Nottingham City Council expecting to slash £1.3bn debt and borrowing costs by £66m

Following the collapse of Robin Hood Energy in 2020 and the resulting appointment of an improvement board, the Labour-run council adopted a ‘voluntary debt reduction policy’.

Its finances are now overseen by a Government-appointed board after the authoity recognised its debt was too high and decided to cease all borrowing for capital investments.

Instead, new investments are paid for through Government grants, such as levelling up money, or the selling of property it no longer needs.

The adoption of the policy, and continued improvement work, has led to a decrease in the council’s overall debt and costs associated with historic borrowing.

The authority measures its overall figure through the so-called Capital Financing Requirement (CFR).

This is the total amount of capital spending which has not yet been financed by capital receipts, capital grants or contributions from revenue, and represents the underlying need to borrow money long-term.

Its CFR, as of March this year, was £1.316bn.

According to audit committee documents, this is forecast to decrease by £66.3 million to £1,249bn by the end of March next year, better than the original estimate of £1,299bn

Back in 2020-21, the CFR had stood at £1,411bn.

During a meeting of the council’s Executive Board on November 21, Ross Brown, the council’s director of finance and section 151 officer, said the reduction clearly ‘demonstrates a clear adherence’ to the policy.

“It demonstrates effective treasury management, both from an investment and debt management perspective,” he said.

The CFR is made up of numerous elements, including internal borrowing, external borrowing and Private Finance Initiative (PFI) schemes.

If the CFR reduces in value, then the other elements within it reduce too.

External debt is borrowing which has taken place using the market and lenders.

It includes things that cannot be paid for outright, such as the NET tram network and social housing.

External debt in 2022-23 was £875.9m and this is forecast to reduce further to £836.5m in 2023-24, and to £810.1m in 2024-25.

In 2020-21 the figure sat around £932.8 million.

In March, the council told the Local Democracy Reporting Service that, of the external debt, over £200m relates to the construction of the NET tram network as well as more than £200m borrowed for commercial property investments.

The single largest element was roughly £300m for the building of council housing.

It is typical for city councils to borrow large sums of money, but debt comes with costs arising from the passage of time, the rates of interest and fees associated with large financial arrangements.

Each year the Labour-run authority sets aside around £55m, or roughly £1m per week, to cover costs linked to borrowing.

It is similar to a homeowner’s regular mortgage repayments on a house.

The council said around 60 per cent of the annual £55m servicing costs go towards further reducing its CFR.

Coun David Mellen (Lab), council leader, commented: “It is very welcome to see our overall level of debt coming down.”