At the recent meeting of B&NES Council's Corporate Audit Committee, the Divisional Director – Finance apologised for the lateness of this item. However, he thought it better to discuss it with the committee before implementation, rather than just to report it retrospectively at the September meeting.
The consensus of city analysts was that low interest rates would continue in the medium term. So, the Council's treasury management advisors, Arlingclose, were requested to undertake a review of the Council's debt portfolio. The Council had a £120m debt, on which the average interest rate was 4.5%, while the interest earned on cash was only 0.5%. Arlingclose had advised that £50m of long-term loans should be repaid. There was a potential saving of £1.45m in the first year of repayment. The decision was one that had been delegated to officers, but he wanted to share it with the committee and take its views into account.
Councillor Macrae said that he was willing to accept the professional judgement of officers on this matter. Councillor Coombes asked why it was not intended to repay high-interest loans. The Divisional Director – Finance explained that premiums were payable when long-term loans were repaid early to the Public Works Loan Board. That premium payable on high interest loans was so high that early repayment was not worthwhile.
Councillor Curran asked whether the reduction in Council debt would be permanent. The Divisional Director – Finance said that this was not possible, because cash was needed for other things as well, but shortfalls arising from the use of cash to repay loans could be covered by short-term borrowing at very low interest rates. The process resembled the use of an offset mortgage.
John Barker said that he was sure that officers had received the best possible advice. The average rate at which the Council borrowed was an important issue. He thought the proposal was excellent and that officers should be congratulated.
After B&NES Council sold off all its Council houses to Somer Housing, it had sizeable cash balances and was effectively debt free. Before repaying some of its debt from cash balances, it owed £120m. Part of the problem was the cost overrun on the Spa – a project which was supposed to cost the Council around £3m in providing a site, which went out of control when a lottery funded project went massively over budget. To get the Lottery cash, the Council had committed itself to completing the project, whatever the cost. Thanks to an heroic effort led by the then Conservative Deputy Leader, former Chew Magna Councillor, Malcolm Hanney, the bill to the Council was kept down to something over £30m. This currently Lib-Dem-led Council and its officers have borrowed money when they have had large cash balances – it should never have happened, existing cash should have been sweated, rather than piling up debts. Isn't this what their Treasury Management Section is meant to do? Who had their eye off the ball. It probably wouldn't have happened in Malcolm Hanney's day.
His Conservative successors, instead of banking the savings against cuts in income for the coming years, say it should be spent on social care and children's services. They then recognise that, in future, when the Council has spent on the capital projects and has to then borrow to pay for them, interest rates may well have risen – so what will they do then? Will Conservatives then cut children's services and care of the elderly even more?
The only thing to do is pocket the savings now and release them when Councillors and officials are sure the cash that has been saved will not be needed.
The Conservatives sound more like the Lib-Dems everyday. Is that the effect of coalition politics or are they trying cleverly, like the Lib-Dems, to win opportunist votes from everyone. The next B&NES elections are under two years away and with the Conservatives making no impression, the Lib-Dems might win more seats and get overall control.