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Worrying level of borrowing from WBC

November 22, 2020 11:19 AM
By Cllr Imogen Shepherd-DuBey & Cllr Maria Gee

Let's say you are putting aside money every month, saving up to buy a new kitchen that will cost £8,000. So far, you have saved up £7,000 in your kitchen fund, and it is in an interest-earning account, even better! You dream of that new kitchen in a few months' time. Wow, it will be fab-u-lous.

You happen see a car that you like, it's a great price, £6,000. You need £2,000 for a deposit and then you can purchase the car with a loan of £4,000 from the car finance company. You think, 'A-ha, I can just borrow the money for the deposit from my kitchen fund, I can have my cake and eat it too! I get the car now, and I can continue to put money aside for my kitchen.'

You buy the car, and you are happily driving around when a month later, all of a sudden, there is a serious water leak in your existing kitchen. Oh no! Your insurance covers the basic repair, but you urgently need a new kitchen. Hmmm… you no longer have the kitchen fund that you need to replace the kitchen. You are very sad, looking at the soggy kitchen cupboards. You cannot sell the car to replace the kitchen, because you need it to travel to work. You are going to have to save up again for the new kitchen.

Well, this is how the Wokingham Conservatives are managing Wokingham Borough Council's Finances. They have taken out lots of borrowing. The Council also has lots of assets, but they cannot sell them because they need them to run the Council. Having assets does not mean that the Council will have the money when they need it and still have to pay off their debts at some point.

The Conservatives say that internal borrowing is not really borrowing, because it is all the Council's money anyway. They say the loans from banks are fine because the Council has assets worth more than the loans. Is this complacency justified? What are the effects of internal and external borrowing on the Council's finances? What happens if you already have lots of borrowing and something unexpected happens?

Under the direction of the Conservatives, Wokingham Borough Council has borrowed from its kitchen fund, and it calls this 'internal borrowing'. They are planning to have internal borrowings of £201M, and external loans of £476M in March 2023. That's a total of almost £700M borrowings in two and a half year's time. Using the internal borrowings for current projects costs £2M in lost interest and the annual finance cost of the external loans this year is almost £8M. They are big numbers!

This is fine so long as there is not an unexpected event. Your unexpected event was the water leak. The Council's unexpected event might be the financial hit from Covid. If it loses income, how will it pay the interest on the loans from banks, how will it replenish its 'kitchen fund', and how will it repay the loans from the banks and elsewhere? These are the questions you need to ask your local Conservative Councillor.

Imogen shepherd-DuBey Maria Gee