Warning over impact of rising interest rates on civic centre’s ability to repay its £1.12bn debt, reports James Cracknell

Rising borrowing costs are putting Enfield Council under “extreme” financial pressure as new government figures show it has one of the highest total debts in the country.

Data released by the Department for Levelling Up, Housing and Communities puts Enfield in the top ten most-indebted English councils.

Three of those with greater debt – Woking, Thurrock and Croydon – effectively declared bankruptcy, via a Section 114 notice, after piling up huge debt mountains they couldn’t sustain. Most others in the top ten are major cities, such as Birmingham and Leeds, which have greater capacity to borrow.

Bank of England interest rates rose to 5% in June and are forecast to hit 6.5% by year’s end. This follows 13 years when interest rates were below 1%, during which period many local authorities built up significant long-term debt to finance capital spending – while annual grants from central government were slashed.

Enfield Council’s total debt was £1.12billion on 31^st March, with debt repayments now representing more than 10% of its net revenue budget. However, it insists its finances are “robust” with budgets managed “shrewdly”.

Around £400m of council borrowing has financed the Meridian Water housing project. But the council’s own budget report for 2023/24 warned this had “exposed” the authority “to a number of financial risks” with money borrowed from the Public Works Loan Board “to be paid back through land receipts”. It means the project is “sensitive to wider market forces which impact sales values”.

Enfield’s housing crisis – in which hundreds of homeless families have been holed up in hotels – has created an additional £20m budget pressure this year that the council still needs to balance.

A local government policy manager at The Chartered Institute of Public Finance and Accountancy, Joanne Pitt, warned: “Recently, we have seen a worrying increase in councils issuing Section 114 notices in England, or talk of them being issued. They should be a last resort and while the reasons behind each one will be different, the reality for most is a failure to balance the budget, as witnessed in councils such as Croydon and Woking.

“A local authority can borrow money to finance capital projects, but it must be proportionate and in the public interest […] The financial outlook for all councils is extremely difficult and requires clear vision, strong leadership and a workable financial plan, combined with effective management.”

In response Enfield Council has pointed out that most councils suffering severe financial problems in recent years have had debts significantly higher per head of population, such as Woking’s £19,000 per head and Thurrock’s £8,600, compared with Enfield’s £3,400. Croydon’s short-term loans, which are more vulnerable to interest rate rises, represent 21% of its total debt compared with Enfield’s 6.6%.

But James Hockney, the Conservative group’s shadow cabinet member for finance, has warned that the council’s high debt repayments will make big cuts necessary. He said: “We repeatedly warned Enfield Labour on the risks of piling up debt for years. They ignored these risks and now we are the tenth most-indebted council in England out of over 300 councils.

“What this means is huge cuts to frontline services to pay the debt interest. Already out of a £286m budget, £32m is spent on debt. This will continue to increase to £46m in three years’ time.

“The government [last year] gave the council a core grant increase of 20% (£10m) – but the council’s finances are in such a mess that this is outweighed by the debt payments bubble.”

Matthew Fright from the Institute for Government has also called on Whitehall to help struggling councils. He said: “The government needs to get a firmer grip of the financial risks facing local authorities. It should start by improving its monitoring and oversight of local authority financial health, as it promised in October 2020.”

A council spokesperson said: “Enfield Council’s budgets are in a solid position, and we manage our finances shrewdly with a clear and public ten-year investment strategy. A recent LGA peer review found our budget was in a robust position and we have always managed to balance our budgets.

“The council has borrowed to invest in the regeneration of our borough, and hasn’t engaged in risky, out-of-borough commercial activities like other councils. Instead, we locked in lower interest rates to build homes where Enfield needs them the most.”

The spokesperson pointed out that central government funding for Enfield Council has been cut by 42% since 2010 – equivalent to £81m. They added: “This, alongside the sky-rocketing inflation, record interest rates and economic turmoil amidst a cost-of-living crisis has created further budget challenges. Inflation alone increased revenue costs three-fold in twelve months, meaning we had to make savings.

“Had the government carried out the local government funding reforms in 2020/21 as planned, we would be £32m per year better off. Without adequate funding, we have no option but to revisit budgets across the council.”

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