Council borrows cash to settle railway debt

SBC will pay its remaining cash contribution to Transport Scotland who stepped into the breach to underwrite the project.
SBC will pay its remaining cash contribution to Transport Scotland who stepped into the breach to underwrite the project.

Scottish Borders Council is to borrow £7.7m to settle up with Transport Scotland over its contribution towards the cost of building the Borders Railway.

That decision, taken at Tuesday’s meeting of the authority’s executive, means it will be absolved from any future financial obligation towards the £354m project.

Supporting the move, council leader David Parker said such an early single payment would allow Transport Scotland to invest in other projects that could also benefit the Borders.

Councillors also heard that the single-payment arrangement, replacing an earlier agreement to repay the Scottish Government agency over 30 years, will save the local authority an estimated £4.3m in future inflation costs.

Back in 2008, when the railway failed to attract investment from a private sector contractor, Transport Scotland stepped into the breach to underwrite the project.

When details of that deal were updated in 2012, it was agreed that the council’s contribution should be £15.3m, but that was cut by £6.8m to take into account money the council had already spent on, among other things, land acquisition and Parliamentary costs.

That left £8.5m to be repaid over 30 years from when the first train ran on September 6, 2015.

A first instalment of £1m, plus an additional £143,000 for inflation – all fully funded by so-called developer contributions to the council from house-builders – was duly handed over, leaving an outstanding balance of £7.7m.

A report to Tuesday’s meeting by capital and investment manager Kirsty Robb revealed that, if that long-term repayment arrangement persisted, the council would end up paying out £13.2m, with inflation accounting for £5.5m.

With the council expected to pay around £1.7m in interest on a new loan, the net inflation saving from the single payment to Transport Scotland would be £4.3m, she claimed.

“Due to the current low interest rates and the risk from inflation, it is proposed the outstanding balance of £7.7m is fully paid now, utilising the council’s borrowing powers, and that the funds be subsequently recouped from developer contributions as they are received in future years,” stated Ms Robb.

The council will borrow the £7.7m and hope developer contributions will be enough to cover the loan repayments over the next 29 years.

That, coupled with the recent council decision to borrow £3.5m as its contribution to bring the Great Tapestry of Scotland to Galashiels, will result in a cumulative annual loan repayment in excess of £500,000.

According to its most recent audited accounts, the council has outstanding loan debts of around £170m.