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Council declares effective bankruptcy over £1.2 billion hole in budget

A Surrey council has declared effective bankruptcy over a £1.2 billion hole in its budget caused by “extreme” high levels of borrowing as part of its investment strategy.

Liberal Democrat-run Woking Borough Council on Wednesday issued a section 114 notice formally declaring it is unable to deliver a balanced budget with the £16 million it has available for 2023-24.

The accumulated £1.2 billion shortfall in Woking’s finances also means it is unable to meet its budgetary requirements in the coming years.

Under the section 114 notice all but essential council spending is immediately halted to ensure vulnerable residents are protected.

Woking’s chief executive Julie Fisher said: “The issuing of a section 114 notice is a very serious matter that rightly reflects the scale and breadth of the acute financial situation facing the council.”

She added the appointment by Communities Secretary Michael Gove of a commissioning team will enable the council to draw on “critical insight” and deliver its recovery plan.

Council leader Ann-Marie Barker said her administration had been “very clear about the huge financial challenges”, which she said were a legacy of inherited debt.

The Liberal Democrats have run the council since 2022. Prior to this, the Conservatives were in control and implemented the investment strategy.

Councillor Barker added: “The notice makes clear the true scale of these challenges which are so significant that the council cannot simply deal with them on its own.

“We must work in partnership with the whole of government and its agencies to support us in delivering a robust improvement and recovery plan.

“Difficult decisions will lie ahead as we seek to balance the council’s budget and address the unaffordable debt.”

Woking is the latest council to declare effective bankruptcy as a result of investment decisions.

Croydon council in London issued its third section 114 notice in November 2021, while Thurrock in Essex took the step in December last year after it got into difficulties over borrowing large sums to invest in solar energy.

Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, said Woking’s investment strategy is an “extreme example” highlighting the risks of councils embarking on disproportionate large-scale borrowing.

Scottish Conservative Party conference 2023
Communities Secretary Michael Gove has sent commissioners in to support Woking’s recovery plan (Andrew Milligan/PA)

He added: “This is a dark day for everyone in the local government sector and there is no doubt that the framework for accountability and improvement has failed.

“Further detailed investigation is needed, but based on what has been reported, the areas of weakness are financial management, governance, leadership, and scrutiny and challenge.”

Mr Whiteman called for a “swift and effective solution to the current audit crisis” across local government.

“We need to work harder to prevent this happening again and understand how this small district council was able to operate under the radar for so long,” he added.

In a report earlier this year, the National Audit Office said just 12% of local government bodies had received the opinion of external auditors to enable them to publish independently verified accounts for 2021-22 by an extended statutory deadline of November 30.