Council unlikely to continue current commercial approach as more concerns raised over £1.8 billion of borrowing

WARRINGTON Borough Council’s deputy leader Cllr Cathy Mitchell says the council is unlikely to continue its current commercial approach as more concerns were raised in parliament over the significant level of borrowing, currently approaching £2 billion.

While the council has not found itself in the same position as others who have effectively declared themselves in financial distress, she says the council is unlikely to continue its current approach due to much higher interest rates.

She also called on the Government to identify ways to secure long-term, sustainable funding for councils across the country, “who are facing nothing short of a funding crisis.”

Earlier this week Warrington South MP Andy Carter again raised concerns in parliament regarding the council’s level of debt saying: “The sad case of Birmingham City Council will worry my constituents. As the Secretary of State knows, Warrington Borough Council—a Labour-run council—has borrowings of almost £2 billion, which is 10 times its core spending power.
My constituents and I worry about the governance of Warrington Borough Council and about the return on investments that have been made by the council. I am also deeply worried that councillors in Warrington do not understand the decisions they have taken and the exposure they have put my constituents under. Each constituent is now in debt to the tune of £10,000 because of those decisions.
“Can my right hon. Friend set out the steps his Department is taking to prevent another collapse at a Labour-run council, given that that could occur in Warrington next?”

In response, Michael Gove, Secretary of State for Levelling Up, Housing and Communities, said: “I know that the Minister for Local Government, the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for North East Derbyshire (Lee Rowley), has been paying close attention to what has been happening in Warrington, and we will report back to my hon. Friend Toggle showing location of Column 1274 Member for Warrington South (Andy Carter) and to the House on that.
“He is absolutely right to raise those concerns as there is more work that we require to do to satisfy ourselves about the fundamental financial health of Warrington.”

In response, Deputy council leader, Cllr Cathy Mitchell, said: “Financially, the entire local government sector is under enormous pressure. We have unfortunately seen a number of councils effectively declare bankruptcy, with it becoming increasingly clear that the national funding system for local government is broken.

“In Warrington, more people are requiring support from our various council services, in particular young people, families and elderly people requiring social care support, and the cost of delivering these services is higher than ever.
“To help keep our services running, we have borrowed money to invest in assets which we then collect rent from, generating income for us.
“Our current level of borrowing, which is made up of commercial assets, historic debt and investments to promote and support Warrington’s economy, is around £1.8 billion. All of our investments are made in line with our corporate policies and our borrowing is secured against assets, with the value of our assets exceeding the level of borrowing.
“By commercial assets, we mean, for example, that we have invested in some business parks, supermarkets and other buildings that we generate rental income from.
“By historic debt, we mean, for example, money we have borrowed in the past to help support regeneration in the town centre that we’re paying off.
“Our approach to generating income from our investments has in recent years been valuable in keeping services running, providing us with around £23 million each year to invest in our services. Without making these investments we would have needed to cut services, because we simply don’t receive enough funding.
“That being said, our commercial approach is unlikely to continue in the same way due to much higher interest rates, although we will keep looking for opportunities to invest in services that will help to reduce future demand, and therefore limit further costs.

“We accept that our level of borrowing at £1.8 billion is significant, but we do not find ourselves in the same position as a number of other councils who have declared themselves in financial distress. We also accept that our approach may attract criticism, but it is working, and our residents and communities should be reassured that the decisions we have made to-date have helped to keep vital services running.
“We consider our investment decisions very carefully, taking on board external advice where necessary, and every decision we make to invest is based on detailed due diligence and risk assessment. We have recently been in discussions with public finance experts CIPFA about our capital and commercial strategy and, while we await a final report of their findings, we have welcomed their expertise and challenge, so that we can continue to improve our processes.
“In the meantime, we will continue to call on the government to identify ways to secure long-term, sustainable funding for councils across the country, who are facing nothing short of a funding crisis.”