“More than £86.6million in outstanding loans is owed by East Devon District Council”

EDDC blames the overspend on loans (see last paragraph below) on “the purchase of assets related to service delivery, these being assets required “for recycling and refuse collection”. Are we to believe that it has ALL been spent on waste contracts and NOT on the £10 MILLION on HQ relocation (originally described as “cost neutral”)?

Owl would be interested to see a breakdown of the costs (but bets they will be conveniently avoided under a “commercial confidentiality” clause with the contractor …

“The amount the authority has borrowed has also increased by £3million in just one year.

Experts have warned councils are risking taking on too much debt while others say that councils are simply adapting to plug funding gaps made by Government cuts.

The Chartered Institute of Public Finance and Accountancy says delivery of public services could be put at risk by unsustainable borrowing, after debt among UK local authorities rose to more than £100 billion.

By the end of December, EDDC’s outstanding loans stood at £86.6 million, according to figures from the Ministry of Housing, Communities and Local Government.

This was a four per cent increase compared to a year ago, and one per cent higher than at the end of 2013-14.

All the outstanding loans were long-term advances, which last for more than one year and are used to finance large projects or purchases.

The Chartered Institute says many cash-strapped councils are taking out large loans to buy property, as the rent they collect can be higher than the interest they pay on the loans.

Funding for councils fell by almost half between 2010-11 and 2017-18, according to the National Audit Office.

The government’s Public Works Loan Board was the sole lender to EDDC as of December.

The loan board offers low-interest loans to councils, without requiring them to prove they can afford the repayments.

There is no limit to the amount councils can borrow from it.

Don Peebles, head of policy at the Chartered Institute, said: “With government funding in decline, it is unsurprising councils are having to adapt and find alternatives.

“While councils are borrowing for a wide range of purposes, such as building houses and investing in major infrastructure, one trend which has been concerning is the growth in investment in commercial property – which exposes public finances to new risks.”

A spokeswoman for the MHCLG said: “Councils are responsible for managing their own finances and making the right decisions for the communities they serve – including making appropriate investments.

“Guidance on council investments was updated in April 2018 with new codes that strike the right balance between allowing councils to continue to be innovative while ensuring that taxpayers’ money is properly protected.”

An EDDC spokesman said: “The annual increase in borrowing identified was used to finance the purchase of assets related to service delivery, these being assets required for recycling and refuse collection.”

https://www.midweekherald.co.uk/news/outstanding-loans-at-east-devon-district-council-1-6004947

2 thoughts on ““More than £86.6million in outstanding loans is owed by East Devon District Council”

  1. Pingback: East Devon Alliance Councillor Gardner clarifies Sidmouth Herald EDDC debt story | East Devon Watch
  2. The key point about councils taking out loans to buy buildings to rent is NOT that they earn more in rent than the interest on the loan – any idiot knows that is the first rule you have to follow, but it is NOT the only one.

    Firstly there are other costs in owning a building – you may have to pay the interest when you don’t have a tenant and there is no rent being paid. If it is empty you have to pay for insurance that the tenant would otherwise pay, and after 3 months empty for the business rates a tenant would pay. And the electricity bills and other utilities. But even if you have a tenant, the building condition will be deteriorating slowly over time and at some point you will need to pay for repairs, and the rent needs to cover that too.

    But even if you get all the above right, that is still not the biggest risk. The biggest risk is that when you come to sell, you get a lower price than you paid for it – perhaps even less than the remaining loan you took out to buy it in the first place. The risk of property price fluctuations is huge by comparison to other risks. If you buy when property is buoyant, at or near the peak of the property market (like for example now), and when you sell it it happens to be during e.g. a recession at the bottom of the market, the losses could be a substantial proportion of the purchase price i.e. many millions of pounds. This is EXACTLY what the underlying cause of the financial crisis – negative equity and huge write-offs.

    Specialist property companies know how to manage these risks – they price them into their business models, they ride out the troughs and don’t let themselves end up in a position where they have to sell at the bottom of the market, they have a big portfolio of property that allows for losses to be averaged out with gains. In short, they are experts at what they do. On the other hand, councils are effectively rank amateurs at this.

    This is a disaster waiting to happen for councils who get it wrong. Let us hope that this is NOT EDDC.

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