Treasury probe after council breaches £1m overdraft

-Credit:Copyright Unknown
-Credit:Copyright Unknown

A council was overdrawn by more than £1 million for two days due to a "unique set of circumstances". Stoke-on-Trent City Council breached its £1 million overdraft facility between November 25 and 27 last year, after failing to find another local authority to borrow from at short notice.

But the audit and standards committee were told that it had been a "one-off" situation and the council has not been charged by its bank over the breach. Matthew Chadburn, assistant director for finance, explained that it was currently common for councils to borrow from each other in the short-term.

But last November, the national announcement of the local government pay award reduced the availability of these loans.

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Mr Chadburn said: "This was caused by a very unique set of circumstances, which we think was driven by the pay award announcement. The advice at the moment is to borrow short due to high interest rates. The majority of short-term debt comes from other local authorities.

"At the same time, all local authorities were receiving the announcement that the pay award had been settled. What we found was that all local authorities were taking money out of the market, meaning there was a significant lack of funds in the market.

"We had thought we'd secured some funds but at the last minute that counterparty pulled out. So it was a very unique set of circumstances that we've not experienced since I've been here."

Mr Chadburn told the committee that the situation "clearly wasn't ideal" and senior officers had met with external treasury advisors to make sure processes remained "robust". He also explained that as the issue had been raised with the council's bank immediately, there had been no additional charges.

According to the latest treasury management report, the council borrowed £147 million over the first nine months of 2023/24, at an average rate of 5.11 per cent, and repaid £93.9 million of debt over the same period.

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