Highland Council warns of financial pain of 60-year loans
- Published
A council has warned of the pressures it could face for the next 60 years due to volatile interest rates.
Highland said of Scotland's 32 councils it had already spent the largest portion of its annual revenue budget to fund the repayment of loans charges.
The local authority set its 15-year capital programme last December when rates were historically low.
But it said unforeseen rates rises since had significantly impacted on the affordability of its plans.
Long-term borrowing over 60 years is needed to fund major projects, such as building schools.
The council said that last year, with borrowing at 2%, the total loan charges involved in the construction of a new primary school would have been £22.9m, but those costs were now at about £38m due to interest rate rises.
It added that if inflation costs were also factored in, it would now cost 121% more to build a new primary school than it did 12 months ago.
'Phenomenal situation'
In a report to be debated by councillors on Thursday, Highland Council officials have warned that every capital project had been affected to some degree because of higher costs - such as the prices of materials and hiring contractors.
Officials said it was estimated increases in costs ranged from 20% to 40% above the level expected from 12 months ago.
Council leader Raymond Bremner said: "We can't underestimate the wider impacts of the present fast-moving financial crisis we find ourselves in.
"When the current programme was set in December 2021, interest rates continued to remain at historically low levels and, on average, long-term borrowing for up to 60 years could be obtained at an interest rate of around 2%."
He added: "There is much in the capital programme we need and want to progress. However, this is a phenomenal situation which has the potential to worsen in the coming months."
A full review of the capital programme will be considered by councillors in December.