Local authority short-term borrowing from central government has shot up in the last two financial quarters to £218m, new data has revealed.
At the end of June 2024, the total short-term borrowing of local authorities in the UK stood at £10.3bn, up slightly from £9.7bn at the end of the first quarter of the 2023/24 financial year, according to the Ministry of Housing, Communities and Local Government’s (MHCLG’s) latest local authority borrowing and investment statistics.
A breakdown of the data revealed that, at the end of June 2024, £218m of the short-term borrowing was loaned to councils by central government, a significant increase from £31m at the same time last year.
This rise follows a lack of liquidity in the inter-authority lending market, which has driven up interest rates on borrowing from the market over the past year, leading some authorities to seek short-dated loans from central government, primarily through the Public Works Loan Board (PWLB).
Despite this, the inter-authority lending markets does remain the main source of short-term borrowing for local authorities at £9.4bn, according to the data.
Assessing the data for short-term borrowing from government over the last four financial quarters, the data shows an uptick from £10m in December 2023 to £197m in March 2024.
Small number of authorities
On closer analysis, the £218m of short-term borrowing from central government mainly stems from a £150m loan taken out by the London Borough of Barking and Dagenham to fund its capital programme.
The authority stated that the loan was taken out in three separate increments, with an average borrowing rate of 5.36%. It told Room151 that it borrowed from the government as the offered rates from the inter-authority lending market were “higher than the rates offered by the PWLB for the amount and duration of the borrowing required”.
The authority’s treasury management annual report for 2023/24 stated that the loan was taken out to “reduce its reliance of borrowing from other local authorities”.
Other local authorities that sought short-term finance from central government include Ashford Borough Council, which borrowed £36.4m.
The authority confirmed that £6m of the total £36m relates to long-term debt, which was due for repayment during 2024/25. The remaining £30m was borrowed for Housing Revenue Account (HRA) capital works, with an interest rate of 4.89%.
A spokesman for Ashford Borough Council told Room151: “The £30m was taken out in January when rates in the inter-authority market started to rise. We looked for lenders that offered the best value to the council and by taking out this loan with the PWLB, Ashford Borough Council was able to utilise the HRA concessionary rate.
“We have adopted a short-term borrowing model for our borrowing requirements; this has followed the years of historically low interest rates where there was a value in the yield curve to keeping borrowing short.”
The spokesman added that Ashford has taken out longer-term borrowing “where possible”, “where we think there is value or to match a particular project’s life to its funding”.
In March, it was reported that the inter-authority lending market, which is mainly used for short-term lending between local authorities, was experiencing a significant lack of liquidity, with interest rates on loans reaching 7% at the time.
Treasurers have suggested that lack of liquidity in the market is as a result of “reticence” in the market from some councils to lend to authorities that are in slight financial difficulty or completely withdraw from the market altogether.
This comes as since 2018, eight councils have issued section 114 notices. One of these is Thurrock, which borrowed £687.5m from counterparties in the inter-authority market before it declared that it could not balance its budget.
Other councils highlighted in MHCLG’s data to have borrowed short from government include, East Hertfordshire with a £15m loan, North Northamptonshire with £8.5m, Hinckley and Bosworth with £3m and North Lanarkshire with £3m.
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