Lancashire County Council faces challenges in borrowing £693m due to rising interest rates and maturing loans.
Lancashire: The council needs to borrow £693 million for 2025/26. This amount mainly comes from loans that are maturing soon.
A £350 million bond from 2020 will mature in March. This leaves £291 million still needed. Another £350 million in loans will mature the following year.
This borrowing is for capital expenditure. It’s for new or upgraded assets, not daily expenses.
The audit committee learned that financing costs are higher than expected. They had hoped for lower rates by now.
Noel O’Neill, the interim finance director, said they expected rates to drop. Unfortunately, that hasn’t happened, creating short-term challenges.
The Bank of England’s base rate is currently 4.75%. It was at a 15-year high of 5.25% for almost a year until August 2023. Advisors predict it may drop to 3.75% by November.
Khadija Saeed, head of corporate finance, emphasized the need for flexibility. They want to avoid unexpected interest rate hikes.
She mentioned it’s wise to fix some borrowing costs, even if rates seem high. While rates might drop, it’s not guaranteed. They plan to have some variable-rate borrowing.
The council aims to minimize borrowing until rates stabilize. They might use the Treasury’s PWLB lending facility for some of the needed funds instead of issuing a new bond.
The £350 million bond maturing in March was the first issued through the UK Municipal Bond Agency in 2020. However, the cost of PWLB borrowing has decreased since then, reducing its main advantage.
