Wolverhampton City Council cash crisis: Bosses defend decision over loan repayments

The city council has seen its five-year savings target rise from £123 million to £134m in the wake of government funding cuts and increasing case loads of looked after children.

Opposition Tories have accused the Labour run administration of saddling future generations with more debt by restructuring interest payments.

Labour says it will not. Nor does it accept that it would leave less room for future council leaders to borrow because they will be servicing the debt at a higher rate than the current administration.

The move is expected to save £8m over the next few years. And had it been in place since 2008, the council says it would currently have £37m more in its coffers, although this money would also have had to be paid back over time. The council has been told by a QC that it is legally sound while auditors PriceWaterhouseCooper have referred it to the Audit Commission for additional advice.

However, Labour finance spokesman Councillor Andrew Johnson stressed that borrowing was never used to prop up day to day services such as emptying the bins.

It can only be used to either provide the council with a new asset - such as the new £10m office building being constructed by the bus station - or extend the life of another, such as the planned multi-million pound revamp of the Civic Halls.

The council has moved from paying off its borrowing in a 'straight line', where the amount of capital paid is the same each year, to an annuity, where it will pay less at the start and more at the end.

It means the council will be paying more of the debts off in their final years than now, although the time taken and the overall amount paid will be the same.

Mark Taylor, director of finance, said: "We've been overly prudent in previous years.

"We set more aside than we needed to have done. Leading counsel confirms what we are doing now, a pause in payments, is lawful."

Asked if the move would limit the council's ability to borrow in the future, Councillor Johnson said: "The old straight line created some head room to increase the capital programme in later years. But no, not really."

Paying off the debt is partly funded by the grants and council tax the authority collects. But it also comes from the income generated by whatever has been created.

For example, the £36.7 million slip road at the i54 business park, funded by Wolverhampton and Staffordshire councils, is being paid back using business rates collected from businesses on the park such as Jaguar Land Rover. The Civic Hall work will mean more income for the venue in terms of ticket sales. And that will be used to pay off the loans.

"This not saddling council taxpayers with debt," Councillor Johnson said.

Councillor Wendy Thompson, opposition Conservative leader, said: "Responsible borrowing means paying debts as soon as it is possible to do so. This has to be a risk."