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Local Government Finance

Volume 301: debated on Wednesday 24 September 1997

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To ask the Secretary of State for the Environment, Transport and the Regions by how much the interest rate bill of local authorities rises for each 1 per cent. rise in interest rates. [16861]

I estimate that English local authorities currently hold about £5 billion in variable rate debt, on which additional interest payments of £50 million would arise if interest rates rose by 1 per cent. generally.Further, if authorities borrow an additional £2 billion in 1997–98, broadly in line with the issue of new credit approvals, then a 1 per cent. rise in interest rates would increase interest payments on this new borrowing by about £20 million.Local authorities currently hold around £10 billion in bank deposits and other short-term investments and might therefore earn additional interest of up to £100 million, if rates rose by 1 percent.However, the additional costs or income arising from the increase in interest rates would tend to be offset over time by compensating changes in HRA subsidy and Revenue Support Grant paid to local authorities by central government.