Welsh councils borrow £256m due to budget cuts, WLGA estimates

The loans are being used by local authorities to cover shortfalls as a result of cuts in the money they receive

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Councils across Wales are estimated to have increased borrowing levels by nearly 80% to £256m over the past year.

Some of the loans are being used by local authorities to cover shortfalls caused by big cuts in the money they receive from central government.

The Welsh Local Government Association (WLGA) said borrowing is still at a historically low level.

And the Welsh government said it supported councils operating within a "prudential borrowing code".

Steve Thomas, chief executive of WLGA, says despite the latest rise, many councils are well within borrowing levels.

Local government can borrow in two ways. One is supported by grants from bodies like the Welsh government, and the other, called unsupported borrowing, has to be repaid by the councils themselves in the same way a mortgage is paid off.

It is this form of borrowing which, according to a forecast from the WLGA, is likely to see a huge rise.

In the financial year ending in April 2011, it stood at £144m.

But the forecast is that it will rise to £256m for the financial year ending next month.

Education

However, the WLGA insists there are no examples that borrowing has got out of control.

Capital spending forecast for councils in Wales is £998m for 2011/12, up slightly from 2010/11.

The WLGA says the allocation from the Welsh government for capital spending was down 20% for 2011/12 from the previous year.

In 2012/13, it says there will be a 7.4% reduction with a further reduction of 11.5% in 2013/14.

Classroom The money pays for things like new school buildings

The big ticket items are education, housing and highways.

Nearly a quarter of all capital spending in 2011/12 was in the form of unsupported borrowed that is around a quarter of a billion pounds.

WLGA says most of the borrowing is the with an off-shoot of the Treasury called the Public Works Loan Board. All borrowing is for capital spending.

Assets

WLGA says "prudential borrowing" - which is the code that governs unsupported borrowing for local authorities - means that all borrowing has to be affordable in the long run.

There used to be a limit but that was before the "prudential borrowing code" was introduced.

What it means is that a council has to borrow funds based on how much they are likely to save in revenue costs in the future.

For example, they can justify building a new central school if it means three or four old ones close and the long term savings from having fewer buildings to maintain will cover the cost of building it.

A council has a number of options to make up a shortfall in central funding.

It can borrow - using what is called "capital receipts" which is selling council assets - but that is difficult in the current climate because the property market is so flat - or it can use money from revenue budgets.

The WLGA says that in 2011/12, councils had to raise around 44% of the money for capital spending.

In 2009/10 that figure was 24%.

A Welsh government spokesman said: "We welcome and encourage local government to use all the mechanisms available to it to support capital investment, including making use of unsupported borrowing, as long as they are operating within the prudential borrowing code."

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