Havering Council reveals conditions of £54m government loan

The council was offered the cash by the Department for Levelling Up, Housing and Communities (DLUCH) on February 28, after it teetered on the edge of effectively having to declare bankruptcy. 

The loan was confirmed to councillors on Wednesday, March 6 in confidential correspondence between government minister Simon Hoare and council leader Ray Morgon, copies of which the Local Democracy Reporting Service (LDRS) has seen. 

The council has now confirmed that two conditions are attached to the bailout, which involves a £21.2m loan in 2023/24 and a follow-up £32.5m loan in 2024/25.    

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The authority must undergo an “external assurance process,” a spokesperson said, with the government minister outlining that it must cut out any “wasteful” and “superfluous” spending. 

That process will involve the development of a twelve-month “transformation plan” by August 27, which will need to be “rooted in clear deliverables” and “tangible, measurable outcomes,” the government minister said in his letter to Cllr Morgon.

The council will also need to borrow the loan from the Public Works Loan Board (PWLB), a government lending facility, the authority's spokesperson added.

They said: “The council must only draw down [withdraw] capitalisation expenditure when it is incurred [and] must borrow from the PWLB if we need to borrow to fund the loan.”

It is understood the authority will borrow at the normal rate plus one per cent over a 20-year term. Based on initial calculations, that will equate to an extra £2.13m being paid out by Havering Council over the next two decades.

Unrelated to the loan, which is formally known as a “capitalisation direction,” the council will look to sell off public assets in a bid to bolster its finances and cover the loan. 

The spokesperson did not directly comment on how these sales will affect residents in the borough as the authority has “not yet reviewed asset disposals to finance the capitalisation direction”. 

Council leader Ray Morgon (Image: Havering Council)

In his response letter, Cllr Morgon promptly accepted the loan and its conditions, though he told the minister that local authorities faced “extremely bleak” circumstances. 

He 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.”

Councillors, including Romford ward representative David Taylor, have said the secretive letters should be made public. 

Cllr Taylor previously told the LDRS he was “disappointed” councillors had been “kept in the dark” and not allowed to vote on whether to accept it. 

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.”

As the letter is addressed to Cllr Morgon, rather than Havering Council itself, the authority is “not in a position” to share it, the spokesperson told the LDRS. 

They said: “The letter to the council has been addressed to the leader. 

“The only letters published on the DLUHC website are letters sent to councils facing statutory intervention. Havering’s letter has not been published as we are not in that position.”

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

“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," they added.

Councils are normally prohibited from selling off public assets, though Havering is one of 19 in the UK that will be allowed. 

It is not the only authority facing financial difficulties: councils in Birmingham and Nottingham have approved sweeping cuts to public services, while the former recently passed a staggering 21pc council tax hike. 

Council tax in Havering will rise by 4.99pc in 2024/25, meaning a £119 rise over the year for residents in an average band D property. 

However, this still falls below the hikes in the neighbouring boroughs of Waltham Forest and Redbridge, which are in the region of 5.7pc. 

If Havering 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.