One-fifth of Birmingham City Council’s cash pays for its £2.4 billion debt
Borrowing by Birmingham City Council has more than doubled in five years to stand at a record-breaking £2.4 billion.
The huge debt, compiled since a Tory-Liberal Democrat coalition ousted Labour in 2004, is equivalent to £2,000 for every person in Birmingham, according to new figures published today.
Costs have been driven up sharply by high-profile projects including the new civic library, improvements to council housing, special care centres for old people and a pay and grading shake-up among council staff – four schemes which increased borrowing by £653 million.
Almost a fifth of the amount of money Birmingham spends on services each year now goes to repay debt, while almost 45 per cent of the housing revenue budget is being diverted to service loans.
By 2011/12, money required to repay debt will equal £31 on every council tax bill – up from £2 in 2004.
The figures, described as “unsustainable” by the Conservative chairman of the finance scrutiny committee, are far higher than any other major English city. And the council’s chief financial officer has warned that borrowing may have to be “rationed” in future as part of a Government public spending crackdown.
By comparison, council debt in Manchester works out at just under £1,500 per head, in Nottingham it is less than £1,000 and just over £500 in Bristol and Sheffield.
The figures were released days after the council admitted that it is on course to overspend its revenue budget by more than £20 million this year.
A jobs freeze has been imposed and all departments have been ordered to come up with efficiency savings.
James Hutchings, chairman of the finance and performance scrutiny committee, who spent months asking for the figures to be published, said he remained “deeply anxious” about the council’s ability to repay debt and the impact that would have on both public services and council tax bills.
Coun Hutchings (Con Edgbaston) added: “It’s the first time we have had these figures and my reaction is that this is not really sustainable.
“It is out of line with other cities and it needs to be brought down.”
He criticised the decision to borrow £177 million to fund the pay and grading review, warning that it would have been better to have met the costs from the annual revenue budget. “This report calls into question whether these high levels are really justifiable,” Coun Hutchings added.
The debt explosion occurred after the Government relaxed local authority borrowing controls in 2004, allowing councils to borrow more as long as they could show how they intended to repay the money over a reasonable timescale.
Birmingham became an enthusiastic supporter of the prudential borrowing regime, and initially planned to pay off some of the debt by raising cash from land and property sales. The recession put paid to that idea, at least for the time being.
City Corporate Director of Resources, Paul Dransfield, dismissed claims that the council has taken on too much debt.
Mr Dransfield said total borrowing remained within Government targets and he claimed that debt in other cities was smaller than Birmingham because they had been slow to embrace prudential borrowing. He added that the gross borrowing costs could be misleading because they did not indicate the extent to which repayments were financed by Government grant, income or efficiency savings.