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Local government borrowed almost £1bn in the aftermath of the Icelandic banking crisis. Figures published by the Office for National Statistics on 20 November revealed that town hall borrowing in October topped £900m, compared with just £152m in September. Councils borrowed £500m in October 2007. The significant rise has been partially attributed to the collapse of several Icelandic banks, in which local authorities still have £800m frozen in defunct accounts. Following the crisis, some councils said they would borrow to fund short-term cashflow problems. For example, Plymouth City Council borrowed an extra £9m to fund a budget shortfall. However, councils can only borrow to fund operational budgets in restricted circumstances. A Local Government Association source said: ‘The banking problem presumably had something to do with the increase. But it would be misleading to attribute the entire rise to that.' It is likely that lower interest rate decreases also led councils to borrow while market rates were relatively attractive during the credit crunch. Many councils also borrow more in the autumn months because they are usually cash-rich at the beginning of the financial year, when the Government allocates grants to town halls. As direct grant payments ebb away, town halls turn to other financial tools. Meanwhile, central government borrowing has soared to its highest level in a generation, the ONS revealed. The Government borrowed £41.3bn between April and October – £16.3m more than the same period last year. At the end of October, public sector net debt was £641bn, equivalent to 42.9% of GDP.

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FINANCE

Council borrowing leaps to £1bn after Icelandic crisis

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