WARRINGTON Borough Council’s controlling Labour group has defended their controversial investment and accounting policies, saying they do not recognise Tory claims they are heading for another clash with the external auditor.
Opposition Tories say the accounting policy being adopted by Warrington Borough Council will have the effect of avoiding cost now but pushing those costs on to future generations.
Cllr. Ken Critchley, the Conservatives finance spokesman, commented: “It appears the Labour Administration have learnt nothing from their accounting problems and are potentially heading for another clash with the External Auditor as the Labour Administration pushed through accounting policies that will see our children and grandchildren picking up the costs of their property investment strategy.”
He says that after having to back down over the policy of not charging MRP on the Council’s commercial property investments, it looks like the Labour Administration are heading for another dispute with the External Auditor over their choice of accounting method for the MRP charge.
MRP is a charge relating to the loans taken out to buy the Council’s Commercial Property and for Warrington this charge now runs into millions of pounds per annum, says Cllr Critchley.
The Conservative Group at the recent Full Council meeting challenged the policies being proposed by the Labour Administration,
The first challenge was to the Labour Administrations’ choice of a charging method that reduced the MRP charge today but significantly increased the charge in future years. Conservative Councillors argued that those who are making the investment decisions should face up to the millions of pounds of costs of those decisions, rather than push the burden of costs on to our children and grandchildren. The external auditor, at a recent Audit and Corporate Governance Meeting, has already raised concerns about the Council’s proposed method of charging MRP.
The second challenge was in relation to the Council’s proposal that the MRP charge on Redwood bank should be charged over a period of 45 years. MRP guidance recommends the charge to be made over 20 years when an investment has been made in share capital such as the investment in Redwood bank. The Conservatives Group proposed a 15 year charging period to take account of the fact that for five years The council had not charged any MRP at all. The Conservative group were also of the view that now that 50% of the original investment in Redwood bank has been impaired by the Council that there should be an immediate MRP charge in relation to that impairment.
The third challenge was to the council’s plans to delay any charging of MRP on the Time Square development until it is generating the service and income benefits of the original proposal. The Conservative group considered that this was extremely aggressive given the fact that Time Square was already built and in occupation. They say the external auditor has also raised his concerns about the Council’s MRP plans for Time Square at the last Audit and Corporate Governance meeting.
Cllr Critchley added, “After clashing once with the External Auditor in relation to MRP charging, it’s unbelievable that the Labour Administration will adopt these accounting policies, the object of which appears to be to push the costs of these investments onto our children and grandchildren.
“The external auditor has already raised his concerns regarding the council’s proposals in relation to MRP, it’s time that the council started to listen to the External Auditor rather than run the risk of further challenges to the Council’s accounting policies and the potential subsequent reputational damage that attaches to the Council.
“The Labour Administrations MRP plans open them up to yet more challenges from members of the public and the External Auditors in relation to the prudence or lack of it in their choice of accounting policies.
“It’s time that the Labour Administration stop trying to push the boundaries of what was acceptable in terms of accounting policy and listened to the External Auditor and adopted accounting policies that respected the concept of prudence, faced up to the costs of their investments decisions and took conflict out of the process of producing and auditing the Statutory Accounts.”
A council spokesperson said: “We do not recognise this as being an outstanding issue with our auditor.
“If you were selling your house, you wouldn’t put money to one side to pay off your mortgage if the sale of the asset would already pay it off.
“Applying this approach therefore with MRP, it is essentially all about councils putting money to one side to repay the borrowing costs on an asset. If, for example, an asset itself would repay the borrowing costs, then putting money aside is just taking money away from paying for other services.”
Meanwhile, there is still no update on the council’s accounts for 2017/18 being signed off following a public objection, despite the council being confident they were being signed off more than two years ago.
2 Comments
What a ridiculous analogy. It’s one thing to sell a house which is worth more than the mortgage borrowing but Redwood and TE were not houses.
Redwood is an investment, the valuation of which no one knows. All we know is that it has accumulated losses over four years and we’re told that it has now turned the corner. However it will take several years to reverse the cumulative loss, and when it does the private shareholders will see a much greater % return on their capital than WBC ever will. If profits continue to grow they will see a positive return on their investment many years before WBC does. In any case we’re told Redwood will be sold next year so any valuation is up in the air.
There’s so much wrong with this investment from WBC’s point of view and until the council come clean as to how it was ever allowed critical analysis will continue.
Andy Spokesman is also wrong with his setting aside analogy. It’s normal practice to use a sinking fund, setting aside cash in reserves in order to replace a revenue earning asset when it comes to the end of its life.
Helpful summary, Richard, thanks.
Just one small point regarding Redwood. You’re quite right when you say that the private investors will do much better than the council if the bank does turn the corner. What you could also say is that eve now, with a loss-making entity, if it is sold at a substantial loss the private investors are likely to come out significantly in profit, while WBC loses almost everything.
WBC – THIS is why so many of us have focused on the Redwood investment – the obviously imbalanced share price which means that the private investors really aren’t taking a risk. In effect, we transferred around £19 million to the private investors on the day we signed up (that’s back of fag packet maths, I’ll let Richard do a more professional job).
That nest egg for the private investors has been eroding, as the value of the investment has fallen, but we’re still in a position where public funds have, to all practical purposes, been transferred to a group of private investors.
The private investors were given a deal where their risk was absolutely negligible. while the chance of the council making any profit was vanishingly small.
The issue was never ‘will Redwood make a decent profit?’ it was always ‘regardless of the success of Redwood Bank, will WBC ever get its initial stake back?’
I, and others, wrote to the council years ago – before the final £10 million tranche had been invested – urging a rethink. I felt that the response I received was borderline contemptuous. I know others had similar experiences. It will give me no satisfaction to be in the position of saying ‘I told you so’ when the millions wasted were ours in the first place. WBC – for the love of God, bring in some external experts to take over your investment portfolio and stop being so insular.