Somerset Council’s overall debt, currently standing at over £1.1 billion, is projected to decrease below £1 billion within the next five years if ongoing financial strategies remain on course.
The council’s substantial debt mainly stems from external borrowing through the Public Works Loans Board, a Treasury entity. These borrowed funds fuel essential projects such as building new schools, improving roads, and financing commercial investments.
Formed in April 2023, the newly established Somerset Council inherited the combined debts of the former Somerset County Council and the four district councils. Since then, its finance team has been diligently managing and gradually reducing this inherited debt while striving to control overall spending.
READ MORE: Somerset’s A370 Crash Hotspot Near M5 to Get Lower Speed Limit
READ MORE: Bath’s New Bin Rules Lead to 41 Fines Amid Business Backlash
Despite plans to increase borrowing in the next five years—primarily due to a commitment to construct over 500 new council homes across Somerset—the council expects the total debt to decline. According to recent reports, debt levels should dip just below £1 billion by mid-2031.
A detailed borrowing and treasury management report, released ahead of a Taunton audit committee meeting, clarifies this outlook. The council’s debt consists of actual borrowed money and the capital financing requirement, which covers annual interest and principal repayments.
As of April 1, the council’s debt was £1,124,812,000—approximately £1,900 per Somerset resident. It’s anticipated to rise slightly above £1.13 billion by the end of the current financial year but then steadily decline year-on-year to just over £1 billion by April 2031.
A council spokesperson said, “The council’s overall borrowing requirement has reduced, reflecting asset sales and capital programme adjustments in the 2026/27 budget. We currently hold less debt than on April 1, 2023.”
They added, “While borrowing is forecast to increase, especially for housing development, we maintain a prudent, active debt management approach. This includes minimizing borrowing where possible, closely monitoring capital expenditure, and leveraging proceeds from asset disposals.”
Repaying debt, including interest, requires a significant portion of Somerset’s annual revenue budget. For the 2026/27 fiscal year, this burden is estimated at just over £50 million—about seven percent of the council’s total revenue. This proportion is expected to stay roughly the same over the next five years, with minor fluctuations.
Although borrowing is set to rise, increased income from council tax, driven by new housing developments, and greater government grants will help balance the budget.
The spokesperson further explained, “Debt servicing costs vary with borrowing and interest rates. We focus on managing these through our financial strategy, limiting new borrowing where feasible, and aiming for a balanced budget.”
“Our treasury management plan is designed for long-term risk mitigation, not reliant on interest rate cuts. We also adhere to CIPFA’s Prudential Code, ensuring total debt remains below the highest forecast capital financing requirement over the next three years. We expect to comply with these guidelines through 2026/27 and beyond.”