Labour happy to talk as Tories continue to scrutinise council’s investments in “Junk Bonds”

LABOUR’S new finance spokesperson on Warrington Borough Council, Cllr. Denis Matthews, says he is happy to speak with opposition Tories who continue to scrutinise the council’s controversial “junk bond” investments.

Calling on the Conservative Group to do something constructive and write to their Chancellor to request a fair funding settlement for all councils, Cllr Matthews says he is happy to speak with the Tories should they have positive ideas that they feel would be to the benefit of the residents of Warrington.

It follows ongoing concerns from the opposition after Bloomberg News published an article revealing that Warrington Borough Council had a substantial investment in a hedge fund specialising in junk bonds on October 13 last year.
This new information came as a surprise to several Conservative councillors who had been carefully scrutinising the borough council finances for over two years, including the controversial investments in Together Energy and Redwood Bank.

On 13 November 2023 Cllr Nigel Balding (Birchwood) wrote to the Chair of the WBC Audit and Corporate Governance Committee (ACGC) to ask for an urgent item of business for the next meeting. In his four-page letter, he requested a review of the investment’s due diligence, strategy, reporting procedures, decision-making, security, yield and the latest financial position.
The Committee Chair replied to say that the council had now disposed of its investment in the fund and that the matter would be put on the ACGC’s work programme. The matter was subsequently timetabled for the meeting of 18 January 2024.

In response to Cllr Balding’s letter Warrington Borough Council officers prepared a Review.
As background information on the committee, Warrington residents may be aware that after much protest from Conservative councillors, Labour councillors changed the WBC Constitution in 2023 to reduce the number of councillors on the ACGC. In practice, this has meant a reduction from 11 to just 6 (4 Labour, 1 Conservative and 1 Lib Dem). However, the committee Chair can invite other people to make presentations or answer questions; at the January 2024 committee meeting, this included 6 council officers.

Cllr Ken Critchley, the Conservative committee member, requested in advance that group leader Cllr Nigel Balding be invited to answer questions on his letter and the Review. However, after some debate, all committee members except Cllr Critchley voted against this proposal and Cllr Balding remained in the audience.

After the meeting, Cllr Balding (Birchwood) said: “I’d like to thank officers for their Review document which provides some important information and context.”
“I wrote to the WBC Monitoring Officer to ask him to clarify the Constitutional position which the Review says authorises WBC’s Section 151 Officer to change the investment strategy and then make investments without approval from elected councillors. In my opinion, the Constitution does not allow for this; if it does, then I’d like councillors to change this at the earliest opportunity.”
“Decision-making that involves significant risk to residents is best done by elected representatives following clear advice from officers. This is the way it works in parliament, and it is the way I think it should work in Warrington, not least for the long-term interests of officers.”
“Changes in investment strategy, like the decision to suddenly start investing in junk bonds, should not have been rushed, nor should a decision to invest £millions in a small hedge fund. Councillors should be made aware of all the implications of any big decisions being made. The ACGC meets regularly to review Treasury matters including strategy, and councillors can attend extra meetings if necessary.”
Cllr Critchley said: “WBC seems to have departed from statutory guidance when investing in this fund. There are questions over whether WBC complied with its Constitution when making in-year changes to its Treasury Management Strategy. “At the meeting, I proposed that the ACGC should make three recommendations to Full Council to strengthen governance:
1. The delegated authority for council officers to make in-year changes to the Treasury Management Strategy should be cancelled.
2. The Treasury Management Strategy should be amended to exclude future investments in instruments below investment grade (generally known as junk bonds).
3. Future Treasury investments should comply with the statutory guidance on Local Authority investments which states that security of the principal is the paramount consideration, followed by liquidity, and finally only when the first two are satisfied yield.
“Unfortunately, Labour and Lib Dem Councillors refused to support any of these recommendations.”

In response, Cllr Matthews, Cabinet Member for Corporate Resources said: “Since 2010 Warrington Borough Council (WBC) has faced cuts of 97% to its Revenue Support Grant funding from the Conservative Government.
“As a result, local authorities like WBC were forced to develop new ways of generating revenue income; an approach actively encouraged by the government, which pushed councils to be more commercial.
“Warrington Borough Council can balance its budget despite Conservative austerity and cuts because of our investment portfolio. The surplus profit of around £23 million per year goes directly into supporting Warrington’s most vulnerable residents.
“More than 80% of every pound we spend going into things like protecting vulnerable children and adult social care.

“Altana Corporate Bond Fund (ACBF) is a diversified bond fund that the Council invested in between 2018 and 2023, as per the Council’s Treasury Management Strategy and agreed by the Audit & Corporate Governance Committee and Full Council each year.
“The fund invests in the bonds of companies with strong Balance Sheets, positive liquidity and cash positions – including household names such as the Co-op, Sainsburys, and high street banks including Barclays and Lloyds.
“When WBC invested in the ACBF in 2018, interest rates were at considerably lower rates than they are today. Over the 5 year period the council invested in the ACBF, it generated positive returns of 9.5%.
“As part of the Council’s 2023/24 Treasury Management Strategy, the Council made the decision to exit the fund following the major shift in global economic conditions. By 16 October 2023, the Council had fully exited the fund with all funds returned and no losses to the council occurring.
“This Labour administration is committed to the open and transparent conduct of our town’s finances. The Council’s 2024/25 Treasury Management Strategy will be brought forward to the cross-party and non-political, Audit and Corporate Governance Committee (ACGC) in February for discussion.
“As part of WBC’s commitment to implementing Chartered Institute of Public Finance and Accountancy (CIPFA) guidance, the Audit and Corporate Governance committee was reduced to 6 cross-party members.
“CIPFA is the world’s only professional accountancy body to specialise in public services, they provide independent and professional guidance and advice to organisations such as Warrington Borough Council.
“It is a matter for individual members of the ACGC as to whether they support the recommendations put forward by Cllr Critchley after considering the merits of his proposals. The post-completion review of the Altana Corporate Bond Fund is openly available on WBC’s website within the committee papers, and I would encourage all residents to review this report should they wish to seek further information.
“I am always happy to speak with both Cllr Balding and Cllr Critchley should they have positive ideas that they feel would be to the benefit of the residents of Warrington.
“However, I once again ask the Conservative Group to do something constructive and write to their Chancellor to request a fair funding settlement for all councils.”

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