Council chiefs claim the reasoning for the borrowing is for capital projects which will improve the city and generate income.
Council debt has risen to in excess of £420 million this year, but leaders insist it is ‘good borrowing’.
Stoke-on-Trent City Council has taken out a further £25 million of long term loans across the 2018/19 calendar year to help pay for various projects such as new private sector housing.
The council currently spends 9% of its revenue stream on servicing its debts, above the average ratio for similar authorities and a ratio which is set to rise to 12 per cent over the next two years.
Local authorities have been warned against exposing public funds to ‘unnecessary or unquantified risk’ by investing too much in commercial property.
Paul Boden, Strategic Manager for Corporate Finance, said: “If you look at the authorities we are more similar to, there are some which have financing costs which are 25 per cent of their revenue stream.
It’s important that we understand the financial consequences of are decisions.”
Local authorities can access cheap loans through the Public Works Loan Board, meaning their borrowing costs are lower than the private sectors.
Most of the city’s council debt is with the PWLB – £399.9m out of £419.9m.
Mohammed Pervez, Chairman of the Scrutiny Committee, questioned whether the council was right to be borrow so much to invest into property.
He told us: “I am getting a bit nervous about whether this is the right strategy for the local authority to take.
Is this a commercially sound this to do, given the concerns being raised at this moment in time?
Some of this investment is based on a future return, which may not materialise.”
However, officers have since assured the committee that the council’s borrowing is focused on improving Stoke-on-Trent through projects within the city, as opposed to property speculation for its own sake.