Luton Borough Council has decided on the bones of their emergency budget for 2020/21, and details are in the meeting agenda for the Executive Committee to be held on 29/06/20.
It lists the harrowing prospect of: 365 job cuts within the Council – cuts to frontline crucial health and wellbeing services; switching off street lighting; and charges for garden waste collections, among many others. All are freely mentioned in the media releases they have made.
What isn’t publicly mentioned is the amount of money they will have to borrow to prop up their financial carelessness with their airport company, London Luton Airport Ltd (LLAL). At the same time they are petitioning Government for a £50 million rescue package. It should be noted that reference to the Century Park Access Road below, is actually the access road to a second terminal disguised in a previous planning application to fast track the application, enabling work for airport expansion. LLAL intend to start work on the Terminal 2 access road next year now, rather than this, as they need to find, i.e. borrow, over £100 million for this project on top of the requirements mentioned in the following extract from the Executive Committee agenda pack:-
The Direct Air Rail Transport scheme has continued, with forecast expenditure above the levels of the existing debenture loans approved by the Council, and LLAL’s preparations for the proposed Century Park Access Road (CPAR) and other costs relating to the Century Park development included taking options on the purchase of properties that had to be bought if the road was to be built as planned. A number of those options came up and the company bought those properties and incurred other expenditure on CPAR using the working capital i.e. internal borrowing. Now that the company is receiving no concession fee income, its financial position is completely different. As a result, the cash holdings of the company were used to fund capital expenditure rather than being held as cash to back its reserves. At the time, this represented a pragmatic approach as part of treasury management – offsetting the financing cost of loans by sacrificing the very much smaller amount of interest that could be earned on cash investments, and keeping the differential in interest rate within the company. As a result, the stabilisation of the company will require it to borrow £59.6m, as its reserves previously used to finance capital projects amounting to £16.9m are not cash-backed. It also needs to borrow to finance past and future borrowing costs capitalised on the DART and DCO schemes amounting to £24.7m while the assets are in the current construction and additional costs for the DART project amounting to £18m.
Readers will be aware that the Council have been the company’s sole source of borrowing – and that debenture loans have been made on the basis that the company should not seek any other source of funds, since the alternative lender would also then have a claim on some of LLAL’s assets in the event of a default. Therefore, a key factor in LLAL’s financial stabilisation plan is to request further borrowing from LBC.
By allowing LLAL to use up its cash reserves for capital expenditure, it has made LLAL insolvent at this point in time; income cannot meet expenditure, and hence the need to borrow what totals £102.3m plus interest.
The airport is the only surety LBC have for their borrowing, which at present stands at a repayment figure of circa £600m. This in part could explain the obsessive and cash consuming DCO process which, as can be seen, needs even more money. This would appear to be the forlorn hope that they will get planning permission from Government for airport expansion.
As the immediate and future prospects for the airport actually generating any significant income for LBC is looking bleak, just where will the income come from to service these new and current huge debts? The only realistic answer is more budget cuts for residents and charging for basic services.
This mess is entirely of the Council’s own making. In recent times they allowed reckless individuals within their employ to divert LLAL from their historical role as the rent collector for the airport concession, to being the developer of the airport, the job of the operating concessionaire. If the current projects being funded by the residents of Luton are such good investments, why is that directly benefiting the concessionaire, not sharing the funding costs?
Central Government is being blamed for the situation LBC find themselves in financially, and residents will have to bear the brunt of cuts, yet neither have had any input to the actual situation at all.