Letter: GBC’s Financial Picture – Nowhere Near As Dire As Has Been Painted

Published on: 31 Jul, 2023
Updated on: 31 Jul, 2023

From: Joss Bigmore

borough councillor for Merrow and leader of the Residendents for Guildford & Villages group at GBC

R4GV Councillors decided to abstain in last week’s debate on Guildford Borough Council’s finances. This was a tough decision and I’d like to explain why we did it.

It’s R4GV’s view that GBC in fact has a very strong balance sheet, including a portfolio of assets that far outvalue its debt, and assets whose yield easily covers the interest and repayments of that debt. The situation is challenging, but it will be a colossal – and totally avoidable – failure of the administration if GBC has to issue a section 114 notice.

R4GV fully welcome the promising signals from the Lib Dem leadership that they will embrace R4GV’s request for a formal cross-party working group to advise GBC’s Executive. Inviting a wide group of councillors will help GBC find solutions that will minimise the impact on residents.

It’s important that you know that the picture painted by GBC officers – and endorsed by the Lib Dems – is not as dire as they made out. But why would they do so?

Exaggerating the scale of an inherited problem (so those in power can profit from the solution) is one of the oldest political tricks in the book, and for council officers, the threat of a section 114 really helps focus the attention of decision-makers – very useful if officers are faced with notoriously indecisive political leadership.

The officers’ report was transparent and honest, with a frank admission of issues which made very difficult reading for anybody involved in GBC over the past decade. However it was unbalanced in a number of places, and (in our view) didn’t tell the full story.

Guildford has a £300 million debt. But Guildford also has over £1 billion of assets – mention of which was strangely omitted from the report.
Over half of this debt was incurred when GBC bought our housing stock (more than 5,000 homes, valued at near £600 million) from Westminster.
The housing account of the budget is completely ringfenced from other council operations.
The social rents provide an annual surplus of over £10 million (after interest costs).
There is around £100 million in reserves built up over the period of GBC ownership.

Discussing the gross debt without reference to the returns on the assets and the reserves on the Housing account was in our view a serious mistake.

The GBC General Fund, which houses the remainder of the debt, has around £500 million in assets. This includes £160 million invested in commercial property – which again provides rental income that exceeds the cost of the debt.

Contrary to what many residents believe, GBC policy prevents the council from investing in anything outside of our borough. The majority of GBC investments are in industrial holdings (such as Slyfield and Woodbridge Meadows). These were very resilient through the economic cycle.

There also were clear mistakes in some of the report’s key data which we pointed out a week before the council meeting. We don’t understand why they were not corrected:

It was said that gross debt assigned to Ash Road Bridge was £30 million. This is nonsense.
The worst possible scenario is that the bridge will cost GBC a figure that won’t exceed £10 million – that’s a £20 million error in the capital table.
The total budget is a little over £40 million.
We have a £23.5 million grant from Home England
We have £7 million (minimum) in S106 contributions
And we have £5 million from Surrey County Council.
For every £10 million in our capital plan the cost in interest and repayment is approximately £700k a year, so the budget gap might be overstated by nearly £1.5 million a year.

It is true, that over the next few years, GBC is facing a problem regarding the financing of the Weyside Urban Village project. It will require investing in a large amount of infrastructure before (hopefully) profiting from land or housing sales.

Whilst not easy, it is far from impossible – and nowhere near as dire as the picture being painted.

The Dragon is inviting comment from the lead councillor for Finance on the claims made in this letter.