The government has launched an urgent investigation into the finances of a Tory-run council amid “grave concerns” that local services are at risk from the authority’s exposure to more than a billion pounds in loans it took out to fund a series of commercial investments.
The communities secretary, Greg Clark, said government-appointed commissioners would take full control of Thurrock’s finances because of fears over “the exceptional level of financial risk and debt incurred by the council”.
Thurrock, in the ceremonial county of Essex, has become one of the most indebted and highly leveraged of all English local authorities after borrowing £1.5bn in recent years, including more than £900m in short-terms loans from other councils, to enable investments in a string of solar farm businesses.
Clark bypassed normal protocols on Friday when he rushed to appoint external commissioners to run the council’s finances, citing the “pressing case for urgent government action to protect the interests of residents and taxpayers of Thurrock”.
“Given the serious financial situation at Thurrock council and its potential impact on local services, I believe it is necessary for government to intervene,” he said.
An explanatory memorandum published by the Department for Levelling Up said: “The scale and nature of the issues is emerging very quickly, and the secretary of state is concerned that further evidence of failure could come to light very quickly and require prompt action.”
Although the government revealed little precise detail about its concerns, there are understood to be fears over the ability of Thurrock to repay its borrowing should the investments turn sour, as well as doubts over the ability of the council to cope with potential losses estimated by some at £200m.
A recent investigation by the Bureau of Investigative Journalism found that hundreds of millions borrowed by Thurrock had been effectively lent to companies owned by the multimillionaire businessman Liam Kavanagh to invest in 53 solar farms.
The council has faced persistent allegations in the past two years that it had kept councillors and the public in the dark about its investments, with opposition members claiming they have been “fobbed off and misled” over the deals.
Thurrock council’s leader, Rob Gledhill, resigned on Friday after the government announcement, saying: “It has become clear over the past few months that the situation regarding council investments, and subsequently its finances, has not been as reported. As leader of the council the political buck stops with me.”
John Kent, the leader of Thurrock council’s Labour group, said the group had been repeatedly “stonewalled, ignored, falsely reassured, lied to, fobbed off and misled” by officials and cabinet members when it tried to get information about the council’s borrowing and investments strategy.
“For a long time now, we have had no confidence in the honesty or integrity of Cllr Gledhill’s leadership or that of his cabinet colleagues. It’s right for Gledhill to have finally done the right thing and resign. But there are others, who have been in Gledhill’s cabinet throughout his disastrous leadership, who share collective responsibility and are equally responsible – they must also consider their positions”.
He added: “It’s now time for openness and honesty, the people of Thurrock have a right to know what has been going on and where their missing millions are.”
Thurrock is the latest council to have run into financial difficulties after borrowing huge amounts in the hope of generating income to offset huge budget gaps created by government cuts. Croydon and Slough councils have both declared effective bankruptcy, in part due to problems caused by extravagant borrowing.
The National Audit Office warned two years ago that many English councils were financially badly exposed after embarking on a £6.6m borrowing spree to invest mainly in commercial property. Ministers have become increasingly nervous about the massive scale of loans taken out by a number of councils.
Neighbouring Essex county council has been appointed by Clark to take full control of Thurrock’s finances. It will also carry out a review of Thurrock’s governance, audit and scrutiny functions, and prepare an improvement plan.
In a statement Thurrock council said: “[We are] treating this situation extremely seriously and has been working with the government in recent weeks, as well as independent financial and legal experts to fully understand how the situation has arisen and establish a comprehensive resolution plan to safeguard the council’s financial position.”