More Pain for Woking in Government Commissioners’ Report

Published on: 24 Oct, 2023
Updated on: 26 Oct, 2023

By Chris Caulfield

local democracy reporter

Bankrupt Woking Borough Council’s billion pound financial deficit is expected to get even worse next year with commissioners warning that more cuts are needed.

One in five staff will lose their jobs, and the council is still on course to go over budget for this year, a report from the government-appointed commissioners published on Thursday, October 19, read.  The commissioners say they are uncertain how the council can get out of the huge debt burden of £1.8 billion.

There is a widely reported deficit of £1.2 billion but that is now forecast to rise by a further £180 million to £1.38 billion by the end of the next financial year. The council has only a net budget of £24 million to cover it all.

According to the commissioners,  “…there is no prospect that the council will balance its budget in 2023/24, 2024/25 or the successive years without external intervention on a very large scale.”

The council also has to cut “at least £ 11 million” from its day-to-day business as usual budget from 2024/25 – on top of “the very large deficit” in its general fund. It also has to correct errors from its “previous incorrect approach” when it failed to save money to cover its debts, known as minimum revenue provision (MRP).  This is expected to strip a further £150 million to £160 million a year out of the council’s finances.

Of the council’s total debt, £1.3 billion was taken out in loans for just two of the 24 companies the council owns, Victoria Square Woking Limited and Thameswey Group Limited – the firms responsible for the Woking town centre and Sheerwater regenerations.

The commissioners also confirmed that up to £160 million of loans were used for disbursements including paying interest to itself.

Assets

The council is expected to sell assets to generate money to pay off large parts of its debt, but it is not yet clear how this will be achieved.

Former Woking Borough Council chief executive Ray Morgan.

The commissioners’ review of Woking’s assets has been hindered because the council does not know what it owns and many were purchased “under special arrangements” for the previous chief executive Ray Morgan “to procure properties up to a value of £3 million without recourse to council”.

The report reads: “Data on the council’s assets is incomplete, and in some cases missing.  An improved understanding is required in order to construct a robust asset rationalisation strategy.”

Woking Council’s owns around 385 properties, covering a diverse collection of commercial, office, retail, industrial and residential holdings.

“Several of the assets were acquired between 2010 and 2019 and the rationale for their acquisition is unclear,” the report adds.

Not only is it hazy what exactly the council owns, but the process of buying up assets without recourse meant “many of the more valuable assets are concentrated within the near vicinity of the town centre – meaning if they were to be offloaded at once it would create an overload of properties which, if released onto a depressed market in a short period of time, will have the effect of further depression”.

The report read: “The rationalisation process will be a complex one, balancing the lack of information supporting the assets, the optimal time to go to market and trade-offs between the disposal of the more valuable assets to reduce debt and the impact on the council’s revenue budget.”

Controls

The council introduced strict spending controls, overseen by a panel that includes at least one commissioner, that  has led to a saving “…in the region of 33 per cent  per month from capital and revenue expenditure and is having a positive effect on the need for service heads to justify any expenditure.”

Savings

There is a real risk the council fails to make enough savings in its 2023/24 budget, the commissioners warn.

They expect the council to fall short by “at least 8 per cent with a further 44 per cent likely to be only partially achieved”.

The council still needs to identify £1.8 million in savings for 2024/25 – the equivalent of 14 per cent of the total savings sought.

According to commissioners “It is difficult for any local authority to reduce its cost base by the required 25 per cent in one year and the lack of detail behind all of the savings options means there is a risk that this will not be achieved.”

Debt

The council has managed to defer principal and interest payments from its two main companies but this is expected to cost a further £22.8 million a year when it kicks back in.

Despite all the cuts and job losses, Woking Council is still forecast to be £6.3 million over its £25.3 million budget and the “position is worsening as the position on the rental budget and on the capital financing budget becomes clearer”.

Budget

There are no reserves left so any budget will need to be balanced from within the resources available. The council has currently found £4.4 million of cuts, “scoped” out a further £4.4 million – but a gap of £2 million still needs to be found.

Worryingly this “does not include provision for minimum revenue provision or the debt charges that are unlikely to be repaid and it will not be possible to meet these costs from within the resources available to the council.

“The combined costs for MRP, capital financing charges and if the potential asset management costs are included, could be in the region of £150 million to £160 million per annum.”

Accounting

The council hasn’t completed its 2022/23 draft accounts, The commissioners said that was down to two main factors: senior finance staff leaving and “significant issues with the accuracy and quality of the financial ledger and outdated historic accounting practices”.

Other failings

Revenue from the council’s housing stock is “not financially sustainable” and faces an “in-year deficit of £1.5 million” which is likely to “worsen rather than improve”.

Jobs

Every staff member was placed under redundancy consultation as the council seeks to cut 18 per cent of its workforce across two phases, first managers, then the rest of the staff.

It is estimated this will save £2.4 million in staffing costs and a further £1.3 million in related supplier costs.

What the chief executive says

Julie Fisher, photo Surrey County Council

Chief executive Julie Fisher, in her letter to the commissioners published the same day as their report, wrote “Although the council has made progress, we cannot underplay the severity of the financial position and the significant action we need to take in response.

“It is one thing to produce an improvement plan – it is another to deliver it.

“We now need to apply a laser-like focus to ensuring that we deliver against these savings

“Achieving these efficiencies is integral if we are to build credibility with government and show that we have the ability and processes in place to deliver further savings.

“As you are aware, our Q1 budget monitoring report has indicated that we currently have a £6 million overspend against our general fund, suggesting we still have significant work to do to ensure we have robust financial controls in place.

“Budget holders are currently undertaking a line-by-line review of all service budgets, to identify savings that can mitigate the overspend.”

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