Woking council may face £1bn hit from property investment spree | Local government

Woking council risks a financial hit worth £1bn amid a government investigation into the local authority’s debt-fuelled investment spree in hotels and skyscrapers.

The Surrey council is on the brink of insolvency, with a possible section 114 notice, signalling it cannot balance its budget, believed to be imminent.

After the tiny home counties council was put into special measures by ministers late last month, sources said the value of the council’s assets could be written down by up to £1bn – a sum so big that it could impact national government finances.

It comes as commissioners installed by Michael Gove’s levelling up department launch a second round of investigations into the local authority, after the council built up debts worth about £2bn through a programme of risky property investments.

Sources said the commissioners had started a fresh investigation after ministers published initial findings on the council’s financial position late last month, with the aim of establishing further details on the value of its investment portfolio. They said the council’s assets – which include a trio of skyscrapers rising up to 34 storeys – could be marked down in its accounts to reflect a significantly lower value than previously anticipated.

Figures obtained by the Municipal Journal, a local government trade publication, suggested the write-down could be worth up to £1bn. A source told the Guardian this figure was “not a million miles off,” although cautioned that commissioners’ investigations were still ongoing.

The biggest element of the write-down is understood to be the council’s Victoria Square project – which includes sky-high towers, a new four-star Hilton hotel, public plazas, parking facilities and shops – with estimates of a paper loss worth up to £550m.

While the council has committed about £750m of borrowing to the project, sources said the assets were now thought to be worth closer to £200m.

The government last month announced the installation of three external commissioners to Woking council, warning that it faced “the most challenging financial position of any local authority in England”.

Publishing the findings of a review initiated earlier this year, it said Woking was on track to have debts of £2.4bn by 2026, 100 times the size of its annual £24m budget.

It promises to be the latest in a series of local authorities brought down by risky property deals over the past half decade, alongside Thurrock, Croydon, and Slough, each of which attempted to offset the impact of government funding cuts by using cheap Treasury loans to try to create alternative income schemes.

However, Woking ranks as England’s most indebted council relative to its size, with a notional debt of £19,000 a head for each of its residents.

One local government finance professional with knowledge of the situation said: “If this all goes bad, it goes beyond local government finance issues that the department for levelling up can manage. If this has an impact on the public finances, it becomes a Treasury issue.”

“It’s of a different size and scale of the others.”

The Liberal Democrats took control of Woking council in May 2022, taking power after 14 years of Conservative control. The bulk of the commercial investments considered in the government review were made between 2016 and 2019.

Woking’s Lib Dem council leaders have warned the authority is “in the territory” of being unable to meet its financial obligations, amid a surge in debt interest costs on its investments. The council is thought to be considering the issuance of a section 114 notice, which effectively signals insolvency.