Dorset Council's financial performance better than expected

Its borrowing position has further improved in the current year with two loans totalling £12.6million coming to an end.

The authority says that although its 2021-22 requirement for borrowing went up by £10 million to £345 million at the end of March 2022 the need to borrow externally had not increased as much as expected due to “slippage in the capital programme” and by using internal borrowing.

As with other councils the authority found it difficult to complete some capital projects because of material and labour shortages, often as a knock on from supply problems which built up during the period of Covid restrictions.

Two recent examples of delayed projects include the new children’s centre and hub in Dorchester Road, Weymouth and building work at the former Coombe House School, now known as St Mary’s, near Shaftesbury.

It is thought that some planned capital projects this year will not start and directorate heads have been asked to each trim back to just one or two projects which stand a chance of being completed in time.

A report to an audit committee next Monday says that the council paid £7.6 million during the year servicing external debts, reducing the need to go to the open market for further loans by temporarily financing some projects using its own reserves and working capital, amounting to £141 million  – some of it money which otherwise would have been invested by the council to bolster its income.

At the end of the financial year the council held cash and cash equivalents of £46m and treasury investments valued at £149m – in total £195m, giving it an income of approximately £3.1m on those holdings.

Treasury and investments manager for the council, David Wilkes, said that careful monitoring remains a high priority, given the fluctuations in global markets.

“The council has borrowed and invested substantial sums of money and is therefore exposed to financial risks including the loss of invested funds and the revenue effect of changing interest rates. The successful identification, monitoring and control of risk remains central to the council’s treasury management strategy.”

Councillors are being told that the authority not only relies on its own, suitably qualified, staff for investment decisions but also uses external advisers who are specialists in their fields.

“This approach ensures that the council has access to a wide pool of relevant market intelligence, knowledge and skills that would be very difficult and costly to replicate internally. However, whilst advisers provide support to the internal treasury function, final decisions on treasury matters always remain with the council.”

Compared to the 20-21 financial year the council’s external borrowing requirement in the current year (22-23) has declined by almost £39 million. Much of what it borrows comes from banks, other councils and the Public Works Loan Board with interest rates varying, at the end of March 2022, between 2.6per cent and 4.7 per cent.

Many of the loans are on a long-term basis with a range of between 10 and 55 years before they are  paid back.

Among its borrowing at the end of March 2022  was £30.5 million in Lender’s Option Borrower’s Option, (LOBO) considered by some to be potentially riskier than long-term agreements, because they give the lender the option to propose a new interest rate at set dates, with the council then having the option to either accept the new rate or repay the loan.

In 2021/22 none of the LOBO lenders exercised the option although in the current financial year one has recalled a £10m loan with five years still to run on the loan period. Dorset Council says it did not take out any new or replacement borrowing following that decision, reducing its current debt by £10m.

Loans of £2.6m also matured this year reducing debt overall by £12.6m to a balance at the end of September of £168.5 million, on which the council pays an average rate of 4.1per cent per year on an average loan term of 35.4 years.