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Sunday, April 14, 2024
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HomeDemocracy in DecayThe local councils playing fast and loose with borrowed billions

The local councils playing fast and loose with borrowed billions

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HERE are some astonishing figures. Woking council’s borrowing for the 24/25 year totals around £2billion, equivalent to £18,000 for every resident. Spelthorne, a Surrey town of around 100,000 souls, owes £1billion, Warrington £1.8billion and Thurrock in Essex £1.5billion. There are others. How do they do it, you might be asking, where does all this come from, what was it all for, and how are they going to pay it back?

Last first: maybe they just go bankrupt? No, councils cannot go bankrupt, they have to issue a Section 114 Notice if they can’t meet their commitments, then must make no new spending commitments, and have to meet within 21 days to agree their next moves.

Still working backwards: what was it all for? Woking borrowed £2,000,000,000 for various projects including two residential blocks and a Hilton hotel, which were to propel the town into economic prosperity and improve the quality of life and opportunities available. They have actually propelled the town, as the Telegraph put it, ‘into financial penury . . . and stand over the small Surrey town as a symbol of the council’s hubris and financial illiteracy.’

Spelthorne borrowed £1,000,000,000 when interest rates were low to invest in commercial property, and is thought to have the biggest debt-to-income ratio of all English councils. In July 2019 the Office for Budget Responsibility (OBR) cited ‘a number of significant weaknesses in the authority’s arrangements to secure economy, efficiency and effectiveness in its use of resources . . . it has since made further high-value property purchases.’ It now owes £10,000 for every resident.

Warrington’s debt as of July last year was £1,800,000,000, borrowed to buy supermarkets, solar panel farms and a third share in a bank. An energy firm part-owned by the council collapsed in 2022. A local government minister has told the council that ‘the findings of a review of its finances were very serious’. However, last month the council website carried the statement that ‘The majority of our debt is asset-backed and secured. Despite challenging economic conditions, our approach continues to work, generating more than £23m a year which we use to invest in our services.’

Thurrock council is ‘embroiled in a financial scandal of unprecedented proportions’. Its debt is £1,500,000,000, spent on solar farm deals which failed and a credit company which went bust. In October 2022 it borrowed £850million from the government to pay back loans to other local authorities.

Others include Nottingham, where the unitary authority has a debt of £868,000,000. This is partly due to a failed attempt to provide cheaper electricity and gas bills by way of Robin Hood Energy. This lost millions and cost 230 workers their jobs.

Birmingham City Council ‘has the most debt of any council in the country, according to BBC analysis’. The council owes more than £2,900,000,000. Some of this debt is due to the GMB Union pointing out, firstly, that the council was not properly implementing a Job Evaluation Scheme. Their second point was that some workers had been paid ‘job and finish’, meaning that when they had completed that day’s work, they could go home. This seemed ideal for refuse and recycling workers who have set daily rounds. The union claimed these people were working reduced hours on full pay which was not fair on other staff who could not operate in this way. All this triggered a massive pay claim of up to £760,000,000.

Where does all this come from? How can they get hold of so much? There is a body called the Public Works Loan Board (PWLB), ‘a lending facility operated by the UK Debt Management Office on behalf of HM Treasury. The facility provides loans to local authorities and other specified bodies from the National Loans Fund . . . This borrowing is mainly for capital projects’. According to one account, the PWLB ‘provides investment loans to local authorities at subsidised rates with virtually no accountability. Councils are increasingly using these loans to invest in commercial property.’

Enormous debts do not arrive suddenly. The danger was quite obvious in December 2018 when it was reported that ‘Some of the smallest councils in England have built up huge debts by buying supermarkets, business parks and offices, tying the future of their public services to the uncertainty of the property market.’ There must be a question mark over the PWLB’s apparent willingness to lend vast sums. There must, of course, be an even bigger question mark over the financial abilities of the average councillor.

How are the authorities going to pay back their loans? It seems that the government will have to step in to remedy its own lack of caution on the part of the PWLB. Since 2020 ‘the government has agreed to provide a number of local authorities with support via the Exceptional Financial Support framework, following requests from these councils for assistance to manage financial pressures that they considered unmanageable’. Another means of reducing debt is by way of Community Asset Transfers. Woking, for example, is asking electors to take over the running of sports pavilions and community centres.

In January this year UK councils had total debt of £97,800,000,000. You no longer have to attend meetings to find out what’s going on. The dates and agendas of most council meetings are available on their websites, followed later by the minutes. You can also send in questions.

When did you last look to see what your council is doing in your name?

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Ivor Williams
Ivor Williams
Ivor Williams is a freelance writer and has been a fellow of the Royal Meteorological Society since 1984.

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