Council to count cost of investment scandal for decades
Thurrock Council will be counting the cost of its financial crisis for more than 20 years, starting with soaring interest payments and a “significant write-off” of its investments.
That was the bleak message from a senior council official as the scandal was finally discussed in public for the first time.
The full impact of the council’s £1 billion investment scandal, which has placed hundreds of millions of pounds of taxpayers’ money at serious risk, is still far from clear.
But at a meeting last week— effectively the first since government intervention in September— councillors were told the repercussions would be felt for decades.
Jonathan Wilson, Thurrock’s deputy chief financial officer, said the council would ask central government for a “capitalisation direction” — an emergency loan to fill a budget gap which typically has to be repaid over 20 years. He warned that, in Thurrock’s case, “20 years may not be a significant enough period”.
It’s not yet clear how much of a bailout the council would need but the amount is likely to run into tens of millions of pounds, if not more. A proportion of the council’s annual budget would have to be set aside to repay the loan, placing additional strain on its finances and the services it provides until at least 2042.
Thurrock is currently working with commissioners from Essex County Council to assess the extent of the problems it faces and, ultimately, how much money it will ask the government for.
That includes an assessment of all of its investments, with serious concerns understood to extend far beyond the £200m at risk as a result of deals with businessman Liam Kavanagh.
They are also calculating the cost of having to borrow £836m from a Treasury-run lending facility in order to repay the dozens of local authorities Thurrock borrowed from to finance the investments.
Asked for an estimate of how much additional interest the council will have to pay over the next 18 months, Wilson said the average interest rate would more than quadruple from 1% to 4.5%. That equates to an increased bill of almost £30m.
Wilson told the corporate overview and scrutiny meeting that interest rates posed a “significant risk” to the council’s budget this year, on top of the investment fallout and the existing budget gap identified before these issues came to light.
However, there had been little other choice but to borrow from the PWLB once loans from other authorities became inaccessible, Wilson explained.
He revealed that, as a direct result of the Bureau of Investigative Journalism’s latest exposé on July 15, treasury advisors Arlingclose advised local authorities against lending to Thurrock.
Wilson said the market later reopened “in a much more limited way” before becoming “pretty much not accessible” after the government intervention was announced on September 2.
Thurrock will borrow weekly from the PWLB up until March next year. In total it will borrow £836m, with the majority of the money used to repay local authorities and the rest replacing existing PWLB loans, albeit at significantly higher interest rates.
Wilson said loans taken out since the policy was approved in mid-September were “roughly 4.5%” — replacing rates as low as 0.5%. He admitted such a situation was “unsustainable” but that refinancing with the PWLB would give Thurrock “breathing space” to work out what it was going to do next.
Ultimately the council’s chances of repaying its debts, which are not limited to this £836m, depend on how much money it receives back when its investments mature over the coming years.
The damage is still being assessed but Wilson told the committee there would “almost certainly” be a “significant write off”.
The £655m provided to Kavanagh’s companies to finance the purchase of 53 solar farms is dependent on the sale of those assets, which the council has been told are worth as much as £200m less than needed for it to be repaid in full. That includes £138m provided to Kavanagh’s companies after the sites were bought — money which is unaccounted for.
Millions more have already been lost, and a much larger sum is at significant risk, as a result of deals with other companies that have yet to be disclosed to the public.
As well as overseeing Thurrock’s financial recovery, Essex is also undertaking an inspection to determine what went wrong and who was responsible. Council leader Rob Gledhill has already resigned, chief finance officer Sean Clark is suspended and chief executive Lyn Carpenter has been placed on extended leave.
Wilson said the inspection team would provide the government with a report on January 3 next year and that these findings would later be made public.
If approved, Thurrock would be the tenth council to receive a capitalisation direction in recent years, with others including Croydon, Nottingham and Wirral. Such measures are supposed to be sought only for costs which are beyond a council’s control — such as the impact of COVID-19 — but Thurrock would be a further departure from that intention.
Wilson suggested Thurrock’s problems are so severe that it may need to extend the government loan beyond 20 years in order to return to a “sustainable footing”.
Sara Muldowney, a Labour councillor, asked: “You say 20 years may not be enough — what are we talking about? 30 or 40 years? More?”
Wilson said: “It’s an ongoing discussion but it needs to be a sustainable solution whatever period is attached to it.
“[20 years] is our starting point. I certainly cannot promise that it won’t be [more].”
The meeting was the first time the intervention had been on the agenda of a public council meeting, after two previous meetings were cancelled as a result of the Queen’s death and then an administrative error.
John Kent, leader of the Labour group on Thurrock Council, said: “I’m horrified that we’ve got here. We shouldn’t have got here. It was avoidable.
“I accept that Cllr Gledhill stood down as leader of the council…but what I am not getting from elected members generally, and some senior elected members, is an understanding of just how catastrophic this situation could be or actually is.
“What I am not picking up is any kind of contrition about what’s happening, any kind of apology to the people of Thurrock.”
Graham Snell, a Conservative councillor and recently appointed cabinet member for finance, said: “We are still in a position where we are trying to find out what went wrong and why. We don’t really know that yet.
“What we as an administration intend to do, and promise to do, each step of the way, is that as new information does come to light we will bring that to all councillors so everyone can see the process and can tell what went wrong, where it went wrong and if there’s any blame or contrition to be had.
“I think it’s far too early yet to go into the blame game. We will get there.”
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