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Scotland’s council debt levels soar to £12.9bn

188139759_778x436Spiraling levels of debt has seen Scotland’s councils owing £12.9bn forcing some to get debt help, with interest and debt repayments accounting for nearly £1.5bn of the balance, says debt management company Scottish Trust Deeds.

A report by public spending watchdog the Accounts Commission showed that Scotland’s councils now owe the equivalent of £2,436 for every Scottish resident, an increase of neatly 40% over the last five years.

The report highlights the rising problem of council debt, with total capital spending on projects such as schools and hospitals doubling from £1.2bn in 2000-2001 to £2.4bn in 2008-2009. Since then capital spending has fluctuated but always stayed near the high end over the last year due to recessional dips.  However, it acknowledges there are gaps in the information provided that prevents the full picture from being seen.

The report states: “Councils’ combined debt levels have increased by 39 per cent from £9.3bn in 2007-08 to £12.9bn in 2011-12. With further borrowing and private finance investment planned over the next few years, overall debt levels may continue to rise.”

It also questions the sustainability of investment strategies planned by the councils, especially in light of the rise in debt repayments from £946 million in 2009-10 to £1.45bn in 20011-12

“Councils need to develop long-term investment plans to set out their investment needs and constraints, and provide the information needed for prioritising and planning.”

David O’Neill, Councillor and President of the Convention of Scottish Local Authorities, said: “During the period of this report, the capital grant from government was reduced. Investment was therefore being undertaken through prudential borrowing, which therefore means more debt for councils. There was a real drive from the Scottish Government and local government to increase capital investment to stimulate economic recovery at local level on the back of the downturn.”

While councils are attributing the debt rise to necessary ‘big investments’ such as schools and other capital projects, the Scottish Government is clear that how the money is spent is solely down to the councils.

“It is up to councils to ensure they spend capital budgets effectively and in line with local needs,” said a Scottish Government spokesman. “The Accounts Commission report sets out some valuable messages for councils in how they manage capital expenditure effectively and get the most from their capital investment, including through working in partnership with other councils and other bodies.”

The report from the Commission also detailed how delays in building have been increasing the debt burden because projects have been frequently running over budget. Some 80% of council building projects are delayed by an average of 17 months, with 60% running over budget as a result by around an average of 26%. This overspend amounts to around £89 million.

“For one in five projects, the relevant council could not provide a cost estimate at the initial approval stage, either because project costs were not estimated at this time or data was unavailable. Similarly, 20 out of 63 could not provide a time estimate at the initial approval stage,” stated the report.

A spokesperson for debt management company Scottish Trust Deeds said: “Everybody is cutting back in response to the prolonged recession except it would seem the councils. The councils are trying to spend their way into growth, and in the short term that might work, but given the delays and rising costs of building it isn’t an effective long-term plan.

“Everyone – from individuals to commercial organisations – needs to have a firm grasp on budgeting and spending money effectively in this new era of austerity. Councils are no exception, especially as they are spending public money.”