Slough Council would have been nearly £1billion in loan debt
SLOUGH Borough Council would have been nearly £1billion in debt had it continued to buy more properties.
The cash-strapped council’s borrowing had quadrupled from 2016 to £760million in order to invest in several major capital projects each year.
Historical accounting errors and financial errors also caused the local authority to lose the amount of money it should have set aside to pay off its debt, known as the Minimum Income Provision (MRP).
As well as having a debt of £760m, which is the third highest per capita among unitary authorities, it faces a financial black hole of £479m over the next few years, forcing it to sell up to £600million of his properties. as well as delivering £20m in savings a year until 2028/29.
Chief Financial Officer Steven Mair revealed at a wrap-up and review meeting that the council would have exceeded £900million in loan debt if it continued with its capital program, which provides for the properties it will buy and the investments it would have made from 2021/22 to 2023/24.
Speaking at the meeting on Tuesday March 8, Mr Mair said: “It would clearly make the situation worse.”
The council originally planned to spend £309m over those three years, of which £119m was to be funded by borrowing and a further £49m from ‘institutional funding’, resulting in a debt of nearly £1 billion.
Cash management strategy, which oversees cash flow, banking, borrowing, investing, etc. of the board, has not married with the capital program, which means controls to limit borrowings and assessments of the borrowing capacity of the board. Were inaccurate.
The council’s £139m investment property portfolio is earning a negative rate of return of -0.6%, meaning the council is not getting the funds it thought it would get from these investments.
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With the council’s major financial problems exposed and Section 114 issued in July, effectively declaring bankruptcy and freezing all non-essential spending, its capital program was scaled back.
It has now reduced its borrowing by £90million and extended the capital program from three years to five years. Mr Mair said the council should invest in one major program a year rather than several.
Annual interest and debt charges total £25m, representing 24% of the 2021/22 budget, and will rise to 32% in 2022/23 – less than a third of the council’s budget.
The CFO said it was not affordable or sustainable and should be between 5 and 10%.
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The council is asking the government to allow it to use the capital funds as revenue to pay down its debt and make up its shortfall via up to £600m of asset sales, known as the capitalization steering.
A majority of this capitalization will be used to correct the MRP between 2008 and this year, which now stands at £70m. A further £29million will be needed to correct the calculations for 2022/23.
The council was paying £40,000 in MRP but should have paid at least £18m. Not only was it not calculated correctly, but the then amended MRP policy was not implemented correctly in 2016.
Mr Mair said: “The aspiration is to get this [borrowing and MRP] down faster than expected. We’ve been careful in our assumptions, but we’re also committed to delivering the best value in all of this.
“We need to make sure the board gets the most out of it even if it takes a little longer. Due process must be followed.
“These numbers are too big for any sort of fire sale, which I know nobody wants to do. Once you get to that position, it puts the board in a much better position.