Warning on Council Debt

The leading Conservative on Kent County Council has said that staggering council debts could render proposed local government reforms “unworkable and unviable” in Kent.

Official figures show the total borrowings by the county’s first and second tier authorities amounts to £1,228 per head of the near 2m population or £2.3 billion.

Kent County Council’s former deputy finance cabinet member, Cllr Harry Rayner, doubts if the Labour plans for reorganisation can work with the current levels of outstanding debt.

This warning was echoed earlier this month at the committee stage of the English Devolution and Empowerment Bill, when MPs were told the government must ensure new unitary authorities do not start with unmanageable debts.

Kent’s 14 councils will abolish themselves under government proposals and be replaced with three or four new, much larger unitary bodies.

KCC Conservative group leader Cllr Rayner says the “councils may no longer be there but the debt stays” with the real possibility for higher council tax bills.

Councils reorganised into geographical areas could result in the east and north of Kent disproportionately carrying over more debt than the west.

For instance, Tonbridge and Malling and Tunbridge Wells councils have no debt but Dover, Gravesham and Canterbury have outstanding borrowings totalling £100-200m each. Ashford has debts of £260m.

According to figures before KCC’s Devolution and Local Government Reorganisation Cabinet Committee, which sits on September 30, the county council is the biggest borrower with debts of £732m, although recent pay-offs and maturities may see that reduce to around £650m by next year.

Councils needing to deliver a large capital project will seek low-risk, Treasury-backed money through the Public Works Loan Board (PWLB) at long-term, preferential rates.

More than half of the Kent’s total debt (£1.5bn) is with the PWLB.

Often money is borrowed to buy assets, such as a shopping centre, which can generate income for the future.

Cllr Rayner said: “I am very concerned that with devolution and local government reform, that far too little consideration is being given to the financial implications and, more precisely, the very substantial increase in the cost of council tax falling on most Kent households – that is the price that Kent residents are set to pay.

“Three unitary councils will be very expensive, four even more so. A single unitary council is the least expensive option. The costs of servicing the huge debts incurred by existing councils, is set to fall most heavily on the new East Kent and North Kent Unitaries.

“Those least able to afford the costs of local government reform are more likely to be hit with the highest costs, as they have the largest cohorts of adult social services, children’s services and special educational needs users and I have not even touched on the provision of social housing.

“The current proposals for local government reform are clearly financially unworkable and unviable.”

KCC’s Reform UK leader Linden Kemkaran has already made the case for a single unitary authority for Kent, believing multiple unitaries will not be cost-effective.

Other councils have broadly agreed on three or four new bodies, although the government minister will have the final say.

The influential County Councils’ Network appears to bear Cllr Kemkaran’s assertion out, saying recent research shows only single unitaries replacing all 21 two tier authorities in the country would deliver the savings the government believes it can.

KCC announced last week it was able to pay off a 40-year, £50m Barclays Bank loan using money from its general reserves, saving millions in interest payments.

Kent is not alone in its borrowing as the BBC Shared Data Unit shows combined debts, nationally, had grown by 7% to £122bn.

The respected Local Government Information Unit (LGiU) said the government must come up with a long term solution to council debts.
Labour maintains its reforms will address the problems.

LGiU chief executive Jonathan Carr-West told the BBC Shared Data Unit in August: “Now the problem is that many of the places that hold…the biggest levels of debt are precisely those places where those councils are being wound up and replaced with new councils.

“What happens to the debt in that process? What indeed happens to the assets in that process? Does that debt risk making the new unitary councils financially unsustainable from day one? These are all questions still to be answered.

“The reason that councils are in financial trouble is because we have systematically underfunded local government for the past 15 years, we’ve created a system in which there is not enough money in the sector and in which councils have become reliant on their own ability to generate money, whether through local taxes or through return on investment.”

The Ministry of Housing, Communities and Local Government said: “While councils are responsible for managing their own budgets, we know that the current funding system is broken which is why we are taking decisive action so local leaders can deliver the public services their communities rely on.

“We have announced over £3.4 billion of new grant funding for local services on top of the £69 billion already made available this year to boost council finances, and we will go further to reform the funding system, including at new unitary councils, to ensure it is fit for the future."