A £15m loan from a North East council to a troubled Essex authority in dire financial straits has been repaid with interest, bosses say.
Thurrock Council announced this week that it was effectively bankrupt, issuing a section 114 notice to bar itself from making any non-essential spending as it grapples with a £469m funding black hole. It emerged recently that Newcastle City Council was among a number owed money by Conservative-run Thurrock, which it has been reported has amassed a vast total of £1.5bn in borrowing debt – including £900m in short-term loans from other councils.
That has sparked questions over why such a large amount of money would be loaned to a council in such fiscal distress, when Newcastle itself has been forced to make major budget cuts totalling more than £300m since 2010. Lib Dem councillor Colin Ferguson, deputy leader of the city’s opposition party, said this week that the £15m given to Thurrock “sticks out like a sore thumb” in the council’s finances and demanded to know what civic centre Labour chiefs knew about Thurrock’s financial distress before issuing the loan.
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He said: “Claims that the Government would always have underwritten the loan are easy to make after the fact, and it’s not clear that this was certain at the point the loan was made. Are cabinet members on top of their brief, and stewarding the city’s finances safely? What did they know, and when did they know it? Residents deserve clarity.”
However, it has now been confirmed that the Newcastle loan has been recouped with interest.
Labour’s Coun Paul Frew, the council’s cabinet member responsible for finance, told the Local Democracy Reporting Service: "It is disappointing that the opposition cannot accept a straight answer when given to them. As Coun Ferguson has previously been told, these decisions are delegated to officers as part of the council's treasury management.
“The council has received all of the money loaned to Thurrock Council back, with interest. Every local authority in England is ultimately backed by national Government; the risk of a local authority defaulting on a loan to another remains theoretical. Newcastle City Council has robust financial management which was recently affirmed by reviews conducted by CIPFA and the LGA."
Coun Ferguson replied that he would accept that explanation “if Coun Frew can point me to the Government’s written guarantee of underwriting all local authority investments, regardless of their merit or strength”. He added: “Instead, this confirms that the cabinet appears disinterested in where the council places its money.”
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