A Government decision to increase its interest rates on loans to councils could impact vulnerable residents, an authority has warned.

The hike means local authorities across the country will  have to pay more if they borrow cash from Westminster.

Normally, councils use Government loans to buy property and Trafford Council have done this to raise funds which they then use to provide adult social care and children’s services.

In the last two years alone, the authority has borrowed £194 million to pay for its property investments and this has raised £2.6m for frontline services.

But last week, the Government decided to more than double its interest rate on all new loans like this from 0.8 per cent to 1.8 per cent.

Trafford Council is now worried this will reduce the amount of money it has to spend on its services and regeneration projects in future.

A spokesperson for Trafford Council said: “We are very concerned over the sudden increase of one per cent that the Government has made to interest rates without any warning.

“At a time when local councils are continuing to come under financial constraints, this rise will have a serious effect on the ability of councils to invest in future regeneration and housebuilding projects.

“Revenues from our investments portfolio are put back into our frontline services so this could also have an impact on the residents most in need of our help.”

Earlier this month, the council spent £50m buying three town centre shopping malls in Stretford and Altrincham.

Despite the Government’s decision, the council still believes this is a good investment for Trafford, although it won’t raise as much money as first hoped.

The authority’s spokesperson added: “We have taken a prudent approach on the cost of borrowing when developing the business case for the acquisition of Streford Mall and Stamford Quarter.

“Therefore, this purchase is still an excellent deal for residents and will help with the continued redevelopment of Stretford. However, the increase in the cost of borrowing will reduce the investment return to the council.”

In a letter to its chief finance officer, the Treasury’s Local Government and Reform team said: “The Government will monitor the impact of this [interest rates] change and keep rates policy under review.

“As always, the Government will continue to work with individual authorities on a case-by-case basis if they have concerns over their financial position.”