Photograph: G Scammell/Alamy
A Conservative-led council has admitted that a string of disastrous investments in risky commercial projects have sent it an unprecedented shortfall of almost £500m and pushed it to the brink of bankruptcy.
The staggering scale of the catastrophe at Thurrock council in Essex – one of the biggest financial disasters ever to occur to local government – is contained in an internal report presented to the council cabinet, which reveals it lost £275m on investments made into solar energy and other businesses and has set aside a further £130m this year to pay off investment debts.
Thurrock has appealed to the government for an emergency financial bailout and warned it will face a drastic program of cuts to local services and layoffs, along with a likely fire sale of buildings, land and other assets as it attempts to stay afloat . Council tax increases are also likely.
There was amazement in the wider local government world at the scale of the financial disaster. “What we are seeing in Thurrock is shocking and unprecedented. I have not seen anything like this in my 30-year career in local government,” said Rob Whiteman, chief executive of Cipfa, the public sector accounting body.
Thurrock had become one of England’s most indebted local authorities in recent years after borrowing £1.5bn – 10 times its annual local services expenditure – to enable a range of investments in solar energy and other businesses .
Three years of investigations by the Bureau of Investigative Journalism (BIJ) helped force Thurrock to reveal the full extent of his investments, including hundreds of millions lent to companies owned by businessman Liam Kavanagh to invest in 53 parks solar.
According to the BIJ, Thurrock has invested £655m in Kavanagh’s companies and expects to lose £188m in the deal. He also expects to suffer a £65m loss on his investment in a company called Just Loans Group, which went bankrupt in June, and millions more on a string of other deals that have gone sour.
In common with many other councils, Thurrock attempted to offset the effects of years of austerity cuts to its funding by borrowing cheaply from the Treasury and investing in commercial assets in the hope that this would provide an alternative income stream. In 2019, England’s councils had borrowed over £6bn for this purpose.
Concerns about Thurrock’s exposure to risky commercial investments led a panicked government to send a team of commissioners to manage his finances in September. The Cabinet report reveals that Thurrock’s finances are now in a significantly much worse state than initially thought just a few weeks ago – and could get even worse.
The report predicts a further black hole in its £185m budget in 2023-24, suggesting it may have to file for effective bankruptcy. Three councils, Croydon, Slough and Northamptonshire, have gone into insolvency in recent years, the first two after running up huge loan debts.
“This is a serious position and at this point the council cannot find a way to finance its annual expenditure and is unlikely to achieve a balanced budget for 2023-24 without external support,” the report said.
The Conservative leader of the council, Mark Coxshall, has released a statement saying services will continue to operate as normal for now and staff will continue to be paid. But he also warned that there would be “extremely difficult decisions to make” in what he called “uncertain and disturbing times”.
He added: “These are shocking numbers, but the first step in creating a good recovery plan is to understand the full extent of the problem. I know Thurrock residents will be concerned, and rightly so, about what this means for local services. Please be assured that this report is the first stage in planning our recovery.”
John Kent, the Labor opposition leader of Thurrock council, has said Thurrock residents will pay the price for the Conservatives’ catastrophic handling of council affairs for decades.
“This report lays bare the culmination of six years of Conservative leadership by Thurrock’s council,” he said. “What were those Conservative councilors who make up the council cabinet doing? Are they really expected to believe that they didn’t notice what was going on under their noses?
“The Tory cabinet is fully complicit in this scandal and with each new revelation their position becomes even more indefensible.”