SCARBOROUGH Council could lose at least £270,000 as a result of the global credit crisis, a council committee was warned.
It will also hear that services could be at risk if the council’s financial investments are not handled carefully.
A report by Nicholas Edwards, the local authority’s head of finance and asset management, was presented to the corporate strategy ov
erview and scrutiny committee on Wednesday,
It said that, as the UK bank rate is expected to continue to fall in coming months, the estimate of investment receipts in the 2008/09 budget will not be met.
The estimate was based on an interest rate of 5.25% but, given that a conservative estimate for interest rates by the end of 2009 is now 2%, the authority is expected to miss out on approximately £270,000 in interest payments.
The expected return for the year was £932,000 – that figure has now been reduced to around £662,000.
However, that sum could yet be reduced further with some experts predicting that interest rates may be reduced to two per cent before Christmas and could be as low as one per cent by the end of 2009.
The council says it is taking care to safeguard the town’s assets – it is not listed among the 123 local authorities which had money in failed Icelandic banks – by insisting that institutions where council tax payers money is invested have solid credit ratings.
The authority’s minimum requirements for credit security are AA for long term investments and F1+ for investments lasting less than 13 months. F1+ is the highest possible credit rating for shorter investments while AAA is the highest long-term rating.
Scarborough Council recently invested £5 million in the Debt Management Office – a Government safe haven for local authority funds – though the DMO’s interest rate is lower than rates available commercially.
Mr Edwards’ report warns: “If a financial institution that the council has funds invested with fails then there may be significant implications to the council in terms of reserve balances or service provision.”
