Borrowing and the Council
Are Parish and Town Councils allowed to borrow money?
The Local Government Act 2003 includes the Prudential Code of Borrowing, which came into effect on 1st April 2004. The Code states that councils can borrow funds, provided that they can demonstrate that all loans are affordable, prudent and sustainable.
Why does Leominster Town Council borrow money?
The Town Council borrows to finance capital projects that are considered to bring significant benefits to the residents of Leominster. These projects will have been outlined in the Council’s Corporate Strategy and Budget documents (all of which are made available to members of the public) Such projects may include:
- Purchasing equipment that enables us to provide services – such as mowers for grass cutting.
- Maintaining or upgrading facilities – such as public conveniences, play equipment, or office space.
- Investments in projects that will generate income to support and sustain Council services in the long-term.
The Council only borrows what is required to deliver clearly identified projects. Loans are only taken out when an affordable and sustainable repayment strategy has been identified. All loan repayments are set out in the Council’s annual budget, which goes out for public consultation every year.
Currently interest rates are very low, which makes borrowing funds more affordable and better value. Borrowed funds can also be used as match funding, to help us apply for grants from external funders.
What loans are currently being repaid by Leominster Town Council?
The Council is currently making repayments on two EPI loans, adding up to a total of £500,000, that are to be repaid over a period of 30 years. An explanation of how different types of loans are repaid can be found here.
The funds were borrowed from The Public Works Loan Board (PWLB), which issues central government loans to local authorities in England, Scotland and Wales. These loans were taken out in 2015 and the funds were used to invest in the purchase and redevelopment of 11 Corn Square. The outputs of this project included:
- A new Tourist Information Centre
- A gallery space housing exhibitions from local artists
- Fully accessible Town Council office
- Fully accessible Council Chambers – used for Council meetings, public meetings, and civic receptions.
- Additional office space that is rented by charitable organisations that provide vital services to town residents (also generating income to support Council Services)
- Meeting spaces that can be hired (providing an income stream to support Council services)
- Cellar space for archives and secure data protection storage.
- Initial work on the 11 Corn Square garden space (used for civic receptions and community events)
- Initial preparations and fire regulation works for a holiday let (intended to provide a long term income stream to support Council services)
The interest rate payable on these loans during the 2018/19 financial year is 2.53%. Repayments on these loans are outlined in the Council’s 2018/19 budget.
Is the Town Council looking to take on any additional loans?
Yes. Leominster Town Council has resolved to apply for an additional loan of £200,000, to be repaid over a 15 year period. The interest rate for the loan is expected to be 2.53%.
What will the additional loan be used for?
The loan will be used to finance the following projects:
- Project 1: The provision of infrastructure in the secret garden.
- Project 2: The refurbishment of the central car park public conveniences.
- Project 3: The Grange open space master and investment plan.
- Project 4: Signage and Interpretation.
- Project 5: Depot and Grounds Equipment
Will my precept payment increase to cover the loan repayments?
No. The precept increase in 2018/19 was not a direct result of the Council’s decision to apply for a loan. The increase was due to the Town Council taking on additional services, while losing income previously provided by a transitional grant. Each year the Council allocates a percentage of its budget to funding capital projects. By redirecting this section of the budget towards loan repayments, the Town Council is able to extend the amount of funding available for supporting a larger range of projects. As the 11 Corn Square holiday let and Secret Garden are completed, the income generated by those projects will be directed towards covering the loan repayments. By 2022/23, it is anticipated that at least 50% of the total repayments for all Council loans will be covered by income generated by facilities at 11 Corn Square and savings achieved.
What happens next?
The Town Council has submitted a loan application to the Ministry of Housing, Communities and Local Government. This will be reviewed and a decision is expected by the end of Winter 2018. If the loan application is not approved, then projects will need to be put on hold until alternative sources of funding can be identified.
Where can I get more information?
A detailed report on the Town Council’s recent public works loan board request can be found here.
A copy of the 2018/19 budget can be found here.
The Town Council’s most recent corporate strategy can be found here.
Printed copies of these documents are available from the Town Council Offices at 11 Corn Square, Leominster, HR6 8YP. If you have questions about any of the information on this page, you can also contact the Town Clerk, Mr Paul Russell, by email at firstname.lastname@example.org or by phone on 01568 611734.