Austerity-Affected Board Defends Its “High Risk” Investment Strategy | The local government

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IIn an ideal world, Cathy Mitchell wouldn’t have to spend her time worrying about an investment portfolio of over £ 1 billion. The former attorney and deputy director of Warrington City Council usually thought of schools, adult welfare and bus services, with investments taking care of themselves. But things are far from normal for the Cheshire district or its portfolio of businesses: one of its flagship shares – a 50% stake in the affected company Together Energy – would be on the verge of going up in smoke.

Warrington has followed advice across the country by investing money in trading schemes in hopes of generating returns that can offset a decade of conservative austerity. However, critics say the Labor council has pushed the high stakes strategy too far: investing public money in risky real estate, energy and finance ventures, including some companies backed by super-wealthy Tory donors.

“I’d rather not get involved in investing because we have better things to do,” says Mitchell, who is the council’s portfolio holder for corporate assets. “But until we’re properly funded by the government, I don’t think we have much of a choice.”

Warrington’s energy supply bet is close to backfiring as Together Energy prepares to appoint directors. It is the latest of nearly 30 small suppliers to face collapse due to rising wholesale gas prices that are contributing to the UK cost of living emergency. The company declined to comment.

Council’s investments since 2019 – made with the aim of earning a return and tackling energy poverty in one fell swoop – have brought over £ 50m of debt, equity and collateral exposure to Together, which is headquartered 200 miles away. away in Clydebank.

While it’s unclear how much Warrington might lose, it’s believed to be less than the title figure suggests. Mitchell says he can’t comment on a live situation, but insists protections are in place and appropriate governance checks have been made before investing.

“It’s not the council that runs it; it’s a real energy company, ”says Mitchell. “They are industry professionals with a lot of experience. We used external consultants and ran an internal workshop where we got all the others [political] the parties involved [before investing]. We have been very careful about the investment “.

Its critics may disagree. The stake in Together Energy is just one of the many deals made by the city known for its rugby league club and former wire industry. They include shares in a bank, loans to a giant online retailer, and properties ranging from shopping malls and business parks to solar parks in Hull, York and Cirencester.

Andy Carter, a Conservative MP from Warrington South, fears the council has bitten more than it can chew. “He shouldn’t have done that,” he says. “Other municipalities in the Northwest have much lower debt levels and operate differently. It is a decision made by the directors to adopt what I believe to be a very risky strategy, and some of those risks are now coming home.

“I’m not saying municipalities shouldn’t borrow. To do [it] making strategic investments in your community here and there is a good thing. But Warrington took it to an extreme level. “

Undaunted, councilors last week approved a new £ 37.5 million loan, this time for affordable housing developer Auxesia Homes. Backed by European firm Matter Real Estate and Gary Metcalf, a property developer who briefly owned Chester City Football Club, Auxesia specializes in homes for service staff and NHS workers throughout the Northwest.

Critics say this should have been looked into more closely. “Have lessons been learned from the municipality’s Together Energy investment?” asks Tory councilor Ken Critchley. “One has to wonder why regular private business finance providers don’t provide these loans.”

Conservative donor David Rowland gets in the car
Conservative donor David Rowland, who controls Redwood Bank, in which the board has a stake. Photography: Shutterstock

Elsewhere the city has a 33% stake in the Redwood investment bank, which is controlled by multimillion-dollar Tory donor David “Spotty” Rowland and his son Jonathan.

Another Tory donor, Matthew Molding, a billionaire owner of the Hut Group (THG), has received a loan from the municipality of over £ 150 million. The loan is secured on the online retailer’s vast distribution site on the outskirts of Warrington.

Halfway between Manchester and Liverpool, Warrington is connected to both by the world’s first intercity rail and has motorways on three sides. This has led the city to a warehouse boom in recent years, even if it started in 1987 when Ikea chose Warrington for its first store in the UK.

Mitchell says most investments are backed by physical resources, so Warrington is protected against defaults and that Council is investing in local employers that create much-needed growth and jobs. A spokesperson for Redwood declined to comment on the owners of the bank, but said it has lent £ 133 million to the city and wider region since its launch four years ago.

Mitchell says the investment is needed to fund services and represents the “values ​​of work in action.” He adds: “It’s hard to avoid conservatives when dealing with this type of business. Sometimes you have to deal with people you disagree with. “

Warrington has never been short of ambition. Its Town Hall is an elegant Georgian mansion, and the opulent gates outside were originally created for Queen Victoria. It achieved sad fame, however, in 1993 when an IRA bomb killed two young boys.

After years of decline, the city has invested £ 130 million to redevelop Time Square into a public market and cinema complex. A similar investment in nearby Preston garnered acclaim for being “municipal socialism” in action.

Andrew Burns, associate director of the Chartered Institute of Public Finance and Accountancy, which represents public accounting professionals and sets standards, says Warrington’s approach is not new. Birmingham founded a bank more than a century ago under Neville Chamberlain, he says, while noting growing demands for local financial autonomy to “level up” Britain’s poorest areas. But while he agrees that there are questions about how far Warrington is going, he adds, “The final test is the local ballot box. If people don’t like what they’re doing, they can vote for them.”

Warrington's Time Square restaurant and entertainment complex, supported by the council.
Warrington’s Time Square restaurant and entertainment complex, supported by the council.

In pursuit of investment returns, Warrington has amassed a pile of debt worth £ 1.6 billion. And that is expected to rise to £ 2.3 billion within two years, putting the board on track for debt for more than 400% of operating revenues. As interest rates rise to counter the surge in inflation, higher borrowing costs could increase the pressure on local authorities.

Warrington borrowed primarily through the Public Works Loans Board, a Treasury agency that allows local authorities to borrow at low rates close to what the UK government enjoys. However, along with councils including Aberdeen, Lancashire and Guildford, it has obtained funds from global bond market investors. Moody’s, the credit rating agency that monitors the board’s finances on their behalf, noted that Warrington has a “risk appetite” but a track record of budget delivery.

Local authorities across the UK came under severe pressure during the pandemic due to slumping revenues and increased pressure on services. Ministers had to intervene in the Northamptonshire and Croydon cases, which issued Section 114 notices, meaning they could not fulfill their obligations. Last March, the National Audit Office warned that 25 councils were on the verge of insolvency.

Opposition leaders question whether Warrington should be authorized by central government rules to adopt such a high-risk strategy. “It was kind of like the wild west,” says Carter. “Anyone can come in and borrow, and do whatever they want with it. This was certainly the case with Warrington. “

A government spokesperson said municipalities were prevented from borrowing to invest for profit, but were ultimately responsible for their own investment strategies, adding, “We have been clear that municipalities should not put taxpayers’ money in search of commercial income is at excessive risk. “

Warrington’s other MP, Charlotte Nichols of Labor, representing the north of the city, admits that the debt burden is a problem. “Obviously it raises concerns, especially from people who don’t think the municipality should be into investment,” he says. “Ultimately, I agree with that assessment, but I see no credible alternatives offered. The government has to shell out or councils like ours will be forced to find other sources of income.

Mitchell says there would be worse dangers to Warrington if the board stopped investing. It had to save £ 173 million since the start of austerity in 2010, equivalent to 60p every £ 1. “It’s about trying to protect people. What would it be like if services were cut instead for children at risk of harm or for vulnerable people who need care in their homes? “

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