Barking and Dagenham Council is grappling with a severe financial crisis as construction slowdowns and rampant inflation have placed the repayment of over £1.1 billion in debt at significant risk, according to newly-released budget documents. The council borrowed this substantial sum to finance major regeneration initiatives across the borough, with the expectation that income generated from these projects would not only cover the debt and interest but also yield profits to support essential council services.
Investment Strategy Under Scrutiny
The council's total debt stands at £1.6 billion, with £1.1 billion specifically allocated through an "investment and acquisition strategy" (IAS) launched in 2016. This ambitious programme aimed to revitalise the area by constructing thousands of new homes via the council's development arm, Be First, which were subsequently sold and managed through its affordable housing subsidiary, BD Reside. The strategy was designed to be self-financing, targeting a 5 per cent return to bolster council coffers.
Economic Pressures Mount
However, the council now faces mounting financial challenges, including soaring borrowing costs and inflationary pressures within the construction sector. Budget papers explicitly warn that "the rise in interest rates and the high inflation costs within the construction sector have led to a number of schemes costing more than originally planned." Additionally, issues related to letting properties, particularly those at market rates, have resulted in a loss of income for the IAS, further straining the council's finances.
Council Response and Strategic Shift
In response to these difficulties, leading councillors convened on Monday, February 16, and agreed to wind down the borrowing programme. They also approved plans to sell "low value and underperforming properties" and implement new business strategies for Be First and BD Reside. Be First will pivot towards seeking private sector development finance instead of relying on council funding, while BD Reside will focus on managing existing housing portfolios rather than expanding them from 2028 onwards.
Leader's Defence and Acknowledgment
Labour council leader Dominic Twomey defended the borrowing initiative, highlighting that it enabled the construction of over 3,700 new homes and provided "significant returns" that protected jobs and services during austerity measures. He stated, "This investment – of course it was about delivering homes, good quality homes, to people. It was also about protecting jobs by bringing income into this authority at a time when austerity was absolutely sucking income out of lots of local government."
Nevertheless, Twomey conceded that changing economic circumstances necessitate a shift in strategy. He remarked, "Circumstances change – we have to change with the times. We aren't able to fund the investment and acquisition strategy any more and indeed because of the way the economy is, nor would we choose to." The council anticipates generating only £1 million from IAS investments in the upcoming financial year, a stark drop of nearly £4 million compared to the current period, underscoring the urgency of these adjustments.
