BORROWING for local council projects has become more expensive – but Dorset Council should not suffer, at least in the short term.

The authority currently has no plans for any major capital projects which might require an external loan.

Councillors were told on Thursday that the Government has dramatically increased interest rates for the local authority lender of choice, the Public Works Loans Board.

It has pushed the basic rate up from 0.8 per cent on top of average gilt yields, to 1.8 per cent on the same measure. Existing loans from the Board, which amount to around £85million, are not affected by the increase.

“It’s a significant jump up if we had to draw down any PWLB borrowing…it’s a reminder that we need to be prepared that low interest rates may not continue forever,” said council treasury officer David Wilkes.

The council typically has borrowings of just under £200m. It has recently reduced the amount by £35m, with a similar reduction in the amount it has in investments.

Members of the audit and governance committee heard that the council will soon need to agree its treasury strategy. Virtually all of its predecessor councils, with the exception of Weymouth and Portland, carried no debt. Any debts there were have been carried on to Dorset Council, along with investments.

Marshwood Vale councillor Simon Christopher questioned the policy for paying off debt after noticing a £25m loan to the council from BAE systems which it pays 3.9 per cent interest on with 46 years still to run.

“It seems to be about 12 per cent our external debt. If we wanted to repay the loan presumably the redemption penalties would be punitive?” he said.

He was told that the loan, drawn down in 2017, was a consolidation of four previous separate loans and, at the time, the 3.9 per cent interest was not unusually high.

Mr Wilkes said the contract, like all other long-term loans, did allow for early repayment but there would be a premium to pay if the council wanted to do so.

Cabinet finance brief holder Cllr Tony Ferrari said an exercise carried out two years ago, looked at whether there was anything to be gained by paying any of the council’s loans early, concluded that there was no benefit to be had.