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Ministers will send in a team of experts to debt-laden Warrington council after government inspectors warned that its high-risk borrowing and investment strategy had been used to avoid making “transformational” savings.
Jim McMahon, local government minister, said on Thursday that he would dispatch “envoys” for up to five years because the Labour-led local authority was “failing to comply with its best value duty”.
His intervention came after inspectors said in a report they could not be confident that Warrington — which has £1.9bn in debt and a budget black hole of almost £50mn — “recognises the severity of the issues it faces”.
The council in the north west of England has come under growing pressure over its speculative financial approach, which since 2017 has seen it borrow to invest in a bank, wealth funds and commercial property portfolios.
The local authority’s debt burden has grown to become one of the largest in local government. Its auditor Grant Thornton quit last summer, having served two value for money warnings, while millions of pounds in investments have had to be impaired.
A “best value” inspection, which ministers ordered last year, on Thursday found that the authority had been making “high risk” investments to avoid “transformational” savings after central government cut council funding from 2010 onwards.
The highly critical report recommended that commissioners be sent in, noting that the local authority had resisted repeated external warnings to change course and that it was unclear if the council would be able to pay down its debt on an ongoing basis.
“The council’s response to previous external reviews and its limited capacity do not give confidence . . . that the council acting alone recognises the severity of the issues it faces and can make the necessary changes,” the report noted, criticising the adoption of “a commercial approach without a commercial strategy”.
McMahon said in a written statement to parliament that he was satisfied Warrington had failed in its duty to provide best value to taxpayers but stopped short of appointing external commissioners, instead opting for envoys.
They will support the council itself to improve, he said, rather than taking over operational functions as has happened in Liverpool and Birmingham.
Warrington began a concerted approach to speculative investments eight years ago, around the same time it struck up a relationship with former derivatives trader Lee Robinson.
In a meeting last year one council official described Robinson as the “Lionel Messi” of fund managers.
Warrington later withdrew from one fund, run by Robinson’s investment firm Altana Wealth, after media reports and criticism from Conservative councillors that it had invested in junk-rated debt.
The council also put £30.4mn into the Redwood challenger bank, where Robinson is a non-executive director and fellow investor. The value of that investment was later written down to £4.3mn.
Grant Thornton, which argued that it lacked the necessary derivatives expertise to audit the Redwood investment, had become “increasingly uncomfortable” with Warrington’s “escalating borrowing and investments”, inspectors said.
The firm’s exit meant Warrington was in the “unique position” of having no external auditor, they noted, leaving the authority further exposed. The council has had no accounts signed off since 2018-19.
Inspectors found that while councillors did not have the necessary expertise to scrutinise investments, they had been “happy” to support them “in the interest of shielding the council from other difficult decisions”.
In a statement, Warrington council said it awaited the arrival of the envoys. “This is a supportive decision and will help us to deliver the changes needed,” it added.
Warrington has not so far declared effective bankruptcy, but its problems echo those of other councils which have taken speculative investment approaches in recent years.
Thurrock council in Essex, which was also an investor in Redwood Bank, went bankrupt in 2022 after a series of failed solar farm investments.
Separately on Thursday, the UK accounting watchdog said it had barred Thurrock’s former chief financial officer, Sean Robert Clark, from the Association of Chartered Certified Accountants for five years and issued him with a severe reprimand.
The Financial Reporting Council said Clark had admitted falling short in his duties to manage the operations and investments of Thurrock for the five years to 2022, when the council collapsed into insolvency after racking up debts of £1.3bn and admitting it faced losses of £275mn from its investments.
