COLUMN: Highland Council’s financial plan is anything but sound
The Way I See It by Councillor Richard Gale, chairman of Sutherland County Committee
According to Audit Scotland, Highland Council has a sound financial plan, and everything is peachy as we head into the 20 years of the Highland Investment Plan (HIP) which will see schools replaced, roads upgraded and so on.
I fully support the aspirations of the HIP, it is bold and ambitious, and we need to do something about our failing infrastructure, but contrary to the conclusions of Audit Scotland, I don’t agree that we have a sound financial plan in place to deliver this ambitious project.
The plan is to borrow £2.1 billion over the next 20 years to fund the HIP. Of course, we need to borrow to invest in our major projects such as schools. But the way that we do it is crucial if we are not to leave a legacy of debt for future generations.
The current situation is that the council has a total debt of £1.277 billion and this debt costs £93.3 million per year in loan charges and this has increased significantly over the last 12 months.
The reason why we have this ever increasing level of debt is because when the council borrows money, at the end of the loan period the money has to be repaid as with any loan, however, because we borrow on an interest only basis, at the end of the period the council borrows the same amount again to pay off the original loan and so it goes on as there is no plan in place to pay off the capital.So, the more we borrow the more we have to pay in loan charges with no end in sight.
Back in the 1970s the council had to build a lot of houses in a hurry to accommodate the increasing number of workers coming into the area to work at Nigg and the smelter. Of course, the money was borrowed to do this, but that borrowing was never repaid and today we are still paying loan charges for these houses, many of which we don’t own anymore as they would have been bought by the tenants under the Right to Buy scheme.
The council’s housing revenue account pays £29.5 million per year in loan charges which equates to 40 per cent of all the rent paid by our tenants, quite a thought!
The other £63.8 million of loan charges comes out of the revenue budget. The revenue budget pays for everything the council does, from education to amenities to waste collection and road maintenance and everything in between.
The bulk of this money comes from the Scottish Government but over the years it has decreased in real terms so every year we have to make savings, which means cuts to services, but our debt charges increase year on year and the more we spend on loan charges the more savings we have to make. But we are told that as long as we keep our loan charges below 10 per cent of our revenue budget, it is sustainable and responsible, and I take issue with that assertion as we clearly cannot afford to deliver the services that we all expect now.
So, if we borrow £2.1 billion over 20 years, by the end of that period we will have tripled our debt and our associated loan charges and we will be looking at a minimum of £3.3 billion of debt and loan charges of £279 million per year. To finance these loan charges, the plan is to increase Council Tax by an additional two per cent each year over and above the normal increase that we need to maintain services.
At a recent full council meeting I tabled a motion to review our borrowing and to look at how we can repay our capital over the lifetime of the loan. In this way we would pay a decreasing level of loan charges and at the end of the loan period we would have have repaid the loan without having to borrow more to refinance that debt.
This motion was voted down by the SNP-led administration, and one of the administration members stood up and said that personal borrowing is different from how the council borrows. They were quite right, because when you or I borrow money, we have to pay it back and use our own money to do so, whereas the council never repays its debt, and it uses your money to maintain it.
I will finish by saying that if we do not want to saddle future generations, our children, grandchildren, and even great-grandchildren, with massive debts we have to change our approach to fiscal management and how we finance our borrowing.