REPORTS have appeared in the media comparing Cambridge City Council’s debt to spending power ratio - which is an indicator of financial risk - unfavourably with other councils. The reports incorrectly suggest that Cambridge has a higher debt to spending power ratio than it does, in reality.
The media reports appear to compare Cambridge’s total debt, which includes its General Fund (used for all non-housing expenditure), Housing Revenue Account (HRA), internal and external debt, with core spending power. However, core spending power relates to only one element: the General Fund.
An accurate calculation of the ratio should use only the General Fund debt. Using this like-with-like measure would show Cambridge has a lower debt to spending power ratio of 4.0 rather than 15.7 reported in the media.
The council’s HRA debt is £213.6m out of a total debt of £285.6m. This is considered a low-risk debt because it is supported by rental income from council homes. It is a debt that the council was required to take on following rules introduced by the government in 2012 under the HRA Self-financing legislation.
The remaining £72m is internal borrowing, a process in which the council uses its cash balances to pay for capital spending instead of borrowing from outside financial institutions.
Cllr Simon Smith, Executive Councillor for Finances and Resources, said: “Cambridge residents can be assured that the council’s finances are sound and secure.
“Like all councils, we are facing financial challenges, not least due to cuts in government funding, which place pressure on us.
“However, we have a solid financial base and strong, prudent debt management policies in place to ensure the council's finances remain on a firm footing.”