Appendix 5

Borrowing limits

1 Section 45 of the Local Government and Housing Act 1989 requires fire authorities to determine, before the beginning of each financial year:

· an overall external borrowing limit for the year

· a short-term external borrowing limit for the year (short-term borrowing is defined as borrowing which matures in less than 12 months)

· a limit of the proportion of interest which is payable at rates which can be varied by the lender or by external factors.

2 External debt outstanding on 1 April 2003 is estimated to be:

3 Total capital expenditure financed from loan in 2003/04 is estimated to be £748,000. Credit approvals (and PWLB quota) will be £748,000 which can be borrowed for capital purposes in 2002/03. This borrowing can be either at fixed or variable rates from the PWLB, County Council or other sources.

4 Cash flow projections for 2002/03 show that there could be a maximum requirement of £7,828,000 for temporary borrowing pending the receipt of revenue monies.

5 It is suggested that a total borrowing limit of £12,544,000 be set for 2003/04 as follows:

6 It is suggested that a limit of £9.378m should apply to short-term borrowing. This will avoid any obligation to borrow long-term should rates be unfavourable.

7 Currently the Authority's borrowing consists of nine loans totalling £3.250m at fixed rates between 4.5% and 5.875% from the PWLB and temporary borrowing from the County Council at variable rates. The Authority should allow for the possibility that it may wish to borrow long-term at variable rates from the PWLB or another external lender.

8 Based on the Authority's capital payment estimates, this should not exceed £1.550m. Assuming a variable rate of 5%, this would imply total variable-rate interest in 2002/03 of £78,000, plus £161,000 on the current PWLB loans. The Authority is therefore asked to approve a limit on the proportion of borrowing at variable rates of 32%.

Recommendations

1. That an overall borrowing limit be fixed at £12.544m for the year ending 31 March 2004.

2. That a short-term limit be fixed at £9.378m for the year ending 31 March 2004.

3. That the proportion of interest paid at rates which can be varied by the level of external factors be set at 32% for the year ending 31 March 2004.