Warrington Borough Council will be subject to a Best Value Inspection after the government and CIPFA raised “concern” over “extremely high levels of debt” and “controlling” management arrangements.
The Department for Levelling Up, Housing and Communities’ (DLUHC) action follows the publication of a CIPFA assurance review into the council, which revealed that Warrington’s £1.8bn debt position is “concerning” and is putting the authority at “risk”.
Alongside this, it found that while senior officers have showed “grip”, some interviewees at the council characterised the section 151 officer and corporate finance head as “controlling, even initiating the debt/investment agenda”, stating that risk management needs to be “sharpened”.
DLUHC has appointed Paul Najsarek to lead the Best Value Inspection and report the findings to levelling up secretary Michael Gove by 30 August.
‘Striking’ size of debt
CIPFA’s review into Warrington, which was conducted in July 2023 but only just published for public viewing, focused heavily on the authority’s commercial activity and revealed “a number of potential risks”.
CIPFA stated that its main concern over the authority’s debt is its scale, with the entire portfolio “vulnerable” to interest rate fluctuation and market volatility. That volatility will be particularly unpredictable in some areas of Warrington’s ventures, including its investment in solar farms, which is expected to yield £150m over 30 years.
“The most striking feature of the portfolio is its very size, mix and complexity. Managing this would present an exacting challenge to any local authority finance team and leadership,” the review stated.
The report pointed out that the largest element of the council’s debt relates to loans to housing associations, valued at £920m. CIPFA noted that there is a lack of oversight of the portfolio as it receives “limited review from the finance team and takes up little officer time”.
However, CIPFA acknowledged that debt relating to the housing associations is expected to reduce over coming years where the companies can get better borrowing rates from third party lenders.
In addition to this, CIPFA’s review picked up on Warrington’s highly reported investment into Redwood Bank in 2017. At the time, the council purchased a 33% shareholding in the newly formed bank at a cost of £30.9m, however it was later revealed that the share was worth £16.1m.
CIPFA also noted Warrington’s £598m property investment portfolio: “Some commercial yields, in parts of the property portfolio for instance, are relatively low, suggesting the need to look at other options to protect the council’s revenue position, including disposal.”
Overall, the report stated that: “Warrington’s debt and investments position is complex and wide ranging making it especially conspicuous creating a particular onus of explanation and justification.”
Differing opinions on internal capacity
The review by CIPFA also examined the internal management and decision-making of Warrington Borough Council.
It found that there is “evidence of considerable officer capacity” at Warrington over the debt and investment portfolio, with officers seeking expert advice to provide insight into the risks associated with the council’s commercial activity.
However, CIPFA stated that there are “contrary views” on the capacity and capability of the internal teams to oversee the council’s investment portfolio.
According to senior officers and the Labour administration the internal function has the capability to oversee the commercial investments. Whilst the council’s opposition and some of CIPFA’s interviewees held different opinions.
CIPFA said: “Some interviewees have characterised the s151 and corporate finance head as controlling, even initiating the debt/investment agenda. This was pointedly rejected by them and others, with the approach being described as strategic and member led.
“The acceptance of the principle that Warrington Borough Council needs expert aid at the level of individual investment initiatives is sound. The management of the investment entirety would also benefit from external input.
“Nevertheless, a review of this timescale, even given the extra capacity we have added, cannot be expected to get to the bottom of all the issues in play in such a complex and challenging portfolio and we recommend that further (more detailed) work is required to investigate the issues in more detail,” CIPFA’s review concluded.
In response to this, Warrington Borough Council stated the Best Value Inspection will “undoubtedly have our full cooperation”, adding that it “welcomes” CIPFA’s report.
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