Slough Council leader answers section 114 notice questions

In the next few months, council chiefs will have to make some difficult decisions by selling off some of their £200 million-worth of ‘non-operational’ assets and the possibility of cutting some non-statutory services in order to fill an estimated £159 million black hole by 2025.

On Friday, July 2, SBC had to succumb to their financial pressures and issue a section 114 notice, effectively declaring bankruptcy, after years of historic accounting errors, inadequate financial monitoring in their outside companies such as James Elliman Homes Ltd, and insufficient capacity and skills within its finance department, came to light.

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A few years back, SBC’s reserves, which are used as emergency spending, hovered around £8 million – but by the end of 2018, this dropped to £550,000.

This was all highlighted in auditors Grant Thornton’s two damning reports into the council’s 2018/19 accounts where further problems surfaced from SBC’s new chief finance officer Steven Mair and his new team.

Before this came to light, the council was already seeking further government support by requesting a capitalisation directive of up to £15.2m for this financial year, which would enable SBC to sell some of their assets to plug financial gaps in their budget.

The Local Democracy Reporting Service (LDRS) sat down with SBC leader, councillor James Swindlehurst and asked him questions on Slough’s financial crisis.

Cllr James Swindlehurst (Image: Slough Borough Council)

Cllr Swindlehurst, you have yet to apologise to the residents of Slough for this financial crisis, which will undoubtedly have a direct impact on their lives given non-statutory services they need or enjoy will be cut back.

“Of course, I’m sorry about what’s happened and I’m sorry for the impact on residents in the town, and we’ve got to do a significant job of financial repair now to try and minimise the impact on residents – but also make sure we have financial plans in place and procedures that respond to the auditor’s serious recommendations and then can get ourselves through the year.

“A lot of what’s been happening behind the scenes is members being briefed by the new finance team on what’s emerging and I think we’re still in a place of accepting the full impact and what it means.”

Who is to blame and held accountable for this financial crisis? Have you known about this for years or were Neil Wilcox [SBC’s former chief finance officer] and the financial team incapable at their jobs?

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“A lot of the problems we are now dealing with are to do with the fact that provisions against risk in our revenue budget i.e. sums of money put away as reserves, those were all stripped out in the budgets of my predecessor in 2016/17.

“I’m only becoming fully aware of it now as the new finance team have begun digging very deep and going through that.

“The flags first appeared when members of the audit committee said they were issues about the production of the draft accounts and their arrival on time, I started having meetings between the finance team, the auditors and myself to look at what the delays were.

Of course, I’m sorry about what’s happened and I’m sorry for the impact on residents in the town, and we’ve got to do a significant job of financial repair now to try and minimise the impact on residents

“Simultaneously, we were really struggling to put this year’s budget to bed in terms of we had significant pressures, we still got significant loss of income with things like people being laid off, not paying their council tax – council tax is a £60m receipt to the council – we are struggling with collection rates and things.

“All these things just roll on to have an effect and have been going on and getting worst for much of the early part of this year.”

“I think it’s safe to say that some of the oversight arrangement with members and things haven’t worked very well and we’re working on that to make sure we have better oversight going forwards,” Cllr Swindlehurst added.

He also said Neil Wilcox took responsibility for some of the financial issues by choosing to resign and SBC has parted ways with every senior finance officer, as seven new people are “forensically” going through the council’s finances to work through the financial challenges.

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When did you first know that issuing a section 114 notice was likely?

The council leader said it was a “creeping realisation” almost six weeks ago the council would have to apply the emergency brake on its finances.

He said: “We had the auditor’s report and we have been dialogue with the auditors since they pointed out the £7m adjustments we needed to make to our accounts.

“That effectively wiped out most of the council’s reserves overnight and since then, we’ve been facing increasing pressures and realising we haven’t got the reserves to offset those risks and with the end of last year and the provisional outturn of things, we realised we were in a precarious position.

“Our new finance team have been working their way through a whole range of complex financial issues in terms of our procedures and practise in the finance team and have been trying to resolve those simultaneously.

“They have been throwing significant new bits of information that just made the environment all the more challenging.”

Will the council have to ask for a larger capitalisation directive from government?

Cllr Swindlehurst said SBC will have to in order to get “greater flexibility” in selling off some of their ‘non-operational’ assets, so they can avoid stripping off the revenue budget which provides services to residents.

SBC has £200 million-worth of non-operational assets, which are assets bought by the council but provide non-essential services, available to sell and could include the Odeon in Basingstoke and Waitrose Supermarket in Gosport.

The Odeon in Basingstoke (Image: Google Maps)

The leader could not reveal what figure this large capitalisation directive could be and what assets are in danger of being sold off – but denied the council was engaged in a “fire sale” of assets and will review them “very carefully”.

He said: “Undoubtedly, we want to have a bigger ask government to have the freedom to capitalise because we are asset rich and revenue poor and that’s been true of the authority for almost as long as I’ve been on it.”

Over the last five years, borrowing has quadrupled from around £180m to £760m and has had a “consequential” impact on revenue. What were the loans for? How can you sign off loans of this magnitude and not ask why you need to keep borrowing?

The leader explained £100m was used to specifically buy “revenue generating” assets as council’s had to use cheap borrowing rates during the George Osbourne years to buy assets to pump cash into their reserves and budgets.

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He said: “Whatever we sell, we would probably be paying off a chunk of our borrowing with parts of those sales but also being able to move some of those proceeds across to the revenue side if we get that capital freedom.

“I think borrowing was about £500m when I became leader for various risks we are taking, activities that were involved in some of the major developments we had borrowed money.

“The view of our new finance team is we need to get our borrowing back down to £500m or under and restore ourselves to a curve more like the vast majority of the herd of other councils and that is a marked difference in approach from the new finance team.

“They are saying it’s a growing risk for us, and we need to get a lid on it, and we are firmly heeding that advice.”

Council tax may have to be raised to the maximum permitted without going to a referendum for a few years. Will the council have to seriously consider launching a referendum to increase council tax past the cap?

The council leader said they “haven’t sought to be set free” from the cap as they “don’t believe” the costs should be passed to residents.

In the section 114 notice, it states financial decision-making and leadership, among other issues, was not “robust and consequently highly detrimental to the council”. Why do you think you, Josie Wragg [SBC’s chief executive], and your administration are tasked to sort this out when you couldn’t for the past three years?

Cllr Swindlehurst told the LDRS the Slough Labour group “did not accept” his resignation and “expected” him and his administration to remain responsible and “clean up” the finances as quickly as possible.

Josie Wragg, chief executive of SBC

He said: “In terms of the chief executive, she has only been in post for two years. The issues that are all being exposed by our new finance team and the audit report all pre-date her – and in the time of crisis, there needs to be strong leadership to the staff operating in the council.

“Josie was very quick to accept the issues that were being pointed out to try and react to them and get the finance team in place.

“I don’t think anything would’ve been achieved at all by us without a chief executive. That just compounds the crisis at a time when everything needs to be signed off in terms of spend.

“We need people with expertise in post trying as quickly as possible to get us on an even keel and I support the chief executive in her work doing that and she really hasn’t been here long enough to be an acceptable figure to blame for some of these issues that have gone on.”

Cllr Swindlehurst added the current 350 vacancies within the council will be frozen.