Council that owes Cornwall £20m cheated out of tens of millions

Concerns have been raised in Cornwall this week following the revelation that a council which owes Cornwall Council £20m is now "effectively bankrupt" after being cheated out of tens of millions of pounds by a businessman who went on a luxury buying spree.

An investigation – by BBC Panorama and the Bureau of Investigative Journalism – revealed how Liam Kavanagh appears to have cheated Thurrock Council in Essex out of as much as £130m and spent the money on a life of luxury in potentially the largest fraud ever committed against a UK local authority.

Kavanagh and his companies convinced the council to hand over the equivalent of almost its entire annual budget while inflating the value of a group of solar farms it had invested in.

Never-before-seen financial records show the money was then spent on a country estate, private jet, luxury yacht and many other multi-million-pound purchases for Kavanagh, 46, who is now living abroad. He drove a £2.3m Bugatti supercar and bought a million-dollar diamond-encrusted Hublot watch, which cost twice as much as the average house in Grays, the Essex town where the council is based.

The BBC reported that the council has been made "effectively bankrupt" after investing in Kavanagh's businesses. We were contacted by people in Cornwall who were concerned after seeing the reports that the £20m loaned to Thurrock by Cornwall Council wouldn't now be paid back.

However, the council has told us "there is no reason why the loan will not be paid in full when it is due in November 2023″.

Thurrock is one of a number of councils that have got into financial difficulties since the coalition government gave local authorities more freedom to raise funds and invest in 2011. It was revealed last year that the council was under investigation by the Government due to its "exceptional level of financial risk and debt".

Last September Independent Cornwall councillor Tim Dwelly criticised the decision by Cornwall Council to lend the money to Thurrock the previous year. He said: "As local government everywhere struggles to deliver services because of lack of Government funding, the last thing Cornwall Council should be doing is lending £20m to another Conservative council on the verge of going bust. We should be investing our money in things like building more homes for local people to rent. For example, the council could have bought up over 50 homes to rent to local people."

We asked Cornwall Council if it was concerned about its multi-million-pound loan being paid back.

A spokesperson said: "As part of its treasury management portfolio, Cornwall Council has a £20m loan to Thurrock which started in November 2021 and is currently due to mature in November 2023. Ultimately local authorities are backed by central government, they cannot actually go bankrupt in the same way as a private company does and they can only be wound up by Parliament.

"Councils who face significant financial challenges, such as Thurrock, issue S114 notices that suspend all new spending (they continue to pay for existing liabilities) and start the process of working with central government on addressing the issue. In Thurrock's case they are working with central government to ensure that all their borrowing from other local authorities is repaid when it is due. The Government has provided Thurrock with an alternative source of borrowing to allow this to happen.

"To date Thurrock has repaid all the borrowing that has become due to local authorities and has also paid the interest due to Cornwall as per the terms of the borrowing. There is no reason why the loan will not be paid in full when it is due in November 2023."