In June 2016, the National Audit Office (NAO) published a report on the Financial sustainability of local authorities: capital expenditure and resourcing, which found councils in England have maintained their overall capital spending levels, but face pressure to meet debt servicing costs and maintain investment levels in their existing asset bases.

The NAO followed this up in July by publishing an interactive data visualisation, which provided the underlying data from the report for each local authority. This article sets out the key findings from the report and the data visualisation relating to the cost of servicing council debt.

According to the NAO’s report, in 2014-15 councils in England spent £3.6bn on servicing their debts, which included interest payments and minimum revenue provision charges.

Debt servicing costs have grown from 7.0% of revenue spending (excluding education) in 2010-11 to 7.8% in 2014-15 (Figure 1).

The main reason for this has been the fall in revenue resources since 2010-11. Debt servicing costs in fact fell by 4.3% from 2010-11 to 2014-15, but over the same period, revenue spending fell more rapidly (14.7%) as government revenue grants reduced – pushing up debt costs as a share of remaining revenue spend.

Debt costs represent a substantial ‘fixed’ pressure on councils’ revenue budgets, and debt servicing costs were at least £148 per dwelling for half of single-tier and county councils, while a quarter spent at least £197 per dwelling (see table).

There are marked variations in the significance of debt costs to different types of council. Among single-tier and county councils, debt servicing costs have increased from a median of 6.8% of revenue spend in 2010-11 to 7.5% in 2014-15.

But the NAO report shows some of these councils allocate substantially larger amounts to debt costs. For instance, for six of these councils in 2014-15, debt servicing costs accounted for over 14% of their revenue spending.

Overall, metropolitan districts are more exposed to these costs with a quarter allocating at least 11.2% of revenue spending to debt costs in 2014-15 (see table). In contrast, London boroughs have a markedly lower exposure to these costs.

Given the significance of debt costs it is not surprising that many authorities are looking for ways to reduce them.

The NAO report shows that some councils are reducing their debt costs by recalculating the minimum revenue provisions (MRP) they must set aside to cover debt repayments.

By 2014-15 MRP charges decreased by 8.1% from their £2bn peak in 2012-13. Councils used MRP recalculations to spread future charges over a longer period, to take a temporary break from payments or to claim back previous charges.

These recalculations reduce immediate pressure on revenue resources but also push debt servicing costs into the future.

But the NAO also found a lack of clarity about the MRP changes. Some councils were not aware of approaches taken by others or expressed uncertainty as to whether their proposed approach would be deemed lawful by their external auditors.

To date, county councils and metropolitan districts have been the most active in reducing their debt costs, with a growing number making year-on-year reductions. London boroughs are also increasingly taking steps to reduce their debt costs.

In contrast, unitary authorities and district councils do not appear to have pursued debt cost reduction to the same extent to date. Despite this variation, across the sector it is likely the trend of recalculating MRP charges in order to reduce debt costs will continue over the next few years.

When the NAO work was undertaken in late 2015 and early 2016, MRP adjustments were still ongoing or under consideration in several of their case study councils (Figure 2).

Aileen Murphie is director for the DCLG and local government VFM at the National Audit Office

You can find out more about the cost of debt servicing and how it has changed using the NAO’s interactive data visualisation