This article was originally published on 13 December 2022. It has been republished in light of the news that Thurrock Council has issued an S114 notice confirming it cannot balance its books.
Last month, Thurrock Council admitted it had lost £500m in risky investments, making it one of the most indebted councils in the UK. Evidence has emerged, however, that other councils in Essex continued to invest in Thurrock even after its financial difficulties came to light. Meanwhile, a neighbouring council has been appointed as its financial commissioner.
Different councils in Essex invested nearly £175m in Thurrock Council over the past five years, a freedom of information (FOI) request has found, despite how widely reported Thurrock’s financial plight was. Tendring District Council is one example, according to Jack Shaw, a local government researcher. The local authority has provided Thurrock with investment that matures after one day, otherwise known as the “overnight market”. This terms refers to when a bank or institution – or in this case, a council – borrows money that is repaid the next day. Such a loan is sought because the entity in question finds it needs more cash to pay out to other creditors during the day than it has on hand. Use of the overnight market is usually a sign of liquidity issues, which should have been a red flag about Thurrock’s finances. Tendring invested £1m in February this year, getting just £300 back, which is 0.03 per cent profit, and yet the authority continued to invest in Thurrock as late as August.
“While inter-borough lending is a low-risk investment strategy, protected by the Local Government Act 2003,” Shaw, who filed the FOI request, told Spotlight, “there is a question mark over whether local authorities should reconsider investing in authorities they know to be in financial trouble.” Shaw believes there’s a case for government issuing guidance on investment in, for example, overnight markets.
In September, central government asked neighbouring Essex County Council to become “commissioner and best value inspector” in strategic finance for Thurrock, given the latter’s financial problems. However this is not standard practice. Central government usually appoints a set of external commissioners independent of the local situation (often retired senior council officers or civil servants) to monitor local authority finances. There are also close links between the former levelling-up secretary Greg Clark – in office from July to September this year – and the senior leadership team at Essex County Council: Tom Walker, a director at Essex County Council, had previously worked with Clark in the 2010s on decentralisation policy. Clark described Walker in 2020 as a “very good man”.
By contrast, at Liverpool City Council, also the subject of government intervention, an advisory panel of local government leaders has been appointed by Whitehall: Steve Rotheram (the Liverpool metro mayor), the peer Judith Blake from Leeds and Howard Bernstein from Manchester. This was alongside the nomination of a finance commissioner by central government. Crucially, neither Blake nor Bernstein represent areas in or next to Liverpool City Council, which is key for impartiality.
While Thurrock and Essex County Council do not share any councillors, 25 of them serve as district councillors on six Essex councils who invested money in Thurrock, including the leader of the county council. Relationships between neighbouring councils are often complex, with many contracting or sharing services to save money. For example, Thurrock and Essex County are both part of a commissioning group for an Integrated Community Equipment Service.
There are also questions over whether Thurrock could be subsumed back into Essex County Council as a district council or into a future Essex Unitary Council (something Essex County favours). In 2015, the Thurrock cabinet said it was exploring, “whether Thurrock’s best interests can be served through a Greater South Essex Combined Authority”. And in 2021, Thurrock and Basildon councils said they were working together on a potential merger.
A Department for Levelling Up, Housing and Communities spokesperson said they are closely monitoring the serious ongoing concerns about the financial management of Thurrock Council. The spokesperson added that the “local knowledge” held by the county council means they are “best placed to understand and address local issues”.
Essex County Council denied there were any issues with the arrangements detailed in this article. A spokesperson said: “There is no conflict of interest – all of the inter-authority loans which Thurrock took out will be repaid, as they have been covered by new lending via the Public Works Loan Board.”
What happens next?
Thurrock has been under the supervision of Essex County Council since September. It is an unusual arrangement that could indicate the government is looking to reverse its 1994 decision to separate Thurrock from Essex as a unitary council and instead downgrade it back to a district council under Essex County Council.
In light of the Section 114 notice, which was issued on 19 December and confirms the council is in financial distress, Essex could follow Cornwall and Northumbria and become a county unitary, abolishing Thurrock and twelve district councils. However, that won’t necessarily solve anything. Northumberland County Council issued a Section 114 notice in May.
Another option could come from Northamptonshire County Council, which financially collapsed in 2019 and was abolished in 2021 along with all the district councils and then formed into two unitary councils.
[See also: What happens when a council declares bankruptcy?]