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Woking Council Was Warned in 2019 Over Debt When It Was 50% of Today’s Amount

Published on: 13 Jun, 2023
Updated on: 14 Jun, 2023

By Chris Caulfield

local democracy reporter

Woking Borough Council was warned in an independent peer review that an economic downturn could prove disastrous – four years ago when its debt was half its current size.

Last week, the Surrey local council declared it was effectively bankrupt after amassing debts rising to £2.6 billion and a deficit of more than £1 billion.

It meant the borough council had to issue what is known as a Section 114 notice declaring it could no longer maintain a legally balanced budget and all new spending must stop.

It also means spending on all non-statutory services would end too leaving only minimal levels of services it must provide by law.

But four years ago, a Local Government Association independent peer review warned the authority’s debt levels could tip it over the edge unless steps were taken.

The report, Corporate Peer Challenge, Woking Borough Council 2019, said the level of borrowing at the local authority was “atypical amongst district councils”.

Paul James, who was one of the members of the peer team and spearheaded Gloucester’s regeneration without financial collapse when he was the city’s council leader, took to Twitter in the wake of Woking’s bankruptcy declaration last week.

He wrote: “I’m sorry to read about this but far from surprised.  I was part of a (Local Government Association)  Peer Challenge Team in 2019 which raised concerns about the level of debt and lack of transparency of deals.

“That was when the debt was at half the level it is now.

“Investing in the local economy and enabling regeneration is a good thing, when it is proportionate and affordable, but this is off the scale.

“I remember asking key figures at the council how they slept at night with debts at these levels.”

The LDRS contacted Mr James and other members of the peer team but all have declined to comment.

Woking Borough Council declined to comment on the warnings, adding: “As part of the formal Section 114 Notice process, an Extraordinary Meeting of Full Council will be held on Tuesday June 20 where councillors will discuss the notice and our proposals to meet the financial challenges ahead.

“To comment before these papers are published would be inappropriate.”

‘Not always clear what investments have been made’

The Corporate Peer Challenge report at the time in 2019 said that it was not “clear how financial risks are structured”, but added “it would appear that risk is being managed effectively”

The report said: “Woking is an outlier compared to all other district councils as its debt servicing is two and half times net revenue budget and commercial income funds the equivalent of 75 per cent of the budget.

“Members and officers, by and large, felt comfortable with this level of indebtedness given the value of the assets held and being generated within the portfolio.

“However some concern was reported to exist by some members and within the community at the risks of, for example, the economy entering into a recession.

“Careful asset management will be vital to protect against such eventualities.”

Since 2019, the UK has faced unprecedented financial instability due to the coronavirus pandemic and the war in Ukraine.

The report continued: “The council’s investment strategy is designed to deliver social return within the borough through the creation of economic vitality and sustainability and it has been successful in this endeavour for some years.

“The Chief Finance Officer has an innovative approach to financial management and demonstrates a good understanding of risk, this is consistent with the council’s ‘can do’ attitude.

“The financial strategy allows the council to maintain services and expand provision in areas not traditionally the responsibility of a borough council and external advice is taken to provide financial expertise on large projects as appropriate, so it would appear that risk is being managed effectively.”

The review team recommended the borough council make it easier for elected members and officers to be aware of, and understand, the overall financial position.

It said that outside of former borough council chief executive Ray Morgan and his immediate team “it is not always clear what investments have been made, how the trading companies’ structure works, and how the financial risks are structured.”

The report read: “Increased transparency would allow greater discussion and even scrutiny of the financial aspect of council business that would be shared by elected members and others.”

The peer challenge further recommended the borough council structure future borrowing so that it aligns with the life of assets across its portfolio.

It read: “This would incur less cost over time.  Furthermore, the peer team suggest that Woking consider renewing the efficiency strategy in order to bridge the gap in the Medium Term Financial Strategy without relying solely on investment returns.

“Higher Public Works Loan Board rates may make it more difficult to acquire properties with sufficient yield to deliver the returns the council is seeking and the scale of the council’s ownership makes identifying opportunities within the borough more difficult.

“A more diverse approach to filling the budget gap will reduce pressure on the council to make more and more acquisitions.”

Peer challenges are designed to add value to council performance and recommend improvements.

The review team spoke to more than 97 people including council staff,  councillors and external stakeholders. They held more than 35 meetings, visited key sites, and undertook additional research and reading on a variety of council areas.

In all they spent more than 120 hours to determine their findings.

Since the report came out, the borough council’s blackhole doubled in size until it reached breaking point this year when the cost of servicing debt was five times what it collects each in council tax.

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