Last updated at 12:30, Monday, 08 March 2010

In response to the letter from Malcolm Craik headed “Why wasn’t loan paid” (News & Star, February 22) the answer is quite a simple one.

The £15 million loan taken out by the former Labour administration at Carlisle City Council was taken out in 1995 for a fixed period of 25 years and therefore is not repayable until the year 2020.

Should the council seek early redemption then it would incur penalties of many million pounds which would clearly wipe out the savings for doing so.

I am afraid that for the next 10 years we will have to budget for interest payments on the £15 million loan of £1,317,750 per annum equivalent to an interest rate of 8.785 per cent.

With regard to Mr Craik’s suggestion as to where the money to repay the loan would come from could I point out the following. The ‘£30m write-off’ was actually an £18m write-off of government debt and it was to meet the difference between the value of the stock and the council’s outstanding housing debt so that the transfer could proceed.

The difference between the two (the overhanging debt) was about £18m.

The rules were that the write-off had to be applied only to monies borrowed from the Public Works Loans Board (PWLB). Other types of long-term finance such as the £15m eluded to were not eligible for this write-off process. Therefore, the Government redeemed about £18m of Carlisle’s PWLB debt.

Not only that, but the premium payable for these early redemptions of almost £6m had to be met from the proceeds of the receipt from Riverside (Carlisle HA).

The stock transfer did generate a receipt of some £13m but £6m of that had to be set aside for the premium payment above, £4.6m was required for set-up costs, both CCC’s and CHA’s and most of the remainder was put towards the costs of fully funding the pension deficit of the transferring employees.

There was certainly no pot of gold to pay off the £15m loan.

As for the Preserved Right to Buy proceeds, yes they have been much greater than was anticipated at the time of the transfer for a variety of reasons.

Once again, the first call on these sums (about £1.9m) was to meet the balance of the pension fund deficit referred to above.

The balance of Public Right to Buy receipts has been spent or committed towards a variety of community assets provided in line with council priorities and the government’s expectation that the receipts will go towards assets that fit the definition of “sustainable communities”.

JOHN MALLINSON
Finance Portfolio holder
Carlisle City Council

First published at 11:24, Monday, 08 March 2010
Published by http://www.newsandstar.co.uk