A detailed report for next week’s council meeting lays out the full extent of its budget problems.
Put simply, Highland Council cannot afford the £1bn capital plan it agreed last December.
The finance report explains that every single capital project is affected, with costs soaring by 20-40%.
The council’s latest capital plan set out spending up to 2036/37 based on interest rates of around 2%. But inflation and interest rate hikes now mean the programme looks set to be scrapped.
In December, a £15 million primary school would have cost the council £22.9m in loan repayments over 60 years.
Now, the council would need to borrow £20m for the same spec. And with interest rates sitting at 5%, it would repay £50.7m – a 121% increase.
Six decades of debt
Finance bosses have laid out the domino effect of these figures.
The council’s revenue budget is already under pressure from the rising cost of energy, fuel and staff pay.
The council relies on external borrowing for three quarters of its capital spend. The loan repayments on top of existing pressures could create a black hole in the revenue budget that the council would have to face for the next six decades.
According to Highland Council’s capital plan report, any new asset the council builds could now end up costing more than its final value on completion.
Finance bosses and senior members are working to bring the capital budget back into line. This involves looking at every single project, with a view to cutting or rephasing works.
Highland Council working on new capital plan
It’s a difficult balance. Spend too much, and the council could land itself with debts it can’t afford. Cut too much, and essential services will suffer. The council also runs the risk of missing the deadlines set by external funders and falling short of its climate change goals.
It is – to quote the council’s own report – a “significant and unprecedented” set of circumstances.
Highland Council will meet next Thursday October 27 to discuss its capital strategy, with a full plan due in December.
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