The Department for Levelling Up, Housing and Communities (DLUHC) has commissioned an external capital review into Eastleigh Borough Council’s finances as its net borrowing is anticipated to reach £607m at the end of the next financial year.
In a letter to Paul Holmes, the Conservative MP for Eastleigh, local government minister Lee Rowley outlined that DLUHC has been working with the council over the last year to obtain a detailed understanding of the authority’s financial position and level of risk.
Rowley wrote: “Given that the council remains one of those with larger amount of debt within local government and a reliance upon commercial income, we are requesting that an external review is undertaken of the council’s position and whether there are actions which are appropriate for the council to take to reduce its level of risk over the coming years.”
Borrowing ‘to reach £607m’
This comes as a general fund revenue budget report by Sarah King, Eastleigh Borough Council’s chief financial officer, detailed that the authority’s “net borrowing levels are anticipated to be £607m by the end of 2023/24”.
King highlighted that the council holds a blend of short-term variable borrowing and long-term fixed borrowing, with the split being 67% long-term and 33% short-term as at the end of the 2021/22 financial year.
In the report, King also detailed that, as the council is a “net borrower”, the budget is sensitive to interest rate movements, with the average interest rate increasing from 2.69% in 2022/23 to 5% in 2023/24. A budget breakdown estimated that the interest payable on the council’s borrowing would be £7.5m in 2022/23 and almost £15m in 2023/24.
The council’s borrowing has been mainly used to invest in property, with the authority’s portfolio including B&Q, Lloyds Banks, Wetherspoons and Travelodge.
Given that the council remains one of those with larger amount of debt within local government and a reliance upon commercial income, we are requesting that an external review is undertaken of the council’s position.
Concern over debt levels
In response to DLUHC commissioning an external review, Holmes wrote on Twitter: “I’ve spoken numerous times at my worry at Eastleigh’s borrowing and debt levels, around £560m to date. Mostly used to buy and build property. I think this is a huge risk to services and taxpayers’ security. I’m pleased government are now reviewing and investigating.”
Keith House, Eastleigh Borough Council’s leader and Liberal Democrat, also welcomed the government’s review, which is anticipated to start this week.
He said: “The government is finally trying to learn how local councils work, in times of austerity. Like many councils, Eastleigh has over the last 15 years, used borrowing powers to support our commercial activity and generate income. This is what has protected Eastleigh residents from the borough council having to make cuts to services all these years.
“DLUHC approached a number of councils earlier last year to better understand local government finance, and we are pleased to help them. The external review now commissioned supports this work, which we fully support. If it leads to better funding for all councils from the government, after years of cuts, that will be a big help for residents.”
This comes as DLUHC appointed CIPFA to lead assurance reviews of councils at financial or leadership risk last week. CIPFA will undertake targeted external assurance reviews where the government is seeking an independent assessment of a authority’s financial position and wider governance.
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