Thurrock: Council with £469m budget gap 'took risks'

The Conservative-run Thurrock Council admitted £275m of taxpayers' money would be lost as a direct result of investments

The chief finance officer of a council facing a £469m hole in its budget was warned by independent experts about the "unprecedented" risks being taken with public money.

Thurrock Council's shortfall is one of the largest ever reported by a UK local authority.

Sean Clark, the council's corporate director of resources, arranged a series of business deals that apparently failed to produce the expected returns.

Mr Clark did not respond to the BBC's questions or requests for comment.

The Essex council's funding gap is more than three times larger than its annual budget.

On Tuesday, the Conservative-run council admitted £275m of taxpayers' money would be lost as a direct result of investments it has made.

Evidence obtained by The Bureau of Investigative Journalism (TBIJ) and seen by the BBC reveals how, in March 2018, the financial advisors Arlingclose wrote to Mr Clark personally to express urgent concern about the council's "extreme" appetite for risk.

The company felt that risk was "well beyond" all of its other clients, even those who had adopted relatively aggressive strategies.

'I am angry'

Rob Gordon, a tower block resident in Grays, says seeing the council spending money while he was waiting for his block to be re-clad made him "angry"

For father-of-two Rob Gordon, learning of the council's current financial situation is a source of intense anger and frustration.

He lives with his wife, Liz, and their two young children in one of the council-owned Seabrooke Rise estate tower blocks. Earlier this year, he said, his children had been made poorly by growing amounts of mould and damp in their flat. The building is currently having new insulation and cladding installed.

"I am angry," said Mr Gordon, who was recently injured in a fall in the tower block stairwell. "You get annoyed, you get upset and you get angry.

"When you are seeing our repairs and work here not being done, but they [the council] have a brand new office, the college has a new front and there is a new school being built. When you can see this going on and you're not getting answers, that's when you get angry."

'Huge exposure'

Thurrock Council's current funding gap is more than three times larger than its annual budget.

Thurrock's strategy of investing substantial sums of money borrowed from other local authorities had, wrote Arlingclose, moved the council "well beyond the tolerances of what we consider to be prudential risk-management boundaries".

"Our advice has either been ignored or we simply have not been consulted," the letter, seen by the BBC, said.

The letter listed a series of risk areas including the £370m invested in unrated bonds, high levels of debt and "huge exposure" to local authority funding. It also noted that the company's "advice has either been ignored or we simply have not been consulted".

The letter continued: "Arlingclose currently works with several local authorities that have pushed the investment boundaries… but the extent of the risk taken by Thurrock Council without consultation with us in key decisions is unprecedented.

"This activity presents reputational issues, both for Thurrock Council and Arlingclose."

In late 2018 the council started to significantly increase its investment in a portfolio of 32 solar farms

It is understood that after the council terminated its relationship with Arlingclose in March 2019, the authority continued to approve increased borrowing from other local authorities, which at one stage were owed £1bn by Thurrock, in order to finance investments.

Those deals include £655m provided to companies via bonds which financed the purchase of 53 solar farms.

In late 2018, the council started to significantly increase its investment in a portfolio of 32 solar farms.

These payments were made in three stages and would eventually total nearly £140m.

You might also be interested in:

• Council reveals 'grave' £469m hole in budget

• Council set to borrow nearly £850m to repay debts

• Debt-ridden council owes other authorities millions

In September 2020, the council decided to pause its investment policy.

However, it is understood further investments were made for more than a year after that decision was made.

The BBC has learned that nine separate transactions totalling nearly £55m were made between October 2020 and December 2021.

Those investments include some of the £94m Thurrock has tied up in Just Loans Group PLC, a lender which provides funding to businesses unable to raise money through traditional means. The company went bust in June and the council estimates it will lose £65m.

Other investments include £19m lost in a deal with a company that supplies eco-friendly generators to leisure centres and £14m written off after the collapse of a woodchip boiler business.

Mr Clark has been suspended on full pay since the urgent government intervention in September following "grave concerns about the exceptional level of financial risk and debt incurred by the council".

'It is absolutely catastrophic'

John Kent, leader of the Labour group on the council, said he holds the council's leadership responsible for any mistakes made

John Kent, leader of the Labour group on the council, described the current financial situation at the council as "catastrophic".

However, he said the council's decision-making body as a whole was to blame for any mistakes rather than any one individual.

He said as an opposition councillor he was not told where the council had been investing "until the government announced its intervention" two months ago.

"It is unconscionable and it did not have to be like this," he said. "We've been warning them for years that this reckless gamble with the borough's finances would end in tears.

"If I'm honest, I did not really expect it to be quite as bad as this but it is absolutely catastrophic and it is not only my children but my grandchildren who will be paying the cost of this failure.

"I'm absolutely clear that council officers carry out the policies laid down by councillors," he said. "The responsibility for this catastrophe lies fairly and squarely with the Conservative cabinet. Those people have been running Thurrock Council for the past six years.

"We are supposed to believe that they did not know what was going on, we are supposed to believe that they received reports telling them they were borrowing £1.5bn but didn't think to ask what that money was being borrowed for or what it was being invested in."

Thurrock is not the only council currently struggling. Croydon Council has announced it faces a £130m black hole in next year's budget and Slough Borough Council revealed it had a £479m blackhole in its budget in July.

Northamptonshire County Council was described as England's "worst-run council" when it was abolished in 2021. It had to make cuts of about £34m.

Mark Coxshall, leader of Thurrock Council, said: "At the moment, we are £470m in debt which we can't cover and that is why we are needing to move for exceptional financial support from the government.

"It's a very large figure and I understand that."

He said the government was carrying out a Best Value investigation into "everything that went on in the borough" and that would be released by the secretary of state in "the fullness of time".

Asked about the independent warnings given about the council's investments and investments continuing to be made after they were meant to have stopped, Mr Coxshall said: "We can't answer that question at this time."

He added: "These are shocking numbers but the first stage to creating a good plan for recovery is to understand the full extent of the problem."

A spokesperson for the Department for Levelling Up, Housing and Communities said: "We are aware of the serious ongoing concerns about the financial management of Thurrock Council.

"Ministers have already appointed Essex County Council to the role of Commissioner and Best Value Inspector, giving them full control of the financial functions of Thurrock Council and powers to assess whether there are wider failures."

The government added it would "not hesitate to take further action" if needed.

Photography: Laurence Cawley, unless otherwise stated