Concerns raised over Midlothian Council investing millions in bankrupt English local authority

A meeting of Midlothian Council’s audit committee this week was told that the money was invested into Croydon Council in April.

The London Burgh council last week issued a Section 114 notice which effectively declares it bankrupt after it said a £67m deficit in funds meant it could not balance its budget.

News that millions of Midlothian taxpayers’ cash had been put into Croydon Council raised eyebrows at the meeting, with former councillor Peter de Vink, attending the virtual meeting, saying he was “baffled” by the decision.

Councillor Peter Smaill (Con) said that serious conversations were needed with financial advisers who had advised the local authority to put the money into Croydon when there were clearly problems.

And he called for a freeze on a request from the local authority’s own financial team to increase their borrowing powers until a review of the situation with the English investment had been carried out.

Cllr Smaill said: “Croydon Council has effectively declared itself bankrupt, we have £15m (sic) deposited with a council which is considered bankrupt.”

Gary Fairley from Midlothian Council’s finance team assured the committee that while the Section 114 was issued because Croydon could not balance its books, the Midlothian investment, which he said was £13m, was secured on “its revenue stream”.

However, Councillor Smaill called for a report on the Croydon investment to be brought to a meeting of the full council next week and questioned why no credit reference agencies flagged an issue before the money was invested.

He pointed to a high interest rate as making the investment, which was for two and a half years, seem attractive.

But harking back to days when John Major was Prime Minister, Mr Smaill said: “When something is paying a higher rate of interest, there is usually a reason for that.”

The committee agreed to send the report to council with an added review of the Croydon situation and freeze any additional borrowing powers until the situation had been reviewed.

News of this significant investment by Midlothian Council comes as the local authority calls on the Scottish Government to reassesses how it funds councils, with leader Derek Milligan seeking a meeting with the Scottish Finance Secretary Kate Forbes.