Shropshire Council 'has Brexit financial plan in place' in case of markets disruption

James Walton, the council’s director of finance, told a meeting of the authority’s audit committee that the council had budgeted for a reduction in interest rates into its financial plan for the next year.

He said: “Brexit is raising a number of risk factors and if it affects the markets we have built this into the financial plan for the coming year.

“The Bank of England base rate could potentially change and could hit us by up to half a million pounds but we have factored all this into calculations.”

A paper presented to the committee by Mr Walton also revealed the council’s gross debt stands at £312 million.

His report says: “The Prudential Code requires the council to explain its policy on gross and net debt.

“The council currently has gross debt of £312m and net debt (after deducting cash balances) of £182m.

“The next financial year is expected to see the Bank Rate increase by 0.5 per cent to reach 1.25 per cent.

“As borrowing rates are expected to be higher than investment rates this would indicate that value could best be obtained by avoiding new external borrowing and using internal cash balances to finance new capital expenditure.

Negotiations

“The policy of avoiding new borrowing by running down spare cash balances has served well over the last few years.

“This is referred to as internal borrowing and maximises short-term savings.

“This is subject to change as the Brexit negotiations are yet to be finalised. However, this needs to be carefully reviewed to avoid incurring higher borrowing costs in the future when authorities may not be able to avoid new borrowing to finance capital expenditure and/or the refinancing of maturing debt.

“The council has examined the potential for undertaking early repayment of some external debt in order to reduce the difference between its gross and net debt positions.

“Against this background caution will be adopted with the 2019/20 treasury operations.”

Mr Walton added: “Consideration will be given to the potential for making savings by running down investment balances to repay debt prematurely as short-term rates on investments are likely to be lower than rates currently paid on debt.

“However, this will need careful consideration in the light of premiums that may be incurred by such a course of action.”

By local democracy reporter Andrew Morris