Council's financial arrangement with Luton Airport comes under spotlight from government

The government is allowing the council to borrow up to £35m to fund services this year, with a further £14m expected to follow in 2021/22.

But this is only on condition of an audit of the council's finances, according to a letter sent on behalf of Communities Secretary Robert Jenrick.

The examination commissioned by The Ministry of Housing, Communities and Local Government (MHCLG) is due to be completed by the end of May.

"It will consider the commercial arrangement with the airport and your ability to present a plan to government for reducing the council’s financial exposure to the airport," said the letter to finance director Dev Gopal.

Luton is one of four local authorities to benefit from government funding flexibility because of budget concerns.

Leader of Luton Borough Council, councillor Hazel Simmons said: "As part of the due diligence to reach this stage, the MHCLG has undertaken a financial appraisal of the local authority."

The review is expected to explore the borough council's financial links with its airport company, London Luton Airport Limited (LLAL).

Opponents of airport expansion in Luton suggest that LLAL is no longer a zero-risk company that only collects concession fees and airport rents, but has drifted towards being an infrastructure builder to support airport projects.

LLAL owed the local authority £289m as of August 31 last year, according to the council website.

"By the end of its medium-term financial plan this will be £388m, including approvals for the Luton direct air-rail transit (DART) of £225m and the airport company stabilisation plan of £60m.

"LLAL has borrowed money to invest in a range of developments which will see a return through future economic growth, jobs and prosperity," the council stated.

Airport company borrowing before 2017 was £43m, and its development consent order (DCO) application to government for airport expansion costs £50m.

A further loan of £83m was announced as part of the council's emergency budget last summer, to part pay the interest payments on the loans LLAL has taken out from the council.

"Just as with this loan, by the council borrowing on its behalf at a lower rate, it gets the extra benefit of interest payments which are used to fund services," explained a question and answer statement on the website.

One option would be to sell the loans but if LLAL was unable to pay back the money, the airport would end up being owned by the lender of the finance.

The council is due to set its 2021/22 budget tomorrow evening (Wednesday).