Councillors agree £54m grant would help Havering more than burdensome loan

Havering Town Hall. Credit: LDRS

Councillors have agreed that a £54million government bailout for Havering Council should be a grant rather than a loan.

(Written by Local Democracy Reporter, Sebastian Mann)

Keith Prince and his fellow Conservative councillors put forward the motion at last night’s full council meeting in Havering Town Hall.

“The chamber calls on the government to provide the funding as a grant instead of a loan,” it read.

It was voted for almost unanimously, with 44 votes in favour and one against.

Havering Council, controlled by the independent Havering Residents’ Association, accepted the £54m loan from central government in late February.

Going into 2024, the authority had an estimated budget gap of £14m. Its reserves, which amount to £8m, are the third lowest in London.

Speaking to the Local Democracy Reporting Service after the meeting, Conservative councillor David Taylor said: “We are told that the government is in agreement with Havering in that this financial crisis is not our making.

“If they agree, then they should provide us with a grant, which will help our situation, as opposed to a loan, which will make things worse.”

However, council leader Ray Morgon said that, while he would support a grant, the government was likely to only offer a loan.

It is one of 19 being rescued, with Cllr Morgon adding: “If they gave us a grant, they’d have to give these other councils a grant as well.

“It would go into the billions.”

Cllrs Morgon and Taylor have also said there needs to be a focus on lobbying and working with the parliamentary Labour Party.

While the eight-figure loan helped the authority balance the books for the next financial year, and will cover a £20m gap caused by overspending, two rigorous conditions were attached.

Havering must now put together a comprehensive “transformation plan” and undergo an external review of its finances.

It had announced prior to accepting the loan that public assets would be sold off to help cover costs, while Westminster has made it clear it expects further cuts in “unnecessary, superfluous or wasteful” spending.

The loan will be paid back over the next 20 years, at the fixed interest rate set by the Public Works Loan Board plus 1% – equating to an extra £2.1m burden for the council.

Critics of the loan previously said it would introduce “generational debt” to the borough.

In January, Havering’s chief financial officer Kathy Freeman signed the budget off as being “as robust as it can be” but warned that it was not sustainable – putting the blame on years of “systemic underfunding”.

She said the council would still face “significant” financial risks – such as inflation, unpredictable demands on council services, or “new burdens” – as the year progresses.

When a council issues a Section 114 notice – which means its income will not cover its outgoings for the next financial year and that it is effectively bankrupt – government-appointed commissioners are often sent in to manage the authority.

They can impose even stricter spending rules, while temporarily taking control away from the democratically-elected councillors.

Havering has effectively avoided this route for now by accepting the loan.

The government directly intervened with the management of Croydon Council in 2023, after significant failings were found in its budget setting and residential developments.

It has also outlined a £680m loan for Birmingham City Council – the largest local authority in the country – following its issuing of a Section 114 notice in September 2023.