Council expected to borrow £170 million in next three years

by OUR LOCAL GOVERNMENT EDITOR

Scottish Borders Council took its borrowing total for 2024 to £76 million last month after arranging another £20 million short-term loan from the Treasury Debt Management Office with further sizeable cash advances likely to be needed over the coming financial years, according to Audit Scotland.

The money will be used to partly bankroll the local authority's £454 million of capital investment which is planned over the next ten years.

A report from John Boyd, the auditor appointed by the public spending watchdog to inspect SBC's books, notes: "The extensive capital plan is primarily focused on economic regeneration and the learning estate. £187 million is on the school estate including the new high schools for Galashiels, Peebles and Hawick estimated at £145 million, with the majority of this invested over the next three financial years. 

"Borders Innovation Park and Borderlands are the two main areas for economic regeneration. The main sources of funding over the ten years for this investment is £115 million of specific project funding, £107 million of general capital grants, and borrowing of £220 million. £173 million of borrowing is expected to be undertaken over the next three years to support, in particular, the school estate projects."

Details of the October loan of £20 million from the Public Works Loans Board [PWLB] show the council will pay 4.93% interest [approximately £986,000] over twelve months before the loan matures in October 2025.

It follows a series of similar transactions over the course of this year. As Mr Boyd points out in his annual audit report - his inspection cost the council £347,980 - at March 2024 short term borrowing increased from £3.5 million to £50.0 million. £40 million of new short term borrowing (1 year) was undertaken in year with PWLB.

"The capital financing need was not fully funded by external loan debt and instead by internal cash. The Council has applied this strategy on the basis that this is prudent and cost effective in an environment where investment returns are low and counterparty risk is high. The Treasury Management Strategy had estimated that £70 million might require to be borrowed in year to support capital investment, but with cash management, it was determined that only £40 million was required to be borrowed."

The report acknowledges  that SBC's total external debt, which includes the council’s long-term liabilities, is within the authorised limit and operational boundary set in the Treasury Management Strategy 2023/24. The current borrowing position complies with the Prudential Code, and the Council continues to consider the affordability of future borrowing.

In a commentary on the council's revenue spending [expenditure on services], the auditor states: "The Council has a good track record of operating within its annual budget. While facing financial challenges through inflationary pressures on pay and non-pay costs as well as demand on services, the Council continues to demonstrate sound financial management maintaining general fund reserves in line with the long term Revenue Financial Strategy."

Over the next five years of the revenue budget, revenue spend is planned at £1.89 billion, with savings required of £18.1 million (1%) over the same period. The Council has identified pressures totalling £63.1 million over the five years, which are dominated by pay pressures of £35.3 million, and non-pay and inflationary pressures of £14.9 million.

Although the revenue plan identified savings targets averaging just under £4 million per year, the report explains: "this does not reflect that temporary savings made in previous years will need to be made on a recurring basis. The savings target for 2024/25 has doubled to over £9 million, as a result of non-recurring savings being brought forward from the previous year. If this pattern continues over the medium-term this will make achieving a financially sustainable position more challenging." 

Mr Boyd adds: "One of the key measures of the financial health of a body is the level of reserves held. The level of usable reserves held by the Council increased from £62.2 million in 2022/23 to £72.4 million in 2023/24, a net increase of £10.2 million."

Total capital expenditure in 2023/24 was £90 million against a revised budget of £96.9 million. 

"Whilst there was an underspend on the planned budget, there is still a significant increase in capital investment from 2022/23 when £63.5 million was spent. The main ongoing projects are the Hawick Flood Protection Scheme and the building of new high schools in Galashiels and Peebles, and Earlston Primary School with £52.5 million invested in these projects."

Other areas of expenditure included roads and bridges, plant and vehicles and ICT transformation.

"The main challenges for delivery of capital projects in year has been the high levels of inflation along with supply chain issues relating to construction materials which have affected the public sector more widely. The impact of this has been price increases, material shortages and longer lead times for projects. The macroeconomic pressures of high inflation and significant increases in construction inflation has resulted in increased total expected spend for all the schools’ projects."