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Stalling repayments: why councils are struggling to pay back loans

Local government debt in England has grown by 80% since 2004. In fact, in a recent PricewaterhouseCoopers survey, 90% of local authority chiefs said they believed councils would be in serious debt difficulties over the next five years – but why are councils struggling with loan repayments?

Need for economic growthQuestion mark

Despite the ONS revising 2014 economic growth figures upwards, the average Briton is 1.2% poorer than before the economic crisis and productivity growth is at its lowest since World War II. This severely limits council revenues and the ability of businesses and individuals to pay taxes and charges.

What's more, the housing crisis puts pressure on the income of the poorest families. The Resolution Foundation found that one million working homes spend more than 50% of their net income on housing. 84% of those are left with just £60 per week to spend after housing costs, so it's no surprise that council tax arrears have become the most common form of debt in the UK. If interest rates rise, the problem will only worsen.

Lack of financing flexibility

As the Chartered Institute of Housing points out, government borrowing caps have made it impossible for local authorities to meet affordable housing targets. Some authorities, such as Greenwich, have no borrowing headroom at all, while others spend all of their borrowing on maintaining existing housing stocks, with no additional funds to invest in new homes or business initiatives.

Other councils are searching for creative solutions. For example, Wolverhampton City Council have "paused" loan repayments for several years to invest in assets like new offices and a revamp of City Halls. If these increase revenue or decrease financial pressure on residents, the risk could pay off.

The difficulty of debt collection

The conundrum of debt collection remains a significant part of the problem. With loans to repay and funds required for the maintenance of frontline services, councils are increasingly required to take an active approach to debt collection while remaining sensitive to the financial situation of residents. That's why Dukes Bailiffs believe in treating debtors with care and attention. We are committed to communicating effectively with all debtors to find a solution that doesn't perpetuate poverty cycles, while recouping valuable revenue for local authorities.

For more information, contact one of our advisors via our Contact Us page today.

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