Liberal Democrats outline perilous journey ahead for Woking Council

• Full extent of further financial problems looming in imminent reports

• Woking may need to 'set aside' as much as Surrey County Council

• Imminent Victoria Square valuations expected to confirm previous Liberal Democrat fears of at least a £300 million black hole.

As Woking prepares for local elections on 4^th May, the Liberal Democrats, who won control last year, warn that the borough is approaching a precarious stage of their recovery plans.

According to the timetable set at the last Council meeting in March, Woking Liberal Democrats are expecting two momentous reports in the coming weeks:

Firstly, a report on the impact of correcting the previous administration's policy for financial 'setting-aside' each year in relation to past investments (also known as Minimum Revenue Provision or MRP). Secondly, a confirmed valuation of Victoria Square.

The amount that should have been set aside is expected to be in the tens of millions of pounds annually, and the new administration is cautioning that the Victoria Square valuation could be even worse than the £300 million loss they originally feared.

Cllr Ann-Marie Barker, Leader of Woking Borough Council since May 2022, comments: "We have known the scale of some of the problems for a while - and we didn't want to want to simply wait for the findings from the government-appointed review board for the detail.

"Instead we proactively commissioned public finance specialists and valuation experts to give us a much fuller picture and will determine the options that are available to us. Our plan so far has been to prevent further runaway projects, put in place better controls, and improve income from Council assets. We are also tackling the borrowing from Council owned companies and have been able to reduce outgoing Conservative borrowing plans by £130 million this year.

"However, we have always known that we may have no alternative but to ask for government help to tackle the astronomical levels of debt and requirements for further borrowing which we have inherited."

Cllr Dale Roberts, Portfolio Holder for Finance and Economic Development at Woking Borough Council, further explains: "The elements of the plan under our control are all being addressed. We were able to successfully set a budget in February of this year.

"But Victoria Square, which cost more than £700 million, remains a huge challenge. One of the many issues is that nothing had been done to 'operationalise' Victoria Square. It was little more than a construction project without any of the systems, people, or processes to run it as a business. Putting all of that in place will also require a robust valuation. Our assessment when we announced our first budget was that there was at least a £300 million gap between its valuation and what was spent.

"Our latest work will give us a more accurate appraisal. It will also confirm our fears on Minimum Revenue Provision (MRP) which we have asserted should be much closer to the £45 million Surrey County Council plan to set aside for similar levels of borrowing - rather than the £6 to £7 million historically set aside by the previous administration."

Cllr Roberts, further adds - on the prospect of 'effective bankruptcy' of Woking Council:

"We are still in Section 114 territory, as we set out in budget papers earlier this year. Appreciating and measuring that challenge is essential before we move forward with a new and more positive plan for our town.

"These reports were commissioned because we are committed to understanding the totality of the Council's financial problems and to being completely open with the government - and with local residents - about the challenges ahead of us."

Woking Borough Council is also expecting the findings of the government-appointed review board to be published after the elections.

Notes to editors include:

1. Comparison of Borrowing Plans (Capital Financing Requirements): Outgoing Conservative administration vs new Liberal Democrat administration in place since May 2022

2. Minimum Revenue Provision (MRP): the regulation that should have stopped the losses (an explainer)

3. Steps taken to date by the new Liberal Democrat administration to stabilise Woking Council finances (summary of other recent developments)

4. Notes from EXE23-021 Medium Term Financial Strategy (official wording)

1. Capital Financing Requirements (CFR) Comparison

2. 'Set Aside' or Minimum Revenue Provision:

The regulation that should have stopped the losses

Councils have a legal obligation to set aside certain amounts for loan repayments under regulations called minimum revenue provision (MRP). A local resident questioned the way the previous administration calculated MRP for the Woking borough Council (WBC) accounts in 2019-20 and whether it was sufficient. WBC accounts for 2019-20 have still not been signed off by auditors. Local Lib Dems have continued to probe the prudence of the MRP since taking control last year.

On this basis, Conservative loans to subsidiary companies standing at £1,500,000,000 (£1.5 billion) should have required tens of millions set aside from each year's budget, not the small number of millions the previous administration set aside. However, this was avoided by the previous administration. Using so-called 'arms-length' companies helped the administration at the time to not treat this Council activity using the same rules of prudence.

The previous administration's provision for borrowing may technically have been just within the letter of the law. However, it was not prudent. If the Council's auditors or the government-appointed Rapid Review Board require a change in the way the MRP is calculated, it is likely to demonstrate that council finances have in fact been unsustainable for years.

3. Summary of steps taken by the new Liberal Democrat administration in beginning to stabilise Woking Council finances so far include:

• Shared with residents the news of Conservative losses within the Thameswey Limited group of companies, where newly-audited accounts (22^nd December 2022) showed that Conservative Councillor Directors overstated the value of both sales and assets, uncovering £30 million of non-existent revenue and negative net asset values

• Reduced Victoria Square borrowing requirements by £13 million to date (as of 1^st December 2022) compared to plans inherited from the Conservative administration

• Stopped the disastrous planned purchase of Woking's 'Red' car park from a council-owned company, which would have broken financial prudence regulations

• Paused to review the Victoria Arch project which had already identified increases costs of over £50 million.

• Removed Councillors from roles as directors of Council-owned companies, ending the conflict of interest this created (21st July 2022)

• Reset the objectives of WBC's companies requiring them to change the way they do business and to make sufficient income to enable them to repay all their loans as and when they fall due.

• Set in motion a long-term strategy to stop WBC being a banker and a property developer and concentrate on delivering affordable services for its residents.

• Published the Ministerial warning letter addressed to the previous Conservative leader on financial mismanagement, following election victory (17th May 2022)

• Led on all efforts from opposition to reduce WBC borrowing and expose asset valuations and income gaps, including the initial Independent Financial Review of 2021-2022

• Highlighted Conservative attempts to loan £250 million to an outside property developer

MRP Comparison with Surrey County Council Capital Financing Requirements

Surrey Planned Capital Financing Requirements 2025-26 £2.2B (£2,190,000) planned MRP £45 million. Woking Borough Council Capital Financing Requirements 2023-24 £2.2B (£2,211,000)

4. Notes from EXE23-033 Medium Term Financial Strategy (official wording):

• In the Budget Report prepared by the former Director of Finance and endorsed by the Council's Corporate Leadership Team and subsequently by Full Council on 23 February 2023 the challenges involved in balancing the Budget were neatly and appropriately summarised as follows (See Agenda Item 6a for that Meeting): "At a headline level the Council is able to set a balanced budget for 2023/24 with the use of reserves,
• It is not evident at this stage, however, how the Council will establish a balanced budget for 2024/25 and the MTFS period. The Council is in the territory of S114 but as of the date of this report [i.e. 23 February 2023] a S114 Notice is not required. This report however may lead to the issuing of a S114 Notice in 2023/24 as work on the 2024/25 budget progresses."
• At the date of this report the Budget shortfall in 2024/25 is £9.5m. This is shown in Table 1 below and a more detailed statement appears at Appendix 3:
• As rehearsed earlier in this report the Council needs to ensure that it takes all possible steps to balance the 'Business As Usual' shortfalls in the General Fund in order to ensure that the Budget can be balanced lawfully in 2024/25 and thereafter. Should this not prove possible then it is possible that a S114 Notice may need to be issued on the journey. At the present time a S114 Notice has not been laid although as referred in the Budget Report presented to Council on 23 February 'the Council is in the territory of S114'; this remains the case at the date of this report.
• If the review of the Council's MRP issues indicates after consideration that further charges are attributable to the Revenue Budget, it is difficult to imagine that such additional charges will be affordable. In this case and for the avoidance of doubt it is likely (a) that a S114 Notice would need to be issued and (b) that the Council would need to seek financial support from the Department of Levelling Up Housing and Communities (DLUHC). At the present time, the existence of such additional charges has not been confirmed and such support has not been sought. As referred above 'the Council is in the territory of S114' on this issue also.

For media enquiries please contact:

Cllr Adam Kirby, group head of publicity, Woking Borough Council Liberal Democrats

Adam.Kirby@wokinglibdems.org.uk