February 26, 2023 • 19 mins
This episode of The Woking Examiner tries to answer three questions
- With borrowing commitments standing at £2.4 billion how did Woking Borough Council end up with such huge loans?
- With annual loan repayments of £60 million and climbing and Council Tax income of £10 million how does it make ends meet?
- Does it actually make ends meet?
Woking Lib Dem Councillor Peter Graves takes a close look at the inner workings of WBC's finances with fellow Councillor and Finance Portfolio Holder Dale Roberts.
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Transcript
Episode Transcript
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Peter Graves (00:04):
Hello and welcome to the Woking Examiner Podcast.
In this series of podcasts, weinterview the councillors,
portfolio holders and supporterswho are assisting the Lib Dem
run Woking council as we seek toaddress the many years of
mismanagement committed byprevious administrations.
I am Peter Graves, councillorfor Pyrford Ward.
(00:26):
Over the course of the series,the people I interview disclose
the realities that lie behindthe decisions they're making as
they continue to unravel thecomplexities of the financial
dissonance, which we inheritedin May, 2022.
Today I'm with Dale Robertsfinance portfolio holder since
May of last year, having beenelected as councillor for St.
(00:48):
John's in May of 2021.
It's been Dale's role in thelast few manic months to try to
unravel the council finances byengaging with the officers and
other external agencies, andthen devise an affordable plan
for moving us onto a positiveand sustainable footing.
It's been his role to set arealistic and affordable medium
(01:09):
term financial strategy.
Dale, welcome andcongratulations on your new
role.
Dale Roberts (01:16):
Thank you, Peter.
It's great to be here and thankyou for inviting me.
Peter Graves (01:21):
Not a problem.
It's good to see you again.
So could we start with, by, bylooking at at Woking finances?
And so looking back over thelast 10 and 15 years, Why did
councils feel the need to borrowsuch vast sums of money?
Dale Roberts (01:36):
Let's start with first principles.
Local authorities have threemain sources of revenue,
government grants, so money fromcentral government in either a
specific grant to pay for inspecific individual name
services, or a general grantrevenue support grant, sometimes
a formula grant.
(01:57):
Secondly, business rates.
So a tax on business premises,which local authorities collect
for central government and theyretain some of it inordinately
complex.
And then there's council tax, aproperty tax levied on
residential properties, andwe're all familiar with that
because we'll pay it.
Peter Graves (02:12):
Yep.
Dale Roberts (02:13):
Then over the last decade or so, there have been
deep cuts to that grant funding.
Grants, in fact, includingretained business rates were cut
37% in real terms over the 10years to 2019 Deep cuts.
Peter Graves (02:28):
Yep.
Dale Roberts (02:29):
And at the same time, flexibility was reduced on
raising income tax, sorry onraising income through council
tax,
Peter Graves (02:38):
Yep.
Dale Roberts (02:39):
because of changes made in the 2011 Localism Act.
That meant that localauthorities have been
constrained in terms of beingable to raise council tax.
So inevitably English councilswent on a spending spree looking
for investment opportunities togenerate the income that they've
lost in government grants.
(03:01):
Councils have becomeincreasingly reliant on income
from commercial investments eversince.
Peter Graves (03:06):
That's interesting.
So effectively, A lot of moneybeing taken away from councils.
They've been restricted on howmuch they can increase council
tax, and so many councils havehad to look for other sorts of
income.
I can get my head around thatbut Dale explain why did the
previous Woking administrationfeel the need to take such
(03:27):
enormous financial risks?
Dale Roberts (03:31):
Borrowing has been used for regeneration,
Sheerwater
Peter Graves (03:37):
Yeah.
Dale Roberts (03:37):
for example, but it's grown out of all
proportion.
Look, there are around 300 uh,borough and district councils in
England by size, we're somethinglike 230th.
But we have these enormouslevels of debt.
We have the highest level ofcommercial debt relative to our
size of any authority.
(03:58):
And so we have this enormousdebt.
And fundamentally, investment isall about return and risk.
There's always risk, alwaysgreater risk, greater return,
less risk, less
Peter Graves (04:08):
Yes.
Return.
Dale Roberts (04:09):
It's, basic economics.
None of this is for thefainthearted.
None of it is really for small,relatively small borough
councils.
These projects because they'reregeneration.
These projects were justified aslow returns because they're
delivering social benefits, butthey had high risk now, low
(04:30):
return, high risk.
They're enormous projects for aborough of this size.
The private sector wouldn't beinterested in projects that are
high risk and low returns.
So the borough took all therisk, even if the projects
didn't go completely to plan andprojects like these never, ever
(04:50):
go to plan.
There was no margin.
for error and history has shownthat there are errors cost for
the red car park is just oneexample.
58 million.
Peter Graves (05:00):
Wow.
Dale Roberts (05:01):
just astonishing.
The borough felt it had theskills to deliver these
projects.
It manifestly didn't.
Nor did it do enough to acquirethose skills, capacity,
capabilities.
As an example, an externaladvisor recently commented that
they would've expected thatthere'd be a commercial
(05:21):
financial role.
And that just doesn't existtoday in either our subsidiary
companies or in the borough.
At this level, we just don'thave the people, the structures,
the skills, the capacity, thecapability to be doing what
we've done.
So we became this enormous bankand property management without
the resources to do it well.
Peter Graves (05:43):
That's really helpful, Dale, because what I
hadn't appreciated was thatWoking actually sits as quite a
small borough out of the 300councils we are 230th, but we've
got this massive debt of 2.4billion which, even, to my mind
is overwhelming.
But can you explain exactly whois lending to who within this
(06:03):
picture?
Dale Roberts (06:05):
It's a great
Peter Graves (06:05):
question
Dale Roberts (06:06):
Peter.
It's one of just one of thethings that makes the financial
picture more complicated thanperhaps it should be.
So the borough, the council, areborrowing from someone called
the Public Works Loan Board,effectively the government,
Peter Graves (06:21):
Brian.
Dale Roberts (06:21):
the vast bulk of that borrowing is then lent to
two subsidiary companies ownedby the council Thameswey, first
one, and then Victoria SquareWoking Limited.
The borough in that case, isthen effectively acting as a
banker with those two subsidiarycompanies.
Peter Graves (06:41):
I think that's made it much clearer.
But to make it absolutelycrystal clear for our listener.
We've got a situation where asmall borough council is
effectively acting as a bankwithout the skills or capacity
to do so.
Doesn't really sit that wellwith me.
But perhaps you can explain whatthat bank has been using the
(07:05):
money to build.
What have we got out of it, asit were?
Dale Roberts (07:08):
The big ticket items are the.
Most people will know about iour Sheerwater.
Sheerwater has been builtthrough the Thameswey business.
Now, not all Sheerwater, butwe're something like 800 million
pounds into Thameswey.
And then secondly, VictoriaSquare.
So the towers in the town centerstanding at something like 700
(07:32):
million plus it needs workingcapital closer to 750 million.
The council isn't just a bank.
It has purchased assets foritself over the years.
So the borough owns ExportHouse, the former BAT building,
Maurice House, Duke's Court,Victoria Gate, Mines House
Albian House opposite thestation and many other assets.
(07:54):
But as I say, the big.
The really big items areThameswey and Victoria Square
Peter Graves (08:00):
That, that's fascinating, Dale, because I
couldn't get my head around howwe've got these assets.
We've got some fantastic assetsin Sheerwater.
We've got Victoria Square towersin the town center.
We've got some quite,impressive.
Buildings in the center ofWoking as well, but what I need
to understand, and perhaps youcould explain this for our
(08:22):
listeners what was the actualplan for paying back the debt to
the Public Works Loan Board andwhere would it come from?
Dale Roberts (08:31):
Because these two projects particularly, Victoria
Square and Sheerwater areregeneration schemes.
The benefits are social,housing, regeneration.
They're not financial.
So the business cases had theseunderlying assumptions that we
could continue to borrow fromPublic Works Loan Board when
(08:53):
these projects didn't delivercash or profit for many years.
The other assumption was alwaysthat the project costs were back
loaded.
They would ultimately becovered.
They'd ultimately deliver areturn when the project reached
the end of their life, 50,perhaps 60 years time, for
(09:15):
Victoria Square, Or as and whenthe housing in Shearwater has
been sold and, or been let wherethey're for rental, So the
challenge with that is thatloans have consequences.
The consequences of loans, as weall know, are repayments
interest and capital that's gotto be paid every year.
(09:38):
The council have to pay, as weknow from the EY report, the
council have to pay 60 million ayear for loan repayments.
And just to put that intoperspective, Our total spend as
a borough on all the services weprovide outside of housing is 40
(09:58):
million.
Peter Graves (09:59):
Whoa.
Dale Roberts (10:01):
We pay for all that we do 40 million.
Our interest our loan repaymentsare 60 million a year.
Peter Graves (10:07):
So as I understand it we've got to we have a total
spend on services of about 40million pounds.
But then on top of that, we'repaying.
60 million pounds in loanrepayments.
That really does that reallydoes worry me.
I'm sure our listeners wouldalso be concerned about that.
But currently what are ourdebts?
I Are we in the black or are wein the red?
(10:27):
How does it actually standthere?
Dale Roberts (10:31):
Yeah that's that's a question that's not easy to
answer, but I'll try and sothink about the debt.
Debt stands out in terms ofexisting committed debt, 2.4
billion.
And the independent financialreview, the EY report I
mentioned earlier without makingthis two party political, we,
the Lib Dems,, secured that,through an opposition motion.
And you know that report cameout of work that we did in
(10:53):
opposition.
Anyway, that report suggestedthe net asset position was 142
million.
Add it all up.
Not that you could ever do this,by the way.
Sell it all off and you end upwith 142 million.
You, You'll hear this talkedabout a lot.
however, we absolutely shouldnot rely on that.
The EY report was an analysis ofvaluations provided by the
(11:18):
previous administration.
They didn't validate thosevaluations.
Of course they can change.
They they change all the time,nor did they nor did they
validate the basis of thosevaluations.
So just for example the newauditors Menzies they made this
discovery recently back in our2020 accounts.
That there was an overstatementprofits by 14 million and
(11:40):
turnover by 30 million in asingle year's Thameswey
accounts.
Peter Graves (11:46):
Whoa.
Dale Roberts (11:46):
You, we should, and we are doing a lot more work
on this more significantly isVictoria Square.
This is Victoria Square.
At the time of that EY valuationwas valued at its cost.
Whatever we pay to build it,that is what its value was.
Let's say 700 million.
Right and proper to, to value itthat way.
But once it becomes operational,that's not how you value an
(12:08):
asset like that.
You value an asset like thatbased on its potential income
over a period of time, and Ithink it, I think we'd all
understand that commercialincome has changed dramatically
since the point at which theVictoria Square project was
conceived and where we aretoday.
(12:28):
That valuation, hundreds ofmillions, it really needs to be
challenged.
And in any case, ultimately thevalue of an asset such as this
is only real when it changeshands when someone buys or sells
it.
So it, but it could be entirelyunrealistic.
Unrealistic to assume that inthe current market it could be
(12:51):
sold at its cost.
It's hypothetical, but allvaluations are, and the
difference could be hugelysignificant.
I think that's the real pointthat, that I think the point I'm
trying to make here, Peter, isthat, that, that net asset
position of 142 million waferthinner in itself, right?
2.4 billion of debt.
Be examined more closely andcan't be considered in any way
(13:16):
robust.
Uh,
Peter Graves (13:16):
So now the obvious question really is where are we
getting the money from to repaythose loans?
Over to you, Dale
Dale Roberts (13:25):
That's right.
Yeah.
That the money to repay thoseloans needs to come from the
council's own companies fromVictoria Square and Thameswey.
Peter Graves (13:35):
Yeah.
Dale Roberts (13:35):
These companies today aren't generating the cash
to repay those loans.
The business plan plans suggestthey will do over time,
certainly after 50 years.
But that leaves the questionabout how those loans are repaid
this year, next year, indeed,for the next 49 years.
Those companies are repayingexisting, borrowing with new
(14:01):
borrowing.
Peter Graves (14:01):
So these companies, the Thameswey Group
and Victoria Square WokingLimited Dale are, repaying
existing borrowing with newborrowing as I understand it.
But what exactly are therepayment terms for the
borrowings.
Dale Roberts (14:17):
So far, most of the loans from the Public Works
Loan Board to the council are atpretty low rates, 2% over a
period of 50 years.
Somewhere around 2%.
However, and we've talked aboutthis because the business plans
require new loans.
To pay old loans, we have to paythe prevailing rate
Peter Graves (14:41):
Oh, I
Dale Roberts (14:42):
any of those new loans.
As interest rates go up, aswe've seen them do so
dramatically the costs go up.
And so this is, this is interestrate risk.
Now, and we've.
As a new administration, we'vedone a lot of work on explaining
all of this to councillors and Ithink in a way that it hadn't
been done before.
Peter Graves (15:02):
Being a little bit more transparent, I than perhaps
had been the case in the past.
Is that a fair assessment?
Dale Roberts (15:08):
That's right.
We're certainly going out of ourway.
To make sure everyoneunderstands the implications of
where we are and any decisionswe need to make.
Because, councillors members,they're representing residents
so right, it's right and properthat they understand all of
this.
And as I say in a way that Idon't think has been done before
(15:32):
or certainly clearly enoughbefore.
Peter Graves (15:34):
So Dale, in the current situation, how difficult
has it been for you to set anaffordable budget?
Dale Roberts (15:45):
Candidly, Peter, it's a precarious situation.
There are a number of problems.
The first is the council'sdependence on commercial income.
Um, the, um, the assumption wasI believe that the market would
simply come back, post covid.
Um, the, the borough was sodependent on commercial income
(16:08):
that it wasn't willing to faceup to the reality that it's
changed.
It's never coming back.
At least.
The way it was, the pandemicaccelerated two fundamental
changes.
Firstly, hybrid working thatimpacts the office rental
market.
And then secondly, onlineshopping.
We all know this, don't we?
(16:28):
So there's huge move, uh, thatwas already happening,
accelerated by, um, the pandemicthat changed, fundamentally
changed the purpose of a towncenter, which is no longer a
predominantly no longer a retaildestination.
Now over time, we canreconfigure office space and the
(16:48):
town center.
That's a major undertaking.
It's many, many projects.
It'll take many years.
And for now we simply have lesscommercial income until we get
this right.
Less commercial income, uh, as acouncil.
And there's a bigger problemthat we need to fix both, and
that's the scale of theborrowing.
(17:10):
The subsidiary companies aren'tgenerating cash as we discussed
the council should be makingsome provision for the
repayments, uh, for thoselong-term loans, putting aside
money, uh, and it's not puttingenough aside.
Uh, currently we're puttingaside something like 6 million.
(17:34):
Prudent view fairly commonprudent view is that we should
set aside 2% of the borrowingeffectively if it's asset
backed.
Um, it suggests that you areassuming you are writing down
the asset over 50 years, so 2%that will be 30 million on the
(17:55):
1.5 billion we've lent toThameswey and to Victoria
Square.
Now, I, I'm not suggestingthat's the only prudent view.
Prudence is a judgment.
But as we engage with thegovernment and the government
appointed review board, we'regoing to likely be required to
take a more prudent positionthan we have done previously.
(18:19):
Somewhere between where we aretoday, set I, as I say, a small
number of millions to perhapstens of millions.
Remember our total spend onservices excluding housing is
around 40 million.
We we only retain 10 million ofthe council tax that we collect.
Other commercial income coversthe balance and is dwindling,
(18:39):
and we may be required to putaside this enormous sum to be
determined.
Now that we're engaged with thegovernment, who quite rightly
have raised concerns over thescale of the debt.
Peter Graves (18:52):
Thank you Dale for that fascinating insight into
the history of working finances.
It is great to see that thesematters are being exposed to
councillors and residents whofor for too long have been kept
in the dark.
I'm sure that listeners found itas revealing as I did, and it
concerns me that we seem to haveoverstretched ourselves so much
(19:13):
to the point.
Where we have a council taxincome of about 10 million
pounds, but at the same timehave loan repayment commitments
of 60 million pounds per annum,and that's for the next 50
years.
It does seem that someunacceptably rash decisions were
made and that there was afrightening lack of preparation
(19:37):
and scrutiny.
Thanks for listening to thisepisode of The Working Examiner
Podcast, we look forward to youjoining us again next time.
Hello and welcome to the Woking Examiner Podcast.
In this series of podcasts, weinterview the councillors,
portfolio holders and supporterswho are assisting the Lib Dem
run Woking council as we seek toaddress the many years of
mismanagement committed byprevious administrations.
I am Peter Graves, councillorfor Pyrford Ward.
(00:26):
Over the course of the series,the people I interview disclose
the realities that lie behindthe decisions they're making as
they continue to unravel thecomplexities of the financial
dissonance, which we inheritedin May, 2022.
Today I'm with Dale Robertsfinance portfolio holder since
May of last year, having beenelected as councillor for St.
(00:48):
John's in May of 2021.
It's been Dale's role in thelast few manic months to try to
unravel the council finances byengaging with the officers and
other external agencies, andthen devise an affordable plan
for moving us onto a positiveand sustainable footing.
It's been his role to set arealistic and affordable medium
(01:09):
term financial strategy.
Dale, welcome andcongratulations on your new
role.
Dale Roberts (01:16):
Thank you, Peter.
It's great to be here and thankyou for inviting me.
Peter Graves (01:21):
Not a problem.
It's good to see you again.
So could we start with, by, bylooking at at Woking finances?
And so looking back over thelast 10 and 15 years, Why did
councils feel the need to borrowsuch vast sums of money?
Dale Roberts (01:36):
Let's start with first principles.
Local authorities have threemain sources of revenue,
government grants, so money fromcentral government in either a
specific grant to pay for inspecific individual name
services, or a general grantrevenue support grant, sometimes
a formula grant.
(01:57):
Secondly, business rates.
So a tax on business premises,which local authorities collect
for central government and theyretain some of it inordinately
complex.
And then there's council tax, aproperty tax levied on
residential properties, andwe're all familiar with that
because we'll pay it.
Peter Graves (02:12):
Yep.
Dale Roberts (02:13):
Then over the last decade or so, there have been
deep cuts to that grant funding.
Grants, in fact, includingretained business rates were cut
37% in real terms over the 10years to 2019 Deep cuts.
Peter Graves (02:28):
Yep.
Dale Roberts (02:29):
And at the same time, flexibility was reduced on
raising income tax, sorry onraising income through council
tax,
Peter Graves (02:38):
Yep.
Dale Roberts (02:39):
because of changes made in the 2011 Localism Act.
That meant that localauthorities have been
constrained in terms of beingable to raise council tax.
So inevitably English councilswent on a spending spree looking
for investment opportunities togenerate the income that they've
lost in government grants.
(03:01):
Councils have becomeincreasingly reliant on income
from commercial investments eversince.
Peter Graves (03:06):
That's interesting.
So effectively, A lot of moneybeing taken away from councils.
They've been restricted on howmuch they can increase council
tax, and so many councils havehad to look for other sorts of
income.
I can get my head around thatbut Dale explain why did the
previous Woking administrationfeel the need to take such
(03:27):
enormous financial risks?
Dale Roberts (03:31):
Borrowing has been used for regeneration,
Sheerwater
Peter Graves (03:37):
Yeah.
Dale Roberts (03:37):
for example, but it's grown out of all
proportion.
Look, there are around 300 uh,borough and district councils in
England by size, we're somethinglike 230th.
But we have these enormouslevels of debt.
We have the highest level ofcommercial debt relative to our
size of any authority.
(03:58):
And so we have this enormousdebt.
And fundamentally, investment isall about return and risk.
There's always risk, alwaysgreater risk, greater return,
less risk, less
Peter Graves (04:08):
Yes.
Return.
Dale Roberts (04:09):
It's, basic economics.
None of this is for thefainthearted.
None of it is really for small,relatively small borough
councils.
These projects because they'reregeneration.
These projects were justified aslow returns because they're
delivering social benefits, butthey had high risk now, low
(04:30):
return, high risk.
They're enormous projects for aborough of this size.
The private sector wouldn't beinterested in projects that are
high risk and low returns.
So the borough took all therisk, even if the projects
didn't go completely to plan andprojects like these never, ever
(04:50):
go to plan.
There was no margin.
for error and history has shownthat there are errors cost for
the red car park is just oneexample.
58 million.
Peter Graves (05:00):
Wow.
Dale Roberts (05:01):
just astonishing.
The borough felt it had theskills to deliver these
projects.
It manifestly didn't.
Nor did it do enough to acquirethose skills, capacity,
capabilities.
As an example, an externaladvisor recently commented that
they would've expected thatthere'd be a commercial
(05:21):
financial role.
And that just doesn't existtoday in either our subsidiary
companies or in the borough.
At this level, we just don'thave the people, the structures,
the skills, the capacity, thecapability to be doing what
we've done.
So we became this enormous bankand property management without
the resources to do it well.
Peter Graves (05:43):
That's really helpful, Dale, because what I
hadn't appreciated was thatWoking actually sits as quite a
small borough out of the 300councils we are 230th, but we've
got this massive debt of 2.4billion which, even, to my mind
is overwhelming.
But can you explain exactly whois lending to who within this
(06:03):
picture?
Dale Roberts (06:05):
It's a great
Peter Graves (06:05):
question
Dale Roberts (06:06):
Peter.
It's one of just one of thethings that makes the financial
picture more complicated thanperhaps it should be.
So the borough, the council, areborrowing from someone called
the Public Works Loan Board,effectively the government,
Peter Graves (06:21):
Brian.
Dale Roberts (06:21):
the vast bulk of that borrowing is then lent to
two subsidiary companies ownedby the council Thameswey, first
one, and then Victoria SquareWoking Limited.
The borough in that case, isthen effectively acting as a
banker with those two subsidiarycompanies.
Peter Graves (06:41):
I think that's made it much clearer.
But to make it absolutelycrystal clear for our listener.
We've got a situation where asmall borough council is
effectively acting as a bankwithout the skills or capacity
to do so.
Doesn't really sit that wellwith me.
But perhaps you can explain whatthat bank has been using the
(07:05):
money to build.
What have we got out of it, asit were?
Dale Roberts (07:08):
The big ticket items are the.
Most people will know about iour Sheerwater.
Sheerwater has been builtthrough the Thameswey business.
Now, not all Sheerwater, butwe're something like 800 million
pounds into Thameswey.
And then secondly, VictoriaSquare.
So the towers in the town centerstanding at something like 700
(07:32):
million plus it needs workingcapital closer to 750 million.
The council isn't just a bank.
It has purchased assets foritself over the years.
So the borough owns ExportHouse, the former BAT building,
Maurice House, Duke's Court,Victoria Gate, Mines House
Albian House opposite thestation and many other assets.
(07:54):
But as I say, the big.
The really big items areThameswey and Victoria Square
Peter Graves (08:00):
That, that's fascinating, Dale, because I
couldn't get my head around howwe've got these assets.
We've got some fantastic assetsin Sheerwater.
We've got Victoria Square towersin the town center.
We've got some quite,impressive.
Buildings in the center ofWoking as well, but what I need
to understand, and perhaps youcould explain this for our
(08:22):
listeners what was the actualplan for paying back the debt to
the Public Works Loan Board andwhere would it come from?
Dale Roberts (08:31):
Because these two projects particularly, Victoria
Square and Sheerwater areregeneration schemes.
The benefits are social,housing, regeneration.
They're not financial.
So the business cases had theseunderlying assumptions that we
could continue to borrow fromPublic Works Loan Board when
(08:53):
these projects didn't delivercash or profit for many years.
The other assumption was alwaysthat the project costs were back
loaded.
They would ultimately becovered.
They'd ultimately deliver areturn when the project reached
the end of their life, 50,perhaps 60 years time, for
(09:15):
Victoria Square, Or as and whenthe housing in Shearwater has
been sold and, or been let wherethey're for rental, So the
challenge with that is thatloans have consequences.
The consequences of loans, as weall know, are repayments
interest and capital that's gotto be paid every year.
(09:38):
The council have to pay, as weknow from the EY report, the
council have to pay 60 million ayear for loan repayments.
And just to put that intoperspective, Our total spend as
a borough on all the services weprovide outside of housing is 40
(09:58):
million.
Peter Graves (09:59):
Whoa.
Dale Roberts (10:01):
We pay for all that we do 40 million.
Our interest our loan repaymentsare 60 million a year.
Peter Graves (10:07):
So as I understand it we've got to we have a total
spend on services of about 40million pounds.
But then on top of that, we'repaying.
60 million pounds in loanrepayments.
That really does that reallydoes worry me.
I'm sure our listeners wouldalso be concerned about that.
But currently what are ourdebts?
I Are we in the black or are wein the red?
(10:27):
How does it actually standthere?
Dale Roberts (10:31):
Yeah that's that's a question that's not easy to
answer, but I'll try and sothink about the debt.
Debt stands out in terms ofexisting committed debt, 2.4
billion.
And the independent financialreview, the EY report I
mentioned earlier without makingthis two party political, we,
the Lib Dems,, secured that,through an opposition motion.
And you know that report cameout of work that we did in
(10:53):
opposition.
Anyway, that report suggestedthe net asset position was 142
million.
Add it all up.
Not that you could ever do this,by the way.
Sell it all off and you end upwith 142 million.
You, You'll hear this talkedabout a lot.
however, we absolutely shouldnot rely on that.
The EY report was an analysis ofvaluations provided by the
(11:18):
previous administration.
They didn't validate thosevaluations.
Of course they can change.
They they change all the time,nor did they nor did they
validate the basis of thosevaluations.
So just for example the newauditors Menzies they made this
discovery recently back in our2020 accounts.
That there was an overstatementprofits by 14 million and
(11:40):
turnover by 30 million in asingle year's Thameswey
accounts.
Peter Graves (11:46):
Whoa.
Dale Roberts (11:46):
You, we should, and we are doing a lot more work
on this more significantly isVictoria Square.
This is Victoria Square.
At the time of that EY valuationwas valued at its cost.
Whatever we pay to build it,that is what its value was.
Let's say 700 million.
Right and proper to, to value itthat way.
But once it becomes operational,that's not how you value an
(12:08):
asset like that.
You value an asset like thatbased on its potential income
over a period of time, and Ithink it, I think we'd all
understand that commercialincome has changed dramatically
since the point at which theVictoria Square project was
conceived and where we aretoday.
(12:28):
That valuation, hundreds ofmillions, it really needs to be
challenged.
And in any case, ultimately thevalue of an asset such as this
is only real when it changeshands when someone buys or sells
it.
So it, but it could be entirelyunrealistic.
Unrealistic to assume that inthe current market it could be
(12:51):
sold at its cost.
It's hypothetical, but allvaluations are, and the
difference could be hugelysignificant.
I think that's the real pointthat, that I think the point I'm
trying to make here, Peter, isthat, that, that net asset
position of 142 million waferthinner in itself, right?
2.4 billion of debt.
Be examined more closely andcan't be considered in any way
(13:16):
robust.
Uh,
Peter Graves (13:16):
So now the obvious question really is where are we
getting the money from to repaythose loans?
Over to you, Dale
Dale Roberts (13:25):
That's right.
Yeah.
That the money to repay thoseloans needs to come from the
council's own companies fromVictoria Square and Thameswey.
Peter Graves (13:35):
Yeah.
Dale Roberts (13:35):
These companies today aren't generating the cash
to repay those loans.
The business plan plans suggestthey will do over time,
certainly after 50 years.
But that leaves the questionabout how those loans are repaid
this year, next year, indeed,for the next 49 years.
Those companies are repayingexisting, borrowing with new
(14:01):
borrowing.
Peter Graves (14:01):
So these companies, the Thameswey Group
and Victoria Square WokingLimited Dale are, repaying
existing borrowing with newborrowing as I understand it.
But what exactly are therepayment terms for the
borrowings.
Dale Roberts (14:17):
So far, most of the loans from the Public Works
Loan Board to the council are atpretty low rates, 2% over a
period of 50 years.
Somewhere around 2%.
However, and we've talked aboutthis because the business plans
require new loans.
To pay old loans, we have to paythe prevailing rate
Peter Graves (14:41):
Oh, I
Dale Roberts (14:42):
any of those new loans.
As interest rates go up, aswe've seen them do so
dramatically the costs go up.
And so this is, this is interestrate risk.
Now, and we've.
As a new administration, we'vedone a lot of work on explaining
all of this to councillors and Ithink in a way that it hadn't
been done before.
Peter Graves (15:02):
Being a little bit more transparent, I than perhaps
had been the case in the past.
Is that a fair assessment?
Dale Roberts (15:08):
That's right.
We're certainly going out of ourway.
To make sure everyoneunderstands the implications of
where we are and any decisionswe need to make.
Because, councillors members,they're representing residents
so right, it's right and properthat they understand all of
this.
And as I say in a way that Idon't think has been done before
(15:32):
or certainly clearly enoughbefore.
Peter Graves (15:34):
So Dale, in the current situation, how difficult
has it been for you to set anaffordable budget?
Dale Roberts (15:45):
Candidly, Peter, it's a precarious situation.
There are a number of problems.
The first is the council'sdependence on commercial income.
Um, the, um, the assumption wasI believe that the market would
simply come back, post covid.
Um, the, the borough was sodependent on commercial income
(16:08):
that it wasn't willing to faceup to the reality that it's
changed.
It's never coming back.
At least.
The way it was, the pandemicaccelerated two fundamental
changes.
Firstly, hybrid working thatimpacts the office rental
market.
And then secondly, onlineshopping.
We all know this, don't we?
(16:28):
So there's huge move, uh, thatwas already happening,
accelerated by, um, the pandemicthat changed, fundamentally
changed the purpose of a towncenter, which is no longer a
predominantly no longer a retaildestination.
Now over time, we canreconfigure office space and the
(16:48):
town center.
That's a major undertaking.
It's many, many projects.
It'll take many years.
And for now we simply have lesscommercial income until we get
this right.
Less commercial income, uh, as acouncil.
And there's a bigger problemthat we need to fix both, and
that's the scale of theborrowing.
(17:10):
The subsidiary companies aren'tgenerating cash as we discussed
the council should be makingsome provision for the
repayments, uh, for thoselong-term loans, putting aside
money, uh, and it's not puttingenough aside.
Uh, currently we're puttingaside something like 6 million.
(17:34):
Prudent view fairly commonprudent view is that we should
set aside 2% of the borrowingeffectively if it's asset
backed.
Um, it suggests that you areassuming you are writing down
the asset over 50 years, so 2%that will be 30 million on the
(17:55):
1.5 billion we've lent toThameswey and to Victoria
Square.
Now, I, I'm not suggestingthat's the only prudent view.
Prudence is a judgment.
But as we engage with thegovernment and the government
appointed review board, we'regoing to likely be required to
take a more prudent positionthan we have done previously.
(18:19):
Somewhere between where we aretoday, set I, as I say, a small
number of millions to perhapstens of millions.
Remember our total spend onservices excluding housing is
around 40 million.
We we only retain 10 million ofthe council tax that we collect.
Other commercial income coversthe balance and is dwindling,
(18:39):
and we may be required to putaside this enormous sum to be
determined.
Now that we're engaged with thegovernment, who quite rightly
have raised concerns over thescale of the debt.
Peter Graves (18:52):
Thank you Dale for that fascinating insight into
the history of working finances.
It is great to see that thesematters are being exposed to
councillors and residents whofor for too long have been kept
in the dark.
I'm sure that listeners found itas revealing as I did, and it
concerns me that we seem to haveoverstretched ourselves so much
(19:13):
to the point.
Where we have a council taxincome of about 10 million
pounds, but at the same timehave loan repayment commitments
of 60 million pounds per annum,and that's for the next 50
years.
It does seem that someunacceptably rash decisions were
made and that there was afrightening lack of preparation
(19:37):
and scrutiny.
Thanks for listening to thisepisode of The Working Examiner
Podcast, we look forward to youjoining us again next time.
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