South Tees Development Corporation’s (STDC’s) audit and governance committee (AGC) will hold its first quorate meeting in six months on 12 August – maybe – and only the second in more than a year. It will face a long list of problems and a bumper agenda of 411 pages. As well as inquorate meetings the committee has to deal with unmet deadlines, a two-year backlog of unaudited accounts and cash flow doubts over the Corporation’s ability to repay £421mn debts. All this with key posts unfilled in its finance team.
In spite of this, STDC is putting on a brave, and many would say unrealistic, face.
The AGC last met on 19 February and before that on 17 July 2025. Meetings scheduled for 20 November 2025 and 19 May 2026 were inquorate. One result was that the STDC’s statutorily required Annual Governance Statement (AGS) for 2025/26 had to be signed off by the STDC chief executive as an urgent decision to meet its publication deadline.
None of this was enough to stop the very same AGS concluding: “STDC has continued to operate within an established governance framework during 2025/26, supported by the constitution, statutory officer oversight, the work of the board and AGC, and the arrangements in place for risk management, financial stewardship, transparency and assurance.
“The annual review has confirmed that these arrangements provide a basis for lawful, accountable and proportionate decision making, while recognising that governance improvement remains an ongoing priority. During the year, STDC has taken further action to strengthen its governance arrangements.”
Updated versions of the AGSs for 2023/24 and 2024/25 will also be presented to the AGC on 12 August.
Too many hats
We know more now about the 2023/24 and 2024/25 accounts as a result of their being included on the agenda for 12 August – three months after we would have done had the May meeting not been inquorate. We can now see the minutes of the February meeting. There we can read that “the interim director of finance & resources [Jo Moore] advised that the statutory backstop date [for audited accounts] would not be met, explaining that it is not just about the financial statements but also the Value for Money (VfM) work and the Annual Governance Statement (AGS).”
The February minutes also inform us that in discussion, members of the AGC reflected that as work had progressed on the 2023/24 and 2024/25 accounts the scale of the problem had become a little more apparent and this was compounded by key personnel leaving without the opportunity for handover.
Whilst a significant amount of work had already been undertaken, there remained two material matters – NZT & Ørsted and Steel River Quay (see below) – that the team continued to work through, with consultants Grant Thornton being commissioned to provide an independent view on the accounting treatment.
Further, Ernst & Young (EY), the external auditors, had recognised some informality in the agreements between STDC and TVCA (Tees Valley Combined Authority) and this would be an area of focus. This informality is presumably a reference to the outstanding loans of £421mn owed by STDC to its parent body TVCA without formal loan agreements, a situation only rectified five months later in July 2026, as reported by North East Bylines on 28 July. According to the discussion on 19 February, this had potentially occurred because officers were “wearing too many hats”. Work was ongoing to rectify this and ensure it did not happen again.
Actually, Mayor Lord Ben Houchen was probably wearing more hats than anyone, chairing the TVCA cabinet and all three development corporations in Tees Valley until forced by government political pressure from the development corporation chairs last year.
No “clean” accounts before 2027/28
EY stated that based on their discussions with TVCA and STDC they had recognised the seriousness of not being able to meet the 2023/24 and 2024/25 audit backstop dates. EY would be giving consideration to reporting further statutory recommendations.
The Chair, say the minutes, noted that given the scale of the task the likelihood of getting a “clean” audit opinion on the accounts was limited, stating it felt like STDC could find itself in a perpetual cycle; EY said the dates had been breached, but it was important to have a baseline on which the Authority and its external auditors could build back a clean opinion, with the hope of achieving this by 2027/2028.
Councillor Peter Grogan, of Redcar & Cleveland, representing TVCA’s audit and governance committee, noted a reference to there being no records held or officers not being able to locate them. He acknowledged that this was under a previous tenure and was now being addressed but felt it needed to be highlighted.
Failure to properly discuss STDC’s loans
The minutes also reveal that doubts about STDC’s ability to repay its loans from TVCA, reported by North East Bylines on 28 July were raised on 19 February, when it was also revealed that this possibility had not been properly discussed with the government when the loans were taken out.
Councillor Grogan asked what the assumptions were in 2025/26 around the repayment of loans. EY advised that the loan agreements stated that STDC would start to repay these once business rates started to flow.
Jo Moore stated the business model was based on the business rates coming through to finance the loans. However, due to the scale of the regeneration and the low number of really big organisations coming on to site, STDC were at the mercy of the scale of the regeneration as to when business rates became due and the Audit Office completed its [valuation] work.
The business case that had been signed off by the Ministry of Housing, Communities and Local Government (MHCLG) had recognised the potential risks pertaining to the timing of cash flow and its impact on STDC’s ability to service corresponding loans. It was a risk that had come to fruition, and a conversation should have been had at that time with MHCLG to advise that the risk that all parties had signed up to had been realised and agree the way forward. The site [Teesworks] would deliver what it was designed to do; the question was around timings, with interest being accrued. Jo Moore noted the potential need to have a conversation with MHCLG around the materialisation of the risk; Teesworks was a significant regeneration scheme and someone had to carry this. From the STDC board’s perspective they needed to be satisfied that the debt in its totality could be serviced. With what was known at the time [February] it was not felt this would be a problem, but over the next few financial years there may be some difficulties.
Jo Moore said that the positive outcomes from the original business case would be achieved, which was good for the region, but the risks were always inherent in a 20-year business case of this size. The Independent committee member, Adam O’Neill, said the risks and assumptions were documented at the time and what appeared to be lacking was the escalation of the risks before they came to pass. Going forward there was a need not to just sort out what had happened but to ensure that it did not happen again.
Significant changes to 2023/24 and 2024/25 accounts
Fast forwarding to the reports for the 12 August meeting, we are told that first drafts of these two years’ accounts (2023/25) were published in April and June 2025 respectively. However, following publication, concerns were raised about the accounting treatment of some significant financial transactions that could materially affect those statements. Additional independent advice had been sought which was reflected in revised statements, which could now be signed off. But the auditors were still going to issue a disclaimed opinion.
These significant changes arose from: the treatment of NZT (Net Zero Teesside) and Ørsted, which had changed from fixed asset additions to REFCUS (Revenue Expenditure Funded from Capital Under Statute), with the associated capital receipt and amount owing reflected in short-term debtors; and the accounting treatment of Steel River Quay, which had been discounted at the 2024/25 year end and reflected as a contract asset; and the impairment of South Tees Site Company (STSC) – the write-down of its value as it was being wound down.
None of the above stops the narrative reports of all three sets of annual accounts discussed here being generally upbeat. They recognise a commercial risk linked to the level of appetite for investors to locate on site but say this is not considered significant given the confirmations of investment to date and the significant number of discussions going on with potential investors.
They recognise a reputational risk given the political environment that the Corporation operates in heightened due to the commissioning of the Tees Valley Independent Review, published in 2024. The Review, say the narratives, found no evidence of corruption or illegality. But they do not mention that the Review did find that standards expected when handling public funds had not been met.
Once again, however, nothing dents the STDC’s optimism. “It has” says the narrative accompanying the 2023/24 accounts, “created thousands of high-quality jobs for local people further driving economic regeneration across the Tees Valley.” The same jobs claim, word for word, is repeated a year later, though now surrounded by many caveats stemming from the Tees Valley Review and other setbacks; and again two years later, though now accompanied by caveats including the Best Value Notice placed on TVCA by the government. The narrative report to the 2025/26 accounts also concedes that: ”[W]hilst there is the risk of STDC being unable to service the interest on the loans [from TVCA], this risk is assessed as low at the end of March 2026.”
STDC is “satisfied”
In spite of the Best Value Notice and concerns raised by the external auditor about capacity and competence within the organisation, the STDC’s latest annual review it says, has confirmed that its governance arrangements “provide a basis for lawful, accountable and proportionate decision-making, while recognising that governance improvement remains an ongoing priority…the Corporation is satisfied that appropriate governance arrangements were in place during 2025/26 and that plans are in place to secure further improvement during 2026/27.” But it wisely adds a caveat: “This conclusion will be updated to reflect the 2025/26 audit undertaken by [EY].”
TIAA, the internal auditors, are again also satisfied that, “for the areas reviewed during the year, STDC has reasonable and effective risk management, control and governance processes in place.” Weekly progress meetings are being held between STDC and the internal auditors to ensure outstanding issues are being dealt with promptly. An internal audit plan 2026/27, strategy 2026/29 and charter are being drawn up.
Comment
This is a shocking story of complacency in the face of multiple problems, largely created by Tees Valley Mayor Lord Ben Houchen as a result of his overconfidence, unchecked by the feebleness of his cabinets and others around him ever since his first election in 2017. The MHCLG, far from lifting the the Best Value Notice it has placed on Tees Valley, should take stronger action. There have been some signs of improvement in the past year, but these have been under the auspices of interim senior staff who come and go, and there is no evidence that improvement is embedded in the organisational culture. The generally self-satisfied tone of commentary on its own governance and the inquoracy record of the AGC are demonstrations of that. It is time for Angela Rayner, the Local Government Secretary, to have a best value inspection carried out as a next step, probably, to sending in commissioners to sort out Tees Valley.
