A Tory-led council has admitted that a series of disastrous investments in risky business projects led it to an unprecedented deficit of almost £500million and brought it to the brink of bankruptcy.
The staggering scale of the disaster at Thurrock Council in Essex – one of the biggest financial disasters ever in local government – is contained in an internal report presented to the council’s cabinet, which reveals it lost £275m from investments it has made in solar power and other businesses, and has set aside a further £130m this year to pay off investment debt.
Thurrock appealed to the government for an emergency financial bailout and warned it will have to impose a drastic program of local service cuts and staff layoffs, as well as a likely fire sale of buildings, land and other assets as it tries to stay afloat. Increases in housing tax are also likely.
The scale of the financial disaster has caused astonishment in the wider local community world. “What we are seeing at Thurrock is shocking and unprecedented. I haven’t seen anything like it in my 30-year career in local government,” said Rob Whiteman, chief executive of Cipfa, the body for public sector accountants.
Thurrock had become one of England’s most indebted local authorities in recent years after borrowing £1.5billion – 10 times its annual expenditure on local services – to enable a series of investments in solar power and d other companies.
Three years of investigations by the Bureau of Investigative Journalism (BIJ) helped force Thurrock to reveal the extent of his investments, including hundreds of millions loaned to businesses owned by businessman Liam Kavanagh for invest in 53 solar farms.
According to the BIJ, Thurrock has invested £655m in the Kavanagh businesses and expects to lose £188m on the deal. He also expects to take a loss of £65million on his investment in a company called Just Loans Group, which went bankrupt in June, and millions more on a series of other deals that turned sour. vinegar.
Like many other councils, Thurrock has tried to offset the effects of years of austerity cuts on its funding by borrowing cheaply from the Treasury and investing in business ventures in the hope that this will provide a source of revenue. alternative. By 2019, English councils had borrowed over £6bn for this purpose.
Concerns over Thurrock’s exposure to risky business investments led a panicked government to send a team of commissioners to manage its finances in September. The cabinet report reveals that Thurrock’s finances are now in far worse shape than thought just weeks ago – and could get even worse.
The report predicts another black hole in his £185m budget in 2023-24, suggesting he may have to declare effective bankruptcy. Three councils, Croydon, Slough and Northamptonshire have become insolvent in recent years, the first two after running up huge debts by borrowing.
‘This is a serious position and at this stage the board cannot find a way to fund its in-year expenditures and is unlikely to achieve a balanced budget for 2023/24 without external support’ , says the report.
The council’s Conservative leader, Mark Coxshall, issued a statement saying services would continue to operate as normal for the time being and staff would continue to be paid. But he also warned there would be “extremely difficult decisions ahead” in what he called “uncertain and troubling times”.
He added: “These are shocking numbers, but the first step to creating a good recovery plan is to understand the full extent of the problem. I know Thurrock residents will rightly be concerned about what this means for local services. Rest assured that this report is the first step in planning our recovery. »
John Kent, the Labor opposition leader of Thurrock Council, said the people of Thurrock would pay the price for the Conservatives’ disastrous handling of council affairs for decades. “This report lays bare the culmination of six years of conservative leadership by Thurrock Council.
“What have these conservative advisers who make up the cabinet of the council done? Are we really supposed to believe that they didn’t notice what was happening under their noses? The Conservative cabinet is absolutely complicit in this scandal and with each new revelation, its position becomes even more indefensible.