thus its usage is being phased out."

So, technically, the £20 million loan from PWLB was secured after the beginning of the so-called Pre-election period although there is no suggestion the move may have breached the pre-election code.

We asked the council if the cash was earmarked for a specific project or projects or would it be used to balance the books at the end of the 2021/22 financial year. We also asked what the annual interest payments would be.

In response SBC told us: " It’s a 10 year loan of £20,000,000 from the PWLB at a rate of 2.28% to finance the capital programme. It was taken before the Bank of England MPC [Monetary Policy Committee] hiked the base rate in March by a further 0.25%. This decision therefore saved the Council £50,000 per annum, an estimated £500,000 on a comparative basis over the duration of the loan.

"It was not required to 'balance the books' but was a tactical decision to meet part of the Council’s capital financing requirement as set out in the Council’s published Treasury Strategy. Projects to be funded are set out in the published capital plan and included the ongoing Hawick Flood protection scheme, Galashiels Academy and Peebles High school amongst others.

"The annual interest rate is 2.38%. The cost will be £476,000 per annum which is funded within the approved Budget for loans charges."

Leading councillors and officials in the Borders maintain the authority has plenty of headroom in which to accommodate additional borrowing.

There was no public mention of the £20 million loan during recent budget debates at SBC when spending levels were being set. Members of the ruling group complained about inadequate funding settlements from the SNP Scottish Government which had resulted in some £63 million of expenditure cuts/savings since 2017.

But Councillor Stuart Bell, (SNP), leader of the opposition group warned at a council meeting in February: "This council is forecasting to be paying on average £21.5 million every year in interest costs. An argument can be made to borrow now because interest rates are low, but even at low interest rates the money needs to be repaid.

"Look again at the revenue budget. Think for a moment what services might be provided if just a small part of that £21 million wasn't tied up financing borrowing."