SHBC Leader's Financial Update

On Tuesday last week, the External Auditor Report for 2023/24 was published, covering the budget we inherited from the previous Conservative Administration. This is the first proper audit since the 2018/19 financial year, a shocking 4 year gap.

Given our core Liberal Democrat manifesto value of providing “transparency” to residents and the key commitment to “Remove the veil of secrecy that surrounds the Council’s finances” we really welcome Grant Thornton’s wide ranging report. 

Our team will ensure its recommendations are carefully considered alongside the current financial challenges facing the Council, our urgent transformation programme and the impending Local Government Reorganisation. 

In one area of the report, the external auditor raises some valid observations about governance processes within the Council. This is due to changes in best practice guidance from 2022, which we can learn from and improve further, now we have finally been audited. 

Our belief is that the public have a right to know what goes on in their Council and that we have an obligation to be transparent to residents. Councillors also have the democratic mandate and legal right to represent their residents in areas of public interest, especially financial matters. 

In places the auditors appear to undervalue these principles. 

This position taken by the auditors is at odds with their recent Public Interest Report into Woking Borough Council’s 2023 collapse. It stated one key issue as, “a lack of curiosity on the part of some members and a tendency to believe what they were being told” 

Our team can point to extensive questioning of the Council and resulting insights and actions, on behalf of the residents.

The external auditors recognised the huge financial stress placed on the Council, by the ill thought through Camberley town centre retail property purchases in 2016, by the Conservative Administration, including £94 million for the Square and £19 million for the former House of Fraser building.

They commented that this resulted in the Council being an “over-leveraged organisation” with “net debts around 10 times its net budget” and is  “exposed to the current (relatively) high-interest rate environment”

The town centre properties are today worth a small fraction of their original purchase price, a terrible waste of Surrey Heath residents’ money. The reduction in value is mainly due to the rapid increase of online retail (a key risk that was clearly presented prior to the Conservatives decision to acquire retail property). 

The Surrey Heath Borough Council (SHBC) property portfolio continues to cost residents millions more than they earn in income each year. This loss is compounded by the past Conservative Administration failing to lock in debt when interest rates were low. 

This heavy drag on our finances, combined with poor market conditions for developers, severely constrains our ability to regenerate Camberley town centre. Our team can only progress projects the central government will pay for, like the ex-Allders building demolition, or those deemed urgent to provide a safe environment for residents and visitors. An example of urgent safety works is fixing the leaking roof in The Square this year. Our ambition is to do more as opportunities arise.

The auditors’ report also recognised that we inherited “a lack of capacity in the finance team which was a key contributing factor in the Council not identifying significant inaccuracies in its financial information”

We identified and addressed this gap quickly after our election. Working with the Council team a new structure was approved at the earliest opportunity in November 2023. The team is now fully resourced with finance professionals who are already impacting positively on decision making, under the new CEO’s direction. 

With the recent catch-up of 4 years of annual accounts, progressed under the new finance team, it has been made crystal clear where we now stand financially. The Council’s reserve balances have dropped dramatically in recent years, due to the high interest rates on short term loans, from the property purchases. 

We are often accused of “going on about” past events by those local Conservatives and Independents who are ultimately responsible for the financial position. However, it is now indisputable that the retail property decisions made in 2016, and the failure to manage the risk in the immediate years after, is holding your Council back from improving Surrey Heath.

Despite the current efforts by the Council team to plug the budget gap through transformation, particularly through ensuring users of all discretionary services pay their way, reducing service levels towards statutory minimums and optimising the property portfolio, your Council is in serious financial difficulties. 

The Council expects to run out of general earmarked usable reserves by the end of 2026/27 financial year and without yet further action could end up in a similar situation to Woking (in line with our September 2023 estimate of 3.5 years). 

All the painful actions we are being forced to take through the transformation programme are regrettable, and could have been avoided had the Conservatives not been both reckless and complacent in administration.

Our team is fully committed to continue to work hard to deliver core statutory services for residents at better than national target service levels and to protect as best we can key discretionary services for the most vulnerable. 

I’m sorry not to be more upbeat, however as Liberal Democrats we believe in being transparent. We would like to do so much more for Surrey Heath, the place we live in, and for the residents we have the honour to serve, alas we cannot given the enormous financial burdens we have inherited. 

Thank you for taking the time to read this letter and for your resilience as we continue to tidy up the mess we were left by the Conservatives and push for a fair funding settlement from the current Government.

Please continue to support our amazing local towns, village community groups and businesses to ensure Surrey Heath remains a great place to live.

Yours faithfully

Cllr Shaun Macdonald

Leader, Surrey Heath Borough Council