MORE than £70m was wiped off Barnsley Council’s debts last year - but finance bosses have warned more may need to be borrowed to plug predicted gaps in the next two years.
A report into the local authority’s expenditure, which will be discussed by ruling cabinet members on Wednesday, revealed no new long-term borrowing was undertaken in 2023/24 following warnings previously issued about rising debt levels.
However, the council managed to pay off £73.4m last year, meaning as of March 31, the sum owed reduced from £651.5m to £578.1m.
A large chunk of last year’s payment - £55m - went towards paying off controversial ‘LOBO’ loans, which effectively are long-term arrangements with variable rate structures.
According to documents seen by the Chronicle, Barnsley Council sent loans to other local authorities - Eastleigh, Derbyshire, Cheshire East, Uttlesford and Hillingdon - which totalled £26m last year and are secured on interest rates between 4.25 per cent and 4.7 per cent.
A report, compiled by finance director Neil Copley, said: “It is a statutory duty for the council to determine and keep under review the affordable borrowing limits.
“During 2023/24, debt rescheduling opportunities increased due to market conditions and the rising interest rate environment.
“The council took a proactive approach and explored a number of options, including the repayment of the LOBO loans, to rebalance the debt portfolio and provide more certainty.
“Exiting these loans early also help to de-risk the investment portfolio by reducing cash balances, thereby reducing exposure to credit and counterparty risk.
“There was a £73.4m decrease in total external debt during the year, with the final balance at March 31, 2024 being £578.1m.
“The council is aware of the risks of passive management of the treasury portfolio and, with the support of its advisers, has proactively managed the debt and investments over the past year.
“As borrowing costs are at their highest since 2008, it has not been considered prudent to undertake additional borrowing during 2023/24.
“There is an underlying need to borrow of up to £88.4m over the period to 2025/26, up £29.8m from the original estimate, partly as a result of LOBO repayments.
“Fixed-rate borrowing targets to be reviewed throughout the new financial year in line with interest rate forecasts and monitoring of capital expenditure over the planning period.
“The use of LOBOs by local authorities has been criticised in the past due to the variable rate structure and the risk that the loans could tie the borrower into higher rates in future.
“Despite this negative reputation councils have so far benefited from LOBO deals as, until recently, interest rates have only fallen.
“However, as the council’s borrowing strategy is to limit exposure to interest rate risk, opportunities to exit this type of loan have been explored but have not proven cost effective until recently.”
Local authorities’ external debts - which refers to the amount councils owe through either short-term or long-term loans - is capped at just over £1bn through the Local Government Act and Barnsley’s figure had topped £836m at its peak.
However, Barnsley remains in a stable position when compared to a series of other councils who issued Section 114 notices - effectively declaring bankruptcy - such as Birmingham, Croydon, Slough, Woking and Nottingham in the last financial year.
“The council has been well-managed over several years - despite continued funding cuts and a government policy of increasingly shifting the burden for paying for universal services to local taxpayers.
“Barnsley Council is not yet in the position that some of those councils find themselves in, and whilst the council has had to deliver services in incredibly challenging circumstances, it has maintained its reputation for being financially well-managed.”
