The First Splash?

On the 12th of May the Local Government Chronicle ran the following article on an item in the Government’s Levelling Up and Regeneration Bill, which was unveiled the previous day at the opening of Parliament;  The Secretary of State will be equipped with new powers to intervene in individual councils by capping their borrowing and forcing them to sell their assets.

A ‘capital finance risk management’ clause was included in the Levelling Up and Regeneration Bill laid before Parliament this afternoon, much to the surprise of the Local Government Association.

One of its senior advisors, Bevis Ingram, told the LGA’s resources board today: “There was a clause on capital finance in the bill which we were not expecting. It will give the secretary of state fully wide powers to intervene in individual councils, including capping council’s borrowing and forcing them to sell certain assets. That’s hot off the press. We are talking to government about what that means.”

The clause states that in order to “reduce or mitigate financial risk”, the Secretary of State may direct a local authority to set borrowing limits or require the council to “divest itself of a specified asset”.

The new legislation comes at a time when Slough BC, which is currently subject to a government intervention, is in the process of deciding which of its more than 6,000 assets it will sell off to reduce  £760m of borrowing debts and a ten-year deficit of £479m.  Slough’s property and land assets include an Odeon Cinema in Basingstoke, a Wickes Store in Wolverhampton, and a Waitrose supermarket in Gosport.  The Bill states that the secretary of state can give these directions when a “risk threshold” is deemed to have been breached, and the council’s chief financial officer makes a report stating its expenditure is likely to exceed available resources.

They may also give these directions if the Secretary of State issues an enactment preventing such a report having to be made, or if they make a “request for expenditure to be, or not be, treated as capital”.

The clause comes following a period in which Nottingham City Council and Croydon LBC have found themselves in financial hot water and facing the threat of a government intervention, while commissioners have been sent into Slough and some departments of Liverpool City Council.  However, government interventions in the running of councils are still rare; under legislation from 1999, they have occurred in England in response to high profile service failure or scandals – including Hackney LBC (2001-2007), Hull City Council (2003-2006), Stoke-on-Trent City Council (2008-2010), Doncaster MBC (2010-2014), Tower Hamlets LBC (2014-2017), Rotherham MBC (2015 – 2019), and Slough (2021-present).

Each intervention begins with a formal direction notice being served then commissioners are then appointed to take over certain operations, with powers typically returned after a period of years.

Rob Whiteman, chief executive of Chartered Institute of Public Finance and Accountancy, said it was a sensible to give the secretary of state more powers to protect the public.  “It’s right there will be new DLUC powers to cap excessive borrowing,” he said. “A shame to get here but inevitable given some councils’ actions which have placed risk on their council taxpayers, but let the sector down too.”

However,  he emphasised the need to avoid “unintended consequences” because “nearly all council borrowing is sensible” so Cipfa will work to ensure they are not impacted by the changes.  Geoff Winterbottom principal research officer at the Special Interest Group of Municipal Authorities (Sigoma) said that while there is “concern about how the secretary of state would exercise the powers” he remained open minded until more details emerge.  This is because the new powers are intended to enable DLUHC to step in earlier. “It might better than resorting to the more extreme powers the secretary of state already has,” he said.

This action, as they state, comes due to numerous Local Authorities stretching the boundaries around how they have financed investments, much of that money having come from the Public Works Loans Board (PWLB). This department gives loans far below commercial interest rates to authorities for the development of publicly beneficial projects.

The comments from the Chief Executive of the Chartered Institute of Public Finance and Accountancy, that this action will protect the public from councils who have put Council Taxpayers and their services at risk, rings very true with Luton Borough Council (LBC).  This, of course, as we have mentioned in previous articles, is because LBC have taken out over half a billion pounds of loans from the PWLB, to finance and, we understand, keep afloat in recent times, its airport company Luton Rising (LR).  The PWLB is also where LBC were expecting to borrow even more money for LR, which would have nearly doubled that figure to just under ONE BILLION POUNDS!

Thankfully this decision would appear to have slammed that door closed – primarily for the benefit of the people of Luton, who have seen enough service loss and general town decay since 2015, when all cash roads have led to LR and Luton Airport. Secondly, we imagine it would mean a massive handbrake on wasting more money on LR projects, as commercial lenders will not be so keen when they see no return on the huge investments they will be asked for?

The same week this article was published, we became aware of another development within LBC, which was confirmed at the LBC Full Council meeting on the 17th May.

As we have detailed in previous articles, we believe the down-debt spiral started for LBC and LR in 2015, when individuals unknown, changed policy from the company being a simple rent collector, to an airport developer. 

A name that you will see occurring in many of those articles is Councillor Andy Malcolm. He has been Finance Portfolio holder at LBC since 2015, Chair of LR in its previous guise of London Luton Airport Ltd form 2015 until replaced in 2021 and is still a Board member of LR.  We have always been confused as to why someone with hats in both finance and LR, could have (in our opinion), gotten things financially so badly wrong. Whenever Councillor Malcolm was challenged within LBC meetings by the opposition parties, and indeed by us and other members of the public, he always spoke with a borderline condescending air that both Councillors and general public could not understand the financial minutiae in the detail, so just never bothered to answer any questions on the subject.

The splash we mentioned in our header, was the noise as Councillor Malcolm became the first Rattus Norvegicus*  to leap over the gunwales of  the Good Ship LBC as it flounders under the debts of LR, and before it meets the iceberg of the Levelling Up Bill and sinks for a very long time. 

He resigned the Finance Portfolio at that meeting, having also announced that he will not stand as a Councillor in May 2023. We of course sincerely hope that this is not for ill health reasons for himself or his family, though due to the monumental debt mountain he has overseen the growth of, we sadly would not be surprised if that weight has finally caught up with him.

We wish his successor well, as we also understand that he has undertaken this Herculean Task, as no one else in the Labour controlling group would volunteer, and someone had to do it.   

  You are a very brave man Councillor Roche.

Among our group we have had thoughts as to who would jump ship before next May, and we believe that Councillor Malcolm is only the first of many who will reveal “compelling” reasons to go and leave the next Councillors to sort out the wreckage.

In any sane society, the cutting off of access to these cheap PWLB loans would signal the white flag being run up, and all thoughts of airport expansion, indeed all LR projects being mothballed for a very long time.

Sadly, in the Basket Case Republic of Luton Borough Council, we think the death throes will continue until at least next May.

*Brown Rat

Stop continuing Luton’s financial collapse, Stop Luton Airport Expansion NOW

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