Luton Airport income loss prompts £17m council cuts

15 Jul 20

Luton Borough Council has agreed a “horrendous” package of spending cuts after the airport operator it owns declared it could not make an expected £16m dividend payment due to Covid-19.

Luton Airport. Image by James, Flickr

A full meeting of the council this week agreed an emergency budget that could lead to 365 job losses, plus cuts to adult and children’s social care services and the scrapping of a proposed new customer service transformation programme.

The move comes after the council’s 100% owned company, London Luton Airport Limited, said it would be unable to pay the dividend, which was earmarked to pay for 23% of the authority’s revenue spending for this year.

Speaking after Tuesday night’s meeting, council leader Hazel Simmons said: “Last night was truly horrendous and we agreed the budget with a heavy heart.

“Unfortunately we were left with no other option but to make this difficult decision.”

A report to councillors said that the council also faces £5.5m in lost income and additional spending due to the pandemic, even after government compensation is taken into account.

Simmons said: “We have repeatedly asked the government to come to our aid.

“It is disappointing not to have received a positive reply from government and while we shall not stop putting our case before Westminster, we need to take action now.”

In addition to the cuts, totalling £16.9m, the council has agreed the use of £5.3m of reserves to help balance the budget.

However, the report warned that not all of the proposed savings would be achievable and that the more likely level of reduction in the council’s reserves is £13.5m over two years.

This would wipe out most of the reserves identified in the emergency budget report for potential use, which total £16.4m.

The report also said that the airport operator’s stabilisation plan will require it to borrow £59.6m in addition to previously-planned borrowing of £42.7m.

It said: “Members will be aware that the council has 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.”

A failure by the council to provide a loan to the company would put at risk millions of pounds worth of income from the airport in future years, the report said.

In May, Greater Manchester’s ten councils agreed to loan more than £250m to Manchester Airport Group due to the impact of Covid-19 on passenger numbers.

The councils collectively own 64.5% of the airport operator.

Last week, PF reported that Transport for London has borrowed £169m in the last two months from the Public Works Loan Board, as it looks to tackle the financial losses resulting from Covid-19.

Earlier in the month, local government secretary Robert Jenrick told local authorities he will “try his best” to secure more government funding for councils if it is needed as councils struggle to deal with financial burdens of Covid-19.

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