Scottish Borders Council has taken out a £10m loan in an attempt to refinance historic debts.

The council is currently saddled with £194.4m of capital borrowing debt and expects to pay £20.5m in loan charges during the current financial year. 

This particular loan is to replace two £8m loans which were taken out in 1997 at an interest rate of 4.8%, and was due to run for 50-years. 

The loans have now been replaced by a 30-year loan with an interest of 2.74%, which Scottish Borders Council says will save taxpayers £1.341m over the course of the loan.

However, opposition councillors have warned that Scottish Borders Council is taking on too much debt, although the cost of financing the loans is less than 10% of the council’s total gross revenue budget.

The loan has been taken out by the council very shortly after spending nearly £10m on the Lowood Estate, Tweedbank, with a view to building hundreds of houses and an industrial estate there.

Council officers believe that the site, as part of a wider Tweedbank development plan, will create 180 permanent jobs, and a similar number during the construction phase.
The site has also been earmarked for a 300-home housing estate.

Opposition leader Stuart Bell, who represents Tweeddale East, said that the council is limiting its potential spending in other service areas: “I have been repeatedly saying that Scottish Borders Council is nearly maxed-out on capital.  

“There are strict fiscal limitations on the amount of money that a local authority can borrow and Scottish Borders Council is not unusual in being close to that upper limit.

“This has a direct impact on what is called ‘the opportunity cost of capital’. Every £1m or £10m that is spent on, for example, road building or buying land. 

“In the case of Lowood Estate purchase, it is money that is not available to spend on other projects such as schools or care homes for the elderly. 

“There are sincere differences in our council about what should be our priorities across the different opportunities.

“The latest borrowing from the Public Works Loan Board is at a low rate of interest, and whilst it is said to be a renewal of existing loans, this is almost exactly the amount need to finance the purchase of Lowood estate. 

“So we now know that as well as limiting the council’s spend on alternative capital opportunities, the Scottish Borders Council budget will be burdened with paying £274,000 each year in interest until the Lowood land is sold on. That will impact day-to-day services.”

A Scottish Borders Council spokesperson said: “Scottish Borders Council’s liabilities associated with capital borrowing totalled £194.4m at 31 March 2018. 

“This sum represents outstanding principal sum associated with the past capital investment decisions of the council and its predecessor authorities.

“The debt, which is financed predominantly via long term borrowing from the Government sponsored Public Works Loans Board, is broadly in line with the average debt level for Scottish local authorities. 

“Most of this borrowing, undertaken to invest in the creation and enhancement of assets such as schools, bridges and roads and flood protection works, has been financed via long-term loans at favourable interest rates with varying maturity profiles.

“In order to ensure the most effective management of this debt, the council operates a loans fund.

“The level of capital borrowing undertaken by the council and the associated debt accounted for on the balance sheet is monitored and regulated using the Chartered Institute of Public Finance and Accountancy’s prudential code which ensures that borrowing by the council for capital purposes remains both affordable in the short term and financially sustainable over the longer term.

“The prudential code places limits on the level of borrowing which a council can prudently undertake, known as the operational boundary, and places an overall limit, known as the authorised limit, beyond which the council cannot undertake any further borrowing. 

“Scottish Borders Council debt is significantly below both the operational boundary and our authorised debt limit, demonstrating the prudence of our approach.

“The costs of repaying interest and principal on capital debt are met by the loans charges budget. The five year financial strategy for the council, approved on 20 February 2018, set a loans charges budget of £20.5m for the current financial year.