Woking Borough Council does not have the commercial skills or capacity to resolve its deep rooted financial problems, an independent report to the Government has concluded.

The 47-page Governance, Financial and Commercial Review of Woking Borough Council document gives a blow-by-blow account of the council’s financial mess  and exposes the “reality that the council currently has double the level of borrowing per head of population compared to the next highest council”.

Investigators conducted the report in January and February this year with secondary work carried out in April and May, and was sent to the Department for Levelling Up Housing and Communities (DLUHC).

It was published just days before the council declared itself effectively bankrupt when issuing its Section 114 notice with debts expected to hit £2.6 billion and a deficit of more than £1bn.

Much of the council’s debt was accrued on the back of complicated development deals where it borrowed hundreds of millions of pounds to pay companies it owned for town centre regeneration projects, with the companies essentially repaying the council with that same money.

The report noted that council had been “effectively self-funding the borrowing costs through additional borrowing”.

‘Extremely high debt profile’

The report read: “This has created an extremely high debt profile which is not backed by assets in any way matching that debt. 

“Some companies are making  operational losses but still extending their borrowing to cover principal and interest repayment costs.”

The second period of investigation, its authors said, had to be carried out after “the presentation of fresh evidence and updated reporting of the council’s finances, the seriousness of which raised concerns for both the panel and DLUHC”.

Some of the report remains redacted due to “commercial sensitivity”.

It found that “the sheer scale and complexity of the investment and commercial activity” means the council “will never have the capacity to effectively manage all the commercial and economic considerations”.

It added that there was “insufficient regard to the level of risk the council was being exposed to”.

As recently as March 2021, former council chief executive Ray Morgan told the DLUHC that he “remained confident that the council’s financial strategy was able to withstand normal economic cycles” after the council had applied to the department for Exceptional Financial Support. DLUHC refused this request.

The council’s financial position is now “significantly worse” than when it made the March 2021 application and has, for years, failed to set aside enough money to service debt.

Difficult as it is to imagine, the borrowing will not stop with the council estimating a further £300m needed to 2025/26 based on current investment plans as, “on balance it is felt to be a lesser risk than halting all activities now”.

The authors did praise moves made to turn around the sinking ship saying a “new chief executive and leadership team, working with a new political administration, are making great efforts to deal with these significant issues to provide financial stability for the future of Woking”.

‘Council’s leadership has changed since commercial decisions were made’

With the new leadership team “essentially rebuilding most internal processes as they had not been fit for purpose”.

The report said the “leadership of the council has changed at an officer and political level since the major commercial decisions were made. 

“The new leadership team is to be commended for a systematic and whole systems approach to establish and address the council’s financial challenge and to fundamentally redesign governance”.

Councillor Ann-Marie Barker, Leader of Woking Borough Council, said she was pleased there was acknowledgement of strong collaboration on the progress made to address the council’s financial resilience.

She added that the challenges facing the council are “so significant” it “cannot deal with these on its own. 

She said: “We therefore fully acknowledge and accept the findings of the report and welcome the support set out by the Minister in his letter.

“I know that councillors and officers will work at pace alongside the  government-appointed commissioners to address the issues identified in the report and achieve best value for the public purse through the preparation and delivery of an action plan.

“When my administration gained control of the council last May, I pledged to take on the challenge of major change and embed affordable, responsible and sustainable principles into how the council conducts its future business and this remains my priority.

“As part of this pledge, we have taken steps to control borrowing, made changes to the governance of our commercial investments and I have instigated independent reviews of all the council’s borrowing and investments.

“I recognise we need to deliver our plans for recovery of the council’s finances with greater pace and urgency and we face difficult decisions in the months ahead. I will work with my officers to ensure, with the support of the commissioning team, we have the capacity and experience to deliver the improvements needed.

“I remain committed to keeping residents, businesses, and community partners fully informed as we progress through this process and develop the detailed plans for recovery with support and oversight from the commissioning team.”

By Chris Caulfield

Local Democracy Reporter