The Derbyshire Pension Fund is among a number of public sector institutions with members’ money invested in a scandal-hit council investment project that has seen £138mn in public money go missing.
The scandal originated with Thurrock Council and the relationship between Sean Clark, the council’s finance director, and businessman Liam Kavanagh, who made a fortune from solar farms.
The scale of the crisis, and the council’s indebtedness — thought to be around £1.5bn — led to Greg Clark MP, then-minister at the Department for Levelling Up, Housing and Communities, to announce on September 2 that the government would intervene.
The intervention is designed to address “serious concerns” about the financial management of the council, and involved the appointment of Essex County Council as commissioner and “best value inspector”, the latter role empowering Essex to “look into the governance, audit (internal and external), risk management, overview and scrutiny functions of the council, and consider their impact on service delivery,” the DLUHC said.
Given the serious financial situation at Thurrock Council and its potential impact on local services, I believe it is necessary for government to intervene
Greg Clark MP
‘Serious financial situation’
As revealed by the the Bureau of Investigative Journalism in July, Thurrock, alongside Warrington and Newham councils, financed the purchase of a solar farm in Swindon through bonds marketed by Kavanagh’s company, Rockfire Capital.
Thurrock then helped buy 53 further sites across the UK, all of which are now owned by Kavanagh, in whose businesses the council is now the only local authority investor.
The ostensible appeal was the millions of pounds in interest payments the council would reap from the deals. Kavanagh’s businesses received a total of £655mn from Thurrock in just four years, in investments funded by borrowing from more than 100 local authorities, including Derbyshire, which invested £60mn — with £30mn sourced from its pension fund.
The BIJ’s investigation, however, revealed “gaping holes” in the investments, with £138mn of public money — apparently pledged by Clark and handed over by Thurrock between 2018 and 2019 — now missing.
“The extra cash related to a portfolio of 32 solar farms the council had helped pay for in December 2017, with more than half of the £515mn price provided by the council,” the BIJ’s account read.
“The only basis for the £138mn top-ups was a short report produced on behalf of Rockfire Capital – Kavanagh’s company that marketed the bonds — in November 2018 that claimed the sites had substantially increased in value since they were purchased a year or so earlier. If this were correct, then putting more money in would increase interest returns for the council with little additional risk.”
However, despite the council claiming to have conducted due diligence checks, the company that managed Kavanagh’s solar farms — Toucan Energy Services — said it had never received representations or requests for performance data from Thurrock.
A Toucan spokesperson confirmed to the BIJ that the company had seen none of the additional £138mn pledged, while Kavanagh had since put a number of his companies — including Rockfire — into liquidation.
Despite being its largest single investor, Thurrock did not give permission for the restructure, resulting in a breach of obligations and Kavanagh’s companies going into default, meaning Thurrock never received the interest payments that were the ostensible reason for the solar farm investments in the first place.
The emerging crisis, and Thurrock’s apparent failure to deal with it, led to the resignation of Conservative council leader Rob Gledhill, and a lawsuit filed by John Kent, leader of Thurrock’s Labour group, in collaboration with the Good Law Project fronted by barrister Jolyon Maugham.
Essex council now has complete control of the financial functions of Thurrock council, “and powers to assess whether there are failures in other functions to mitigate any further risk to services”.
The two councils are collaborating on an improvement plan, to be published within three months of the September 2 announcement.
In total, Thurrock’s external borrowing (as of June 2022) was around £1.5bn, £940mn of which was in the form of short-term loans from other local authorities.
Clark said: “Given the serious financial situation at Thurrock Council and its potential impact on local services, I believe it is necessary for government to intervene.
“I strongly believe that when a council gets into difficulties its local government neighbours should be the preferred source of help in turning it around.
“I know that Essex County Council possesses the expertise and ability to help its local government neighbour. Working together, I believe the councils can deliver the improvements local people expect and deserve.”
A Thurrock Council spokesperson said: “Thurrock Council is treating this situation extremely seriously and has been working with the government in recent weeks, as well as independent financial and legal experts, to fully understand how the situation has arisen and establish a comprehensive resolution plan to safeguard the council’s financial position.
“We are grateful to the government for the support they have given us, and welcome the action to instigate intervention and provide additional assistance. The council will co-operate fully with the appointed commissioners to work to protect the interests of and services for the people of Thurrock.”
Derbyshire Pension Fund’s £30mn
Derbyshire County Council was among the more than 100 local authorities to invest in Thurrock, contributing a total of £60mn in taxpayer funds into the venture, half of which came from the Derbyshire Pension Fund.
As reported by the Derbyshire Times, the council made £30mn in loans to Thurrock to be paid in three £10mn tranches, due to provide returns until April 2023.
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The pension fund, meanwhile, which is valued at £6bn and makes pension payments to more than 100,000 members, pledged its £30mn in six £5mn instalments. These were paid throughout 2022, the most recent being in August, while later packages are not due to mature until early 2023.
A spokesperson for Derbyshire County Council said: “As the administering authority for Derbyshire Pension Fund we continue to monitor the situation at Thurrock Council as part of our ongoing treasury management activities.”
The DLUHC has been approached for comment.
