Councils Cry Poverty — While Quietly Lending Each Other £Millions

We’ve just been handed a neat little window into how modern local government really works. On Tuesday 10 March, Folkestone & Hythe District Council’s Finance and Performance Scrutiny Sub-Committee will see a borrowing schedule showing that, at 31 December 2025, FHDC was sitting on £30 million of short-term loans from six other public-sector lenders. Every single slice of that borrowing is £5 million, and every single slice falls due in 2026.

So while the public soundtrack is “we’re skint”, the backroom reality is a nationwide municipal money-go-round: councils and other public bodies lending and borrowing big sums to each other to keep day-to-day cashflow moving. Not theory. Not rumour. Numbers on a schedule.

Let’s start with FHDC, because this is what’s in front of councillors next week. The council’s list of “Loans held at 31 December 2025” shows six fixed-rate loans of £5,000,000 each, borrowed between mid-July and late December 2025. The lenders are Portsmouth City Council, Milton Keynes City Council, East Sussex County Council, the Northern Ireland Housing Executive, Cornwall Council, and Brentwood Council. Add them up and you get £30,000,000 of borrowing from peer public bodies, arranged in a six-month burst.

Now look at the dates. Those six loans mature between 31 March 2026 and 13 October 2026. That creates what we’d call a refinancing hump: a year where the whole £30 million has to be repaid or rolled over, come what may.

Put bluntly, at 31 December 2025 FHDC’s borrowing from other councils/public bodies totalled £30 million. The same schedule shows FHDC’s total borrowing at that date is £106.84 million. So, on the face of it, around 28% of FHDC’s entire borrowing balance is this Council-to-Council, short-term style funding.

What is this, in plain English? It’s the local-government version of the money markets. One authority has cash sitting in the bank for a while — perhaps reserves, perhaps grant cash waiting to be spent, perhaps timing differences between when money comes in and when bills go out. Another authority needs cash for a while to smooth its own timing. The lender earns interest. The borrower gets flexibility. The sums are often big, the deals are often short, and the amounts are often in tidy blocks — very commonly £5 million — because that’s how the market trades.

This is why two things that sound contradictory can both be true. A council can be under real pressure on services and still have cash balances large enough to lend at certain points in the year. “Cash in the bank” doesn’t automatically mean “spare money for services”. Some of it is earmarked, restricted, committed, or simply parked temporarily while projects and payments catch up. But here’s the sting: the public narrative rarely makes room for that nuance. Residents are told there’s “no money”, then they discover councils are also acting like short-term banks to each other, shifting tens of millions around the country and collecting interest on the way.

And FHDC isn’t an outlier in this bundle of council schedules. Looking across the selected Kent councils included here, the combined year-end outstanding inter-authority borrowing shown totals roughly £140.34 million at 31 December 2025. Gravesham leads the pack at about £63.5 million. Folkestone & Hythe and Canterbury sit at about £30 million each. Swale is around £12 million. Sevenoaks and Maidstone are smaller.

Then flip the telescope round. Some councils are not just borrowers; they’re serious lenders. Over the period 1 April 2023 to 31 December 2025, Maidstone shows £55 million of inter-authority lending principal advanced, Tunbridge Wells £53 million, and Sevenoaks £21 million. Those same lending schedules show meaningful interest receipts over the period — in round terms about £1.35 million for Maidstone, £1.19 million for Tunbridge Wells, and around £80,000 for Sevenoaks. That is not pocket change. That is real income, generated by lending public cash short-term.

Which brings us to the awkward question we think residents are entitled to ask: if councils can lend tens of millions and earn seven-figure interest income, why is the public conversation so often reduced to “we’re broke, brace yourself”? The honest answer is that local government finance can be both cash-rich at moments and service-poor over years — because the long-term pressures (adult social care, temporary accommodation, special educational needs, inflation, pay) don’t care that a council has a temporary cash pile in November. But it still matters how this is explained. Because when the explanation is missing, trust drains away fast.

There’s another issue here too, and it’s a practical one: clarity. Several schedules in this pack appear to show loans with an “end” date earlier than 31 December 2025 but still showing an outstanding balance at 31 December 2025. That may be entirely legitimate — rollovers, renewals, replacement loans, or reporting formats that carry historic lines forward — but it is precisely the sort of thing that confuses the public and makes scrutiny harder than it needs to be. If treasury reporting is technically accurate but visually baffling, it invites suspicion. And councils really do not need to manufacture suspicion in 2026.

So what should FHDC’s scrutiny committee be asking on Tuesday 10 March? The unglamorous questions — the ones that stop bad habits becoming expensive habits.

We would want to know why FHDC took six separate £5 million lines rather than fewer, longer facilities. We would want the interest rates on each loan, clearly set out, and we would want to know what alternatives were available at the time and why these were judged best. We would want to know whether brokers were used and, if so, what fees were paid and what value those brokers added. We would want a clear plan for 2026: how will FHDC repay or refinance the full £30 million as each maturity date lands — and how sensitive is that plan to interest-rate changes or market conditions?

And then we would ask the question that sits underneath all of it: what is this borrowing really doing? If it is genuinely smoothing a short-term timing gap, fine — that’s exactly what this market exists for. But if short-term borrowing is repeatedly being used to prop up a deeper mismatch between spending pressures and income, that’s not “cash management”. That’s a warning light on the dashboard.

Inter-authority lending doesn’t automatically prove councils are flush. But it does prove something else: the “there is no money” story is often incomplete. Inside the same system that is cutting services, tightening eligibility, and nudging fees upwards, councils are also moving tens of millions around the country in £5 million blocks, paying and earning interest as they go.

Our view is simple. Residents deserve reporting that explains both realities, in plain English, without the comforting fog. And councillors deserve scrutiny papers that don’t just list numbers, but make the risks and the strategy impossible to miss. Because in 2026, the most dangerous words in local finance aren’t “we’re skint”.

They’re “it’ll probably be fine.”

The Shepway Vox Team

Dissent is NOT a Crime