OPPOSITION Tory councillors are challenging proposals by Labour-led Warrington Borough Council to facilitate a £37.5m loan to a Knutsford based housing provider, specialising in “affordable homes” for members of the British Armed Forces, NHS and Emergency Services.
The Conservative Group at the Borough Council is “extremely concerned” that the Council is considering an investment in the for-profit registered housing provider Auxesia Homes Ltd at tonight’s Cabinet meeting – particularly in the wake of Together Energy “debacle.”
They say the balance sheet of the Council is already stretched well beyond the point of prudence and any additional borrowing by the Council must stop. Instead, the direction of travel needs to be a significant reduction in overall Council indebtedness.
Furthermore, they believe it is wholly inappropriate, given the issues with Together Energy and the implications for the due diligence processes of the Council, its corporate governance processes and its understanding of risk and return, for the Labour Cabinet to be ploughing on with the same high risk, high debt investment and borrowing strategy.
The papers contained in the publicly available cabinet pack contains no indication of the risk or return anticipated from these loans.
At the December Full Warrington Borough Council meeting, The Conservative Group were highly critical of the Mid Year Treasury Review and its failure to identify the basic components of risk and return relating to the Council’s investments. They say that without this knowledge no investment can be properly considered or reviewed in context.
Conservative Councillors went on to criticise the lack of explanation of the Council’s investments in the context of their overall balance sheet effect and the potential for investments to generate reputational risk for the Council in addition to the issues regarding risk and return.
Stating many “Inadequacies of the Mid Year Treasury Review” and its lack of analysis of the Council’s investments, led the Conservative Group and Independents to vote against acceptance of the report. Labour and the Liberal Democrats voted to accept it.
Conservative Councillors further commented that the report was little more than a list of investments without any ability of the members to properly understand the true nature of the Council’s investment exposure.
The Cabinet papers available to the members of the Council and the public provide no indication of how these proposed loans to Auxesia Homes Ltd fits in with the current balance sheet, the investment portfolio, the return that is expected, the risk that is being assumed, the credit status of the company or the corporate governance structures that are to be put in place.
Councillor Ken Critchley (Conservative Appleton) commented: “Have any lessons been learned from the Council’s Together Energy investment? One has to ask why the normal providers of finance to private businesses are not providing these Loans.
“To put the scale of the proposed loans in context they are equivalent to over 25% of the total usable reserves of the Council. This is a significant single proposed transaction.
“It’s simply untenable that the Cabinet can make this sort of investment decision without scrutiny from other members of the Council. The current decision-making process has huge risks of optimism bias. Investments need to be scrutinised in an open and transparent manner, not just approved by the Cabinet.
“This is public money that the council is speculating with, councils exist to provide public services not to speculate with other peoples money. To quote from a recent Grant Thornton report, ‘Not all authorities exercise appropriate care with public money; not all authorities exercise appropriate governance; and not all authorities have the capability of managing risk both short and long-term.’ These comments appear to be particularly pertinent in the light of the Together Energy debacle.
“We have no indication in the publicly available papers of the corporate governance structures that are to be put in place to monitor this investment. The lack of appropriate corporate governance is one of the major failings of the Together Energy investment.
“The Council is already significantly exposed via loans to Housing Associations to this sector of the market. A portfolio of investments needs to be well-diversified. These proposed loans do not appear to diversify the Councils portfolio.
“These are significant proposed loans, does the Council have guarantees or assurances that the money that is proposed to be loaned will be used to address housing need in Warrington?
It is particularly worrying to read in the publicly available papers the words, ‘These properties will primarily be built in the Cheshire and North West regions subject to suitable sites becoming available, which may include Warrington.
“It’s really concerning that these comments appear to imply that no guarantees have been secured to use these loans to directly address Warrington’s housing need,” added Cllr. Critchley.
Cllr Kath Buckley Conservative Group Leader commented, “The focus of the Council needs to be the provision of services not acting as a quasi bank or hedge fund and with the Together Energy situation raising so many questions this is not the time to be considering further investments.”
According to their website Auxesia Homes provide between 100 and 250 new build homes for affordable rent, rent to buy or shared ownership purchase across the North of England.
From town centre flats to suburban family houses, they work with reputable house builders to provide good quality sustainable affordable homes.
Prioritising former and serving members of the British Armed Forces, NHS and Emergency Services, they aim to create a significant social impact while providing great places to live.
The Auxesia Homes business model has been created without government grants, donations or tax subsidies. This ensures their affordable homes are delivered at nil cost to the UK taxpayer. They believe that institutional investment will not only generate stable and positive returns, but also make a significant social impact amongst those individuals and families who have served – or continue to serve – our country.