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

In an ideal world, Cathy Mitchell wouldn’t have to spend her time worrying about a £1bn-plus investment portfolio. The former barrister and deputy leader of Warrington borough council would usually have her mind on schools, adult social care and bus services, with the investments looking after themselves. But things are far from normal for the Cheshire borough or its book of assets: one of its flagship stakes – a 50% share in stricken firm Together Energy – is reportedly on the verge of going up in smoke.

Warrington has followed councils across the country in ploughing cash into commercial schemes in the hope of generating returns that can offset a decade of Conservative austerity. However, critics say the Labour-run council has taken the high-stakes strategy too far: putting public money into risky ventures in property, energy and finance – including some firms backed by super-rich Tory donors.

“I would rather not be involved in investments as we have better things to do,” says Mitchell, who is the council’s portfolio holder for corporate resources. “But as long as we aren’t funded properly by the government, I don’t feel we have much choice.”

Warrington’s energy supply gamble is close to backfiring as Together Energy prepares to appoint administrators. It is the latest among almost 30 small providers to face collapse amid the surging wholesale gas prices that are contributing to the UK’s cost- of-living emergency. The company declined to comment.

The council’s investments since 2019 – made with the aim of earn a return and tackling fuel poverty in one fell swoop – have brought it more than £50m of exposure in debt, equity and guarantees to Together, which is based 200 miles away in Clydebank.

While it is unclear how much Warrington could lose, it is thought to be less than the headline figure suggests. Mitchell says she can’t comment on a live situation, but insists protections are in place, and that appropriate governance checks were made before investing.

“It’s not the council running it; it’s a proper energy company,” says Mitchell. “They’re industry professionals with a lot of experience. We used external advisers and ran an internal workshop where we got all other [political] parties involved [before investing]. We were very careful about the investment.”

Her critics beg to differ. The stake in Together Energy is just one of many deals done by the town known for its rugby league club and former wire industry. They include shares in a bank, loans to a giant online retailer, and property ranging from shopping centres and business parks to solar farms in Hull, York and Cirencester.

Andy Carter, Conservative MP for Warrington South, worries that the council has bitten off more than it can chew. “It didn’t have to do this,” he says. “Other councils in the north-west have far more meagre levels of borrowing and operate in a different way. It’s a decision taken by councillors to adopt what I think is a really risky strategy, and some of those risks are now coming home to roost.

“I’m not saying councils shouldn’t do any borrowing. To do [it] here and there to make strategic investments in your community is a good thing. But Warrington has taken it to an extreme level.”

Undeterred, councillors last week approved a fresh £37.5m loan, this time to affordable housing developer Auxesia Homes. Backed by European firm Matter Real Estate and Gary Metcalf, a property developer who was briefly owner of Chester City Football Club, Auxesia specialises in homes for services personnel and NHS workers across the north-west.

Critics say this should have been more closely scrutinised. “Have any lessons been learned from the council’s Together Energy investment?” asks Tory councillor Ken Critchley. “One has to ask why the normal providers of finance to private businesses are not providing these loans.”

Elsewhere the town has a 33% stake in business bank Redwood, which is controlled by multimillionaire Tory donor David “Spotty” Rowland and his son Jonathan.

Another Tory donor, Matthew Moulding, billionaire owner of the Hut Group (THG) has been granted a loan worth more than £150m by the council. The loan is secured on the online retailer’s vast distribution site on the outskirts of Warrington.

Halfway between Manchester and Liverpool, Warrington is linked to both by the world’s first intercity railway and has motorways on three sides. This brought the town a warehousing boom in recent years – though it started in 1987, when Ikea picked Warrington for its first UK store.

Mitchell says most of the investments are backed by physical assets, so Warrington is protected against defaults, and that the council is investing in local employers that create much-needed growth and jobs. A spokesman for Redwood declined to comment on the bank’s owners, but said it had loaned £133m in the town and wider region since its launch four years ago.

Mitchell says investing is necessary to fund services and represents “Labour values in action”. She adds: “It’s difficult to avoid Conservatives when you’re dealing with these sorts of businesses. Sometimes you have to deal with people who you’re not on the same page with.”

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

After years of decline, the town has pumped £130m into redeveloping Time Square into a publicly owned market and cinema complex. A similar investment in nearby Preston won plaudits 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 started 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 poorer areas. But while he agrees that there are questions about how far Warrington is pushing it, he adds: “The ultimate test is the local ballot box. If people don’t like what they’re doing, they can vote them out.”

In the pursuit of investment returns, Warrington has built up a debt pile worth £1.6bn. And that is due to rise to £2.3bn within two years, putting the council on track for debts worth more than 400% of operating revenue. With interest rates rising to tackle soaring inflation, higher borrowing costs could heap more pressure on the local authority.

Warrington has mostly borrowed through the Public Works Loans Board, a Treasury agency which 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 secured funds from global bond market investors. Moody’s, the credit ratings agency that monitors the council’s finances on their behalf, has noted that Warrington has a “high-risk appetite”, but a track record of budget delivery.

Local authorities across the UK have come under severe strain during the pandemic as income collapsed and pressure on services increased. Ministers had to intervene in the cases of Northamptonshire and Croydon, which issued section 114 notices – meaning they could not meet their obligations. Last March the National Audit Office warned that 25 councils were on the brink of insolvency.

Opposition leaders question whether Warrington should be allowed by central government rules to take such a high-risk strategy. “It’s been a little bit like the wild west,” says Carter. “Anyone can go in and borrow, and do what want to do with it. That’s certainly been the case with Warrington.”

A government spokesperson said councils were restricted from borrowing to invest for yield, but that they were ultimately responsible for their own investment strategies, adding: “We have been clear that councils should not put taxpayers’ money at excessive risk in pursuit of commercial income.”

Warrington’s other MP, Labour’s Charlotte Nichols, who represents the north of the town, admits the debt burden is a problem. “Of course it raises concerns, especially from people who don’t think the council should be in the business of investing,” she says. “Ultimately, I agree with that assessment, but I don’t see credible alternatives being offered. The government needs to cough up or councils like ours will be forced into finding other sources of revenue.”

Mitchell says there would be worse dangers for Warrington if the council stopped investing. It has had to find £173m in savings since austerity began in 2010, equivalent to 60p in each £1. “This is about trying to protect people. What does it look like if you instead cut services for children at risk of harm, or for vulnerable people who need care in their home?”