Posted: 22.05.20 at 08:30 by The Editor
A MAJOR investigation into the borrowing of Thurrock Council, which is more than one billion pounds in debt, has concluded local counciltaxpayers’ cash could be in jeopardy – and slams the authority for a lack of transparency and honesty.
The Financial Times and the Bureau of Investigative Journalism have published reports today (Friday, 22 May), based on months of work trying to drill down into the true state of the borough’s finances and how and why decisions were made. It follows an exclusive Thurrock Nub News story in January which broke details of the council's £1 billion borrowing.
Reporters have largely been met with frustration and a lack of answers - though in a rather disturbing interview the man who has made most of the spending decisions has, however, wondered whether the borrowing and investments have gone too far.
The council’s director of Finance Sean Clark says: “I have an internal conversation on this. Sometimes I look at it and go, ‘We’ve done an awful lot here. Should I have done that amount? Should we be doing this?’ But then I come back and go actually, ‘Local authorities have always done this.’
“All we’ve done is upped the amounts we’re talking about.”
Under the direction of Mr Clark Thurrock has borrowed from about 150 local authorities across the UK with little public scrutiny. These loans were not for direct funding of council services, or investing in infrastructure – instead they financed solar farms more than a hundred miles away.
Mr Clark has overseen the investment of £604m in the solar industry, investments he says were prompted entirely by intermediaries approaching him with money-making opportunities.
And there is a wall of secrecy about the intricacies of the financial wheeler-dealing – much of it kept from public scrutiny and made without reference to elected councillors.
Mr Clark nor the council will disclose is which local authorities he borrowed from or what companies he invested in. To do so, they say, would harm Thurrock’s commercial interests and put off potential lenders.
However, an investigation by The Bureau has discovered the council has poured at least £74m, and possibly hundreds of millions more, into a single company, Rockfire Capital, whose financial model raises serious questions over how likely it is that the public money would be recovered in full if the business failed.
Rockfire has not filed accounts covering the period when the payments were made.
Furthermore, during an ongoing civil legal dispute, Rockfire has alleged that 15 of the solar farms bought with council money were riddled with “defects”; £40m from Thurrock was used to buy the sites at the centre of the case. A trial is expected to take place later this year.
The bonds are secured against the solar farms themselves. Rockfire’s seemingly high company debt in comparison with a Financial Times estimate of the value of its farms suggests investors – and therefore taxpayers – are taking on a large degree of risk.
When asked by the Bureau, the council refused to confirm how much money it had invested in Rockfire. However, information given on the record by Rockfire and every other council to invest in the company suggests that Thurrock may have invested as much as £420m in bonds connected to the business.
What is not in question is the money that Liam Kavanagh, the founder of Rockfire Capital and its chief executive, has received from the business while his company pulled in hundreds of millions of pounds of public money – £7.7m in dividends since 2015.
Thurrock describes itself as “unashamedly” focused on revenue, and says the returns from its investments have been put back into services. But the Conservative-led council has not been fully open with The Bureau or the wider public about how those profits were made.
John Kent, the Labour leader of Thurrock council, called on the current administration to come clean. He said: “People absolutely need to be aware that the council has borrowed £1bn – that’s billion with a b.”
Thurrock’s councillors were taken by surprise when it was announced, in September 2016, that the authority had invested in a solar park in Swindon, about 120 miles away. The deal had been agreed behind closed doors using delegated powers four months earlier, after that year’s election but before the new Conservative administration had taken office.
“It was signed off by officers with no reference to members whatsoever,” said Labour’s John Kent, who was the leader of the council at the time. “I knew absolutely nothing about it.” The council blamed a “period of commercial sensitivity” for the secrecy but even when the deal was announced councillors were not given the full facts.
Since the Swindon deal, Thurrock’s investment in renewable energy has increased exponentially. According to its 2018-19 accounts, published last June, the council had £702m tied up in renewable energy investments. Of that money, £604m is specifically in solar. All of the deals, and the borrowing that funded them, were arranged by Mr Clark. But they were not, apparently, his idea. Instead he told The Bureau all of the investments had been prompted by “intermediaries” coming to him with money-making opportunities.
“We’ve never gone out looking,” he said. “I wouldn’t do that. I wait for opportunities to come to me … people have come to us on different occasions with different opportunities, some small, some larger. Word then gets around that we do these things and people come to us.”
He added: “I’m not saying they were advising us to do it.”
So who did? Most councils pay independent treasury advisers to provide guidance about borrowing and investments. Thurrock’s treasury advisers were Arlingclose, one of two main specialists in the field. Clark told The Bureau that he had not consulted with the company about the loans he was taking out or the investments he was making.
“When we did this our due diligence wasn’t through our treasury advisers,” he said. “It was more through professional organisations like some of the big accounting firms, some of the big legal firms and valuation type firms.”
Mr Clark said Arlingclose had ceased to be the council’s advisers as of 31 March 2019. Asked why, he cited “differences of opinion”.
Financial experts say the sidelining of Thurrock’s main financial advisers is alarming because Mr Clark has the power to borrow and invest huge sums of money largely outside public scrutiny, and there are concerns he may have done so in contradiction of national guidelines, which state that councils must not borrow more than or in advance of need purely in the interests of profit.
Mr Clark said he did not believe his borrowing qualified as loans taken in advance of need. “The auditors have been all over this in the last three years and they have all been happy to sign off on this approach.”
According to the Chartered Institute of Public Finance and Accountancy (Cipfa), which oversees the rules for local authority borrowing, these were never intended to accommodate borrowing on a grand scale to fund councils’ financial investments.
According to the council’s constitution Mr Clark, as director of finance, has the authority to arrange borrowing “in such form as he deems appropriate” as long as it is within agreed limits, which are voted on by councillors when the coming year’s budget is set each February.
Any “material change” to the strategy during the year requires a new vote at a full council meeting. Yet, in 2018-19, Thurrock’s borrowing exceeded the agreed limit by £103 million without such a vote taking place. The council told The Bureau the rules allowed the limit to be amended “retrospectively”, even though the borrowing would have taken place before the limit was revised.
What’s more, a council document shows Mr Clark can make short-term investments of up to £10 million without consulting elected members. Larger deals require party leaders to be given only an overview before any firm commitment is made. But Cllr Kent, who recently took over as Labour leader again from Cllr Jane Pothecary, says neither he, not Cllr Pothecary, had never received briefings about individual investments from Mr Clark or any other council officer. They say such meetings should have been a regular occurrence.
However, Thurrock Council says that a “full briefing of the largest investments was provided to the leaders and deputy leaders of the three major parties”.
The Investigative Bureau says it repeatedly ran up against brick walls when it asked questions. That mirrors the current administration’s current strategy of not responding to media enquiries. Locally Thurrock Nub News, the Your Thurrock online website, the Thurrock Gazette and the BBC’s Local Democracy Reporting service have all spoken up about the wall of silence that Thurrock Council has built around its affair.
The Investigative Bureau has lodged a series of Freedom of Information requests that have remained unanswered. They are currently appealing to the Information Commissioner.
Thurrock may be determined to withhold the full facts, but other councils have been more forthcoming.
Successful FOI requests to 40 local authority lenders and borrowers (Thurrock was one of only two councils to reject the request in full) allowed the Bureau to account for nearly £250m of the money Clark borrowed from the likes of the Greater London Authority, Cornwall and Leicester councils.
But that was just a snapshot of outstanding loans as of June 2019. It does not come close to telling the full story of Thurrock’s borrowing since that first deal in Swindon was signed off in May 2016. Because Mr Clark’s modus operandi is a perpetual cycle of borrowing from one council, investing the money, and then paying the council back by borrowing from another – and that these loans could be as short as one month – the total number of councils involved is likely to be higher.
During the investigation Bureau reporters discovered a more accurate measure of the scale of Thurrock’s borrowing within documents detailing the payments it makes to suppliers – data it is obliged to publish under transparency rules. This showed the council had made interest or loan repayments to at least 150 local authorities in nearly every part of the UK, from every type of council to police and crime commissioners and fire authorities, between April 2016 and September 2019.
Thurrock’s borrowing seems extraordinary. The £1.08bn it owes other councils is £457m more than the next council, Lancashire, and 46 times the national average.
Thurrock Council claims all this borrowing has funded investments that have transformed its finances. In the space of three years it went from predicting a £18.5m gap in its budget to, in 2018, forecasting balanced books for at least the next few years.
A report from last June summed up the council’s bullish mood. The “commercial approach”, it said, had “led to a Thurrock Council which no longer looks at what it doesn’t have, but what it does have; at what it can provide, rather than what it can’t”.
In a statement to the Bureau the council said returns from investments allowed it to launch new initiatives.
Thurrock’s cabinet member for finance, Shane Hebb, trumpets the investment strategy, saying: “There are few councils that can say they have increased their general reserve by nearly 40%, put £1m towards new police officers, £670,000 to tackle anti-social behaviour, £500,000 for mental health support in local schools and £1.5m into visible environmental improvements over and above the traditional level of services … The council has also been able to spend significant amounts of this investment income in transforming social care services for children and adults that will result in better outcomes for our most vulnerable residents.”
Despite the investment policy, in February councillors voted to increase council tax by 3.49%.
But these benefits come at the cost of rapidly rising levels of debt. In April 2015 the council’s debt stood at £310m. Its latest projections are for that number to exceed £2 billion in the next three years. To put that in context, Thurrock spends about £220m per year on providing services.
Mr Clark told The Bureau the net gain from the council’s overall commercial strategy was £19.2m in 2018-19, although he was unable to say how much individual investments were making. Yet a report published by the council earlier this year put the net income this year at just £2.2m, with a net loss by 2023 due to rising interest and other repayment costs.
So is Thurrock Council doing the right thing – or is it on the precipice of disaster?
“If local authorities take on substantial debts to make commercial investments with the aim of supplementing their ordinary revenues, there are two big concerns,” says Don Peebles, head of policy at Cipfa.
“One is that this debt has to be repaid irrespective of whether those investments perform, and second there is the concern that council services will become dependent on commercial income.”
The Financial Times concludes its article by saying: “Few councils have exploited the carry trade as aggressively as Thurrock. Should those assets not perform, this could leave its residents with a headache.”
The full report by the Bureau of Investigative Journalism can be read here.
The Financial Times report, which is behind a paywall, can be accessed here.. Thurrock Nub News understands a full report will be in its print version tomorrow (Saturday).
The integrity of some of Thurrock Council's officers in financial decision-making and the lack of accountability to councillors, the public and press has been of concern for some time.
Thurrock Nub News's predecessor local website, The Thurrock Independent, also edited by Neil Speight, ran several stories about the way the council sought investment in the borough and 'jolly boys outings' for officers to the Mediterranean. Check them out here and here .