It is emerged that one among London’s richest councils has lent a staggering £265m to cash-strapped native authorities in a few of the most disadvantaged elements of the UK.
In reality Metropolis of Westminster Metropolis Council was one of many largest lenders to different native authorities in the entire of the UK between 2018-19.
However the large query is, why is Westminster performing as such an enormous lender to bail out different councils? Is it merely simply within the pursuits of serving to different authorities out, or are there deeper motives at work?
The findings have been revealed in an investigation in partnership with the Bureau of Investigative Journalism’s Bureau Local. Different large lenders embody Wandsworth Council which loaned £354m, Oxfordshire which lent £261m and Newham which superior £250.9m to different councils.
General Westminster City Council mentioned it made 19 short-term loans to councils together with Blackpool and Surrey – which warned the federal government in September 2018 that it confronted a £100m shortfall by 2021.
Different councils it lent money to between September 2018 and June 2019 embody Redcar and Cleveland within the north east and north London’s Enfield council.
Westminster’s treasury additionally made three longer-term loans to Doncaster and Croydon councils.
Leeds Metropolis Council was given the largest mortgage from Westminster Metropolis Council between 2018-19 with assist price £50m. Westminster was additionally the largest lender to Leeds which borrowed £260m from councils.
Westminster loaned Leeds £40m in December final 12 months at 1.02 per cent curiosity which is due in August this 12 months.
It agreed an additional £10m short-term mortgage spanning six months this 12 months at 0.88 per cent curiosity.
Debt on the rise
Throughout the nation, native authorities debt is on the rise. Between 2013-14 and the primary three months of 2019-2020, complete debt throughout all UK authorities rose from £89bn to £121bn, a rise of a 3rd.
Whereas the government-run Public Works Mortgage Board stays the biggest supply of borrowing for councils, native authorities borrowing cash from each other — council-to-council lending — is rising at a sooner price, in keeping with analysis by the Bureau of Investigative Journalism Bureau Native.
The Bureau’s evaluation of presidency knowledge reveals there has already been a major enhance in council-to-council lending up to now 5 years, from £4.5bn of excellent debt throughout UK native authorities in 2013-14 to £11.9bn by the top of 2018-19. That’s a rise of 164 per cent. In distinction, there was solely a 23 per cent rise in cash borrowed from the PWLB throughout the identical interval.
And total 222 UK councils had been in debt to one another on the finish of the 2018-19 monetary 12 months, in contrast 164 5 years earlier than.
The Bureau checked out knowledge as much as quarter three of 2019-20 , the newest knowledge accessible on the time from the Authorities’s stay borrowing and funding desk, and submitted Freedom of Info requests to UK councils about their loans and debt as much as the top of 2019.
Westminster Metropolis Council mentioned its loans boosted its revenue from curiosity by greater than £11m which it put again into providers.
A spokesman mentioned the council did due diligence earlier than lending the money to different authorities all through the nation.
“By lending funds we’re in a position to make investments the revenue in providers for our residents. Final 12 months we introduced in over £11m and we anticipate to lift the identical once more this 12 months.
“One of many causes we lend to different native authorities is that these are a few of the most secure doable investments.”
The cash comes from the council’s reserves “which is maintained for example of prudent monetary follow” and the council makes use of plenty of brokers to lend the money.
The council’s treasury is suggested by Hyperlink Asset Companies.
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Safety of funding
A council spokesman mentioned the recommendation “will be summarised by way of adhering to a really prime quality lending record inside a diversified money portfolio the place the safety of capital and liquidity necessities for the council come earlier than yield era in precedence rating.”
The council additionally mentioned safety of funding is extra necessary than the amount of cash the funding will yield.
It mentioned its treasury exercise options in monitoring stories and the audit and efficiency committee scrutinises them.
There are additionally inner audits and the annual accounts are scrutinised as soon as they shut yearly.
The council’s government director of finance and sources is given delegated energy by the total council to be concerned in funding.
And the council mentioned its Treasury Administration Technique Assertion is permitted by full council and the technique is applied by officers through delegated authority, with recommendation from Hyperlink Asset Companies, which is a treasury advisor.
Westminster Council makes use of a “variety of brokers to facilitate its lending” and makes use of an “institutional buying and selling and threat firm to realize entry to its cash market funds”.
Labour opposition spokesman David Boothroyd, mentioned: “Inter-council loans have elevated quite a bit just lately. I believe that the current mortgage price enhance from the Public Works Loans Board means extra councils can be on the lookout for low price loans and Westminster can be providing extra.”
And he mentioned councils may discover them enticing.
Not threat free
“They’re in style partly as a result of the council doesn’t need to make any impairment provision (permitting for the likelihood the cash gained’t be repaid) as a result of councils can’t go bust.
“However we’ve seen with Northamptonshire that’s not fairly true, and the Financial institution of England’s Prudential Regulation Authority says banks do have to make impairment provision when lending to councils. “
In 2018 Northamptonshire County Council owed £1bn to a spread of organisations and needed to make drastic cuts.
Councillor Boothroyd added: “Probably the most steady UK native authorities have public credit score rankings in AA (the third highest class) and there are some within the fifth class of A+. This isn’t the identical as risk-free.”
Councillor Boothroyd advised the Native Democracy Reporting Service that “It isn’t earning money, it is simply the identical cash circulating spherical native authorities. Setting the charges is tough – Westminster taxpayers would complain if another council acquired a cut-rate mortgage from us, however residents within the borrowing council would complain if the speed was too excessive.”
In the meantime, Labour politicians have raised fears that Westminster Council might be in “disaster” after shedding thousands and thousands of kilos while coping with the coronavirus pandemic.
Councils throughout the nation have suffered enormous losses of income from parking, housing rents, enterprise charges and internet hosting occasions.
They’ve additionally spent thousands and thousands on serving to and feeding susceptible individuals whereas defending their very own workers.
Over the river from Westminster, Lambeth Council expects to be £45 million down by the top of 12 months. Liverpool Council mentioned in late April it was near being “bankrupt”.
Labour councillors in Westminster have accused the Conservative-run authority of to date refusing to publish up-to-date details about its funds. That is even if the Authorities has been demanding such data from UK councils on a month-to-month foundation.
An necessary income stream for Westminster is charges and fines from automobile parking, from which it made a £69 million revenue in 2018/19. Through the lockdown, the council has given free parking to NHS workers and key staff.
At a Coverage and Scrutiny assembly held over Zoom on Might 21, Labour group chief, councillor Adam Hug, mentioned he had been requesting the knowledge since April, however had acquired nothing, even “on a confidential foundation”.
In response, deputy chief and cupboard member for finance, Melvyn Caplan, prompt that he additionally didn’t know the figures, as a result of the knowledge was not accessible to him.
“Actually I’m not in a public assembly about at hand over these figures,” Mr Caplan mentioned. “However what I can inform you is that I don’t get these paperwork both. That’s not one thing I obtain. Clearly I’ve good data as to what’s going on within the council, however that’s not data that’s shared with me both.”
He went on to say that the details about the council’s funds can be made accessible in June.
After the assembly, Mr Hug mentioned: “Both Westminster Conservatives are smug sufficient to assume they’re above scrutiny and that everybody else has to take their resolution making presently of disaster merely on belief, or they’re hiding the true scale of the disaster going through the council’s funds.”
Westminster Council was provided the possibility to remark however there was no response.
To assist councils keep afloat through the lockdown, the Ministry of Housing Communities and Native Authorities issued grants in March and April. Westminster has acquired about £16.5 million. Nonetheless many councils throughout the nation have mentioned the added funding has not been sufficient, or worry they will not be capable to recoup cash spent from the Authorities.
What was cash used for?
The LDR service contacted all of the native authorities which had been loaned cash from Westminster.
Enfield council had one of many largest loans of £30m between 2018 and 2019 which was organized between brokers.
A spokeswoman mentioned “In widespread with our fellow native authorities authorities, we borrow for the needs of funding our capital funding programme, each brief and long run. This isn’t uncommon.”
Westminster additionally loaned Redcar and Cleveland council within the North-East £30m.
Cambridgeshire Council mentioned it used the £20m to refinance present debt. It advised the LDRS service it borrowed funds from 43 councils.
A spokesperson mentioned: “Like many councils, we routinely have a lot of loans from different native authorities as a part of the financing for our capital programme. The council used the mortgage to refinance present debt.”
Loans totalling £20m was utilized by Croydon council for initiatives together with constructing new faculties and a leisure centre.
Westminster loaned Croydon £10m on a short-term mortgage on September 29, 2018 at 1.05 per cent – due again on September 19, 2019, and £10m on a long- time period mortgage due again March 6 2021 at 1.30 per cent.
A spokesman for Croydon Council mentioned: “Inter-authority lending is permissible and has just lately change into extra widespread and necessary as a result of it gives higher worth for our taxpayers than different borrowing choices such because the Public Works Mortgage Board or non-public lenders. Now greater than ever, councils have to minimise the price of borrowing to make sure that our funds can be utilized to ship important providers.
“These short-term loans have been used to construct new faculties, a leisure centre, environmental programmes and contribute in direction of our Development Zone programme which is revitalising the borough by means of enhancements to infrastructure and public areas for the good thing about residents, companies and guests.”
On the time we contacted it, the council had already paid again one among two loans from Westminster Metropolis Council and was paying again the mortgage due again in June 2021.
Croydon makes use of a dealer for all of its short-term loans and was borrowing from 16 different native authorities when contacted by the LDRS service.
Blackpool is without doubt one of the most disadvantaged areas of the nation and the council was loaned £18m on a short-term foundation in Might 2019 – with the mortgage resulting from mature in December at 0.92 per cent curiosity.
Within the final monetary 12 months to October the council borrowed from 39 native authorities.
A spokeswoman defined that the mortgage from Westminster was organized by means of a dealer and was used to assist it while ready for presidency money.
She mentioned the mortgage was used “to fund money circulation shortfalls between expenditure occurring and grant revenue being acquired from central authorities”.
She added: “Loans are switched to mounted Public Works Mortgage Board loans as and when opportune to take action.”
North London council, Hackney’s £15m brief term-loan, was agreed at 1.15 per cent in October 2018.
The council used it for short-term cashflow “with a purpose to keep adequate liquid money” and has paid it again.
The mortgage was organized by means of a dealer and as of November final 12 months Hackney had brief time period loans from 10 councils.
A spokesman mentioned: “This can be a widespread follow inside native authorities.”
South London council, Southwark, was loaned £20m and Barnet in north London additionally borrowed £20m.
North Lanarkshire council in Scotland borrowed a complete of £20m.
And the Isle of Wight council was loaned £10m in February 2019.
An Isle of Wight Council spokesman mentioned: “Native authorities, together with the Isle of Wight Council, handle their each day money circulation necessities by borrowing from and lending on the cash markets. This contains inter-local authority lending.
“When the Isle of Wight Council has a constructive money circulation place, it would lend these surpluses to realize a return and when it has a unfavourable money circulation place will borrow from the cash markets.
“These are regular treasury administration actions undertaken by all native authorities and described of their council-approved treasury administration methods.
“These are short-term loans and investments made on the cash markets taken as and when the council’s money place adjustments. The variety of loans and investments subsequently are fluid.”
And in Yorkshire, Doncaster advised us that two long-term loans at 1.16 per cent – every of £5m – organized in Might 2019 had been used for its capital programme.
Its director of company sources, Debbie Hogg, mentioned: ”The loans had been used to fund the capital programme which is regular treasury administration course of for native councils. We used a dealer to assist store round for the very best phrases in order that we will guarantee worth for cash. “
The council deliberate to pay the loans again on their maturity dates this 12 months.
South Ayrshire in Scotland mentioned it used the £10m mortgage “in accordance with South Ayrshire Council’s permitted treasury administration technique.”
Surrey County Council was additionally loaned £10m.
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