Perth & Kinross: PKC could be required to borrow over £1 billion by 2028
Scale of debt could increase by around £400m in four years
Perth and Kinross Council’s finance chief has forecast that the local authority’s borrowing could increase to over £1 billion by March 2028.
Councillors were told the local authority would require to borrow the eye-watering sum to fund its capital budget, which includes projects such as the £150 million Cross Tay Link Road and £80 replacement Perth High School.
A committee was told the level of borrowing required by the council will depend on the decisions taken by elected members when they meet to set its budget later this month.
Last month the BBC Shared Data Unit revealed PKC had amassed almost £600 million of debt.
At a meeting of the Finance and Resources Committee on January 31 the council’s head of finance, Stewart MacKenzie, revealed the local authority’s current borrowing position was £623 million and could rise to over £1 billion in just four years.
Raising the figures uncovered by the BBC, Labour Carse of Gowrie elected member, Bailie Alasdair Bailey, asked Mr MacKenzie to explain the difference between debt and borrowing.
PKC’s head of finance told councillors: “Our borrowing position as of today is £623 million. That’s the debt. The vast bulk of that is outstanding debt to the Public Works Loan Board (PWLB) – £575 million. And around about three quarters of our capital budget is financed through borrowing and all of that essentially comes from the PWLB because that’s the cheapest route we have at the moment. That’s debt which the council has incurred and we are servicing.”
The PWLB is a lending facility operated by the UK Debt Management Office on behalf of HM Treasury.
Mr MacKenzie went on to explain how the amount of money PKC requires to borrow could substantially increase over the course of the next four years.
He said: “By the end of the current approved capital budget – and council is going to consider that again in February – the PWLB element of that will increase to just over £1 billion.
“So from where we are today – £575 million – to the end of March 2028 that figure will increase to just over £1 billion. But we haven’t borrowed that money. That’s not debt. That’s a forecast of what we would require to borrow to service the approved capital programme. And that in itself is dependent on decisions by council elected members.”
Depute Provost Andrew Parrott asked about the interest being paid on the debt which he believed was “at considerable discount to the Scottish average”.
The SNP Perth City Centre councillor added: “Given the borrowing requirements of the next four years – when we’re obviously having to borrow in the market – will our debt still be at a discount to the overall Scottish average? Or will the cost of having to borrow at market rates remove the discount that we currently enjoy through the good decisions that have been taken in the past?”
Mr MacKenzie confirmed the council’s average cost of borrowing would increase due to being “subject to market conditions” which “fluctuates from day to day”.
He said: “The modelling that we will be bringing to elected members around the affordability of the capital budget factors in a significant increase in the short-term over the rates we’ve seen of around 2.6 per cent over the last 10 years.
“We’re now expecting to be nearer 4.4/4.5 per cent in the short-term and then moving forward we expect those figures to reduce. That will again be dependent on the health of the economy and what happens to general inflation over the coming months and years.”
However, he confirmed the interest rate being paid on the existing £575 million debt was “hard-wired” and “will not change”.
He added: “The challenge we have going forward is that the cost of new borrowing is going to be higher – perhaps significantly higher.”
PKC’s capital budget includes a range of multimillion projects such as the £36 million Blairgowrie Recreation Centre, £80 million Perth High School and £150 million Cross Tay Link Road which are all under way as well as the £27 million Perth Museum opening to visitors this Easter.
Its capital programme also includes the £5 million Harris Academy extension for Invergowrie pupils, £24 million for the new primary school at Bertha Park, the completed £20 million Riverside Primary in Perth and the £28 million Comrie Flood Protection Scheme.
The £33 million Perth Eco-Innovation Park is currently unprogrammed and cannot progress due to a funding shortfall.
A fully-costed plan for the PH2O sports centre – replacing Perth’s three main leisure facilities – will be brought before councillors in August 2024.
In response to further questioning Mr MacKenzie explained the total borrowing included projects going back to when PKC was first formed as a local authority.
He said: “The increase of £1 billion is the overall resourcing requirement of the capital budget both current, future – in terms of the next six years – and historic because we have debt incurred due to expenditure 20/30 years ago.”