Slough Council would have been nearly £1bn in borrowing debt

The cash-strapped council’s borrowing had quadrupled from 2016 to £760m in order to invest in several major capital projects every one year.

Historic accounting errors and financial mistakes also caused the local authority to lose track of how much money it should have been set aside to pay off its debt, known as minimum revenue provision (MRP).

As well as being £760m in debt, which is the third-highest per capita amongst unitary authorities, it is facing a financial black hole of £479m over the next few years, causing it to sell up to £600m-worth of its properties as well as make £20m of savings a year until 2028/29.

Chief finance officer Steven Mair revealed at an overview and scrutiny meeting that the council would have exceeded £900m in borrowing debt if it carried on with its capital programme, which plans what properties it will buy and investments it would have made from 2021/22 to 2023/24.

Chief finance officer Steven Mair (Image: Slough Borough Council)

Speaking at the meeting on Tuesday, March 8, Mr Mair said: “This would clearly make the situation worse.”

The council originally envisaged spending £309m during those three years, of which £119m was to be funded by borrowing and a further £49m from ‘institutional funding,’ resulting in this near £1bn debt.

The treasury management strategy, which oversees the council’s cashflows, banking, borrowing, investments, etc. did not marry up with the capital programme, meaning checks to limit borrowing and assessments the council’s affordability to borrow. Were misstated.

The council’s £139m investment property portfolio is yielding a negative rate of return of -0.6 per cent, meaning the council is not getting the funds it thought it was getting from those investments.

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With the council’s major financial issues coming to light and it issuing a section 114 in July, effectively declaring bankruptcy, and freezing all non-essential spending, its capital programme has scaled back.

It has now reduced its borrowing by £90m and has extended the three-year capital programme into five years. Mr Mair said the council should be investing in one major scheme a year rather than several.

Annual interest and debt charges total £25m, which represents 24 per cent of the 2021/22 budget, and will rise to 32 per cent in 2022/23 – under a third of the council’s budget.

The chief finance officer said this is neither affordable nor sustainable and should be in the region of five to 10 per cent.

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The council is requesting the government to allow it to use capital funds as revenue to pay off its debt and plug its deficit via up to £600m of asset sales, known as a capitalisation direction.

A majority of this capitalisation will be used to correct the MRP between 2008 and this year, which has now been accounted for £70m. A further £29m will be needed to correct the calculations for 2022/23.

The council was paying £40,000 in MRP but should have been paying off at least £18m. Not only was it not calculated properly but the then changed MRP policy was ‘not implemented correctly’ back in 2016.

Mr Mair said: “The aspiration is to get this [borrowing and MRP] down quicker than we have planned. We have been prudent in our assumptions but equally, we are committed to best value in all of this.

“We must ensure that the council gets the best out of this even if it takes a little bit longer. Due process has to be followed.

“These figures are too significant for any sort of fire sale, which I know nobody wants to do. Once you get to that position, that puts the council in a much, much better place.”