A direct result of Spelthorne's excessive borrowing
The Treasury has decided how Local Authorities will be allowed to borrow via cheap government loans in future, and it has made it very clear that borrowing purely for income will definitely not be allowed.
Spelthorne borrowed over £1bn from the PWLB (Public Works Loan Board) since 2016, with most of the money being invested in commercial property. This type of borrowing is now banned, with the response saying "The government is clear that this is not an appropriate use of PWLB loans".
Both councils got into hot water following unwise borrowing
Because of a number of high-risk property investments and the impact of COVID-19, Croydon Council is on the verge of bankruptcy. According to newspaper reports ministers have sent in a taskforce to oversee the financial management of the council.
Is Spelthorne also on the edge of the financial precipice? According to Liberal Democrat Cllr Lawrence Nichols, the Chair of the Audit Committee, the Council is safe - for the time being. He said "The tenants of the properties that the Council owns are continuing to pay rent on time at above the national average, despite all the acute pressures of COVID-19. A good level of financial provision has been built up over the last few good years and there is no reason to believe that council services are under any immediate threat."
The profile of the Council's tenants and their leases means that the rent stream should be guaranteed for the next few years, but there is no room for complacency. Spelthorne has borrowed £1 billion pounds over 50 years and so the income has to also last that long. COVID-19 is changing the way people work and there can be no guarantee that the demand for offices or the level of rents will be maintained when current leases expire.
According to the Guardian in Croydon "Auditors heavily criticised the south London council for ignoring more than three years of internal warnings over its finances, accusing it of "collective corporate blindness" and fostering a governance culture in which poor spending decisions were not robustly challenged or scrutinised by councillors."
At the October meeting of Spelthorne Council , Liberal Democrats successfully promoted a motion to increase councillor oversight of the property portfolio and the management of the associated risks. Cllr Nichols, who proposed the motion, said "Councillors have not been able to engage with the portfolio and this needs to change. Scrutiny and transparency are needed to make sure that we have a clear view of all the risks and able to be assured that they are being managed effectively".
Your Liberal Democrat councillors are leading the way on breaking out of the culture of secrecy that covers too much of the Council's activities like a thick fog. Lib Dem leader Cllr Sandra Dunn said "After more than 40 years as a one-party borough there are many aspects of the financial arrangements of the Council that have never been scrutinised. We are committed to shining a light into the dark corners are making sure that everything is in order and being done in the best interest of residents".
A BBC article entitled "Spelthorne Borough Council's £1.1bn property spending prompts review" can be found here.
The full Guardian article on Croydon Council's financial crisis can be found here.
We will monitor the issue and take action where necessary
There has been comment in the media recently that some of the commercial property investments undertaken by Spelthorne Borough Council during 2017/18 may be unlawful.
The articles do not present a balanced view of the situation and appear to be designed for journalistic impact rather than to assist in reaching a resolution.
The articles indicate that sensitive letters have been leaked to journalists and these have been selectively used to create an impression negative to the Council. Liberal Democrat councillors deplore the leaking of any confidential documents.
The situation has arisen from concerns raised by the Council's external auditors, KPMG, about the 2017/18 transactions and their obligations to produce a Value for Money statement. As part of their duties under the Local Audit and Accountability Act 2014 KPMG have asked questions about aspects of the acquisitions. The issues are complex and involve areas of law and governmental guidance that are untested in court.
A recent report by the House of Commons Public Accounts Committee said "According to the Chartered Institute of Public Finance and Accountancy (CIPFA) borrowing purely to invest for yield has traditionally been presumed to be unlawful". Spelthorne BC has legal advice that supports its view that its actions do comply with all relevant legislation and guidance.
In May 2020 Liberal Democrat councillor Lawrence Nichols was elected as the first non-Conservative Chair of Spelthorne's Audit Committee. He was very concerned about the delays in finalising the accounts for 2017/18 and has worked with the Leader of the Council and officers to push KPMG for a resolution to this issue.
Cllr Lawrence Nichols said "I want to see this issue resolved as quickly as possible. The inability to finalise the 2017/18 accounts is unsatisfactory and the inevitable negative speculation is not helpful. Although I am an opposition councillor, I have no interest in anything other than seeing KPMG give the commercial property investments a clean bill of health. Failure to do could plunge Spelthorne into a totally unnecessary financial crisis."
Liberal Democrat councillors have concerns about how the Council got into this current situation and these which will need to be investigated after KPMG's issues have been resolved. We will monitor the issue, we will take action where necessary and provide residents with the accountability they deserve.
Spelthorne Borough Council has issued a response which is available here.
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Spelthorne Council borrowed 100 times its income
Spelthorne has a growing demand for genuinely affordable housing
The new Spelthorne Housing Strategy for 2020 to 2025 has been published. It is full of high aspirations and uplifting statements of intent, but on closer examination it shows a record of underachievement.
The strategy is clear that nowhere near enough social housing has been provided in Spelthorne and the situation is getting worse - "Spelthorne has a growing demand for genuinely affordable housing". The Council has failed to deliver and this strategy will not resolve the situation.
A DIRECT result of unwise borrowing by our council
Read the rest of the story: https://spelthornelibdems.org.uk/en/page/focus-on-borrowing-gamble
The Treasury has issued a consultation document about the future of the Public Works Loans Board (PWLB). The PWLB is the government body that makes loans to Local Councils and from which Spelthorne has borrowed over £1bn since 2016.
Public Accounts Committee hear more evidence about excessive borrowing
The House of Commons Public Accounts Committee (PAC) held a second hearing into Local Authority commercial investments on 15th May, with Spelthorne very much in the minds of the committee members and all the witnesses. With £1bn of borrowing, Spelthorne stands out from other councils and the committee and the witnesses did not view this as a good thing.
It doesn't make sense
Mr Robin Whiteman, the Chief Executive of the Chartered Institute of Public Finance Accountancy (CIPFA). has told the House of Commons Public Accounts Committee (PAC) that Spelthorne "has borrowed too much".
In a public hearing held on 11th May, Rob Whiteman was absolutely clear that in his opinion Spelthorne's borrowing was not appropriate in terms of the risk or the level of borrowing. The full hearing can be watched on the Parliamentary website and a transcript of the hearing can be read here.