Warrington Borough Council’s audit and finance committee reported in July that it had advanced over £150 million to an investment company, and was five times the size of any previous commercial loans made by the council.
The loan was part of a £202.1 million loan facility that was agreed in October 2020 in three drawdown loans and was used to construct a number of properties for the company’s own use.
The recipient company, Icon 3 Holdco, is indirectly controlled by the property developer and billionaire founder of THG, formerly known as The Hut Group, Matt Moulding.
THG was loaned another sum in excess of £70 million towards the building of its Manchester headquarters at the beginning of 2020 by Trafford Borough Council.
According to the Financial Times, which first reported on the loan, a number of THG’s property assets were acquired by companies held by Moulding Capital Ltd prior to the launch of THG’s £5 billion Initial Public Offering (IPO) in September 2020. This was just a month before Warrington Borough Council approved the loan. Moulding Capital is controlled by Moulding and based in Guernsey. The properties are now let back to THG, and include a distribution warehouse in Warrington that brings in about £19 million each year.
Warrington council’s lending activities have been criticised in the past. MP for Warrington South, Andy Carter, called for an inquiry in December 2020, when it became known that the council had borrowed £1.6 billion with which to fund what he called ‘risky investments’.
The loans were arranged by real estate consultancy, CBRE and Warrington council said that the loan would help secure good quality local jobs.
THG’s Manchester site is being developed in the style of Silicon Valley, using debt and additional equity to build on Mr Molding’s success as a tech entrepreneur. After beginning his career selling CDs, Mr Molding is now well known in the business community and known for his philanthropy in the North West of England. The Sunday Times Rich List estimates his family’s worth to be over £2 billion and he has a personal stake in THG of around £650 million which he says will ‘ward off hostile takeovers’.
It is a well-established practice of local councils to use different tactics to increase their income, including lending money and buying property, and not always on their own patch.
Local authorities can create a vital income stream through interest payments and fees using either their own reserves or borrowing from the Public Works Loan Board (PWLB). They can use these funds to pay for other vital services or lend to organisations that can provide inward investment, including the creation of new jobs, funding infrastructure and housing, and developing green technology.
Any investment comes at a risk, and local authorities are no different from any other lender. The risks must be balanced against benefits but these may not be purely financial. An authority could, for instance, be seen to benefit from an investment that supports local regeneration.
However, should a local authority invest in buying property and a tenant fail, the authority would lose both rent and business rates. In a climate with failing retail shops and commercial enterprises, as seen during the pandemic, the high rewards of investment can soon turn into a shortfall.
Bath and North East Somerset Council has found this in its £11.6 million shortfall next year, despite a portfolio of over a thousand properties worth an estimated half a billion pounds. The deficit has resulted from missed rent payments on commercial properties and a huge reduction in tourism.
In Nottingham invested in its own energy company, Robin Hood, which it hoped would tackle fuel poverty and had a turnover of £100 million in 2018/19. However, in just one year the cheap alternatives it offered are thought to have left a £38 million hole in the council’s finances.
To find out more about local authority investments, read the National Audit Office’s report: Local Authority Investment in Commercial Property