Michael Gove’s local council is warning that it faces effective bankruptcy within two years after racking up millions of pounds in debt for failed property investments overseen by its former Conservative administration.
Surrey Heath borough council is in the parliamentary constituency of Gove, who as levelling up secretary is the cabinet minister in charge of local government.
The tiny Surrey local authority – where the Liberal Democrats seized power in May after almost half a century of Conservative control – said its finances were under “severe pressure” as it struggles with debts worth £165m, while warning that high inflation and rising debt interest payments could leave it in “effective bankruptcy”.
“Clearly he [Gove] and his colleagues have been asleep at the wheel for a long time,” said Shaun Macdonald, the council’s new Lib Dem leader.
“You’ve ended up with this cosy Conservative club in places like Surrey, where the parish, borough, county, and national government representatives are the same people. You really have to question who’s overseeing these things.
“It feels as if people are going to the casino and putting it all on black.”
The comments come amid an escalating crisis for town halls across the country after years of budget cuts and local mismanagement, as growing numbers of English councils warn that huge debt piles are leading them to the brink of financial meltdown.
Birmingham city council, the largest local authority in Europe, became the latest to declare that it was in effect bankrupt last week, issuing a section 114 notice to signal that it does not have the resources to balance its budget.
Although Rishi Sunak has sought to capitalise on the meltdown at the Labour-run council as a sign that Keir Starmer’s party would “bankrupt Britain”, dozens of other local authorities from across the political divide are in financial distress.
Seven local authorities in Surrey, largely controlled by Tory or Lib Dem administrations, were included on a list of 20 councils with the highest levels of debt in England relative to their size this week by the rating agency Moody’s. It warned that more were likely to go bankrupt after a string of high-profile failures at Woking, Croydon, Thurrock and Slough.
Highlighting a financial crisis in Gove’s constituency, Macdonald said Surrey Heath’s debts would take decades to pay off, while rising borrowing costs, high inflation, and soaring demand for services had left its finances on an unsustainable trajectory.
In 2016, the then Tory council borrowed to invest £113m in a shopping centre complex and House of Fraser department store in the town of Camberley. However, the properties are now valued at £33m – a loss of £79m.
Macdonald said the previous Conservative administration had lumbered Surrey Heath with £60m in short-term debt that would cost millions of pounds to refinance, while suggesting the investment spree had been undertaken without adequate scrutiny.
He warned that without central government support, the council could be forced to make cuts to discretionary services – such as provision of swimming pools and grants to voluntary organisations – in a similar package of localised austerity to neighbouring Woking.
“It’s not just here, it’s other places. The deals have gone sour – and the taxpayer locally is left to foot the bill,” he said.
Gove was warned in writing about Surrey Heath’s financial woes earlier this year by its former Tory leadership. The council wrote to the secretary of state asking him to intervene to help it sack its auditors, after lengthy delays in the checking of its accounts.
The council’s last set of fully audited accounts was for the 2018-19 financial year. Lee Rowley, a minister in Gove’s department, replied on his behalf, saying the government could not intervene.
A Conservative source said: “Sadly, this is the Lib Dems playing politics. It looks like an attempt by the Lib Dems to justify huge council tax hikes on residents.”
