Uncertainty hangs over Mayor, Lord Ben Houchen’s flagship Teesside International Airport this week, ultimately because of its inability to repay its huge debt to its parent body, Tees Valley Combined Authority (TVCA). TVCA’s latest Interim Director of Finance and Resources, Alan Layton, who arrived in the summer, has already produced a report which, if the cabinet approves on Friday (25 September), will lead to a review of the airport governance’s fitness for purpose and question whether its business case and plan remain value for money.
What will happen if the answer to those questions is “No” is not clear.
A key Houchen policy
Taking the airport into TVCA ownership was a key policy – arguably the key policy – in Houchen’s first and hugely successful campaign for election as mayor in 2017.
But it owes TVCA around £168mn and cannot pay the interest, with the result that the debt is rising, wiping out its operational profit.
James Waterson reported in North East Bylines in July that the previous Interim Director of Finance and Resources, Jo Moore, had quit amid secret talks to write off the airport debt and that of South Tees Development Corporation (STDC).
Now, only a few weeks after his arrival as the new Interim Director of Finance and Resources, Mr Layton and his political counterpart, Middlesbrough Mayor Chris Cooke, will present a report to the cabinet that will have an unpredictable and possibly radical effect on the airport.
Buried away as item 15 on the TVCA cabinet agenda is their report “Wholly or Partly Owned Companies Policy.”
There is only one company wholly or partly owned by TVCA to which the policy could apply – and will be applied, if the cabinet approves the policy – and that is Goosepool 2019, through which TVCA controls Teesside International.
“The policy and supporting Minimum Standard,” says the Layton/Cooke report, “provide a consistent standard against which companies can be assessed to provide the organisation [TVCA]with assurance that governance is fit for purpose and the business case for establishment of a company and ongoing business plan for the company is robust, demonstrating value for money and safeguarding public monies.”
The Minimum Standard is tough. It requires:
- an HM Treasury Green Book-compliant business case to be in place;
- Due diligence to be completed to ensure the business case is robust;
- measures to ensure any company structure and reporting arrangements established will provide the Authority with assurance that the company meets the principles of good governance articulated in the Minimum Standard;
- roles and responsibilities to be clearly understood and that those who hold them have the skills, capacity and experience to deliver those roles fully;
- regular formal reviews of arrangements to be considered by the appointing body to assess whether the business case for the company is still present.
Any resulting changes to governance appointments, such as shareholder representation, will be made in line with the [TVCA] constitution and best practice and reported to cabinet.
Assurance required
Any review of Goosepool 2019 will want to assure itself that the company is necessary to TVCA to achieve its aims.
As Layton and Cooke put it: “TVCA has elected to use wholly or partly owned companies to deliver the regional economic regeneration and deliver strategic infrastructure to support the economy.
“A policy is required to strengthen the governance framework ensuring that the arrangements provide the Authority with assurance that the company is required to achieve the Authority’s ambitions, provides value for money from its activities and has appropriate corporate governance arrangements in place.”
Pressure
There will be a lot of pressure in the cabinet to approve the new policy, even though there are said to be no direct financial implications.
It will support the Authority in ensuring compliance with the requirements of its best value duty, say Layton and Cooke. The Minimum Standard will ensure that any business case for establishment of a company will fully assess the costs and benefits, including costs of ensuring it is appropriately resourced to meet its obligations in relation to corporate governance; including information, governance, legal support, data protection, health and safety, risk, insurance, performance management and HR.
Legally, says the report, the policy and supporting Minimum Standard will support compliance with company law and good practice guidance issued by sectoral leaders such as the Chartered Institute of Public Finance and Accountancy (CIPFA). The policy supports officers and members who may be required to undertake a formal director role within a company to understand their legal responsibilities.
What about Teesworks?
Teesworks is a private company which is regenerating the former steelworks site at Redcar for new industries. South Tees Development Corpooration, a TVCA subsidiary, is a 10% shareholder in a joint venture with two local businessmen (the JV partners) who own the other 90%.
How the transfer of majority ownership to the private sector happened was explored by the independent Tees Valley Review, set up in 2023 by former Levelling Up Secretary Michael Gove in 2023.
It did not find evidence of corruption but did find that standards expected when handling public funds had not been met.
However, Teesworks, unlike Goosepool 2019, will not fall under the proposed new policy of wholly and partially owned companies because the remaining 10% public sector holding is not enough.
The policy will only apply where the Authority’s position within a partly-owned company meets the government definition of a ‘person with significant control’ (PSC). The government defines PSC as:
- has more than 25% shares or voting rights in the company;
- can appoint or remove a majority of directors;
- can influence or control the company or trust.
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