Folkestone & Hythe District Council sets aside £188,000 a month for debt

Folkestone & Hythe District Council has taken on £38 million in borrowing from other local authorities to fund its flagship Otterpool Park development – even though not a sod has been turned, nor a brick laid at the site as of 31 March 2025. Council documents show this inter-authority borrowing for Otterpool carries a weighted average rate of 5.46%, and interest accruing in 2024/25 – about £1.26 million – was capitalised (added to the project cost rather than paid in-year). These short-term loans, obtained from councils across the country, have financed early stages of the scheme while construction on the ground has yet to commence. The substantial borrowing, undertaken well ahead of physical works, underlines the financial stakes for the district. The £38m Otterpool loans represent roughly a third of the council’s £107.56 million total outstanding debt at year-end 2024/25.

How Inter-Authority Works

Inter-authority lending is the practice of councils lending to one another, typically on fixed terms and at agreed rates (and council’s keep telling us they’re skint). It allows authorities with surplus cash to earn interest and gives borrowing councils quick access to funds for cashflow or capital projects. In Folkestone & Hythe’s case, the Otterpool-linked loans were short-term (often 6–12 months), requiring repayment or refinancing on a rolling basis. That strategy provides flexibility but exposes the borrower to interest-rate changes when loans are renewed; the 5.46% weighted rate recorded for 2024/25 reflects prevailing conditions in that period.

 Minimum Revenue Provision (MRP) – Rising, Recurring and Paid from Revenue

MRP is the statutory annual charge that councils must set aside from revenue (e.g., council tax and other income) to repay debt over the life of the asset. Put simply, the Minimum Revenue Provision is the portion of the council’s day-to-day revenue budget that must be ring-fenced each year to pay down its borrowing.

For 2024/25, Folkestone & Hythe’s total MRP was £2,255,698 on a straight-line (equal-instalment) basis across its capital schemes – equivalent to roughly £6,180 per day or £187,975 per month over the year. This charge is in addition to interest and represents revenue that cannot be used for services. 

Within that, Otterpool-related entries on the council’s MRP schedule show numerous components charged over 50 years (and certain LLP-linked sums over 20 or 30 years), illustrating how the project’s financing is now consuming a significant share of the revenue budget. The council’s year-end schedule records those Otterpool items alongside other schemes (Connect 38, Oportunitas, waste vehicles, etc.) that make up the £2.256m total MRP in 2024/25. All figures presented are for the year to 31 March 2025 only.

Key numbers at 31/03/25:
• Total borrowing: £107.56m.

• Otterpool inter-authority loans: £38.00m; weighted 5.46%; £1.260m capitalised interest in 2024/25. 

• Total MRP (straight-line) 2024/25: £2,255,698 (≈ £6,180/day; £187,975/month). 

Note: The capitalised interest for Otterpool indicates interest was added to project cost in 2024/25 rather than charged to revenue that year. MRP will recur annually across all live schemes in line with their asset lives.

PWLB Borrowing and the Rules that Bind It

Alongside inter-council loans, the council carries £69.32 million of Public Works Loan Board (PWLB) debt as at 31 March 2025, spread across 20 loans with maturities reaching into the 2040s and 2050s. The portfolio includes traditional maturity loans (interest paid annually; principal repaid at term end) and Equal Instalment of Principal (EIP) loans (principal repaid steadily each year). PWLB loans are fixed-rate with set schedules; early redemption normally incurs significant premia, so authorities usually hold them to maturity, locking in decades of repayments. These commitments interact with MRP: for long-life assets, the council must set aside revenue each year so that debt is fully provided for over the asset life. 

Examples from the schedule include historic fixed-rate loans from 2004–07 (around £2–2.5m each at 4.05–4.65%), a block of March 2012 loans (c. £4m each at ~3%), and more recent EIP borrowings drawn in 2023–24 and December 2024 (e.g., £8.33m at 3.93%, £4.615m at 4.36%, £4.0m at 4.40%). A £5.0m fixed-rate PWLB loan at 4.99% was added in February 2025 with a 2027 maturity. All figures are as at 31 March 2025.

Why Viligance Matters

The picture at 31 March 2025 is clear: large-scale borrowing tied to Otterpool Park has been secured before construction begins, interest on that borrowing has been capitalised in-year, and the council’s MRP – a cash-backed revenue charge – is already £2.256m a year under the straight-line method (about £6.2k a day). With £107.56m of total borrowing and £69.32m of long-dated PWLB loans on the books, sustained scrutiny of how and when debts are refinanced or repaid, and how the annual MRP evolves as projects progress, remains essential for affordability and service resilience. All figures above are drawn from the council’s accounts and reflect the position up to 31/03/25 only.

The Shepway Vox Team

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