Lothian councils top borrowing league table

A new report by spending watchdog Audit Scotland today warned the rising level of debt across the country had “far-reaching consequences for the sustainability of public finances”.

Midlothian was top of the table with a 191 per cent increase in its borrowing and liabilities between 2003/04 and 2011/12 – from £85 million to £247m. East Lothian was in second slot, with its borrowing soaring by 175 per cent – from £123m to £339m.

West Lothian was third with a rise of 104 per cent – from £208m to £425m, and Edinburgh came in sixth with an increase of 80 per cent – from £781m to £1.407 billion. The Scottish average was just 40 per cent. South Lanarkshire came in fourth, one place ahead of Perth and Kinross.

Edinburgh’s finance convener, Alasdair Rankin, said the Capital’s big borrowing total included £231m for the tram project, as well as outstanding debt on PPP schools. But he said the debt level was manageable within the council’s overall budget and the “big ticket” items were mostly in the past.

He said: “The increase is partly due to a number of PFI projects going back to that period. It infamously includes the £231m borrowed to complete the tram project and we did borrow to build Waverley Court [council offices].

“The borrowing level is higher than we would like because you are paying out interest on the loan and that money could be put to other uses. But it is quite manageable within the council’s overall revenue budget. The situation will improve in terms of how much interest we have to pay as some of the older loans at higher interest rates fall off the books. Borrowing levels have stabilised and are likely to come down over time.”

Midlothian finance convener Jim Bryant said his council’s increase in borrowing reflected significant capital investment approved by the current and previous administrations, particularly in school buildings and social housing.

He said: “In respect of social housing, Midlothian was in a very unique position of having relatively low borrowing against its housing stock and rents below the Scottish average. This allowed the council to finance an ambitious social housing programme.

“The costs of funding this borrowing are fully reflected in our financial plans and have been demonstrated to be affordable. The council is continuing with phase two of social housing programme which will see an additional £60m invested in housing across the county and will soon open the new Lasswade High School at a cost of £37.1m.”

East Lothian Council linked its increased debt to the area’s growing population and pointed out councils with shrinking debt were those with falling numbers to cater for. A spokeswoman said there were three specific reasons for East Lothian’s high borrowing – having to build four new primary schools as well as refurbishing others, refurbishing all six secondary schools through a PPP scheme and building council houses.

West Lothian Council said it had been proactive in looking to maintain investment in essential assets, such as schools and roads. A spokesman said: “We are confident that all our borrowing is prudent, affordable and sustainable.”

‘Prudential code’ sets no limits

BORROWING is the main way councils fund capital spending on new and refurbished schools, housing, sports and community centres and other major investment projects.

Under the “prudential code” introduced in 2004, the Scottish Government no longer sets a limit on how much an individual authority can borrow. Instead, it is up to the council to decide on its own investment programme and how much it can afford to borrow. This allows councils more flexibility to invest according to local needs.

Councils have also financed some projects using PFI contracts, which means a contractor designs, finances and operates a building and is paid back over 30 years.