Three Surrey Borough Councils and two Unitary have been approached directly by the Department of Housing, Communities and Local Government about their excessive levels of debt.
LGC has learned that Woking, Runnymede and Spelthorne BC as well as Thurrock and Warrington, all of which have relatively high borrowing levels, have been contacted by DLUHC regarding their commercial property portfolios.
Additionally, LGC can reveal that Runnymede and Spelthorne contacted DLUHC during the pandemic for funding guidelines allowing them to borrow from the Treasury for day-to-day expenses. Woking were also in negotiations two years ago to secure such a loan, while Uttlesford were reportedly close to needing support. None of the councils ultimately took out these loans.
LGC understands that DLUHC’s concerns about the five councils relate to clauses in the Leveling and Regeneration Bill, which would allow the government to order councils to reduce their borrowing levels and sell their assets if certain indicators are not met. not respected; a section 114 notice is issued, or a funding instruction or grant is granted. Under the bill, they can set a limit on council borrowing or order councils to divest themselves of property within a specified period. To do this, the Secretary of State must notify a counsel in advance and review all representations it makes.
A DLUHC spokesperson said: “Taxpayers expect us to take action to prevent councils from building up excessive debt. We will continue to engage with councils to ensure they are supported.”
Runnymede owns what its budget documents describe as a “significant number of properties which has increased significantly since 2012”. Out of assets valued at £541m, Runnymede has a debt of £434m.
A spokesperson for Runnymede confirmed that they had received a letter from DLUHC “inquiring about the commercial properties we own”.
“Board representatives have entered into preliminary discussions with DLUHC regarding the portfolio of assets the board holds relative to its level of borrowings,” they said. “The board stresses that these are just discussions at this stage and there is no hint of any action against the board.
“For our part, we are pleased to have a portfolio of investments that are working well for our residents and which have enabled us to deliver almost £200m of regeneration… We will continue discussions with those responsible for DLUHC and we hope they will come to the conclusion that we have invested wisely in a diverse range of properties, have made adequate provisions for the repayment of debt in our accounts and will manage our assets through our robust risk management framework for ensure they continue to perform well.
The spokesperson also said that Runnymede had requested funding direction “over a year ago”, due to a “temporary cash flow problem caused by the effects of the pandemic”.
The directorship was not granted for 2020-21 but Runnymede was asked to reapply for the following year. “We didn’t accept that offer as the issue had been resolved and we haven’t needed to apply since,” they said.
Spelthorne is in “early” discussions with DLUHC regarding his level of debt. The council has gained a national reputation for its large investment portfolio, with total business investments last year valued at £959m, including £392m for the local BP campus.
Spelthorne is not currently applying for a government capitalization loan, saying its “approach to risk management includes the creation of a £33.6m sinking fund”.
“The council was recently advised by LG Futures, as part of its benchmarking exercise for local authorities in England and Wales, that the reserves we have in place represent the largest reserve compared to the net budget of a local authority,” they told LGC.
A spokesperson said the council is “likely to come under additional new powers created by the Leveling and Regeneration Bill”. But that “the income generated by our commercial assets more than comfortably covers the annual financing costs”.
Spelthorne has had discussions with DLUHC and “agrees on an analysis program that will provide a comprehensive understanding of our borrowings and investments.”
Woking’s external debt ballooned by around £34m to £1.84bn between September 2020 and February 2022, and it has the highest level of commercial debt relative to its size of any authorities.
As LGC revealed in May, Woking received a letter from then-minister Kemi Badenoch warning him he was ‘likely to fall within the scope’ of the bill’s new powers aimed at curbing excessive borrowing.
He applied for a capitalization loan last year, but has been told to use his reserves to meet his deficits and does not plan to apply for a loan covering this year or next.
Thurrock is known to have been on DLUHC’s radar for some time for his excessive breadth of borrowing; As of March 2021 Thurrock had investments totaling just over £1bn. In February 2021, the board agreed to “reduce borrowing windows by £350m and refrain from new investment activity”, its statement of accounts says.
A Thurrock spokesperson explained that “like many other councils”, Thurrock maintains “regular dialogue with DLUHC on matters relating to local government finances, as would be expected, including proposed measures” in the leveling bill. successful investment strategy, which has brought in over £115million in revenue to support vital services residents enjoy and create income for other councils and public service pension funds.
Warrington is facing increasing scrutiny over its £1.7bn investment strategy – with its borrowing set to reach £2.3bn by 2023. The board got its fingers burned when an energy company he partly owned, Together Energy, collapsed earlier this year. Its audit of the 2017-18 accounts, described by auditors Grant Thornton as “extremely difficult”, has still not been signed.
A spokesman for Warrington Borough Council said: ‘We have had positive discussions with government officials regarding our business strategy. We welcome their engagement and look forward to further positive discussions.”
A senior local government finance expert told LGC Uttlesford DC he had managed to ‘avoid’ having to seek outstanding government support ‘by the skin of his teeth’ after hiring a new chief executive in September last, Peter Holt, who reportedly asked the Chartered Institute of Public Finance and Accountancy to review his financial situation.
Uttlesford’s 2020-21 statement of accounts shows that in March 2021 Uttlesford held £229.9m in loans, including £120.4m in long-term borrowings, with a business strategy of 300 million over four years in place.
Realizing the extent of his financial challenges, Uttlesford reportedly approached DLUHC pledging to “stop borrowing and start reducing debt over time”. “They knew they were headed for the naughty stage, so they took steps to avoid it,” the source said.
In February, Uttlesford became the first planning authority in seven years to be placed under special measures over the quality of its decision-making, meaning developers can go directly to the planning inspectorate.
Uttlesford did not respond to LGC’s request for comment.