Case of the cavalier council that nursed a costly lie

The history books are littered with cases of local authorities losing their shirts on financial and commercial engineering, so no one should be too surprised or upset at the addition of Welwyn and Hatfield district council to the roll-call, except perhaps its unfortunate council taxpayers.

In the 1980s we had the notorious interest rate swaps deals entered into by a host of local authorities, most spectacularly Hammersmith and Fulham, which left a trail of losses in their wake estimated at pounds 600m.

More recently, two other councils, Allerdale and Waltham Forest, almost came unstuck by guaranteeing commercial bank loans against property subsidiaries only to discover when the loans were called in that they had exceeded their authority. The courts ruled they need not pay.

Now we have the Welwyn and Hatfield episode, which has resulted in the council being ordered to pay pounds 48m in damages to Slough Estates for fraudulent misrepresentation. Slough agreed to build a shopping complex in Welwyn Garden City on the understanding that the mix of tenants in a rival development, the Gallerias, being built a few miles away would be strictly controlled. The council, however, secretly, relaxed the tenancy mix agreement without informing Slough, enabling the Gallerias to attract prime high street retailers.

Is Welwyn and Hatfield repentant? Not a bit of it. It intends to appeal against the High Court ruling, complaining that "a very large property development company with profits of pounds 130m in the past two years is seeking money from the local community". Perhaps the council should have thought of the "community" when, according to the judge's summing up, it set about a conscious policy of nursing a lie.

Even if the appeal goes against the council, it is not clear it will be able to pay out. As a statutory authority it cannot be wound up or made bankrupt. Nor can it turn to council taxpayers, as it is capped. Central government is meanwhile refusing to have anything to do with it. Since the council has just pounds 2m of reserves, it looks like being a case of "can't pay, won't pay".

But then neither did Hammersmith and Fulham or Allerdale and Waltham Forest. What the accountants and lawyers presently moving their partnerships offshore to escape angry litigants would give for such immunity. The moral of the story is that local councils and high finance do not mix but it seems the only way they can be taught a lesson that hurts is at the polling booths.