Councillors told historic divorce bill cannot be settled in one sum
Telford and Wrekin pays its neighbouring council a seven-figure sum every year as part of a 23-year-old “divorce” deal finance bosses says would be “too expensive” to settle with a lump sum, a committee has heard.
The area split from the former Shropshire County Council in 1998 and became a unitary authority.
Agreements signed at the time required the newly-created council to pay off its share of debts accrued by both authorities when they were one organisation – something that continued after the county council and its districts were abolished and the present-day Shropshire Council formed in 2009.
A report for Telford and Wrekin’s Audit Committee said the borough paid Shropshire £1.23 million last year, £36,000 less than 2019-20.
Chief Financial Officer Ken Clarke told councillors the amount goes down each year but the payments theoretically continue “forever”, as they help service loans that could only be paid off in one go with a “significant premium” attached.
An update to the 2020-21 Treasury Management Report, by group accountant Ed Rushton, said: “The council makes an annual contribution, £1.23 million in 2020-21, towards Shropshire Council costs on pre-disaggregation debt. Interest paid averaged 5.1 per cent last year.
“The rate of interest paid on this is managed by Shropshire and is considerably higher than the rate payable by Telford and Wrekin Council on its borrowing.”
The equivalent reports from the preceding three years show the amount reducing from £1.35 million, to £1.31 million then £1.27 million. The average interest rate also reduced from 5.3 per cent in 2017-18 to its current level.
Mr Rushton’s report said the average interest rate for Telford and Wrekin’s own borrowing had risen over 2020-21 from 2.46 per cent to 2.52 per cent.
Committee member Kuldip Sahota asked why the interest rate on the Shropshire debt was comparatively high and how long the repayments would continue.
Finance manager Pauline Harris said: “Shropshire historically aren’t as active in treasury management as ourselves so that is their combined interest rate.
“It’s very much up to them how they manage their own treasury strategy so unfortunately we don’t have any say in what we end up paying on that proportion.”
Mr Clarke promised to confirm the exact details with Cllr Sahota later but said “I think we pay a percentage of the amount that’s outstanding so, effectively, you never really pay it off”.
“We did enquire about making a lump sum payment but the problem Shropshire have is that a lot of the loans have been taken from the Public Works Loans Board and if you repay them early there will be a very significant premium,” he said.
“Clearly they wouldn’t see any reason to pay that, and why should they? We would have to make that payment which would be a revenue cost to the council.
“So we could get out of it but it would be very expensive. It is more cost-effective just to keep paying a reducing amount each year.”
