Borrowing by Mansfield District Council has increased by £20 million in just one year, as experts warn councils are risking taking on too much debt.
The Chartered Institute of Public Finance and Accountancy says delivery of public services could be put at risk by unsustainable borrowing, after debt among UK local authorities rose to more than £100 billion.
By the end of December, Mansfield District Council’s outstanding loans stood at £97.1 million, according to figures from the Ministry of Housing, Communities and Local Government.
This was a 26 per cent increase compared to a year ago, and two per cent higher than at the end of 2013-14.
Long-term loans accounted for £96 million of the borrowing.
These last for more than one year and are used to finance large projects or purchases.
The council also took out £1 million worth of shorter-term loans, which are normally used to help manage a council’s cash flow.
Dawn Edwards, Head of Finance at Mansfield District Council, said: “The council can confirm that it borrowed £20m in 2018/2019 to buy investment properties as part of its long term financial strategy to help pay for services.
“This was the first new borrowing taken out by the council since March 2012 when it took out £52m Public Works Loan Board (PWLB) borrowing to fund a national policy to transfer the ownership of council housing from the government to local authorities. The remaining £24m in long-term loans was taken out prior to 2012.
“As part of the day-to-day cash management of the council’s cash flows, periodically short term loans may be required. Any loans taken out by the council are in line with CIPFA’s Codes of Practices and are subject to full Council approval.”
The Chartered Institute says many cash-strapped councils are taking out large loans to buy property, as the rent they collect can be higher than the interest they pay on the loans.
Funding for councils fell by almost half between 2010-11 and 2017-18, according to the National Audit Office.
Don Peebles, head of policy at the Chartered Institute. said: “With government funding in decline, it is unsurprising councils are having to adapt and find alternatives,”
“While councils are borrowing for a wide range of purposes, such as building houses and investing in major infrastructure, one trend which has been concerning is the growth in investment in commercial property - which exposes public finances to new risks.”
He added that councils could be in breach of the Institute’s guidance – which they have to take into account when developing investment plans – by borrowing too much, or borrowing in advance of their needs.
The government’s Public Works Loan Board was the main lender to Mansfield District Council as of December.
The loan board offers low-interest loans to councils, without requiring them to prove they can afford the repayments.
There is no limit to the amount councils can borrow from it.
The Local Government Association, which represents councils in England, said budget cuts had forced councils to find new ways of making money.
A spokesman said councils had followed the rules “to ensure they invest wisely and manage the risk”.
A spokeswoman for the MHCLG said: “Councils are responsible for managing their own finances and making the right decisions for the communities they serve – including making appropriate investments.
“Guidance on council investments was updated in April 2018 with new codes that strike the right balance between allowing councils to continue to be innovative while ensuring that taxpayers’ money is properly protected.”
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