Dec

Council faces half-billion pound debt after disastrous investments

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Investigations have thrown new light on a series of solar energy investments which failed to switch the lights on for Thurrock Council.

Conservative led Thurrock Council has saddled itself with an almost £500 million debt when it tried to bridge a funding gap by taking on risky investments with council taxpayers’ money.

This Council is one of the most indebted of all English local authorities after borrowing around £1.5bn, that amounts to 10 times its annual spending budget.

A regular income

Thurrock Council’s investments were meant to make a regular income for the authority to help pay for vital services, but it has recently been reported that many of the investments they made have gone sour.

The latest central Government figures for the first quarter of this financial year show Thurrock had £941m outstanding in short term loans from other councils. This is nearly three times as high as the next indebted council which is Lancashire with £332m of loans outstanding.

The council will now borrow £836m in weekly instalments from the Public Works Loan Board (PWLB) up until 16 March, 2023, of which £678.5m will be repaid to other local authorities.

Other councils currently under central Government intervention are Slough Borough Council and Liverpool City Council, which appear in the top ten in terms of inter authority short term lending, owing £318m and £229m respectively.

An acute crisis

The almost unbelievable scale of the financial crisis affecting Thurrock Council has been revealed though an investigation by the Bureau of Investigative Journalism into its series of failed investments. These left a huge hole in its finances to the tune of almost £500m, it’s the biggest debt ever reported by a UK local authority.

The authority in Thurrock now owes around £324m to 27 different authorities, including £60m to Derbyshire CC and its pension fund, and £20m to Cornwall Council, plus there are another 21 local government bodies that had previously lent money to Thurrock in 2020, now no longer involved.

It took three years of investigation by the Bureau of Investigative Journalism (BIJ) to uncover the full magnitude of Thurrock’s financial crisis, including hundreds of millions lent to solar energy companies run by businessman Liam Kavanagh, 53 solar farms in all.

According to the BIJ, Thurrock council invested £655m in Mr Kavanagh’s companies, with an expected loss of £188m in some or all of the companies. Another £94m is tied up in a company called the Just Loans Group and is expected to represent another £65m loss on its investment when the company went bust in June, meanwhile millions more have been put at risk and lost in a series of other deals that have since turned sour.

Thurrock not the only one

In common with other councils, Thurrock got itself involved in commercial deals, many in commercial property, in attempts to offset short term income gaps during the years of austerity cuts. This was facilitated in large part by the availability of cheap borrowing through the Treasury.

The alternative income streams provided by investing council reserves and borrowings work well for a time until commercial businesses started to struggle, commercial property rents disappeared as tenants left, turning assets into liabilities, and now interest rates are on the rise as well.

They had been warned

Councils were being warned over a period of years by property professionals about the risks involved in taking on commercial investments that they were not equipped to deal with, but it seems the prospect of steady income streams to fill funding gaps using low interest borrowing was too tempting.

Major concerns by central Government over Thurrock’s exposure to risky commercial investments led to a team of commissioners being sent in to investigate its finances. Their report showed that the council’s finances were in a significantly worse state than originally thought.

Thurrock has sent an appeal to the central Government for an emergency bailout and is putting through a drastic programme of cuts to local services and making staff redundancies. This will also involve selling off council owned buildings and land plus other assets at its disposal as it tries to stay solvent. Local council taxpayers are also likely to see stiff increases.

Rob Whiteman, the chief executive of the public sector accountants body has said:

“What we are seeing in Thurrock is shocking and unprecedented. I have not seen anything like this in my 30-year career in local government,”

The government reports said of the financial situation the council finds itself in:

“This is a grave position and at this point the council cannot find a way to finance their expenditure in-year and is unlikely to achieve a balanced budget for 2023-24 without external support.”

Conservative leader, Mark Coxshall has issued a statement saying that services will continue to operate as normal for now and staff would continue to be paid, but he warned that there would be “extremely difficult decisions to come”.

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