£195m loaned to other councils by ‘cash-strapped’ Edinburgh council in last five years

Edinburgh loaned £20m to controversial English council Thurrock as part of its borrowing undertakings since 2016.

Edinburgh City Council have loaned out £200m since 2016

Close to £200m in council reserves and ringfenced funds have been loaned to other local authorities in England and Scotland by Edinburgh City Council.

A total of £175m, including £30m to Glasgow City Council and £50m to Leeds City Council, was loaned out by the council between 2016 and 2020, with an additional £20m to controversial Thurrock council, data unearthed by the Bureau of Investigative Journalism shows.

The cash – which is taken from the council’s reserves or from ringfenced but not yet usable funds for larger capital projects such as new schools – is loaned to councils in the short term, with the council making thousands of pounds in interest from the practice.

Thurrock Council have invested £604m in solar energy farms, potentially including Edinburgh's £20m loan.

The council said the security of the funds is always “top priority” and that the cash is not available to be spent on local services, but Tory councillors have said it is crucial the council “gets its own house in order” before lending to other authorities.

Loans between councils are not without risk with millions borrowed in this way poured into commercial investments such as Thurrock who have borrowed more than £1bn since 2016.

In that time, Thurrock council has invested more than £600m into the solar industry, but it is not known if the cash from Edinburgh was used for that purpose nor would the council have known it was borrowed for that purpose.

So high was the perceived risk of lending to Thurrock, Edinburgh council officials blacklisted the English council in 2018 but only after a £20m loan to the council made £57,000 in interest for the Capital.

The council said the “level of commercial activity being undertaken” by other local authorities was part of their criteria for deciding whether to lend money, however the council refused to say whether other councils have also been blacklisted, instead saying the request would have to be dealt with as an freedom of information request.

Council-to-council lending has skyrocketed from £4.5bn of outstanding debt across UK local authorities in 2013-14 to £11.9bn by the end of 2018-19.

Green councillor Gavin Corbett said there was “no way” Edinburgh should be involved in risky investments in England.

He said: “The last time I looked into this the council had about £175m of its short term cash fund investment placed with other councils, mostly in England. That is relatively high and probably reflects the very poor return currently from commercial banks.

"The issue is around risk and there are some councils in England which have been borrowing very high amounts of money to fund speculative investment, way out of line with the size of the council. That is much higher risk so it is right that Edinburgh has listed four or five of those councils as among those it will not lend to. However, I'd want to be sure that this list is kept under constant review.

“In Scotland, the prudential code is much stricter in not allowing councils to borrow to fund speculative investment, so there is no way that Edinburgh should get mixed up in risky borrowing south of the border.”

Tory councillor Andrew Johnston said it was important Edinburgh limited the number of loans it engaged in given the pressure on the council caused by Covid-19.

He said: “Edinburgh has got one of the worst financial settlements from the Scottish Government and we need to make sure we have the money to deal with our own problems first.

“I would much rather that we hang on to our reserves and have the security of knowing they are there and sort out our problems. We need to take a far more conservative view of investment given the scale of problems that we now face.

“Given reserves are almost certainly going to have to be accessed I don’t think there should be anything done like this. Lets keep our own house in order first before making any risky investments be it in transport systems we don’t need or in councils across the UK.”

A council spokesman said: “As part of our credit due diligence process, we regularly review the activities of Councils to which we lend and Thurrock was removed from our lender list in 2018.

“We have no outstanding credit arrangements with this local authority. The security of the loans we issue is always our top priority.

“They represent the prudent temporary investment of earmarked reserves and other Council Funds to gain an investment return on them until they are utilised for their intended purpose. The monies are therefore not available to fund revenue expenditure on local services.”