Thursday 29 February 2024
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Nottingham

Nottingham City Council expects to slash £1.3 billion debt

Nottingham City Council says it expects to further slash its debt and borrowing costs of £1.3 billion by just over £66 million.

The Labour-run council operates a ‘voluntary debt reduction policy’.

Its finances are now overseen by a Government-appointed board. It was recognised debt was too high and the council decided to cease all borrowing for capital investments.

Instead, new investments are paid for through Government grants, such as Levelling Up money, or the selling of property it no longer needs.

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The adoption of the policy, and continued improvement work, has led to a decrease in the council’s overall debt and costs associated with historical borrowing.

The authority measures its overall figure through the so-called ‘Capital Financing Requirement’ (CFR).

This is the total amount of capital spending which has not yet been financed by capital receipts, capital grants or contributions from revenue, and represents the underlying need to borrow money long-term.

Its CFR, as of March this year, was £1,316,200,000.

According to Audit Committee documents, this is forecast to decrease by £66.3 million to £1,249,900,000 by the end of March next year, better than the original estimate of £1,299,500,000 .

Back in 2020/21, the CFR had stood at £1,411,600,000.

During a meeting of the council’s Executive Board on November 21, Ross Brown, the council’s director of finance and section 151 officer, said the reduction clearly “demonstrates a clear adherence” to the policy.

“It demonstrates effective treasury management, both from an investment and debt management perspective,” he said.

The CFR is made up of numerous elements, including internal borrowing, external borrowing and Private Finance Initiative (PFI) schemes.

If the CFR reduces in value, then the other elements within it reduce too.

External debt is borrowing which has taken place using the market and lenders.

It includes things that cannot be paid for outright, such as the NET tram network and social housing.

External debt in 2022/23 was £875.9 million, and this is forecast to reduce further to £836.5 million in 2023/24, and to £810.1 million in 2024/25.

In 2020/21 the figure sat around £932.8 million.

Over £200m of external debt relates to the construction of the NET tram network as well as more than £200m borrowed for commercial property investments.

The single largest element was roughly £300m for the construction of council housing.

It is typical for city councils to borrow large sums of money.

Each year the authority sets aside around £55m, or roughly £1m per week, to cover costs linked to borrowing, like mortgage repayments on a house.

The council said around 60 per cent of the annual £55m servicing costs go towards further reducing its Capital Financing Requirement (CFR).

Also speaking during the meeting, Cllr David Mellen (Lab), leader of the council, added: “It is very welcome to see our overall level of debt coming down.”

“While work has been ongoing to reduce debt, the council faces a £23m in-year budget gap and is considering the possibility of a Section 114 notice, the closest an authority can legally get to declaring bankruptcy.

“This is amid soaring costs associated with children’s care, adult social care and homelessness, which is putting multi-million pound pressures on the budget.”

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