Council defends strategy after being owed £87m by other authorities

Tower Hamlets Town Hall in Blackwall

Tower Hamlets was owed £87m by other councils, according to documents - Credit: Mike Brooke

Tower Hamlets Council was owed millions of pounds by other authorities, according to council documents.

It was owed £87 million by 14 councils between 2020 and 2021, records show.

A council spokesperson said it diversifies where cash is held to "minimise risk", adding: "It is not unusual for money to be placed with other local authorities as, being public sector bodies ultimately backed by the UK government, they represent amongst the safest options to place cash out of all options available in the financial sector."

Tower Hamlets is one of the most deprived boroughs in London, but the council has reserves of £557 million.

Investing or loaning money to other organisations is a way of the council to raise funds on its reserves.

The council has given loans ranging from £4m to £10m to a number of other councils.

These include Southwark Council, Birmingham City Council and Aberdeen City Council. 

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The time for the loans to be paid back by the 14 councils ranged between three and 12 months, with interest rates of between 0.07 per cent and 1.5pc.

The council spokesperson said: “On any given day councils can hold significant cash balances as they receive grant funding from government, or tax income, in advance of expenditure and will also hold cash to support their reserve balances.

"The council is required to place its cash with a view to prioritising the security of the money held, then its ability to access the money, and finally earning a reasonable return on the cash.

“The council carefully reviews which authorities it would consider lending to in advance of placing funds, carries out financial checks, takes expert advice, obtains approval to its lending strategy from full council, and it is also ratified by the council’s chief finance officer before being progressed.”