Welsh council invested £10 million with English local authorities

Twm Owen, local democracy reporter

A Welsh council loaned £5m to Blackpool council and the same amount to Eastleigh Borough Council, at interest rates of 5.52 per cent and 5.50 per cent respectively, between December last year and June this year.

As well as investing sums in other local authorities finance chiefs at Pontypool Civic Centre also borrowed from other local councils.

Loans were typically taken out for six months at interest of five per cent. Across the year Torfaen borrowed £107.5m from other councils and repaid £85m and at the end of the 2024/25 financial year, in March, money owed to other councils amounted to £42.5m of its total external debt of £131.626m.

That debt figure increased, by more than £19m, from £112.446m at the end of March 2024.

External debt

While the £131m figure is recorded as the “total external debt” the actual figure is £136.770m as Torfaen has £5.144m in other long-term liabilities relating to finance leases.

Councils are required to produce balanced budgets every year, with their outgoings matched by the amount they receive in income mostly from central government as well as council tax, but take on debt to finance one off spending commitments, known as capital projects.

Torfaen spent £41m through its capital programme in 2024/25 which included extending Crownbridge School in Croesyceiliog and building the new Maendy Primary, also in Cwmbran.

Other projects included new 3G sports pitches, completion of the park and ride at New Inn railway station, refurbishment of Greenmeadow Community Farm as well as continued investments in highways and council buildings while it has also continued to award grants to adapt the homes of people with disabilities.

As well as borrowing from other councils Torfaen used its available cash surpluses to fund one off capital costs as it didn’t consider interest rates to be favourable.

Borrowing

Borrowing from its own funds is recognised as the cheapest form of borrowing and the council opted to do so as it estimated it would have still had to pay more in interest, on external loans, than the amount it would miss out on by investing those surplus funds.

However that left the council “under borrowed” against its calculated borrowing requirements and took loans from other councils to address this. Its finance officer also approved loaning the £10m to Blackpool and Eastleigh to “take advantage of increased returns”. That also meant it could meet the £10m minimum investment level required for continued “professional trading” status under financial regulations.

Concern over interest rates meant the council reduced other forms of borrowing during 2024/25 but £62.6m owed on UK Government PWLB loans remained the largest balance on its books.

The council paid £2.25m in interest on its loans – as well as £2.45m in interest on the government PWLB loans – meaning its total interest payments on external loans in in the last financial amounted to £4.705m.

It also received a total of £1.727m in 2024/25 in interests received and accrued which was down from £1.936m the previous year, which is dependent on how much the council has invested and interest rates.

The council’s financing costs amounted to 3.6 per cent of its net cost of providing services in the past year while “slippage”, or delays in completing capital projects, meant its capital financing requirement, which looks at how capital schemes are financed from begining to end rather than on year, dropped from the estimated £146,363m at the start of the year to an actual cost of £136,786m.