This page provides the text of an Article produced by Shaun Macdonald to update the residents of Surrey Heath on the financial situation the newly elected council have discovered.
In May 2023, after forty-nine years of continuous Conservative administrations, the people of Surrey Heath voted overwhelmingly for the Liberal Democrats to lead Surrey Heath Borough Council and to place accountability,community, and transparency at the heart of our Borough Council’s culture and operations.
We knew that we would be inheriting a challenging ﬁnancial position from the previous Conservative administration,and that we had to deal urgently with the continuing fallout from the purchase of The Square shopping centre (thenknown as Camberley Mall) and the House of Fraser buildings in 2016. Over the past few months, as top priority, we have worked to assess the state of our Borough Council ﬁnances, our assets, and liabilities, particularly property related. This is why we are communicating with you today.
This week Surrey Heath Borough Council has published for the ﬁrst time all the original reports and meeting minutes available that led to the decision to purchase both The Square and the House of Fraser building in 2016. These documents can be found via this link.
Additionally, to complete the picture, the Council has published all documents relating to the investigation of thepurchase of The Square by the special working group of the Performance and Finance Scrutiny Committee, undertaken in 2020.
Implications for the Council’s finances and for our community
In November 2016, Surrey Heath Borough Council purchased The Square and the House of Fraser building fora combined total of ~£113 million. Latest valuations from 2022/3 put the value of these properties at ~£33 million – a loss of value of ~£79 million (71%).*
* The Square was purchased for a total of £94,100,000 (Purchase price: £86,000,000. Refurbishment costs: £7,000,000. Purchase fees: £1,100,000. 31/3/2023 valuaIon (incl. land): £30,200,000). The House of Fraser building was purchased for £18,526,218 (Purchase price: £17,600,000. Purchase fees: £926,218. 31/03/2023 valuaIon: £2,920,000).
These purchases have left a huge debt for all local Surrey Heath taxpayers to repay in future years at a time when the Council budget is already under severe pressure from the combined eﬀect of soaring inﬂation, high interestrates, and increasing residents’ service needs due to the cost-of-living crisis. Due to the previous administration’s insistence on using risky, short-term loans, our repayments could be increasing by around ~£1.4M/yr†, mountingfurther pressure on the Council’s ability to deliver the services you want and expect.
These debts will take decades to pay oﬀ. Even if we ceased all Borough Council-provided services and expendituretoday, it would still take in excess of 10 years to pay oﬀ the debt.
No one can have failed to notice the increasingly poor state of repair of The Square and the now empty House of Fraser building.
Given its age, The Square will require many millions of pounds of investment over the next few years for criticalmaintenance and upgrade, just to keep it open to the public and attractive to businesses and shoppers. The House of Fraser building will also require signiﬁcant multi- millions of pounds of investment to make it safe and ﬁt for any future housing, retail, or commercial purposes.
Looking forward, it may be possible to ﬁnd the necessary ﬁnances for the maintenance of The Square, which is vitalto our town’s prosperity. However, because of the debts incurred by the previous administrations, we have neither thecash nor the ability to borrow prudently for the planned redevelopment of the House of Fraser building and will investigate other lower cost and risk options to provide regeneration opportunities.
Based on the latest approved budget, Surrey Heath Borough Council is facing eﬀective bankruptcy in ~3.5yrs, although high inﬂation and increasing debt repayments could foreshorten this to as little as ~2yrs.
Identifying cultural and procedural failures
The documents released this week represent a complete record of information held by Surrey Heath BoroughCouncil related to the purchase of The Square and House of Fraser buildings in 2016. Together with other informationalready in the public domain, they illustrate a corrosive leadership culture within previous Conservative administrations that were blind to risk and ignorant about good governance. If any further documentation should be found, I have asked Council Oﬃcers to mark this for my urgent attention and I will ensure that (in the absence of strong legal or commercial constraints) it is published and shared with you.
The sum total of documentation detailing the ﬁnancial case for the purchase of the House of Fraser building was 1.5pages of A4 paper. The purchase was fast tracked on the authority of
† The Council’s net short term debt (short-term borrowing less Investments) is ~£61M (Treasury Management 2023/24, 1st Quarter 2023, dated 14th August 2023). Weighted average interest rates diﬀerenIal comparing August 2022 to Feb/Apr 2023 is ~2.3%.
only two signatories, using a procedure in place for things like the management of real civic emergencies.
Governance failures identiﬁed include:
What I ﬁnd particularly disturbing is how ‘thin’ the documentation from 2016 is. Given the sums involved, and theresponsibility that goes along with spending public money, I’m concerned that there was such little due diligence or proper consideration of future risks.
I would like to highlight that none of the senior Council Oﬃcers involved in the 2016 purchases any longer work for Surrey Heath Borough Council.
I‘m sorry that I am forced to share such a sad history and a bleak ﬁnancial picture with you today. We, of course, suspected that the ﬁnancial position we were inheriting would be challenging, but this is worse than anyone could have reasonably planned for.
My Liberal Democrat group recognise that we are custodians of taxpayers’ hard-earned money. We take the management of our public ﬁnances extremely seriously. That is why we will be introducing policies and procedures that will require this and future Surrey Heath Borough Council administrations to follow best practice in the sector – in investment decisions, governance processes, and scrutiny of decisions. In pursuit of this goal, we are fortunate to have a new team of capable Council Oﬃcers who will help ensure that past errors of process and judgement cannot be repeated. I can already conﬁrm that the key ﬁndings from the 2020 report into the purchase of The Square have already been fully implemented.
We have very challenging times ahead of us. Some exceptionally painful decisions will need to be taken. We must be honest enough to acknowledge that even the most diﬃcult decisions may not be enough to avert insolvency dueto the constraints placed on the Council by national government and past local Conservative administration property investment decisions. I can assure you, though, that decisions will not be taken lightly, the opinions of residents will be sought throughout, and that we will communicate with you openly and transparently at every stage.
Thank you for taking the time to read this, and may I also thank Council Oﬃcers and fellow Councillors for their enormous hard work since May in serving you the residents and businesses of Surrey Heath.
Councillor for Lightwater Ward Liberal Democrat GroupLeader
Leader of Surrey Heath Borough Council