With impeccable timing.
By Nick Corbishley of WOLF STREET.
For the last two years, KPMG has refused to sign off the accounts of Spelthorne borough council, a tiny local authority on the outskirts of London that has taken on huge amounts of debt to buy more than £1 billion of commercial and residential property, it has been revealed. The council has an annual budget of just £22 million, yet it has amassed more commercial property than just about any other local authority in the UK, all of it debt financed.
Between 2016 and 2018 Spelthorne borrowed £1.17 billion from the Public Works Loan Board (PWLB), an arm of the UK treasury that is supposed to offer relatively cheap loans to councils for building new schools and other civil projects. But many councils have begun tapping the funds for speculative property investments instead, as a means of supplementing their income.
In correspondence seen by the London Times, KPMG raised “material concerns” about three purchases Spelthorne made in 2017-18 in which it allegedly ignored rules that forbid councils from borrowing purely to make a profit on subsequent investments. These investments significantly increased the council’s exposure to risks in the property market, though it insists it is not endangering funds, with this flawless argument:
The Council is not risking council taxpayers’ cash to buy commercial properties; the low cost government funding for this strategy comes from the financial markets.
KPMG is not convinced and has said it may even take the council to court. Spelthorne recently replaced the big four firm as its auditor with BDO, which rents office space in a building that Spelthorne bought in September 2018 – a purchase that BDO was supposed to assess as part of the council’s 2018-19 audit. According to the auditor, auditing its landlord poses no conflict of interest…