Highland Council report shows 121 per cent cost increase of new capital builds
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A detailed report for next week’s full council meeting lays out the full extent of its budget problems.
Put simply, Highland Council cannot afford the £1 billion capital plan it agreed last December.
The finance report explains that every single capital project is affected, with costs soaring by 20-40 per cent.
The council’s latest capital plan set out spending up to 2036/37 based on interest rates of around two per cent. But inflation and interest rate hikes now mean the programme looks set to be scrapped.
In December, a £15 million primary school would have cost the council £22.9 million in loan repayments over 60 years.
Now, the council would need to borrow £20 million for the same specifications. And with interest rates sitting at five per cent, it would repay £50.7 million – a 121 per cent increase.
Finance bosses have laid out the domino effect of these figures.
The council’s revenue budget is already under pressure from the rising cost of energy, fuel and staff pay.
The council relies on external borrowing for three-quarters of its capital spend. The loan repayments on top of existing pressures could create a black hole in the revenue budget that the council would have to face for the next six decades.
According to the council’s capital plan report, any new asset it builds could now end up costing more than its final value on completion.
Finance bosses and senior members are working to bring the capital budget back into line. This involves looking at every single project, with a view to cutting or re-phasing works.
The council also runs the risk of missing the deadlines set by external funders and falling short of its climate change goals.
It is – to quote the council’s own report – a “significant and unprecedented” set of circumstances.
Councillors will meet on Thursday to discuss its capital strategy, with a full plan due in December.
