Bankrupt council’s unfilled vacancies ‘biggest challenge’ to completing ‘vital’ housing work

The council declared itself bankrupt in June 2023, after borrowing and investment decisions led to debts of £2bn.

The month before, Michael Gove, the housing secretary at the time, had intervened and appointed government commissioners to oversee all financial governance functions at the council. The commissioners are expected to be in place until 2028.

Their latest report also revealed that the value of Woking’s entire assets are not enough to cover its debts. 

As of 31 March 2024, Woking’s debt stood at over £2.1bn, which costs £1.3m per week to service in interest alone.

At the same time, asset book valuations stood at £1.5bn, including over £400m of Housing Revenue Account (HRA) and operational assets.

“Even if everything else could be disposed of, the level of overhanging debt would still be significant, over £1.5bn, as the level of debt far exceeds the value of assets, and as some assets, such as HRA and other operational assets, must be retained.

“Under a do-nothing scenario, annual interest costs and minimum revenue provision (MRP) average £70m and £73m per annum respectively, which would add significantly to the level of debt,” the report said.

The council received exceptional financial support (EFS) from the government for 2024-25 and the following year, which provides a mixture of being able to borrow to cover the interest and other revenue costs.

However, commissioners said the position was “not sustainable”, as the council has “no ability” to repay EFS through asset sales, “let alone all the legacy debt”.

“Work is underway to determine the best exit strategy from the commercial legacy, which we are engaging with government on, and it is recognised that a long-term financial solution will not be in place for the 2025-26 budget process.

“However, the current position is not viable and commissioners are keen to continue engaging with government on the route forward,” the report said.

Commissioners said the first year of intervention had “largely been around discovery, firefighting and establishing a robust plan”.

They said the focus now must be on getting the “right building blocks” in place for good financial management and supporting the delivery of the council’s asset rationalisation and debt reduction plans, as well as normal financial management of the council’s affairs.

However, there are still a number of challenges. The council has difficulty in attracting and retaining skilled finance staff, alongside the volume of work that is required.

Commissioners said that getting the right capacity and skills in place with a permanent staffing structure “remains a priority”.

“The required upgrade to the financial system will need careful management and oversight as a corporate project.

“It is also important that training to budget holders to build the culture of financial ownership is carried out ready for the new financial year,” the report said.

The commissioners concluded the capacity of the council “can be an obstacle to progress”, but that Woking was making “every effort to ensure there is no unnecessary slippage in the delivery” of its recovery plan.

The draft council and group accounts for 2023-24 are still outstanding.

The report said the financial viability of the council remained a challenge, given the scale of the legacy debt, alongside the “fragility” of the local authority’s technological platform.

The commissioners said having “robust, reliable, timely and easy to understand” financial information was “essential” for the council to make progress.

“It cannot be underestimated how poor the information was at the point the intervention started, without even the most basic financial controls of a balanced ledger in place.

“Whilst a lot of progress has been made, there remain concerns about the integrity of the underlying data,” the report said.

The council’s spending power is £16.9m, and £8m of savings for 2024-25 were agreed in the budget set last year, £7m of which have been achieved.

These involved a wholesale staff restructuring and a move away from providing discretionary services unless they are self-funding.

The council’s current projected overspend for 2024-25 has reduced from the £3.3m reported at the end of the first quarter, to £438,000 reported at the end of the second quarter.

Council accounts for 2023-24 are due to be completed in December. However, according to the report, the timescales are “tight, with a risk that this will not be achieved”.

The commissioners said securing skilled capacity to complete the accounts was a “challenge for the sector and particularly acute for Woking BC”, with the recent loss of skilled interim staff.

The commissioners said “good progress” was being made to develop a viable HRA budget and business plan, with the work due to finish in December.

“Further work has been carried out on the historic transactions – and the ongoing related costs – between the HRA and the council’s commercial undertakings.

“The statutory officers are taking legal advice on the lawfulness of this activity and further discussions will be required with government when this work has been completed,” the report said.

According to the commissioners, the overall assessment of the council’s performance since they were appointed was “one of an increasing understanding and recognition of the fundamental change that must be effected in order to eradicate the very significant financial and other failings of the past, and the provision of assurances that plans are being instituted to secure a sustainable future”.

Responding to the report on behalf of the Ministry of Housing, Communities and Local Government, Baroness Taylor of Stevenage said she was “reassured” by the commissioners’ comments that the council was “committed” to achieving its objectives.

However, she said she shared the concerns about the capacity of the council to deliver the improvement programme.

“[I] encourage you to work with the council and the ministry to consider how we can best enable the [local authority] to improve, for the benefit of residents,” Baroness Taylor said.