Small council racks up staggering £1.2BILLION debt trying to become ‘Singapore of Surrey’

The Hub is an environmentally friendly development of upmarket bars and restaurants in the heart of the business quarter of Milton Keynes.

Zizzi Italian eaterie and the Blossom Room, which serves champagne and sushi, get their heat and electricity, along with all the other outlets in the complex, from a green power station a few hundred yards down the road.

Low-carbon, locally produced, renewable energy is also delivered to 480 flats, a hotel and a supermarket in the district.

‘You will enjoy access to our cleaner, greener, competitively priced energy supply,’ boasts the website of ThamesWey Central Milton Keynes, the company running the network.

But there have never been enough customers to make the operation viable. The firm has only ever managed to barely break even, has been continuously in the red since 2017, and, in 2021, it made a loss of £2,449,033, according to the latest available accounts.

Behind the venture, though, is a much bigger story. Many people will be surprised — perhaps even a little shocked — to learn that ThamesWey Central Milton Keynes (TCMK) is owned by Woking Borough Council, an authority more than 65 miles and an hour’s drive away from the Buckinghamshire town in the neighbouring county of Surrey.

The authority recently lent the company £2.56 million to keep it afloat — the equivalent of 20 per cent of the borough council tax revenue — and more than £36.7 million in total since being incorporated more than a decade ago. So far, not a penny has been paid back.

Have there been any direct benefits for the residents of Woking from the foray into Milton Keynes? No, none whatsoever.

The council is now considering selling the company to recoup some of the losses. However, it’s unlikely that there will be a queue of potential buyers for a loss-making energy firm. The bottom line? This fiasco alone could cost Woking millions.

TCMK is one of 23 companies set up by the council, with loans funded by the taxpayer, to invest in many different areas — including the notoriously volatile commercial property market — of which most, if not all, have bombed.

It is the reason the council has now been declared effectively bankrupt after running up a deficit of £1.2 billion, the most spectacular collapse in local government history, and around 100 times the town’s annual budget.

‘It’s astronomical, simply off the scale,’ said Rob Whiteman, the chief executive of the Chartered Institute of Public Finance and Accountancy (CIPFA). 

Zizzi Italian eaterie and the Blossom Room (pictured), which serves champagne and sushi, get their heat and electricity, along with all the other outlets in the complex, from a green power station a few hundred yards down the road

The borough has to find £62 million a year simply to pay back its borrowing, which equates to more than £47,000 of debt for each of Woking’s 43,000 households.

Woking had the ‘corporate capacity of a small district council, yet the investment portfolio of a major city such as Birmingham’, to quote commissioners installed to sort out the mess from Michael Gove’s Levelling Up Department. 

Woking has a population of 100,000. Birmingham has a population of 1.149 million.

The state of the post-pandemic economy, following years of austerity cuts, had an impact on councils of all political stripes.

In the circumstances, local authorities were encouraged by the Government to be entrepreneurial and were provided with cheap credit from the Public Works Loan Board (PWLB), part of the Treasury, to exploit alternative income streams.

In Woking, entrepreneurial spirit turned into very high levels of spending under the Conservatives who were in control for 14 years until the May 2022 local elections when the Liberal Democrats took over the running of the council. 

The Tories claim that, when in opposition, the Liberal Democrats supported the main investment decisions.

Either way, residents are facing unprecedented cuts in services and council tax rises. The black hole in Woking’s finances will be felt for years to come. How could tiny Woking be so profligate?

Two unflinching reports in the past few weeks — from Whitehall commissioners and auditors who issued a 114 notice announcing Woking’s insolvency — answer that question. 

The former (long-standing) chief executive, Ray Morgan (pictured), for example, had delegated powers to spend up to £3 million a year — £1 million at a time — without recourse to the council. The shortcomings in Woking have become a familiar narrative

They found: ‘Most internal processes’ were not ‘fit for purpose’ . . . decisions were taken without ‘an adequate assessment of the risks’ . . . ‘lack of transparency . . . regulatory neglect’ . . . ‘inaccuracies and misassumptions’ in the financial advice underpinning the council’s investment strategy . . . a leadership which did not have the ‘commercial skills’ to manage such a programme . . . and non-compliance with financial rules.

The former (long-standing) chief executive, Ray Morgan, for example, had delegated powers to spend up to £3 million a year — £1 million at a time — without recourse to the council. The shortcomings in Woking have become a familiar narrative.

Three other councils (Slough, Thurrock and Croydon) have gone bust in the past year for similar reasons and public sector accountants body CIPFA fear another four authorities could go the same way next year.

In Woking, Ray Morgan, CEO from 2006 to 2021, was the driving force behind the grandiose agenda together with former Tory leader David Bittleston. Morgan was bold and he had vision.

But a speech he made to local businessmen almost a decade ago has come back to haunt him. It was his ambition, he told the audience, to turn Woking into the ‘Singapore of Surrey’. Holding a picture of the island state, he said: ‘We want Woking to become a city.’

The result was Victoria Square: a Singapore-style skyscraper complex containing apartment towers, a Hilton hotel, shopping centre and public plazas. The original cost was put at £150 million but the bill escalated amid delays and construction problems. 

By the time building work started, £150 million had become £460 million. It then increased to £550 million, then £700 million, and finally £750 million, which is more than the 2012 Olympic Stadium.

Initially, Surrey County Council was part of the Victoria Square consortium but pulled out in 2017 around the time the costs hit £460 million. The project continued as a joint venture between Woking Council and Northern Irish developer Moyallen. A company, Victoria Square Woking Ltd (VSWL), was incorporated for the venture.

Woking owned 48 per cent of the shares and Moyallen 52 per cent.

Yet Woking bore 100 per cent of the risk, the report by the Government commissioners reveals, which was a ‘key factor contributing to the council’s parlous financial position’.

By the time building work started, £150 million had become £460 million. It then increased to £550 million, then £700 million, and finally £750 million, which is more than the 2012 Olympic Stadium

The flagship development is now valued at £199 million, nearly half a billion less than the £750 million cost of delivering it.

The latest downgraded valuation is contained in newly released accounts for VSWL and is based on potential future income from flats and retail space at the Hilton, which has not yet opened because the exterior panelling had to be replaced.

There were other embarrassing — and costly — undertakings. In 2018, the council announced plans to build a ‘state-of-the-art’ sports facility for Woking Gymnastics Club on a derelict former travellers’ site contaminated by fly tipping. The land was purchased for £1.5 million.

Five years on, it remains underdeveloped and fenced off. ‘We are realistic about how things have changed and accept we are not moving,’ said Andrew Challis, chief executive of the gymnastics club.

Another £1.4 million was spent buying the site of the derelict Robin Hood pub in Knaphill, a village on the outskirts of Woking, for affordable flats and offices.

The pub was gutted by fire shortly after being acquired by the council.

Five years on all that remains is the burnt out frame of the original pub sign.

Given that all non-essential expenditure has now ceased, the council is unlikely to see a return on these investments anytime soon, if ever.

Perhaps nothing illustrates the shortcomings in the way the council was run more than the Woking Football Club debacle. It was a complicated and long running saga but here, briefly, is what happened.

The plan was to redevelop the stadium and build a number of large blocks of flats around it, but the blueprint was rejected by the council’s own planning committee in 2020 after nearly 1,000 local objections. 

The problem was that the flats would have been 12 storeys high in a residential area where the maximum height was more like three storeys.

But by then, the town hall had already spent at least £13 million buying up the land.

A taskforce from the council’s overview and scrutiny committee found that the freeholds of the site were bought without a valuation even being carried out and meetings to discuss the project were taken by a small group of officials and councillors, including Ray Morgan and David Bittleston (the former Tory leader) and held in private.

‘There were no minutes, no notes and in fact officers couldn’t even remember who they met,’ one councillor complained at the time. ‘That is shocking and wholly unacceptable in any business terms in any organisation I have known.’

Ray Morgan retired from the council in 2021, a few months after David Bittleston. ‘I was not party to any of the investigations after my departure, neither was I asked for any information,’ he said. ‘Accordingly, I do not consider it appropriate to comment further.’

David Bittleston did not wish to comment when contacted. Two further factors, highlighted in official reports into the financial failure help to explain how costs spiralled out of control.

Firstly, council officers and councillors were also directors of companies responsible for managing projects.

Ray Morgan (pictured) retired from the council in 2021, a few months after David Bittleston. ‘I was not party to any of the investigations after my departure, neither was I asked for any information,’ he said. ‘Accordingly, I do not consider it appropriate to comment further’

An independent lawyer from the Local Government Association, appointed to review the processes and actions of the council after the football club shambles, raised concerns about the policy.

Their integrity was not called into question but retired barrister Gifty Edila said the practice created a potential conflict of interest.

‘In company law,’ she said, ‘they have a legal duty to safeguard the best interests of the company above those of the council: they must ensure the success of the company so it remains solvent.’

Secondly, the financing of companies such as Victoria Square Woking Ltd and ThamesWey Central Milton Keynes was extremely controversial, something which the government commissioners drew attention to.

‘Some companies are making operational losses [like the Milton Keynes energy company] but still extending their borrowing to cover principal and interest repayment costs,’ they said.

Mortgage lenders would never be so generous, as countless people around the country struggling to make their monthly repayments at the moment will testify.

The practice at Woking council, which is not illegal but contravenes government guidelines, was described by financial expert Anthony Fraser, who has a forensic knowledge of the authority, as a financial ‘death spiral’, which ensured that the ‘debt kept growing’.

For the past three years, Mr Fraser, a retired operations director with an investment bank, warned in detailed letters to the council, its auditors BDO and to ministers at the Department for Levelling Up that Woking had become heavily over-exposed.

‘In terms of its borrowing compared to its basic spending power and population, Woking is quite simply the most leveraged council in England,’ he wrote in one letter to BDO in 2021.

The performance of the council’s energy company in Milton Keynes was of particular concern.

‘This entity is technically (balance sheet) insolvent,’ he said, ‘and would be actually (cashflow) insolvent if it were not for continuing loans directly or indirectly from Woking Borough Council.’

When I spoke to him last week, he said that the company is not projected to make a profit until 2067 and would not pay back the loans until 2078. Is it any wonder Woking is in a mess?