Surrey Heath Borough Council is facing potential bankruptcy unless serious interventions are taken.

It follows the revelation that the council “catastrophically” underestimated interest payments on the £170 million it borrowed for its loss-making property portfolio.

It all came out during the September 24 meeting of its Audit, Standards and Risk Committee. Errors were found in accounting figures that has left the council scrambling to find an additional £4 million a year to cover the cost of its loans.

The council’s annual revenues are about £14.7 million, so the increase in interest repayments it needs to find each year is about 20 per cent of its overall pot.

The details are emerging as part of the council’s process to work through its financial accounts, which have not been audited and signed off for five years.

Historically, the council has covered its debt interest though the performance of the property portfolio, but that is no longer the case, the meeting heard. However, there has been a massive reduction in its property income and can no longer cover its interest.

Money that needs to be set aside to cover the costs of its loans, will be £9.5 million this year and the £6 million budgeted income from the portfolio is not going to be achieved.

The council could be forced to consider selling off assets, seek large council tax hikes and big increases in car parking charges as it looks to balance its books, the meeting heard.