(Bloomberg) -- A London commuter town effectively declared bankruptcy, after a risky investment spree meant to offset a central government funding squeeze backfired and left the local authority — which covers a population of just over 100,000 people — facing a £1.2 billion ($1.5 billion) deficit.

Woking Borough Council issued a so-called Section 114 notice on Wednesday, meaning that all but essential spending will stop due to the financial shortfall, which it blamed on “unaffordable borrowing” triggered by historic spending.

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It is doubly embarrassing for Prime Minister Rishi Sunak’s Conservative Party, which likes to campaign on its economic prowess but is struggling to shake off the view that Britain is crumbling on its watch. Not only did the Tories lead Woking council until last year, but it was central government austerity since 2010 that left the town — and others like it — searching for revenue.

A spokesman for Sunak declined to comment on Woking’s financial status in a regular briefing. A spokesperson for the Department for Levelling Up, Housing and Communities pointed to the government’s intervention last month — when it appointed oversight over key functions — and will “take action if necessary.”

Just as many local councils did, Woking borrowed heavily to invest in commercial property, such as shopping centers, hotels and offices to boost its income. But the council said in a statement the value of its investments has “diminished substantially over time,” and its £1.8 billion debt pile is “out of step” with its core funding from taxes and government grants of £16 million.

The council can “no longer balance its budget for the current financial year nor subsequent years,” it said.

A council issues a Section 114 notice when it believes it will not be able to meet its spending commitments from income. Effectively a bankruptcy, it means the council cannot make new spending commitments and typically leads to them passing a new budget to reduce expenditure.

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“The Notice makes clear the true scale of these challenges which are so significant that the Council cannot simply deal with them on its own,” said Ann-Marie Barker, leader of Woking council for the Liberal Democrats, which took control of the authority last year. “Difficult decisions will lie ahead as we seek to balance the Council’s budget and address the unaffordable debt.”

Woking is far from the only council to run into trouble in recent years. Croydon council in south London went bust in 2020 when it was under Labour control, while Conservative-run Thurrock issued a Section 114 notice late last year. Others have been put under special measures by the central government, which has moved to clamp down on risky investments.

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