RBKC & Wandsworth feel knock-on effect of UK rating

The Royal Borough of Kensington and Chelsea has had its credit outlook revised to negative by ratings agency Standard & Poor’s.

The revision came because the UK as a whole had its ‘AAA’ long-term sovereign credit rating revised from stable to negative. Kensington and Chelsea’s credit rating of ‘AAA’ has not changed.

S&P said that the borough’s rating reflected the strong support that the UK local government system provides to local authorities as well as the healthy economy of Kensington and Chelsea, which has GDP per capital levels well above the UK average. The borough has reserves of around £150m and high levels of operational flexibility, said S&P in a report.

Funding cuts and public sector reforms in general may put pressure on the borough’s operating balances, the report continued, and the borough’s investment program could also reduce balances.

A spokesman for Kensington and Chelsea told Room 151 that the negative revision merely reflected the UK’s revision and would not impact any plans: “We get the rating as an independent check and valuation of the soundness of the council’s finances,” he added, “achieving a standard which many residents in the borough would readily appreciate.”

Last week a different ratings agency, Fitch, affirmed Wandsworth Council’s ‘AAA’ negative outlook on its long-term foreign and local currency rating. Fitch noted that Wandsworth is one of the “stronger local authorities” with a “record of extremely focused financial management, which includes conservative budgeting, a sound cash position which easily covers annual debt service requirements, prudent investment policies and a low level of debt”.

On the down side, Fitch’s report noted, Wandsworth operates a small operating margin, has limited flexibility to raise revenues and could see increased pension fund obligations caused by market fluctuation.