A council in Surry has effectively declared bankruptcy with a £1.2 billion deficit in its budget owning to debt inherited from previous property sprees.
The Liberal Democrat-run council said its core funding in the 2023/24 financial year—consisted of council tax, retained business rates, and central government grants—only adds up to £16 million, while its debt portfolio was £1.8 billion as of March 31, 2023.
As a result, the council will not be able to balance its budget for a number of years, it said.
Julie Fisher, Woking Borough Council’s Chief Executive, said the issuing of a Section 114 Notice is “a very serious matter that rightly reflects the scale and breadth of the acute financial situation facing the council.”
She also said the decision was informed by an independent financial review, which gave the council “a comprehensive understanding” of its “severe financial position.”
The independent review, commissioned by Levelling up Secretary Michael Gove, found that the scale of the council’s financial problem is “unprecedented.”
The report said there is “no realistic means by which the Council can return to financial sustainability on its own” and that it will require “significant support, including statutory oversight.”
According to the report, which was published in May, Woking Borough Council was “the most indebted council relative to its size in the UK.”
The size of the debt was £1.9 billion at the time. The report said it was the fourth-highest level of debt in the country and the highest level of debt per head (£19,000).
Woking Borough Council has been under the control of the Liberal Democrats since May last year. Between 2007 and 2022, the Conservative Party controlled the council for eight years, while no party had overall control for the other four years.
Much of the council’s debt is the result of a borrowing spree between 2016 and 2019 to fund property development projects including Victoria Square, which features two skyscrapers with a hotel, two public plazas, and some residential properties.
The council gave 50-year-loans to its wholly owned Thameswey group and Victoria Square Woking Ltd, a joint venture between the council and Northern Irish property firm Moyallen Group, to support the project, and borrowed from the Public Works Loans Board to compensate its operating losses.
Meanwhile, the properties it has built have lost value since the COVID-19 pandemic, resulting in a charge of over £600 million.
The council has also been under calculating the amount of money it needs to set aside for debt repayment since 2007/08, resulting in an additional charge of £95 million in the 2023/24 financial year and around £75 million each year in the coming years.
The council said if the £75 million was to be paid by cutting services, it could “no longer afford to provide any services at all and would still see a net budget shortfall.”
Councillor Ann-Marie Barker said her administration “has been very clear about the huge financial challenges facing the council due to the legacy of inherited debt.”
She said the challenges are “so significant” that the council “cannot simply deal with them on its own” and has to work with the central government to deliver an Improvement and Recovery Plan.
The plan may entail a rise in council taxes and some level of central government bailout.
Woking is not the only council to effectively declare bankruptcy in recent years.
South London’s Croydon Council issued a section 114 notice in November 2021 for the third time in two years. A sixth of its annual budget was spent on paying debt.
In November 2021, then-Labour-run London Borough of Croydon issued its third section 114 notice in November 2021, while Thurrock in Essex took the step in December last year after it got into difficulties over borrowing large sums to invest in solar energy.
Conservative-run Thurrock Council and Labour-run Slough Borough Council have also declared effective bankruptcy in the last two years.
Earlier this year, the three councils raised the rates of their council taxes with the central government’s permission—Croydon by 15 percent and the other two by 9.99 percent.
