Prime minister Rishi Sunak is “deeply concerned” over Eastleigh Council’s potential fraud allegations and high level of debt.
At Prime Minister’s Questions yesterday (24 January), Paul Holmes, the MP for Eastleigh, highlighted a recent audit report received by Liberal Democrat run Eastleigh Council, which raised concerns over the “possibility of fraud” at the authority and the dismissal of “whistleblowers who tried to warn them”.
Holmes questioned: “Does the prime minister agree with me that Liberal Democrat leaders who shun accountability, shun transparency and simply say ‘not me gov’ should start showing some remorse or responsibility, or make way for those who will?”
In response to the question, Sunak stated that the audit report is “deeply concerning” but also drew attention to the council’s borrowing situation.
Sunak said: “It is disappointing to see this Liberal Democrat council rack up debt with absolutely no plan of how to fund it. The council has been issued with a Best Value Notice and I know that he [Eastleigh’s leader, Keith House] is talking to the Department for Levelling Up, Housing and Communities (DLUHC), who will be monitoring the situation closely.”
In December, DLUHC issued Eastleigh with a Best Value Notice over its high level of debt, which at the end of 21/22 was £525m, with £175m of this being short-term.
Sunak’s remarks on Eastleigh Council’s debt comes as data from the Office for National Statistics revealed that government borrowing was lower than expected in December at £7.8bn. Yet, the body also outlined that the government’s debt remains at historical highs and still at levels not seen since the early 1960s.
On top of this, a new report published by the Institute for Fiscal Studies today (25 January) has stated that the next UK government will find it harder to cut public debt than any administration since the second world war.
‘Significant’ audit weaknesses
The audit report in question was presented to the council’s Audit and Resources Committee last week, and highlighted several “significant weaknesses” and “risks” in the arrangements at the council.
These included: financial sustainability in regard to the level of debt and the impact of borrowing costs; governance relating to the authority’s acquisitions of Chalcroft Solar Farm and its Nitrate Credit Scheme; and governance and procurement risks associated with its housing development at One Horton Heath (OHH) as a result of whistleblowing reports.
The audit report outlined that the main issues with the council’s financial sustainability are due to its commercial activity, which is centred on investment in property funded through external borrowing. It suggested that despite the property portfolio being profitable previously, high levels of inflation and interest rates could lead to developments being “less profitable than planned”.
“The very high level of the council’s commercial investment and associated borrowing exposes it to a much higher level of financial uncertainty and risk than for the majority of other local authorities.
“It also means that the scale and diversity of its operations is much greater than for the majority of councils,” the auditors explained.
Fraud reports
In addition, auditors expressed serious concern about the authority’s “most significant” housing development within its property portfolio at OHH, which has faced allegations from two whistleblowers relating to its internal control and governance.
The separate allegations in 2022/23 and 2023/24 identified weaknesses in the internal control over payments made to contractors, failure to comply with procurement law and staff capacity at OHH.
Auditors from EY stated that the work done by the council’s internal audit function was “insufficient” to address the risk of non-compliance with laws and regulations, adding that they “remain concerned that the risk of weaknesses in governance arrangements concerning the OHH programme have not been fully addressed on a timely basis”.
“The fact we are unable to conclude that there has been no material non-compliance with fraud or laws and regulations in respect of the issues raised by the whistleblowing allegations based on work undertaken to date by the council means that we are not able to give an opinion on the 2021/22 financial statements,” the audit report finished.
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