News Roundup: Newham’s loan rate revealed, black hole in county finances, Islington’s property company
0Newham loan rate revealed
London Borough of Newham has revealed the rate at which it converted its controversial Lender Option Borrower Option (LOBO) loans into fixed long term debt. Last year, the council announced that it had fixed the rate on £248m of its £563m LOBO portfolio, in a move it said would save £94m. Earlier this year, the council refused to reveal the rate through a Freedom of Information request, claiming it would “be likely to weaken Newham’s bargaining position during future financial and contractual negotiations”. However, documents released by the council this month show that the average rate of the newly fixed loans is 5.93%. This compares to 6.3% the council is currently paying on its remaining LOBOs and 4.29% it is paying on loans from the Public Works Loan Board. The figures show that the move saved the council £5m in 2016/17.
Counties face £2.54bn black hole
The funding black hole for county authorities will treble to £2.54bn in just four years’ time, according to the County Councils Network (CCN). In an analysis prepared for the network’s autumn budget submission, it found that each county on average will face an additional average funding gap of £70m by 2021, on top of planned service reductions. Social care accounts for £26m of this per authority, and £22m in implementing the new national living wage. Paul Carter, CCN chairman, said: “We are reaching a point where we are have to consider difficult, painful and unpopular decisions next year to deliver balanced budgets, which will reduce and remove frontline services highly valued by our residents. The government has said it is in listening mode, and I and my fellow county leaders, will be asking ministers across government that we need additional help and support in this budget or we will all face some very severe consequences in the future. The situation can’t go on.”
Teething problems for Islington property investment
A north London authority is facing short-term financial issues due to its commercial property investments. A report to Islington councillors has forecast a gross £1.3m overspend on its commercial property budget in 2017/18. The council is dealing with the issue by removing its administrative buildings maintenance contingency, limiting repairs to urgent issues, holding posts vacant and increasing income forecasts. The report said: “Commercial property income is expected to reach the target for it set in the medium-term financial strategy by 2019. However, this income, given the time needed to execute commercial projects, is heavily weighted to 2019 giving a cashflow pressure in 2017/18.”
Enfield creates oversight regime for standalone companies
London Borough of Enfield has created new governance arrangements to ensure proper oversight of its standalone companies. The north London borough currently has five companies and is a partner in a joint venture with Norse Group. A new cabinet subcommittee will take on oversight responsibilities for all companies. A council report said: “This new structure will provide an overarching single reporting structure for the council to manage its entities and receive formal reporting between the companies (subsidiaries) and the council (parent company). This proposed structure will be more sustainable in the long term and reflect best practice.”
Think tank reveals scale of council cuts
Spending on adult social care services is around 5% below 2009/10 levels, according to the Institute for Government. The thinktank’s annual performance tracker found that real-terms net day-to-day spending on local trading standards services has fallen by a third; on libraries by 31%; on local food safety by 22%; and on waste collection by 19%. The IFG said: “The lack of data on the scope and quality of these services means that Whitehall—the Treasury, the Department for Communities and Local Government, and the departments which set local authorities’ various statutory obligations—is unable to understand the performance of locally delivered services. It cannot be sure how much further efficiency savings can be achieved.”
Housing companies create on-lending opportunities
Council-owned local housing companies (LHCs) offer a “triple dividend” in the form of much needed extra housing, a greater stewardship role in place-shaping and a financial return, according to new research. A report by the Smith Institute found that most councils expect their LHC to generate a profit, which can be re-invested into the housing company. Councils are also often generating income from ‘on-lending’ PWLB cash to their LHC, it found. The report said: “Many councils are clearly taking advantage of on-lending, but we were told by financial advisers that the most critical component is the terms of the loan agreement and the pre-conditions on draw down, as well as how the loan debt fits with other financing (including the terms of council land transfers and the forecast rental/sale revenue stream).”
