By Joe Locker, Local Democracy Reporter
Nottingham City Council has defended the £1m a week it pays in fees and costs on its debt after claims the sum has become too much of a burden.
Each year the Labour-run authority sets aside around £55m to cover costs linked to its borrowing, similar to a homeowner’s regular mortgage repayments on a house.
The vast sum has been questioned by opposition councillors at a time when the authority is facing serious financial problems.
It is typical for city councils to borrow large sums of money, but debt comes with costs arising from the passage of time, the rates of interest and fees associated with such large financial arrangements.
In the past the council has only referred to its ‘external debt’ in discussions.
This is borrowing which has taken place using the market and lenders, and includes debts for the tram and the building of social housing.
External debt sits around £888 million, but this does not represent the entirety of the council’s borrowing.
The full figure is known as the council’s Capital Financing Requirement (CFR), a calculation of the authority’s underlying need to borrow for things such as new social housing, because these costly capital schemes cannot be financed outright.
The council told the Local Democracy Reporting Service this overall figure sits at around £1.175 billion.
This includes the £888 million external debt, of which £225 million is for the construction of the NET tram network as well as £227 million borrowed for commercial property investments.
The single largest element is £305 million for the building of council housing.
The remainder includes other borrowing made within the council, and historic schemes such as leisure centre building or parks and open spaces development.
Councillor Adele Williams, the council’s deputy leader and finance portfolio holder, says: “Clearly the annual repayment of council debt is a significant amount of money, but it’s important to be clear that this is paying for largely historical major capital investment projects such as in housing and transport which have already improved Nottingham as a city and the lives of our citizens.
“People would rightly expect their local council to provide things such as good-quality social housing, street lighting that is efficient and a world-class public transport system, especially important in a city like ours with low car ownership levels.”
Following the 2020 collapse of council-run Robin Hood Energy and the resulting financial fallout, it was recognised the council’s debt was too high.
As such the council adopted a voluntary debt reduction policy, and the authority no longer borrows money for capital investments.
Instead, any new investment is now paid for through Government grants, such as Levelling Up money, or the selling of property it no longer needs.
The policy also went further to agree the council would try to bring down its overall Capital Financing Requirement.
If the Capital Financing Requirement decreases, so do the individual debt elements within it.
In the two years since the policy was adopted, for example, the council has brought down its level of external debt from £982 million to £888 million.
By 2027 the council hopes its Capital Financing Requirement will have been reduced to just over £1 billion.
The council also says roughly £31.6 million, or 57 per cent, of the annual £55 million servicing costs go towards further reducing its Capital Financing Requirement.
Effectively, the council says, its debt servicing costs of £55 million, or £1 million a week, are supporting and paying off £1.2 billion of investment in the city.
Cllr Williams added: “All councils of our size need to borrow money to fund these projects and paying it back is, in simple terms, similar to a domestic mortgage.
“Every year, we repay both capital and a smaller proportion of interest, knowing that these things will ultimately become debt-free assets owned by the council.
“The investments that have been made in property for a return were part of a strategy that many other councils adopted to fill gaps in council budgets left by withdrawn central government funding and increasing demand for statutory services.”
Speaking during an audit committee meeting on February 24, Cllr Michael Edwards (Lab), had gone further to suggest the council’s debt levels “should be a badge of honour… and a clear expression of our ambition for the future of this city.”
However Cllr Andrew Rule (Con), the leader of the Conservatives, said: “It is an expensive badge of honour at a time when we are cutting things in the community.
“I think the £55m is a huge burden.”
Bernard Dom, a lecturer in accounting and finance at Nottingham Business School, says the City Council’s Capital Financing Requirement is comparatively similar to Liverpool City Council, which covers a similar population.
Liverpool City Council, which is currently under the governance of Government commissioners, has an authorised limit of £1.25 billion, he says.
Meanwhile Leicester City Council’s is £600 million.
Nottingham City Council, however, is the only authority in the country which has debt relating to a tram network.
Cllr Williams added: “This month we agreed a balanced budget for the next year and have set a financial plan for the next four years in the face of Government cuts to our funding and a cost-of-living crisis.
“We will continue to do all we can to seek and maintain financial stability for the people of Nottingham.”
