Councils in Scotland have borrowed record amounts to fund capital projects and are exposing themselves to even greater, long-term debts through private financing contracts organised through the Scottish Futures Trust (SFT).
Audit Scotland said in March that Scotland’s 32 councils had total debts of £14.8bn in 2013-14, funded by their own borrowing from public and private sources. In addition, the Guardian has identified another £472m of capital projects for new libraries, leisure centres, schools and care homes earmarked for future development through the SFT from April 2014.
Those new capital projects will be paid for by extra borrowing or current capital budgets. At the same time, councils face having to repay that type of borrowing more quickly than before, just as their repayments of their share of Scotland’s £22bn debt mountain from old public finance initiative (PFI) contracts peaks.
As of April 2013, Scottish councils owed £12.5bn in PFI payments, some of which will finally be repaid in 2041. A Scottish parliamentary library report in April 2014 said the total PFI repayments alone for councils will peak at over £550m a year in 2025.
And that new peak in debt repayment comes at a time of far heavier pressure on local council financing. The Accounts Commission, a public audit body, said that councils spent £1.5bn in 2014 servicing old PFI and current capital borrowing debts.
Scottish councils are cutting tens of thousands of jobs and hundreds of millions of pounds in spending, to avoid massive deficits. The Convention of Scottish Local Authorities (Cosla) estimates that for every £100m of cuts councils need to make, 3,000 jobs will be lost. There are predictions that John Swinney, the Scottish finance secretary, will cut government support for councils by 5% when he unveils his annual budget on Wednesday.
Data from the Chartered Institute of Public Finance and Accountancy shows that the proportion of that £15bn capital debt which has to be repaid or refinanced sooner has grown – in other words, the peak of that second debt mountain is getting closer.
The amount of debt that needs to be repaid in under five years has grown from 13.6% in 2010 to 21% last year, and nearly half of it, 49%, must be repaid in under 20 years, compared to 39% in 2010.
At the same time, councils are exposing themselves to a third type of borrowing: debts raised through a Scottish form of private financing designed by the SFT, a public body set up by former first minister Alex Salmond, called non-profit distribution (NPD).
There are major gaps in public knowledge about the total amount of council borrowing and little independent scrutiny of the contracts arranged through the SFT. Only the Scottish parliamentary information service, known as Spice, has surveyed SFT projects, in April 2014. But it only had five operational council projects to look at, worth some £1.6bn in upfront and future costs.
A key issue for councils is that the full lifetime costs of the SFT’s projects will rise, just as their PFI debts and capital debt repayments peak. The SFT has had to restructure its private-financing model to make it compliant with strict new EU public borrowing rules, delaying scores of building projects.
That means their capital costs, previously funded at the start of a project by councils, will now be added to the lifetime running costs and borrowing controlled by the private companies which build and own the buildings. That will increase debt costs further.
This article was written by Severin Carrell Scotland editor, for theguardian.com on Tuesday 15th December 2015 12.35 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010
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