‘Most Indebted’ Woking Council Warned by Government Over ‘Excessive Risk’

Published on: 18 May, 2022
Updated on: 24 May, 2022

By Julie Armstrong

local democracy reporter

Woking Borough Council has been warned by the government it will likely have to address “excessive risk from borrowing and investment practices” as the authority sits £1.84 billion in the red.

Relative to its size, the council has the highest level of commercial debt of any authority. By comparison Guildford Borough Council has a debt of less than £200 million.

The Levelling Up and Regeneration Bill sets out powers enabling levelling up secretary Michael Gove to “take action directly where he has concerns that the principles of the Prudential Framework are not being adhered to”.

A letter sent last week to Woking’s council leader from his Department for Levelling Up, Housing and Communities (DLUHC) gives the authority advance warning that “due to its very high levels of debt” it is “likely to fall within the scope” of these new powers.

Woking borrowed heavily from central government’s Public Works Loan Board for its £700 million flagship housing and retail complex Victoria Square, for which it is not expected to break even for 40 years.

It needs to pay back £55.5 million a year in interest payments and to put this in context, this year’s council tax revenue is £10.6 million.

The warning letter, seen by the LDRS, is dated Wednesday, May 11, and signed by Kemi Badenoch, minister for equalities and levelling up communities.

Cllr Ayesha Azad

It is addressed to Cllr Ayesha Azad (Con, Heathlands), who is still technically the council leader until next Monday (May 23) when a new leader will be formally elected in the first council meeting since borough elections this month.

The election saw the Liberal Democrats win a majority and ended the Conservative group’s 14-year reign in Woking.

Incoming deputy leader of the council Will Forster (Lib Dem, Hoe Valley) said the Conservatives had “left an awful legacy” for the new administration.

Cllr Will Forster

The DLUHC letter speaks of the need to tackle risk within local government in order to protect taxpayers’ interests and “avoid unintended consequences”.

Mrs Badenoch explains Woking is among the councils being given advance notice ahead of legislation coming into force so it has time to “consider its capital strategy”.

Woking council’s debt rose by nearly a third between March 2020 and October 2021 according to accounting firm Ernst and Young, rocketing from £1.39 billion to £1.84 billion.

Cllr Ann-Marie Barker (Goldsworth Park), who has just been re-elected by the Liberal Democrats group as their leader, said: “Extraordinary levels of debt would be far less problematic if they were backed by extraordinary assets.”

Cllr Anne-Marie Barker

She said: “This letter is both a shocking revelation and a long-overdue confirmation of what local people already suspected.”

Woking’s loans are 98 per cent from the Public Works Loan Board and are fixed-rate and relatively low interest, but they need to be repaid in a climate where Woking’s investment properties lost 12 per cent of their value (£43 million) in the financial year ending 2021.

Outgoing leader Cllr Azad said it was not disputed that Woking council has the highest level of commercial debt relative to its size.

She added: “But neither is it disputed that the money invested was only agreed based on a financial model acceptable to the government, nor that by investing in regeneration and housing the council was doing exactly what the government had urged local authorities to do.

“As leader of the council I replied to the letter welcoming the opportunity for further contact with the DLUHC’s officers to explain to them how Woking has invested.

“Of that money, £700 million has gone into Victoria Place, providing new homes, retail and entertainment spaces, a new car park, hotel and hospitality venues as well as public realm and space for NHS provision.

“Around £450 million has been invested in Sheerwater – new community and leisure centres, doctor and dentists’ surgery, affordable and social homes, green space, highways improvement and shops.

“£350 million has gone to buying street properties for people who wouldn’t otherwise have homes to live in.

“All these assets are owned by the council and will appreciate over time, with all generating income for the council as well.

“The DLUHC letter seeks to understand better how the projects the council has invested in are going to be paid back, a model that has been agreed cross-party for many years in the council chamber.”

Woking was one of many local authorities to ask the government for exceptional support during the coronavirus pandemic but was turned down in July 2021 on the basis that its financial position, including reserves levels, did not meet the criteria, according to Woking’s then corporate financial planning and policy portfolio holder.

Julie Fisher, Woking’s chief executive.

Woking Borough Council’s chief executive Julie Fisher said: “During the Queen’s speech, the Government announced that the Levelling Up and Regeneration Bill will be brought forward to drive local growth, empowering local leaders to regenerate their areas.

“The Bill will incorporate a number of legislative developments, which includes taking a responsible approach to public finances, whilst reducing local authority debt.

“We recognise that Woking has high levels of debt which comes from borrowing for regeneration and major long-term infrastructure projects.

“As a result, we are working with the Department for Levelling Up, Housing and Communities (DLUHC) to assist them in understanding our local borrowing and investment practices in advance of them establishing new measures that will support the Levelling Up and Regeneration Bill.

“We have had a positive early discussion with the DLUHC and we are currently in the process of agreeing a programme of analysis that will provide them with a comprehensive understanding of our borrowing and investment position.”