Why is Thurrock council in so much debt?

Thurrock council, a relatively small local authority in Essex, UK, has amassed the largest budget deficit in local government history. How? As a result of ruinous business deals involving huge sums of public money. The big question, especially for the local residents left counting the cost, is how this was allowed to happen.

What were these disastrous deals?

At the heart of the scandal, uncovered during a three-year investigation by the Bureau of Investigative Journalism, is a series of investments in the renewable energy sector. The deals began in September 2016 when Thurrock, alongside Warrington and Newham councils, financed the purchase of a solar farm in Swindon. This was marketed by Rockfire Capital, a company owned by Liam Kavanagh.

Over the next two years, Thurrock helped Kavanagh to buy 53 solar farms across the UK. As part of these deals, hundreds of millions of pounds in taxpayers’ money was poured into bonds issued by his companies. The interest payments Thurrock received from these loans were then used to bolster the Conservative-run council’s budget.

So what went wrong?

Part of the problem was the way the investments were financed. Thurrock borrowed £1bn from more than 150 other local authorities, and the short-term loans – many only a month in length – meant the council was perpetually borrowing from one council to repay another.

When TBIJ’s investigation later uncovered serious concerns about how the money had been used, councils were advised to stop lending to Thurrock, and the business model collapsed.

To repay the councils it had borrowed from, Thurrock then had to seek emergency permission to take out almost £850m from a Treasury-run lending body, this time at far higher interest rates.

Then there was the series of secretive top-ups made by Thurrock after the solar farms had been bought. These deals were struck after undisclosed meetings between Kavanagh and Sean Clark, the council’s chief finance officer, at a five-star Mayfair hotel.

Between November 2018 and January 2020 the council handed over an additional £130m relating to 32 of the solar farms. That money is currently unaccounted for. During this period Kavanagh bought a country estate, a private jet and a fleet of supercars. Kavanagh’s companies owe Thurrock around £700m. He denies wrongdoing.

The government took urgent action following TBIJ’s exposé. In September 2022, Essex county council was given control of Thurrock’s finances and an investigation was launched into what had happened, the results of which have since been delayed until after the local elections next month.

The council leader resigned, followed later by its chief executive. Sean Clark also resigned having initially been suspended, seeing out his notice while an investigation into his conduct was undertaken.

Just how much did Thurrock council lose?

In November 2022, the full scale of Thurrock’s financial collapse finally emerged – and it was unprecedented. Figures released by the council showed that its failed investment policy had left it with a hole approaching £500m, the largest budget gap ever reported by a UK local authority.

A few weeks before the council admitted it was effectively bankrupt, it estimated that its deals with Kavanagh – whose company Toucan Energy Holdings 1 had been put into administration – would result in a loss of almost £200m. And Kavanagh’s solar farms were not Thurrock’s only disastrous investments.

What other deals did the council make?

Thurrock also has £94m tied up in lender Just Loans Group, which went bust in June 2022 with the council as its main creditor. The loss to the taxpayer is expected to be £65m.

It has also written off almost all of a £20m investment to PWE Holdings, which was supposed to use the money to expand its business supplying eco-friendly generators to leisure centres … but instead used most of the cash to set up a credit company.

A further £14m of taxpayers’ money was lost after Chip Chip Ltd, a wood-chipping company, went into administration.

Who is responsible?

Why did so many of the council’s investments go so wrong? Much of the blame appears to rest with Clark, the finance chief who oversaw the deals and the borrowing that financed them. In November 2022, TBIJ revealed that he had ignored repeated warnings about the “unprecedented” risks he was taking with public money. This included a letter in March 2018 from independent experts expressing urgent concern about the council’s “extreme” appetite for risk and a business model that had placed it “well beyond the tolerances” of risk-management boundaries.

Clark had been handed additional borrowing and investment powers by councillors in October 2018. The Conservative-run administration, which ultimately has political responsibility for the policy, continued to champion and defend the deals until they collapsed.

Clark also ignored advice provided by the legal firm Bevan Brittan ahead of the third and final top-up, of £40m, in January 2020. A leaked council report said the firm had “flagged serious risks with the investment to [Clark]” only for the deal to be “authorised before these matters were resolved”.

On top of this, Clark continued to invest tens of millions pounds after councillors agreed no more deals should be made, including to a company that has since gone bust. He also breached local government borrowing rules by failing to set aside part of the council’s annual budget to repay its debts, which ultimately contributed a further £200m to its deficit.

Why are we only finding out now?

The catastrophe was compounded by the secrecy surrounding the investment policy. Local people and even opposition councillors were given little to no information about the deals.

Thurrock spent three years, and tens of thousands of pounds, fighting Freedom of Information requests submitted by TBIJ asking what exactly it had invested in and which councils it had borrowed from.

In October 2022, a judge-led tribunal ruled that the details of Thurrock’s dealings should be disclosed due to their “wholly exceptional scale” and suggested the council’s reluctance to release the information was “a wish to avoid the embarrassment which public scrutiny of its remarkable financial activities would be likely to involve”. When the investment policy was finally discussed in public, Conservative councillors branded their Labour opponents a “complete embarrassment” for questioning what they had done.

What does this mean for the people of Thurrock?

The impact of the scandal on local residents will likely be severe and long-lasting. The council is set to receive a government bailout of £635m to help balance its books but the repayments will place strain on its budget for decades. It has also been given special permission to impose a council tax rise of 10% without a local referendum, increasing household bills by hundreds of pounds a year.

Ahead of that increase being voted through in March, protesters gathered outside the council’s headquarters carrying banners reading “We’re not paying your gambling debts”. Residents have been told to expect “substantially reduced” services and the area’s 10,000 council homes may even be sold off.

Meanwhile, Thurrock has yet to take any legal action to recoup the money lost because of its business transactions. Administrators are preparing to sell the 53 solar farms later this year, the proceeds of which will help ease some of the council’s financial burden. The findings of the inspection commissioned by the government are expected to be published at some point after 4 May.