Woking town centre. Image © basphoto/Shutterstock
Huge debt and failing investments have led to Woking Borough Council’s interim finance director issuing a section 114 notice, halting all non-essential spending.
Section 151 officer Brendan Arnold said in his notice that had the extent to which the assets have lost value, the new calculations for MRP and the many other pressures being felt such as inflation have left the council far out of its depth – with £1.8bn of debt and core funding of just £16m.
“There is no prospect that the council will balance its budget in 2023-24, 2024-25 or the successive years without external intervention on a very large scale,” he wrote.
Minimum revenue provision has been under-calculated since 2007-08, and the additional charge to the revenue account will this year be in the region of £95m, before dropping to about £75m per year in the future.
Prior period adjustments mean the council currently has an estimated negative general fund balance of £350m as of 31 March, but this will more than triple to £1.2bn by the same time next year.
“Today’s section 114 notice from Woking Borough Council highlights the risks associated with borrowing on this scale,” said CIPFA chief executive Rob Whiteman.
“Borrowing must always be proportionate and this is an extreme example of what happens when that principle is ignored.
“This is a dark day for everyone in the local government sector and there is no doubt that the framework for accountability and improvement has failed. Further detailed investigation is needed, but based on what has been reported, the areas of weakness are financial management, governance, leadership, and scrutiny and challenge.”
Woking has been using a business model that meant its development companies would return accounting losses “over a long period of time” – and given the council does not have sufficient revenue budget to fund these losses, it has been doing so through Public Works Loan Board borrowing.
This borrowing has been used for both construction purposes and for revenue purposes, the latter of which is not allowed and might relate to up to £160m of borrowing – raising the possibility of a corrective charge.
“Clearly the controls put in place by the Prudential Code were not followed,” said Whiteman.
“This was only recognised recently by the incoming CIPFA-qualified finance director who immediately raised the alarm, as we would expect from our members. While his actions have prevented further loss of public money, this again highlights the need to implement the recommendations of the Redmond Review and ensure we find a swift and effective solution to the current audit crisis, with both preparers and auditors of accounts having specialist public sector knowledge and skills.”
The majority of the council’s PWLB loans (£1.3bn) has been passed to its companies, but the assets created through the development programme have been impaired by more than £600m
“The notice makes clear the true scale of these challenges which are so significant that the council cannot simply deal with them on its own,” said council leader Ann-Marie Barker, whose administration has run the authority since last year.
“We must work in partnership with the whole of government and its agencies to support us in delivering a robust improvement and recovery plan.
“I understand the concerns and questions this will raise, and I am committed to maintaining transparency with residents and partners as we progress through this unsettling time.”
Last month, the government appointed commissioners to work with Woking following a governance, finance and commercial review.
