Major projects and spending on frontline services across Courier Country are under strain as interest rates soar as the economy reacts to the UK budget, according to alarmed council chiefs.
Finance chiefs, including those in Angus, Perth & Kinross, and Fife, scrambled to assess the damage caused by the escalating crisis.
Some admitted they were already reviewing their capital spending plans as the cost of borrowing continued to rocket due to the market turmoil.
The Bank of England said on Wednesday it would have to step in and buy government bonds after Chancellor Kwasi Kwarteng’s tax-cutting plans spooked investors and caused the value of the pound to slide dramatically.
Scottish councils are more than £11 billion in debt to the Treasury because they routinely borrow money to invest in in capital construction schemes such as new schools, leisure and cultural facilities, flood defences, offices and roads.
The interest rate offered by the Public Works Loan Board (PWLB), which is operated by the UK Debt Management Office on behalf of the Treasury, has been attractive in recent years, often under 2%.
But the fixed rate offered on the cost of new borrowing has now hit 5.5%.
It had already been rising in recent months, but shot up by more than 1% after Chancellor Kwasi Kwarteng unveiled his package of tax cuts on Friday.
It is the latest headache for struggling council bosses, who are already dealing with shrinking budgets, as well as soaring energy and pay costs.
‘Significant strain’
A spokeswoman for Angus Council said: “Rising interest rates alongside high levels of inflation are putting a significant strain on our budget.
“But it’s too early to get into specifics on where it will have an impact.”
Perth and Kinross Council finance chief Stewart Mackenzie updated councillors at a meeting on Wednesday, as he outlined a report on its medium term financial plans.
He said the authority did not expect to require extra borrowing in the coming year, but would review the capital strategy when a more “settled” picture emerged.
He added: “The projections in the report as they stand are the most challenging I’ve ever had to present to council, in terms of the medium term financial plan.
“I suspect that’s the case in 31 other local authorities. It’s certainly the most challenging I’ve seem in my experience over 27 years or thereabouts of being involved in the council’s budget.
The situation is highly uncertain at the moment and we need to be aware of the potential for the situation to worsen.”
“I think the situation is highly uncertain at the moment and we need to be aware of the potential for the situation to worsen.”
Council leader Grant Laing reassured colleagues that the £26.5 million Perth City Hall project, due to open in 2024, would not be at risk.
Eileen Rowand, Fife Council’s executive director of finance and corporate services, said there would not be an “immediate impact” on the authority because its borrowing was managed over the long term.
But she said: “However the rise in inflation does put pressure on both our capital and revenue budgets and we are waiting for UK and Scottish Govt budget announcements in the coming months to assess what funding might be available to meet increasing costs.
“There is significant pressure on our capital budget and we will be reviewing our capital plan over the next few months.”
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