A tiny council in England’s affluent home counties that invested nearly £2bn in risky property deals involving hotels and residential skyscrapers has been put into special measures by ministers amid fears of financial collapse.
Woking borough council in Surrey is to be overseen by a team of expert commissioners after a government review revealed how the staggering scale of the authority’s borrowing spree has left it on the verge of effective bankruptcy.
The council will have debts of £2.4bn by 2026, the review revealed, 100 times the size of its annual £24m budget, and making it England’s most indebted council relative to its size with a notional debt of £19,000 a head for each of its residents.
The well-to-do commuter town’s residents now face drastic cuts to local public services as £11m is axed from its budget over the next three years. Council leaders must make “hard political decisions” over the next few months, the review said.
The review also raised concerns about a series of smaller deals by the council, including a £6.4m loan to a local private school, and more than £2m spent on buying two local pubs, one of which was subsequently destroyed in a fire.
Announcing his decision to send a team of commissioners into the council, the minister for local government, Lee Rowley, said the council faced “the most challenging financial position of any local authority in England”.
Despite this, the review has advised the council to take out a further £300m of loans over the next three years to avoid a fire sale of assets that would force it to write off up to £400m. Woking had borrowed £700m to buy a commercial property in the town centre that was valued at between £300 and £350m.
Woking is the latest in a series of local authorities brought down by risky property deals over the past half decade, alongside Thurrock, Croydon, and Slough, each of which attempted to offset the impact of government funding cuts by using cheap Treasury loans to try to create alternative income schemes.
Although in Woking’s case its commercial investments were raising £22m a year to help finance local services, the collapse in parking and commercial rents during the pandemic left it vulnerable. The review says there is a real risk the council may file for effective bankruptcy in the next few months.
The review notes that although the then Tory-controlled council had always confidently considered the investment plans to be “prudent” and would deliver “significant benefits” to the town, this “did not reflect the reality of the situation”. Woking is currently spending £62m a year servicing its debts.
The Liberal Democrats took control of Woking council in May 2022, after 14 years of Conservative control. The bulk of the commercial investments considered by the review were made between 2016 and 2019.
Woking lacked commercial skills and expertise, the review said, describing it as a tiny district council attempting to manage a commercial investment portfolio more usually associated with a “very large city”.
In addition there was a lack of transparency around investment decisions. Councillors told the review they were given little detail about investment proposals or real assessment of the risks attached. Some investments were made without proper business cases, the review said.
The review highlights that the council’s former chief executive was allowed to operate an acquisition opportunity fund that allowed him to spend up to £3m on regeneration projects without these being formally approved by the council or executive. Purchases included farmland for £1.5m, and £2.3m on two pubs.
The leader of Woking borough council, Ann-Marie Barker, said: “My administration is very clear about the huge challenges facing the council due to the legacy of both the extraordinarily high and disproportionate levels of debt that we have inherited from the previous administration. We are also very clear and focused on the significant risks that the council is now facing up to as a result of that debt.”
