With Leicester City Council’s annual “Budget meeting” fast approaching, city councillors have been holding a series of so-called scrutiny meetings to discuss all matters pertaining the city’s finances and budget setting. As part of these ongoing efforts, last Thursday night a body of councillors — of vital democratic importance — known as the “Overview Select Committee” met to ostensibly scrutinise “the work of the city mayor, deputy city mayors and areas of [the Council’s] work overseen by them as well as cross cutting issues such as equalities and our finances.”
However, all is not well with the functioning of the Overview Select Committee, and one of the main outcomes of last Thursday’s meeting was a decision for the Council’s finance officers to provide emergency training to all city councillors ahead of the annual budget-setting meeting (which is to be held on February 21). This training is being provided because despite having years of experience of scrutinising the city’s finances the councillors attending such meetings still do not understand the basics of how the Council’s finances work! So much for effective scrutiny!
One good example from last Thursday’s meeting that illustrated the inability of the “Overview Select Committee” to scrutinise the Council’s financial affairs arose when longstanding Labour councillor Sue Waddington questioned the City’s finance officer about the early repayment of a £25m loan. Councillors present at this meeting included members of all three main political parties, but it should be said that the most sensible contributions were actually made by Cllr Waddington, which perhaps also highlights the limits of other councillors’ awareness of financial affairs.[1] Thus in discussing the finance documents Cllr Waddington said:
“There is a reference on page 173, paragraph 4.2, to Barclays Bank. The Council has actually repaid a loan but had a premium cost of £2.2m. That might have been quite appropriate but I am not very clear of the reasons for that, rather than allowing it to run to its full term, or even why it was taken out with Barclays Bank in the first place?” (Webcast, February 9, 2024, from 1hr 55 min)
She then asked another question about a different issue before adding, “and on page 179 – sorry about this, it is just that I did read this one” by which Cllr Waddington was referring to the papers under discussion at the meeting.[2] She then laughed in response to a comment made by the chair, before noting that she always tries to read the papers but does not always understand some of them. She then said: “In paragraph 8.4 can you just explain what that is about?” Cllr Waddington then read the relevant section which stated that the Council “would prioritise having enough cash available to repay the £20m LOBO loans that could be called in January 2025 to avoid having to pay higher interest until 2054 on these loans.”
Leaving aside the ongoing controversies associated with LOBO loans, which remain extremely problematic for all local authorities — hence the reason why the City Council might repay their LOBO loans early – it remains unfortunate that Cllr Waddington used this scrutiny meeting to say that in this instance at least she had read the relevant paperwork. This is unfortunate as to undertake any form of meaningful scrutiny it is vital that councillors always read and understand the relevant paperwork that they are scrutinising. This inability to engage with the documents under discussion at the “Overview Select Committee” was therefore highlighted at the Thursday’s meeting because the issue of the Barclays loan had already been discussed in paperwork pertaining to a number of other earlier meetings. For example, a report discussed at the prior meeting of the “Overview Select Committee” – a meeting held in December at which Cllr Waddington was in attendance – a report noted (in paragraph 5.4) that:
“The level of gross debt (total loans borrowed) has reduced for the first time in many years with the repayment of a [£25m] Barclays loan in April 2023 which was previously due for repayment in 2077. No new long-term loans have been borrowed and no further debt restructuring has taken place during the year. Two very short-term loans from Local authorities which were taken out to cover a potential shortfall at year end were also repaid in April 2023.”
Likewise, although Cllr Waddington had not been on the “Overview Select Committee” prior to this December scrutiny meeting, she could have easily looked over the reports that had been discussed at the Committee’s July meeting where she would have found an explanation for her question. The July report in question stated in paragraph 6.4:
“In April 2023 we repaid the Barclays loan of £25m at 4.4% which was due for repayment in the year 2077. The repayment will save £1.1m interest p.a. although this will be offset to some extent by the loss of interest on the funds used for the repayment. A premium of £2.18m was payable, which will be written down at £40k p.a. over the next 54 years (to 2077). In practice, this equates to a 4% p.a. overall return on the funds used. The precise long term effect of this repayment is of course impossible to predict, though our advisors’ model suggested potential savings of £6m using a discount rate of 3% (or even £18m applying no discount for inflation). A major reason, however, for repaying the loan was to reduce risk if interest rates fall back again in the future, and hence the interest received on the funds that would have been retained by the Council once again fell below the interest payable on the loan.”
Either way it remains an odd decision for the City Council to pay back the Barclays loan early and further scrutiny is certainly warranted. But more importantly, especially considering that Leicester City Council is so low on capital funds, it remains odd that no councillor from any political party ever bothers to ask why the City Council does not borrow more money to help fill the gap left by government underfunding of our local authority?
On the issue of borrowing the Council report discussed at last Thursday’s meeting noted that:
“The Council currently has £154m of long-term debt. Comprising of £134m borrowed from the Public Works Loans Board (PWLB) (a Government quango), and £20m from the financial markets.”
It then adds:
“Given our high cash balances in the past the Council has not needed to borrow long term for many years. However, as earmarked capital resources for the capital programme are spent and reserves are used up, our cashflow analysis suggests this is likely to change over the next couple of years.”
Finally, some good news, but this discussion of increasing Council borrowing was not a point that was discussed or scrutinised by councillors present at the meeting. Some limited discussion of how borrowing will be extended was explained in the Council reports which explained that in relation to the Council’s housing strategy they want to add “£45m to the Council’s capital programme, to be financed from Prudential Borrowing.” And, they add, that they are borrowing £150,000 “to support purchase of grounds maintenance equipment, for which there is revenue provision (previously, equipment would have been leased, but borrowing is cheaper).” On this later borrowing the Council emphasise:
“£0.3m is provided for Grounds Maintenance Equipment of which £0.2m is funded by prudential borrowing and £0.1m funded by corporate resources. This scheme is to replace ageing machinery with up to date, energy efficient models. The replacement of this equipment is met from borrowing, and a revenue budget exists for this purpose.”
What this makes clear is that in previous years, Leicester City Council could have borrowed more money to fund capital projects if there had been the political will to do so. In fact, this was something that trade unions (including UNISON Leicester City branch) have called upon local authorities to prioritise doing for some years, although the Labour Party chose to ignore such socialist demands. Indeed, as the Council notes, it currently has £154m of long-term debt although they are legally authorised to borrow at least £320m; hence it seems that the only real thing stopping the Council from extending their borrowing powers in this way is a lack of political will and an unwillingness to listen to local trade unionists.[3]
[1] While Cllr Waddington remains a fairly new addition to the “Overview Select Committee” she remains an experienced councillor and since last July has served as the chair of another important scrutiny committee, the “Economic Development, Transport and Climate Emergency Scrutiny Commission.”
[2] The other issue that Cllr Waddington asked about related to the observation in the Council report that noted, “we will invest up to £30m in commercial property funds.”
[3] The Council explain: “Most capital expenditure of the Council is financed as soon as it is spent (by using grants, capital receipts, revenue budgets or the capital fund). The Council will only incur spending which cannot be financed in this way in strictly limited circumstances. Such spending is termed ‘prudential borrowing’ as we are able to borrow money to pay for it. Circumstances in which the Council will use ‘prudential borrowing’ are:-
(a) Where spending facilitates a future disposal, and it is estimated that the proceeds will be sufficient to fully cover the initial costs;
(b) Where spending can be justified with reference to an investment appraisal (this is further described in the separate investment strategy). This also includes social housing, where repayment costs can be met from rents;
(c) Other ‘’pend to save” schemes where the initial cost is paid back from revenue savings or additional income;
(d) Where, historically, the Council has used leasing for vehicles or equipment, and revenue budgets already exist to meet the cost;
(e) ‘Once in a generation’ opportunities to secure significant strategic investment that will benefit the city for decades to come.”
Thoughts of a Leicester Socialist 