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Council warns of referendum 'lending risk'

GLASGOW City Council has warned of a significant risk to its ambitious building programme in the run-up to the independence referendum after it was refused loans by two English local authorities.

It says it has been turned down for two normally routine transactions understood to be worth a total of £10 million in the past six months.

Two authorities from south of the Border refused to lend beyond the date of the poll.

The decision has been taken as a sign of "market uncertainty" about the financial strength of councils in the event of independence.

The cash, earmarked for the city's school building and road repair programmes, was obtained from other lenders.

However, a report by council chief executive George Black, to be published tomorrow, warned: "If the council is not able to access these loans in the lead up to the referendum or beyond, or if the uncertainty increases rates, this will increase borrowing costs for the council.

"A potential increase in ­borrowing costs presents a ­significant risk to future investment ambitions."

The report on the possible impact of independence was ordered by the council's Labour administration last year.

It is due to be published despite pleas from the SNP for it to remain under wraps until after the Govan by-election, which was called following the death of former Nationalist group leader Alison Hunter.

At present, councils north and south of the Border regularly make loans to each other, for ­relatively short periods of time, at cheap rates of interest.

The report called for clarity from the Scottish Government about possible future funding arrangements in order to reassure English lenders and maintain the UK-wide loans system before the referendum.

It also urged the Government to set out its plans for the Public Works Loan Board, the UK-wide system for channelling central government loans to councils, in the event of independence.

It said: "The Scottish ­Government has not set out how councils will borrow in the future, if the UK arrangement will continue, or if low interest loans will be available.

"The future arrangements for local authority borrowing through the UK PWLB ­arrangement and the current and future UK inter-authority ­borrowing arrangements need to be clarified."

Glasgow currently owes £1.6 billion following extensive recent school and venue building projects, most to the PWLB. It would face an extra annual repayment bill of £16m were interest rates to rise by 1%.

The report warned Glasgow could fall behind other leading European cities unless the government committed to handing it greater control over economic development.

Glasgow's leader, Councillor Gordon Matheson said: "As Scotland's biggest city, it is essential Glasgow's needs are considered and its voice heard in the debate."

l The Scottish Government may be unable to take full advantage of new borrowing powers because of its own economic rules, the Centre for Public Policy for Regions said. It warned it may be near to hitting a self-imposed cap on borrowing.

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