A protest against council cuts outside Lambeth Town Hall in south London in 2011 (pic: Guy Smallman)
When Thurrock council in Essex was bailed out from imminent bankruptcy recently, it shone a light on the casino-like bets that it—and many others—have made. For almost two decades the government has given council bosses free rein to make financial deals with anyone they choose.
Dodgy deals that went wrong have pushed many to breaking point. Thurrock’s Tory-run administration’s debt is on an entirely new scale. It owes a whopping £1 billion, mostly to other cash-strapped local councils. But it hasn’t run this debt up by providing services or increasing workers’ wages. Instead, it gambled the cash on stock investments into green energy firms.
The council boasted of a strategy that was “unashamedly pro-revenue growth”. But it’s all come crashing down. The government launched an investigation into Thurrock’s past dealings and appointed a commissioner to oversee financial decisions at the Essex council. Now, it’s been given permission to borrow £836 million from central government to fund repayments to other authorities. Some £688 million is set to be spent in this way.
The new loan is coming from the Public Works Loan Board—a money pit attached to the Treasury. It’s supposed to help councils fund big infrastructure projects, but instead is helping Thurrock pay off its debtors.
Since 2004, councils were given permission to raise funds without central government permission. But it’s led to a system where they all loan each other cash, confident that the government will step in if another council were to default on the debt.
If the government doesn’t take action dozens of councils could collapse like dominoes. The amounts aren’t small—and Thurrock was still asking other councils for fresh loans as recently as a few months ago.
Somerset county council lent Thurrock some £15 million over three loans—the most recent taken out in July this year. Leeds council invested £15 million with Thurrock in March. John Kent, leader of the Labour opposition on Thurrock Council, said last week, “By borrowing lots and lots of money from lots and lots of different other local authorities, at some point the music was going to stop and you’d have to pay it back.
“They were borrowing from Peter to pay Paul.”
But where has the money gone? Council top bods made the decision to pour money buying bonds at renewable energy firms. It poured at least £74 million into Rockfire Capital Bonds—and its sister company received investments from other councils including nearby Havering, Newham and Bexley. The councils have been buying “solar bonds”, which pay for intermediate companies to buy solar farms.
In theory, the profit trickles right back up the chain into Thurrock council’s bank account. But it hasn’t quite worked out like that. All this shows that council bosses—many of them unelected and overpaid—are making huge gambles with public money.
The alternative is defiance against the cuts, not gambling.
It’s not just solar farms that councils are buying up—hotels are also being snapped up by cash-strapped local authorities. Just last month, Basingstoke and Deane Borough Council bought an 81-room Premier Inn in the town centre.
The council boasts that it has investments of £32 million in the local economy and the hotel will net them a profit of £400,000 a year.
But just like a real‑life game of Monopoly, a hotel isn’t always a safe bet. Croydon council is a shining example of the chaos that can be unleashed by unfettered private investments. The Labour-run administration was declared effectively bankrupt in November 2020, and the council’s auditors slammed its decision to buy a hotel.
In 2018, Croydon council spent £30 million for the freehold of Croydon Park Hotel—some £5 million more than the asking price. Yet the hotel entered administration in June 2020 and all 91 workers were made redundant.
Four years later, the building was sold off for £25 million to property developers wanting to build 600 luxury flats. As well as this, the council borrowed £350 million to buy property in its high street and turn it into a shopping centre. The shopping centre plans were formally scrapped in 2021, but the council still owes the £350 million.
It’s a deep irony that councils are looking to make a quick buck from property management, while their residents are forced to live in shoddy housing. In Croydon, for instance, thousands of people wait for council housing.
Its own records show that some people have been waiting over 20 years for the chance of a property.
Rotten deals and gambling on the stock market aside, council bosses are right about one thing—budgets for councils are being squeezed like never before. The flow of funding from central government was cut by as much as 37 percent in real terms between 2009-10 and 2019-2020.
That’s a difference of some £15 billion. Of course, it’s ordinary people that have paid the cost, either directly or indirectly. Meekly implementing government diktat, councils have hiked up council tax and slashed services to the bone.
And poorer areas have suffered the most because central government grants made up a much larger share of their income. Covid-19 only made worse these long-standing problems. The Institute for Government think tank estimates some £11.9 billion was lost to councils through the pandemic.
That’s a result of increased use of services and a loss of income in business rates. But not everyone will be feeling the pinch. Bosses’ salaries are staying sky-high.
At Thurrock council, chief executive Lyn Carpenter, who recently took a leave of absence, netted an annual salary of £200,000. And finance director Sam Clark, the man behind the disastrous borrowing and investment policy, was paid over £140,000.
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