Councillors have agreed to wind down the council’s borrowing programme and seek to sell “low value and underperforming properties”, reports Nick Clark, Local Democracy Reporter
Construction slowdowns and inflation have put the repayment of more than £1billion of Barking and Dagenham Council’s debt “at risk” according to newly-published budget papers.
The council has borrowed the money to invest in major regeneration projects. It says that income from those projects should repay the debt and make money to fund council services.
But budget plans backed by council leaders this week say the repayments and returns “are now at risk due to cost increases and completion delays”.
Labour council leader Dominic Twomey said the borrowing had helped the council build over 3,700 new homes, still delivers “significant returns” and “is not costing the council any money”.
Some £1.1bn of the council’s £1.6bn total debt was borrowed to fund major regeneration projects through an “investment and acquisition strategy” (IAS) launched in 2016.
This involved building major housing projects through the council’s development company Be First, which were then sold and let through its ‘affordable housing’ firm BD Reside.
Council budget papers say the income from these projects meant the borrowing was intended to be “self financing” – meaning it would repay the debt and interest.
It also “had a target ambition of delivering a 5% return to the council”.
However, the council says that financial challenges – including higher borrowing costs and inflation – mean it can no longer continue.
Budget papers say: “The rise in interest rates and the high inflation costs within the construction sector have led to a number of schemes costing more than originally planned.”
They also say that a “number of problems” linked to the letting of new properties – particularly those at market rates – “have caused a loss of income to the IAS”.
The council says it expects to make £1million from its IAS investments in the coming financial year. But this is almost £4m less than in the current year.
Budget papers warn of “further cost burdens” if the council can’t borrow at low enough interest rates to complete developments still under construction.
Leading councillors agreed on Monday (16th) to wind down the borrowing programme and seek to sell “low value and underperforming properties”.
They also agreed new business plans for Be First and BD Reside.
Be First will seek to “move away” from council funding for new developments and instead try to attract “private sector development finance”.
BD Reside will focus on managing the homes in its portfolio, rather than adding new ones, from 2028.
Cllr Twomey said the borrowing and development funded by the IAS had meant the council could build new homes and bring in income to help it through austerity.
He said: “This investment – of course it was about delivering homes, good quality homes, to people.
“It was also about protecting jobs by bringing income into this authority at a time when austerity was absolutely sucking income out of lots of local government.
“We were faced with choices a number of years ago and one of those choices was, like many other authorities, what do you do? Do you make mass redundancies or do you look at different ways of not only improving the borough but actually protecting services and jobs?”
He added: “We receive a significant return on that borrowing. Equally, it has improved the lives of thousands of our residents.
“It has protected jobs because actually we haven’t had to cut the services that other boroughs have had to do.”
However, the Labour council leader said: “Circumstances change – we have to change with the times.
“We aren’t able to fund the investment and acquisition strategy any more and indeed because of the way the economy is, nor would we choose to.”
