“Dereliction in leadership" and inadequate governance behind financial collapse at Thurrock, Best value inspection finds

A best value inspection report into Thurrock Council's financial collapse has found that a "dereliction in political and managerial leadership" and inadequate governance arrangements allowed the council to embark on a risky investment strategy that ultimately landed it in more than £1 billion in debt.

In the report published yesterday (15 June), Thurrock's inspector's Essex County Council stated: "The Council's lack of openness and transparency has given rise to a culture of insularity and complacency. Internal challenge has been discouraged, and external criticism and challenge have been routinely dismissed."

"It has placed the Council in a state of 'unconscious incompetence' and has undermined its ability to secure continuous improvement," it later added.

Thurrock's "unique" investment strategy can be traced back to 2016 when the s151 Officer was afforded delegated authority to make investments, the report explained.

Further changes in 2017 saw the amount that the s151 officer could invest under delegated authority increase from £200m to £550m, and the cash limit for any one external fund manager increased from £75m to £425m.

The limit on investments that can be placed with an external fund manager was later increased further to £750m in 2019.

"This is an extraordinary expansion in the delegated authority of officers," the report found. "It was made without consideration of the experience and skills that would be needed: experience and skills that officers have since recognised did not exist within the Council."

As a result of this policy, £500m worth of investments were made by the s151 Officer "without meaningful reference to elected members," according to the report.

The commissioner also said that it could not find any document stating the information that the s151 Officer considered when making an investment decision, a risk assessment, or the rationale for agreeing to make a particular investment.

As investments were made without any key decisions being recorded, capital expenditure decisions were taken in breach of the law and the council's constitution, the report stated.

"The making of investments over £500,000 without any forward plan entry being made triggered a requirement for the s151 officer and the Monitoring Officer to raise a statutory report," the report reads. But no such reports were made.

By the end of 2017/18, the council had made investments – made possible by borrowing large amounts of money, predominately from other local authorities – totalling £446m.

This increased to £847m by the end of 2018/19, and by early 2020, the value of the council's portfolio was approaching £1 billion.

The report stated that there was "limited engagement with the risks" of its investment programme. In one instance, it was judged to be a tolerable loss when a business the council invested £14 million in went into administration.

That loss should have triggered reflection and review, the report said, but "this opportunity was missed, as many members of the Council – having never been made aware of the existence of this investment – were neither told of its loss".

Councillors eventually agreed to pause the investment strategy in 2020 after an article on the council's investment strategy was published by the Financial Times.

By 2022, the council was plunged into a funding crisis after treasury management adviser to local authorities, Arlingclose, advised its clients not to lend to Thurrock Council.

As a result, the council could not repay previous short-term borrowing, and the contraction in lending forced the Chief Executive to seek emergency Public Works Loan Board advances, which had to be escalated via the Department for Levelling Up, Housing and Communities. This prompted the DLUHC to appoint Essex County Council as commissioner.

The report concluded that, in part, the council's situation is the result of poor governance arrangements.

These shortcomings "seriously impaired" the council's ability to make "good, well-evidenced, reasonable and lawful decisions subject to the proper scrutiny," and a comprehensive review of the council's governance arrangements is "urgently required," the report said.

The report explained that a lack of access to information had weakened scrutiny at the council, resulting in circumstances where officers and members do not always understand their roles, and risks are "not often appropriately drawn to members' attention".

Many of the reports handed to members contained "significantly less information that we would expect," and the commissioner found evidence to suggest that the lack of information and clarity provided in "reports reflects – at least in some cases – a conscious choice by senior officers".

The commissioner said that both officers and members had stated that the former Chief Executive had asked for reports to be less detailed and to omit information that the author would otherwise have wanted to include.

The council's adoption of its investment strategy in 2017 – the Treasury Management Strategy (TMS) – was an example of where reports failed to include sufficient information to explain the decision requested, the commissioner noted.

In the case of the TMS, members were asked, in successive years, to approve a policy presented as an annex to an appendix to a report without a clear explanation of this policy or its implications.

"In most authorities the treasury management strategy is a routine document, but within Thurrock Council it has been the document which gave the s151 Officer unprecedented freedom to place hundreds of millions of pounds of investments without meaningful oversight."

This arrangement is "highly unusual" among local authorities – a point that should have been made clear to members from the outset but which was not, the report adds.

The commissioner made nine recommendations in total, including a call to expand the county council’s powers to allow it to make appointments and dismissal with respect to senior positions, such as the Monitoring Officer, Head of Paid Service and section 151 Officer.

It also recommended the Secretary of State issue guidance to "strengthen the role of the three statutory officers, requiring them to work together, and in an integrated way, to maintain the integrity of the governance arrangements and the control environment of their authority".

In addition, it called on the Government to consider making legislation to "strengthen and clarify the role of the Monitoring Officer and the head of the paid service" that should include:

"- amending regulation 4 of the Accounts and Audit Regulations 2015 to introduce a requirement for the Head of Paid Service and the Monitoring Officer to be consulted by the section 151 Officer on any determination on the financial control environment; and

"- amending regulation 6 of the Accounts and Audit Regulations 2015 to require the Head of Paid Service, section 151 Officer and Monitoring Officer to be formally consulted on the contents of the annual governance statement."

Thurrock's most recent financial update suggests there is an in-year deficit of some £470 million and an estimated structural deficit in 2023/24 of £184m. Its level of borrowing is also reported to be at £1.3 billion as of March 2023.

The annual revenue costs associated with this debt make Thurrock Council – one of England's smaller unitary councils in terms of population and tax base – "highly vulnerable from a financial point of view," the report warns.

Writing in response to the report and its recommendations, Local Government Minister Lee Rowley said: "This report lays bare a rare but significant case of a council failing to comply with its best value duty across several fronts. As I noted in my statement to the House on 16 March, I am hopeful that the recent expansion to the intervention will help the council to address the concerns set out in the Best Value Inspection report, and to continue its vital work to improve the way in which the council is run.

"The people of Thurrock deserve a well-run council that can fund the delivery of good quality services in a sustainable and responsible way. Progress has been made in recent months but this will require significant improvements in the council's leadership, finance, and governance functions at both the political and managerial level.

"Commissioners will play a significant role in securing these improvements and informing Ministers' ongoing response to the situation in Thurrock. The Secretary of State and I look forward to receiving the Commissioners' second report at the end of this month."

Commenting on the report, Thurrock's newly appointed leader, Cllr Andrew Jefferies, said: "Whilst I am deeply sorry for the shocking and unacceptable failings of the past, I can pledge that under my new leadership the council will never repeat these mistakes."

He added: "We are putting our finances back on the path to sustainability, improved transparency and openness and are tackling a history of poor communication. Officers and elected members will continue to work together to improve the council's leadership and ensure good decision making. There have been changes at senior officer level including a new Chief Executive and Managing Director Commissioner, and I am confident we are building a strong team."

Adam Carey