Two Scottish councils have loaned millions of pounds to an English council which borrows far more than any other council in the UK and gambles most of it on speculative solar power investments.
While Edinburgh blacklisted Thurrock Council in 2018, The Ferret has discovered that Orkney and Renfrewshire councils lend £5m and £10m respectively to the risk-taking local authority.
Local councils across the UK regularly borrow from each other. Supporters of this practice say it helps councils manage money as some councils bring in revenue at different times of the year.
As funding for local councils has been cut, some have taken to borrowing to finance speculative investments in companies or in property.
This is against national guidelines which say councils should not borrow more than or in advance of need purely to profit from investments.
By far the biggest borrower is Thurrock Council, which covers an area of 173,000 people just east of London. As of December 2019, it owed other councils £1.08bn. The most any Scottish council owed to other councils was West Dunbartonshire which owed £190m.
As well as the scale of Thurrock’s borrowing, there have been questions raised over how this money is invested and how much oversight there is of those decisions.
The Bureau of Investigative Journalism (TBIJ) has reported that Thurrock has invested over £600m into the solar power industry.
The investment decisions were made by the council’s director of finance, Sean Clark, after intermediaries approached him with money-making opportunities.
When asked about his investment strategy, Clark told TBIJ: “I wait for opportunities to come to me … people have come to us on different occasions with different opportunities, some small, some larger. Word then gets around that we do these things and people come to us.”
It was signed off by officers with no reference to members whatsoever. I knew absolutely nothing about it. John Kent, Thurrock councillor
Some Thurrock councillors also claim they were not informed about how Clark, an unelected officer, was investing the council’s money.
Labour’s John Kent, who was leader of the council at the time of the first solar investments, told TBIJ: “It was signed off by officers with no reference to members whatsoever. I knew absolutely nothing about it.”
According to TBIJ, when councillors were told about investments in solar power, they were told the investments were less than they really were.
Like most councils, Thurrock employs external companies to advise them on their finances. Clark said he had not consulted with these advisers on the loans he was taking out and the investments he was making.
Arlingclose stopped being the council’s advisers on March 2019. When asked why, Clark told TBIJ it was because of “differences of opinion”.
Thurrock Council claims the company Arlingclose were not consulted because the investments were “outside of its area of expertise”.
At least £74m, and possibly up to £420m, of Thurrock’s £600m solar power investments have gone to a single company called Rockfire Capital.
Rockfire Capital is owned by a 42-year old businessman called Liam Kavanagh. He is a director of 82 different companies. Through these, he owns a series of solar farms.
In a legal finding, Rockfire has complained that 15 of the solar farms bought with council money had “defects” and TBIJ has alleged that its debts are high compared to a Financial Times valuation of its property.
TBIJ says that Rockfire’s website was taken down after they first contacted them. The website remains “under construction” now and the phone number listed on it went unanswered. The office address listed is a Mayfair space which offers co-working and ‘virtual offices’.
Information on who is funding Thurrock’s investments is difficult to find. Thurrock Council rejected a TBIJ freedom of information request asking for the councils’ names.
Clark said he and his team had made this decision because releasing the information would be “detrimental” to the council’s “ongoing borrowing requirement to fund capital investments in Green Energy Bonds … that the council maintains via borrowing … from other local authorities on a rolling basis”.
But The Ferret can reveal two Scottish local authorities which are lending to Thurrock. It is currently borrowing £5m from Orkney Islands Council. Of this, £3m is to be repaid on 19 August and £2m is to be paid back on 29 September.
Thurrock also borrows £10m from Renfrewshire Council. This is due to be repaid in six months time.
TBIJ’s analysis of Thurrock’s payment data also reveals that between 2016 and 2019 Edinburgh Council lent Thurrock £20m and Dumfries and Galloway lent it £8m.
But a Dumfries and Galloway spokesperson told The Ferret that currently it has no money lent to Thurrock.
When asked if the council knew what councils it lent to did with the money, the spokesperson did not reply.
TBIJ has reported that none of the councils it spoke to knew what Thurrock was doing with their borrowed money.
But an Edinburgh council spokesperson said: “As part of our credit due diligence process, we regularly review the activities of councils to which we lend and Thurrock was removed from our lender list in 2018. We have no outstanding credit arrangements with this local authority.”
When asked if Thurrock was the only council Edinburgh would not lend to, the spokesperson said it was not. Other councils “who have undertaken significant commercial property activity” have also been blacklisted, the spokesperson said.
A spokesperson for Glasgow Council did not reply when asked if they lent money to Thurrock but did say that Glasgow itself does not, and does not plan to, borrow money for speculative investments in the manner.
Lending to other councils is seen as low-risk because no council has ever yet defaulted on its loans to another. According to TBIJ, it’s widely assumed that if one did that central government would pay its debts.
Of the UK’s 412 local authorities though, 195 were not loaning money to other councils as of the third quarter of 2019-20.
These included Angus, Argyll & Bute, East Lothian, East Renfrewshire, Inverclyde, Midlothian, Scottish Borders and the Shetland Islands.
London’s Lambeth Council told TBIJ it had “chosen not to use its limited cash holdings to support lending to other councils” and would be “using all of our resources to improve and deliver services to our residents and communities”.
When asked to comment, Thurrock Council said councils have been becoming more “entrepreneurial” for a number of years. This strategy has earned Thurrock £32m extra a year, they said.
The spokesperson said that council officers had engaged with all three council group leaders before its first solar investment in 2016 and that councillors had unanimously approved the new investment strategy in October 2017.
The spokesperson said scrutiny had been “integral” to further decision making and there were lots of meetings which councillors were invited to.
Investments are ethical, green, diversified and “due diligence, research and seeking expert advice is completed on every investment transaction”, the spokesperson added.
The council also said it’s “hard debt” was £280m – not £1bn – “as has inaccurately been stated”. It plans to reduce investments over time.
A Renfrewshire Council spokesperson said: “Any investment or deposit arranged by Renfrewshire Council is undertaken in accordance with our Prudential Framework and Treasury Management strategy, which is approved annually by the Council, and follows the financial codes of practice, based on the key principles of security and liquidity.
“Any deposits we have made with other local authorities are undertaken on a short-term basis and all have been repaid in line with the agreed terms of the deposit.”
Lending to other local authorities is not an unusual activity. Orkney Council spokesperson
A spokesperson for Orkney Council said: “Lending to other local authorities is not an unusual activity.
“On the basis that the loaned funds are secured against the revenues of the borrowing local authority, this is recognised as a low risk approach and an effective means of managing the short term cashflow requirements of the council receiving the loan.”
The spokesperson added that council officers carry out the council’s treasury and investment strategies. External advisers contribute to these strategies and they are approved by councillors.
External brokers are used to source lending opportunities and the loans to Thurrock “were advanced as short term cash flow finance, rather than as money for investment in a particular sector or company”, the spokesperson said.
They added that the council has previously lent to Thurrock and had been repaid without any issue arising.
Orkney Council’s treasury advisers Link Asset Services declined to comment. Rockfire Capital did not reply to a request for comment.
This story was publish in tandem with the Sunday National.
Photo thanks to iStock/Milos-Muller