After being ticked off by its Auditors – Surrey County Council has to start its debt-repayment plan with the Government.
Auditor – Grant Thornton has told the Tory-led council that its bid to hang on to its cash rather than repay £233 million worth of Government loans was “imprudent”.
The council hadn’t budgeted to repay £233million worth of loans for its commercial property investments around the country.
It was relying on selling off the property if it had to. However, last year, the council’s portfolio was worth almost a quarter under what it paid for it.
George Potter, the Lib dem SCC member for Guildford East, said:
“This shows how shockingly blasé Surrey Conservatives was about the hundreds of millions they put at risk through property investments.
Any fool knows that investments may go down as well as up, yet they seemingly ignored this when they embarked on their irresponsible shopping spree.
Essentially they took out a vast mortgage to buy property valued at £329 million. Rather than making contingency plans for paying back the mortgage, they decided that instead, if the bank ever came to collect on the debt, they’d just sell the property to pay them. But that property is now worth 25 per cent less than they paid for it, and the council is stuck in negative equity.
Right now the portfolio is still providing a net income, but the situation is inherently unstable. If, as seems likely, rents don’t keep pace with inflation, or if interest rates rise, then ultimately it’s the taxpayer who’d be left paying the bill racked up by the Conservative administration.”
His Waverley colleague Cllr Liz Townsend said: “It is shocking that Surrey admits. “Our strategy for 2021 didn’t include any minimum revenue provision for those loans, so we weren’t setting aside any funds to repay that debt.”
Mark Hak-Sanders, strategic finance business partner (corporate) for the past two years, said, “Our strategy for 2021 didn’t include any minimum revenue provision for those loans, so we weren’t setting aside any funds to repay that debt.
“The logic behind that was that if we were required to pay any debt as a county, we would be able to realise a capital receipt from the sale of those investment properties in order to deliver the cash we needed to repay the loan.”
But Grant Thornton, when auditing the policy, said although in line with legislation, in its view it was,
Mr Hak-Sanders said:
“We set the policy before Covid-19 had a knock-on effect on the investment property values, and effectively Grant Thornton were auditing that a year later with the benefit of another year’s reduction in those investment property values.
“Nevertheless, we understood their point, and we accepted that the policy could be more prudent.”
The county council is to change its policy so that from 2022/23 a minimum amount must be set aside each year from their revenue account on all loans, including those to its subsidiaries investing in property outside of the county.”
The Government is considering making this a legal requirement from 2023.
At the end of March 2021, Surrey County Council’s Halsey Garton property portfolio was valued at £78million lower than cost.
Commercial properties owned by the council’s subsidiary Halsey Garton Property Ltd are now valued at £251.25million, a 24 per cent reduction.
The loss in value is said to be “largely due to pressures on the retail environment”, with the portfolio comprising 37 per cent retail.
The council will now set aside money each year to afford to repay the debt associated with those investments, bringing its policy in line with Grant Thornton’s guidance.
Mr Hak-Sanders said:
“It seems to me we’re living in pretty uncertain times. We’ve got inflation which is rising fairly rapidly to sort of 30-year highs and we don’t know really where we are with the pandemic.”
A separate Halsey Garton portfolio of 72 residences made a loss of £30,000 last year.