Jan 31
Thurrock asks government for £635m in wake of historic investment scandal
Thurrock has asked the government for more than £600m of financial support — and admits it could need even more — to plug the unprecedented budget gap caused by the collapse of its investment policy.
The staggering figure is revealed in budget papers published by the Conservative-run council this week which disclose new detail about the biggest financial crisis ever faced by a UK local authority.
“The numbers are so big it’s hard for people to grasp,” said Jen Craft, Labour’s prospective parliamentary candidate for Thurrock.
“It’s only when the cuts start coming through in the next year or so that people are going to realise what it means.
“It’s going to have a huge impact on people’s quality of life and the way they are able to contribute to their community.”
The documents set out how the scandal has affected Thurrock’s finances this year and its plans for 2023/24. Crucially for people living in the area, the draft budget includes no clarity about which services will be cut or exactly how much extra they will have to pay in council tax.
Major failings with Thurrock’s £1bn investment portfolio, and the mounting costs of trying to resolve them, have left Thurrock with an unparalleled budget gap approaching half a billion pounds for the current financial year.
Ian Wake, Thurrock’s acting chief executive, warned earlier this month that the council faced “extremely difficult decisions” and that it would “no longer be able to afford to deliver the current range of services or maintain some services at existing levels”.
Yet no amount of cutbacks could come close to closing the gaping hole in the council’s finances. As such, Thurrock has had to follow other crisis-hit local authorities such as Croydon and Slough in seeking urgent financial assistance from the government.
The extraordinary scale of that request is set out in the budget plans published ahead of a scrutiny committee meeting on Thursday (February 2).
They show the council has asked the government for “exceptional financial support” totalling £635m — £452m to cover the current business year 2022/23 and £183m for 2023/24.
That assistance would likely come in the form of a “capitalisation direction”- an emergency loan which typically has to be repaid over 20 years (or in Thurrock’s case likely far longer) meaning local people will be counting the cost of the scandal for decades.
The request for emergency support is currently being considered by the Department for Levelling Up, Housing and Communities, with the final amount available to Thurrock far from certain, given the significant outstanding questions as to the whereabouts of hundreds of millions invested in multiple business deals, and misgivings about the council’s ability to manage its recovery.
Following the Section 114 notice issued in December, Thurrock revealed it intended to ask the government for permission to increase council tax beyond the 5% limit which would usually require a local referendum.
The draft budget published this week includes an increase of 4.99% in 2023/24, although the document repeatedly states that council tax levels “remain under consideration”.
As for the “extremely difficult decisions” councillors were told they must now take, the plans outline savings totalling £8.1m, including £1m from “adults & health”, £1.7m from “transport & public safety” and £705,000 from “children & education”. However, no breakdown is provided as to exactly which services will be affected and how cutbacks will be made.
The documents do shed further light on how the collapse of the council’s investment policy will affect the council’s latest budget.
Thurrock took out short-term loans from hundreds of local authorities to fund its investment spree, which began in May 2016. In October last year it had to seek special permission from the government to refinance this borrowing, at far higher rates, using the Treasury-run Public Works Loan Board (PWLB). The papers reveal this will result in increased interest costs of £28m in 2023/24.
Sean Clark, the chief finance officer who oversaw the borrowing and investments, failed to set aside any of the council’s budget to repay the loans he had arranged. This breached the rules around local government borrowing. Rectifying the problem and applying the proper charges accounts for £75m of the 2023/24 deficit, on top of the £129m applied to the current financial year.
Thurrock is now trying to divest, although these efforts are hampered by the fact that its two biggest business partners, Toucan Energy Holdings 1 Ltd and Just Loans Group PLC, are in administration and owe the council nearly £700m and £100m respectively.
In the meantime, most of the investments are now being held at a net loss to the council, a problem that will “continue to be an issue for years to come without appropriate action”.
Thurrock was subject to urgent government intervention in September and its finances have since been overseen by commissioners from Essex County Council, who are set to be granted additional powers, including to fire senior staff, after a preliminary report laid bare the “profound weaknesses” in Thurrock’s financial position. In February the government expects to receive the findings of a parallel investigation into what went wrong.
Thurrock Labour is calling for a public inquiry regardless of the inspection results.
Craft said: “The thing that’s coming across when I’m talking to people about this is there’s a hell of a lot of anger.
“The question that people keep asking is — how did this happen? How did it get so bad?
“What’s really upsetting is people are looking ahead to the future and realising we’re going to be paying for this for years and years to come.”
Thurrock expects to be informed of the government’s decision about the rescue package ahead of a council meeting to confirm the budget on February 22.
A spokesperson said: “The papers that have been circulated show that the level of [government] support will be in the region of £452m for 2022/23, and an additional amount of £182.5m for 2023/24.
“This will allow Thurrock Council to mitigate the short-term funding gap while solutions to the financial shortfall directly related to investment write-downs are developed.
“These solutions could include a future request for a capitalisation directive.
“It is also important to bear in mind that the 2022/23 budget gap includes write-downs based on the current assessment of investment valuations and a further assessment of these positions may change this as processes around these investments progress.”
