Northumberland County Council bank balances in good shape insists finance chief

Speaking to the council’s audit committee, finance chief Jan Willis said that while rising interest rates were a cause for concern, the authority had been able to use cash reserves to mitigate the issue.

However, she did concede that the challenges of the past few months had been unexpected – and that the council may have to take on short-term debt in the near future to avoid using up all of its reserves.

She told members: “The treasury management world has been turned on its head in the first half of the financial year. All of the assumptions we made at the beginning of the year have been turned on their head.

“We had been expecting a gradual increase in the interest rates throughout this year, up to about 3.5%. What has happened is rates have actually increased much more rapidly to a higher level than anyone had expected.

“They have come down a bit in recent weeks following the reversal of the mini budget and the chancellor’s autumn statement, but it is still significantly higher than our planning assumptions.

“We have used our cash instead of talking on extra debt. As they reduce, we will need to take out some additional borrowing by the end of the year.”

The report explains that reviews of the council’s capital programme, carried out in June and September, have identified that a “significant proportion” of the original capital budget for this year will now not be spent until later years.

These two factors combined have actually reduced the need for external borrowing – down from £185m down to £50m. It is expected that this will be covered by short term borrowing to avoid being tied into higher interest rates long term.

However, that reduction will impact on future years’ borrowing requirements.

Ms Willis added: “The amount we can earn from lending to other authorities is higher. In the short term, the interest rates will have a beneficial impact on the council’s budget, but the concern is about the longer term impact.”