Woking BC has been warned by leveling minister Kemi Badenoch that he is ‘likely to be within the scope’ of new powers seeking to curb excessive borrowing by some councils.
The council has the highest level of commercial debt relative to its size of any authority and the Liberal Democrats took control of the council earlier this month.
The Leveling and Regeneration Bill aims to give the Secretary of State the power to “take action where he has concerns that the principles of the prudential framework are not being adhered to”, Ms Badenoch told Cllr Ayesha Azad ( Con) in a letter sent last week, which was seen by LGC. This month’s election ended his Tory group’s 14-year rule in Woking, with the Lib Dems now in control.
In addition, the Treasury has just updated its guidance to clarify that new Public Works Loan Board loans will not be available to councils where there is a ‘more than negligible risk’ that the loan will be repaid without future support. of the government.
In light of the powers coming into force, Ms Badenoch said she considered it ‘vital’ that advice ‘likely to come within the scope of the powers is given adequate notice and the opportunity of early engagement”.
This is to allow the government to ‘work in support’ with these authorities and give them time to review their capital strategies and, if necessary, develop plans to address risk areas before entry into force of the legislation.
The council, whose external debt ballooned by around £34million to £1.84billion in the 18 months between September 2020 and February 2022, was one of many councils that looked to the government for a capitalization management loan during the pandemic when its commercial revenue streams dried up at the top.
However, LGC understands that it was told at the time to use its reserves to make up shortfalls and is now relying on the looting of its reserves to stay afloat for the next three years. Its debts are now expected to reach £2.4billion over the next five years.
Ms Badenoch said Woking is “likely to be within the scope of the powers due to its very high level of debt, which is the highest level of commercial debt (relative to its size) of any authority”.
She continued: “I would like to take this opportunity to stress the importance of protecting the interests of the local taxpayer and addressing risks in local government, as well as the need to avoid unintended consequences. I would therefore appreciate your support in encouraging a cooperative and open approach.
Woking recently borrowed heavily from the Public Works Loans Board to invest in a £700million town center regeneration project, Victoria Square, and is due to pay £55million in interest to the PWLB this year.
A recent report by external auditor EY on Woking’s finances states that there is “significant pressure now between balancing budgets in the short term and planning for financial sustainability in the medium to long term.
LGC understands that Woking normally generates £8million in parking revenue a year, but this revenue stream has been hit hard over the past two years. The council has yet to see the growth in business activity it expected from the pandemic.
New council leader Ann-Marie Barker (Lib Dem) said: ‘Extraordinary levels of debt would be much less of a problem if backed by extraordinary assets. Yet our hardworking team of Liberal Democrat advisers have already revealed that this is not the case. many council-owned companies have appraised properties and other major assets themselves. Far from independent. Many investment cash flows appear to be funded solely by a additional debt each year. Far from affordable.
“All of this means that, indirectly, even Woking’s main municipal services are increasingly dependent on new borrowing. Woking’s debt will take several decades to peak, but local residents can rest assured that this borough has now at least weathered the worst trough of Tory complacency.
Ms Badenoch’s letter also said that “the new executive will work hard to engage constructively with partners such as central government ministries, particularly around our common concerns, now confirmed by DLUHC in this letter.”
DLUHC has been contacted for comments.