Havering Council saved from bankruptcy as £54m government loan approved – with conditions

The government has supplied an east London council with a £54million loan after weeks of turmoil.

Havering Council, which was teetering on the edge of effective bankruptcy at the end of February, has been bailed out by the Department for Levelling Up, Housing and Communities (DLUCH).

Councillors were shown correspondence between council leader Ray Morgon and government minister Simon Hoare on Wednesday March 6, confirming the loan had been agreed.

The Local Democracy Reporting Service (LRDS) has seen copies of both letters, which lay out a £21.2m loan for 2023/24 and a follow-up £32.5m loan for 2024/25.

There are two conditions attached to the loan, including the development of a comprehensive “transformation plan” and for an external review of the council’s finances to be carried out.

The government has made it clear it will expect further cuts in “unnecessary” spending and the council will need to eliminate any “superfluous or wasteful” expenses.

The council’s latest budget painted a dire picture for 2024/25, and the authority is expected to sell off public assets next year to help pay for public services.

In its correspondence, the government said the loans will be rate set by the Public Works Loan Board plus 1 per cent.

Based on initial calculations, that will equate to an extra £2.13m being paid out over the next 20 years.

In its transformation plan, the council will need to explain how it will improve its performance and cut “wasteful” spending by August 27.

The plan will need to be “rooted in clear deliverables” and “tangible, measurable outcomes” over the next 12 months, the government minister said in the letter.

Meanwhile, the external review will be carried out by government-appointed experts and it will assess the council’s financial management and the ways it has tried to improve its productivity and efficiency.

In his response to the minister, council leader Ray Morgon wrote: “The landscape for councils like Havering remains extremely bleak.

“We are already cost-effective and our unit costs are amongst the lowest compared to our neighbouring boroughs.”

In a statement, Conservative councillor for Romford, David Taylor, who had seen a copy of the letter, said he was “disappointed” councillors had not voted on the loan and were being “kept somewhat in the dark”.

He added: “I suspect that Havering Council will be asked to submit itself for external review of its finances and have to produce an improvement plan. However, I cannot confirm that.”

It is not clear, he added, if the local authority or Westminster had stopped the letter, which was shared with the LDRS on a confidential basis, from being published publicly.

Speaking to the LDRS, he said that it would introduce “generational debt” to the borough.

He added: “If, as claimed, councillors have been told all there is to know, then why not give us permission to tell our residents?

“They will be paying for this loan with their taxes – let us speak.”

A spokesperson for the Havering Residents Association, which controls the council, previously said officers would be engaging in further discussions with the government.

They added: “The entire reason we are having to [receive] a government loan is the failure of the government to provide fair funding for the borough.

“We should add that no alternative to the capitalisation loan was proposed by opposition councillors, as all agreed the borough was underfunded and that there were no options.”

Havering is one of 19 councils across the country that will be allowed to sell public assets to cover spending, which is normally prohibited.

Havering is not the only council in dire straits, with authorities in Birmingham and Nottingham approving major spending cuts and council tax hikes by as much as 21 per cent in recent weeks.

On February 28, Havering councillors approved a council tax rise of 4.99 per cent, which will translate to a £119 jump per year for people living in an average Band-D home.

This is lower than other borough council rates, with Waltham Forest and Redbridge both rubber-stamping increases in the region of 5.7per cent. Going into 2024, Havering had an estimated budget gap of £14m. Its reserves, which amount to £8m, are the third lowest in London.

The authority overspent by around £20m in the last financial year, and it is understood a chunk of the loan will go towards covering that gap.

It hopes to save about £10m in 2024/25 through a variety of cuts and savings, which will involve closing libraries, spending less on roads, and increasing parking charges.

In January, Havering’s chief financial officer Kathy Freeman signed the budget off as being “as robust as it can be” but warned that it was not sustainable – putting the blame on years of “systemic underfunding”.

However, she said the council would still face “significant” financial risks – such as inflation, unpredictable demands on council services, or “new burdens” – as the year progresses.

If the council declares effective bankruptcy – known as a Section 114 notice – government commissioners may be appointed to take control from the democratically-elected councillors and even stricter spending controls could be imposed.

Havering Council did not respond to a request for comment.

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Sebastian Mann

Local democracy reporter