Folkestone & Hythe District Council, like all other Council’s can only borrow against future revenue streams, as legislation prohibits borrowing against capital assets, such as land or buildings for example.
All capital expenditure – land, property machinery, technology, or equipment, must be financed, either from external sources (government grants and other contributions), the Council’s own resources (revenue, reserves and capital receipts) or debt (borrowing, leasing and Private Finance Initiative)
It is the council’s debt we are talking about. Debt is only a temporary source of finance, since loans and leases must be repaid, and this is therefore replaced over time by other financing, usually from revenue which is known as minimum revenue provision (MRP). A simple way to understand MRP is the amount a council has to set aside from its day-to-day budget to repay the money it borrows.
The cost of debt comprises both interest payments on borrowing and the duty to set aside funds each year to make sure the principle [the original amount borrowed] of the authority’s debt can be repaid.
Some councils have changed their MRP policies so that they are putting aside less each year – making it easier to balance the current years books but kicking debt repayment further into the long grass. The government’s currently reviewing this and the local authorities are concerned.
According to Appendix 2 of FHDC’s Report Number A/21/31 they’ll be an 88% increase in the amount to be repaid for their borrowing in 2022/23, rising from £886,000 in 2021/22 to £1,667,000 in 2022/23. This is the second largest MRP increase between 2008/09 to 2022/23.
As one can see from the interactive graph below, the amount the Council were paying back for it’s borrowing fell from £782,000 in 2008/09 to £373,000 in 2019/20.
In 2019/20 the Councils borrowing rose to £90m, and the MRP in the following financial year rose to £878,000. At the end of Q3 in 2021/22, the Council’s borrowing was £84m and the amount they’ll pay back for their borrowing in 2022/23 will rise to £1.7m which is an 88% increase.
The increase is due to the fact the Council have announced it will need to borrow another £88 million to finance two projects, in particular. They are Princes Parade and Otterpool Park. Given that the Council’s current borrowing rate as of Q3 2021/22 was £84m, this means their borrowing will rise by 104% or to £172 million, over the next few years.
Of course, the Council have failed to reveal from where they’ll borrow the £88m, from who, how much they’ll pay back and at what interest rate. They are keeping this information very close to their chests as it will have a significant impact on their MRP.
In 2019/20 the debt servicing as a share of their spending power was 13.6%. Put simply, that means the Council were paying back 13.6 pence in every pound spent; which is the interest the Council pay on that debt. As they borrow more, this means their spending power falls and services are affected.
The graph above shows that the Council’s debt servicing costs – the interest the Council pay on that debt – [dark blue] as a share of their spending power was -1.8% in 2018/19, by 2019/20 this had risen to 13.6%, which equated to £2.1m in interest repayments. And due to the £88m they need to borrow, debt servicing costs will rise again and erode the spending power the Council still further. Hence why the MRP will rise. (The light blue line is for all district councils, so is not relevant.)
As the Council set aside more money to pay back their debt, other services need to be trimmed back. So the council will need to make savings/cuts elsewhere. Some would say it is a wise and prudent move by the Council, others might say the vanity projects such as Princes Parade & Otterpool Park are a step to far and that our council have become a developer, rather than a council, providing decent services. Whichever way you look at it really doesn’t matter as debt repayments will rise and spending power eroded and it is us and our children who fund this debt, so Princes Parade & Otterppol Park get built.
That is some legacy Cllr Monk is leaving us all to repay.
The Shepway Vox Team
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