Cash-strapped council to charge schools interest on loans after slashing education budgets

Richard Evans, local democracy reporter

Senior councillors will discuss controversial plans to charging schools interest on bridging loans.

Conwy Council’s cabinet will meet at the council’s Bodlondeb HQ next Tuesday (January 9) to discuss the proposals in light of the £24.5m black hole the council faces next year.

It comes after education budgets were slashed by 5% across the board last year, with council tax upped by 9.9% and service budgets elsewhere slashed by 10%.

The latest proposed move would save the cash-strapped authority over £39,000.

That’s because if councillors waive interest for schools in loan arrangements with the council, Conwy could stand to lose £5,570 a year in interest per every £100,000 loaned out.

On the three loans totalling £693,000 that are currently outstanding, the revenue implication would be £39,850 in lost interest.

Fair

The report implies charging interest is fair as schools can also benefit from being in the black, despite some Conwy schools already cutting staff numbers and making redundancies.

The report reads: “As interest is paid across to schools when in surplus, it seems reasonable that interest is charged when in deficit.

“This is also relevant given that the guiding principles for schools financial planning sets out that the loans are to be cash backed by the collective schools’ reserves.

“Therefore, interest should only be earned on the net collective school reserve position.”

Cash backed

The report adds: “Given the overall financial position of the council, that interest is paid across to schools on positive balances held and that loans are cash backed by the collective school reserve position, it is recommended that members approve that interest is charged on loans, in accordance with the scheme rules.”

Conwy’s financial predicament took a turn for the worse last month when the authority was awarded the lowest local government settlement in the country, together with neighbouring Gwynedd.

Both authorities are facing just a 2% budget increase, below the Welsh average of 3.8%.