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Austerity-hit council defends its ‘high-risk’ investment strategy | Local government

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I amIn an ideal world, Cathy Mitchell would not have to spend her time worrying about a £ 1bn investment portfolio. The former lawyer and deputy leader of the Warrington borough council would usually mean schools, adult social care and bus services, with investments taking care of themselves. But things are far from over. Normal for the Cheshire Quarter or its Asset Book: One of its flagship shares – a 50% stake in the affected Together Energy company – is According to outright reports Of rising in smoke.

Warrington has tracked councils across the state plowing cash into commercial plans in hopes of yielding returns that could offset a decade of conservative austerity. However, critics argue that the Labor-led council has taken the over-the-top strategy: putting public money into risky ventures in property, energy and finance – including some companies backed by particularly wealthy serial donors.

“I prefer not to be involved in investments because we have better things to do,” says Mitchell, who holds the council’s corporate resource portfolio. “But as long as we are not properly funded by the government, I do not feel we have much choice.”

The betting on Warrington’s energy supply is close to backing up as Together Energy prepares to appoint executives. It is the latest of nearly 30 small suppliers that have faced collapse in the wake of rising wholesale fuel prices contributing to the emergency cost of living in the UK. The company declined to comment.

Council investments from 2019 – made on purpose Earn value and deal with fuel poverty In one fell swoop – bring it More than £ 50 million of exposure In debts, capital and guarantees to Together, which is based 200 miles away in Clydebank.

While it is not clear how much Warrington can lose, it is likely to be less than the figure in the title suggests. Mitchell says she can not comment on a live situation, but insists that protections exist, and that appropriate government tests were done before the investment.

“It’s not the council that runs it; it’s a worthy energy company,” Mitchell says. “They are industry professionals with a lot of experience. We used external consultants and conducted an internal workshop where we got everything else [political] Mixed parties [before investing]. We were very careful about the investment. “

Its critics beg to disagree. The bet on Together Energy is just one of many deals made by the town known for its rugby club and former wire industry. They include bank shares, loans to a giant online retailer and properties ranging from shopping malls and business parks to solar farms in Halle, York and Sirensster.

Andy Carter, a Conservative MP for Warrington South, is worried the council has bitten more than it can chew. “It shouldn’t have done that,” he says. “Other councils in the North West have much poorer levels of loans and operate differently. It’s a decision made by councilors to adopt what I believe is a really risky strategy, and some of those risks are now returning home.

“I’m not saying councils should not take loans [it] Making strategic investments in your community here and there is a good thing. But Warrington has taken it to an extreme level. “

Council members did not hesitate last week to approve a new loan of £ 37.5 million, this time for an affordable housing developer Auction houses. Backed by European company Matter Real Estate and Gary Metcalf, a property developer who briefly owned Chester City Football Club, Auxesia specializes in homes for service personnel and NHS employees throughout the Northwest.

Critics argue that this should have been examined more closely. “Have we learned lessons from the council’s investment in energy together?” Asks Tory Councilman Ken Krichelli. “One has to ask why regular finance providers for private businesses do not provide these loans.”

Tori donor David Roland, who controls Redwood Bank, in which the council has a stake. Photo: Shutterstock

Elsewhere in the city there are a 33% of Redwood Business Bank shares, Which is controlled by multi-millionaire donor Tori David “Spoty” Roland and his son Jonathan.

Another serial donor, Matthew Molding, owner of the billionaire Hut Group (THG) has received a loan worth more than £ 150 million by the council. The loan is secured at the huge online retailer distribution site on the outskirts of Warrington.

Halfway between Manchester and Liverpool, Verrington is linked to both by the The first intercity train in the world And it has highways on three sides. This has brought a warehouse boom to the city in recent years – though it started in 1987, when IKEA chose Warrington The first store in the UK.

Mitchell says most investments are backed by physical assets, so Warrington is protected from defaults, and that the council invests in local employers who create growth and needed jobs. A Redwood spokesman declined to comment on the bank’s owner, but said he had borrowed £ 133 million in the city and wider area since its launch four years ago.

Mitchell says investment is needed to fund services and represents “work values ​​in action.” She adds: “It’s hard to avoid conservatives when dealing with this kind of business. Sometimes you have to deal with people you are not on the same page with.”

Warrington has never lacked ambition. His town hall is an elegant Georgian mansion, and the magnificent gates outside it were originally created For Queen Victoria. However, he gained sad fame in 1993, when an IRA bomb killed two young boys.

After years of decline, the town has poured £ 130 million into the redevelopment of Time Square into a publicly owned market complex and cinemas. A similar investment in nearby Preston has been praised for being “Urban socialism“Action.

Andrew Burns, co-director of the Institute of Public Finance and Accounting, which represents public accounting professionals and sets standards, says Warrington’s approach is not new. Birmingham established a bank more than a century ago under Neville Chamberlain, He says, noting the growing demands for local financial autonomy to “raise the bar” in the poorer regions of the UK. But although he agrees there are questions about how much Warrington is pushing it, he adds: “The ultimate test is the local polls. If people do not like what they do, they can vote for them.”

Worthington Time Square Recreation and Restaurant Complex, supported by the council.
Worthington Time Square Recreation and Restaurant Complex, supported by the council.

In pursuit of investment returns, Warrington has built a pile of £ 1.6 billion in debt, which is set to rise to £ 2.3 billion within two years, putting the council on a track of more than 400% of operating revenues. As interest rates rise to cope with rising inflation, higher credit costs may increase pressure on local government.

Warrington borrowed mainly through the Public Works Loan Council, an agency of the Treasury that allows local authorities to borrow at low rates – close to those enjoyed by the UK government. However, along with councils including Aberdeen, Lancashire and Guildford, it has raised money from investors in the global bond market.

Local authorities across the UK came under severe pressure during the epidemic as revenue collapsed and pressure on services increased. Ministers were forced to intervene in the cases of Northamptonshire and Croydon, which issued section 114 notices – meaning they could not meet their commitments. Last March, the National Audit Office warned that 25 councils were on the verge of insolvency.

Opposition leaders are asking whether Warrington should be allowed under central government law to take such a high-risk strategy. “It was a bit like the Wild West,” Carter says. “Anyone can come in and ask, and do whatever he wants to do with it. That was definitely the case with Warrington.”

A government spokesman said councils were restricted from borrowing to invest for a return, but were ultimately responsible for their investment strategies, adding: “It was clear to us that councils should not put taxpayers’ money at risk of over-pursuing commercial income.”

Warrington’s second MP Charlotte Nicholas of Labor, who represents the north of the city, admits the debt burden is a problem. “Of course it raises concerns, especially from people who do not think the council should engage in investment,” she says. “In the end, I agree with this assessment, but I do not see that reliable alternatives are offered. The government should cough or councils like ours will have to find other sources of income.”

Mitchell says there will be worse dangers for Warrington if the council stops investing. It had to be found Savings of £ 173 million since austerity began in 2010, Equivalent to 60p per £ 1. “This is an attempt to protect people. What does it look like if instead you cut back on services for children at risk of injury, or vulnerable people who need care at home?”

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