It’s not a rotten borough, it’s a rotten system

The recent scathing assessment of Spelthorne Borough council left me with a familiar feeling – and it wasn’t one of shock.

The government inspectors’ report, published this week, details why the small district council in Staines, Surrey, finds itself hurtling towards financial meltdown.

The events that brought Spelthorne to this point demonstrate all the deeply-ingrained issues facing local government in the UK. At least seven councils have gone bust – they technically can’t go bankrupt, but a section 114 notice is the nearest equivalent – since 2018. Many more are at risk of following suit.

Spelthorne’s financial disaster bears all the hallmarks of another scandal I spent years uncovering, just 90 minutes around the M25, at Thurrock council in Grays.

Alarmingly disproportionate financial risk? Check: both Spelthorne and Thurrock borrowed vast amounts of taxpayers’ money to fund extravagant investment policies, hoping that income from those deals would justify the risks.

Spelthorne took out £1bn from the Public Works Loan Board (PWLB), a government lending body, and bet it all on the property market, buying 11 offices in the Thames Valley and a shopping centre. Now rental income is drying up and their value has plummeted.

Thurrock borrowed a similar amount but from other councils – partly because the profligacy of Spelthorne and others stopped PWLB loans to fund investments. Thurrock’s borrowing was poured into a series of ultimately disastrous big-money deals, most notoriously in 53 solar farms.

A lack of checks and balances? Check: multi-million pound deals by both councils were made by a small clique of officials who somehow had carte blanche to do as they pleased, largely behind closed doors. Paperwork underpinning the investments was flawed or nonexistent.

This week’s report found that Spelthorne’s acquisitions were “driven by a small group of councillors and officers, with insufficient consideration of the potential risk”. Only certain people were allowed to see documents. In some cases no one else knew before the acquisition was made.

Thurrock’s borrowing and investments were arranged, often in secret, by the council’s finance director Sean Clark. The most damaging deals, which have cost the public purse at least £130m, were arranged by Clark during off-the-books meetings at a five-star Mayfair hotel. The council also spent years refusing to release details about the investments under the Freedom of Information Act.

A culture of denial? Check: Spelthorne and Thurrock both stuck their heads in the sand, dismissing every concern about what they were doing, including in their responses to the concerns raised by the Bureau of Investigative Journalism (TBIJ).

When TBIJ first revealed Spelthorne’s vastly disproportionate property investments in 2018, the then council leader Ian Harvey insisted the approach had been “restrained, prudent and risk-averse”.

That attitude persists even now, with senior figures telling the inspection team that the “biggest risk to their investments comes not from their own actions or inaction, but from external intervention”.

Thurrock also refused to acknowledge the risks involved in the deals it made. I’ll never forget the public meeting called after TBIJ’s first story in May 2020, when elected members lined up to praise the investment policy that would later bankrupt the council. Critics were dubbed “a complete embarrassment”. One councillor urged the authority to borrow even more.

This speaks to another shared problem. Councillors lacked the experience to recognise the risks being taken by their colleagues and challenge what they were doing. They were ignorant and complacent and residents are footing the bill.

In the normal running of things, these otherwise cash-strapped councils’ primary role is to collect the bins and keep streets clean. But these issues created an environment they were able to gamble with, and lose, hundreds of millions of pounds.

It is far from limited to just these two local authorities. There were similar factors in the financial problems that engulfed Croydon, Woking and Northamptonshire.

Labour’s big plan for local government is a major restructure that aims to place more power in the hands of local people. For Spelthorne and Thurrock that may result in abolition, with their functions merged into newly created local authorities.

Exactly what that would mean for the huge debts both hold is unclear. But there are more systemic issues with the sector, laid bare by both disasters, that are not addressed by this devolution plan. While these ingrained weaknesses continue to exist, so will the risk of further financial calamities.