Total cost to council of Arch borrowing
The total, cumulative value of loan advances to Arch from Northumberland County Council is Â£269.2million, to the end of December 2017.
The information on the council-owned development company’s loans was included in a report to the local authority’s audit committee.
It showed that the annual interest due to the council on this borrowing is £13.7million at a weighed interest rate of 5.09 per cent. The weighted annual interest rate of the council’s external borrowing is 2.81 per cent, resulting in a notional cost to the authority of £7.6million.
This means there is a net benefit to the council of £6.1million, however, the council is required to pay off an element of its accumulated capital spend each year – the minimum revenue provision (MRP).
In this case, the MRP is £6.7million so Arch’s borrowing costs the council £592,000 a year.
The report adds: ‘It is important to note that the council does not borrow specifically for individual loans to Arch; borrowing is undertaken to fund the global council capital programme which also includes loans to Arch. The analysis in this report is therefore based on the council’s average external borrowing rate.
‘The current net annual cost to the council of loan advances given to Arch based on the information to the end of December 2017 is £592,158.21. However, it is important to note that this will change as loans are replaced and new borrowing occurs.’