Levelling Up Secretary Michael Gove has announced the setting up of an independent review to investigate “serious allegations of corruption, wrongdoing and illegality” at South Tees Development Corporation (STDC), as he put it in releasing the review’s terms of reference this week.
So what has gone wrong with local scrutiny in Tees Valley to make it necessary for Gove to step in? That is, rightly, one of the questions the review will be asked to answer.
Adequate internal processes and scrutiny is one of the aspects of the controversy surrounding STDC and the Teesworks Joint Venture included in the terms of reference, which states: “The following specific questions/issues [among others] have been identified for the review to explore:
1. An assessment of the governance arrangements at the STDC, including how decisions are made and the transparency of those decisions.
2. An assessment of the arrangements through which the Tees Valley Combined Authority (TVCA) meets it responsibilities for effective and appropriate oversight of the activity of the STDC (the mayoral development corporation responsible for the Teesworks site) and the Teesworks Joint Venture (the public-private partnership between the STDC and its partners).
It is the scrutiny process at TVCA and STDC, not the allegations of corruption, wrongdoing and illegality, that is the subject of this examination. What it finds is not reassuring.
The TVCA’s scrutiny problem springs from two roots. One is the scrutiny system in local government generally, going back to the Local Government Act 2000 under the Blair government. The other is the political personality of Tees Valley Mayor Ben Houchen.
Scrutiny and the 2000 Act
Under the 2000 Act the responsibilities on local authorities are shared between council leaders (or in a few cases elected mayors) and their cabinets, who form the executive, and backbench councillors who scrutinise their decisions through their overview and scrutinise committees (OSCs), which can call in cabinet decisions for review.
Academics like Stoker et al. (2004: 9-10) and others have found that in some cases call-in was hardly used at all and in others frequently. The determining factor was political relations on the council; the influence of backbench councillors has been diminished as their role has been confined to scrutiny, and a mayor would potentially distance backbenchers still further from power; and the executive-scrutiny division has demotivated backbenchers.
This author has argued elsewhere that these difficulties have been compounded by the establishment of combined authorities, which have no backbench councillors of their own but are scrutinised by those of their constituent councils, who may feel somewhat remote from the work of the combined authority.
In Tees Valley, the OSC is one of two backbench committees with statutory responsibility for holding the mayor and cabinet to account. According to the TVCA website it consists of 15 councillors, who meet every six weeks (which suggests at least seven meetings a year) and has a quorum of ten representing at least four of the TVCA’s five councils.
The other committee with statutory responsibility for holding the mayor and cabinet to account is the audit and governance committee (AGC). The AGC’s role, according to the TVCA website, “is to assure sound governance, effective internal control and financial management of the combined authority, and to ensure the combined authority observes high standards of conduct in public office.”
The AGC, according to the TVCA constitution, meets three times a year and its membership consists of one councillor from each of the five councils and up to four independent people. A quorum is five.
The STDC has its own AGC, previously known as the audit and risk committee, which is not discussed here.
The mayor
Mayor Houchen has never been an easy politician to scrutinise – a Johnson-style populist, appealing to the local pride and identity of Teesside voters and combative when criticised. His first manifesto in 2017 focused on municipalisation of the local airport and securing protected designation of origin status for the Teesside parmo. One of his opponents told this author mockingly at the time that the parmo is:
“A local delicacy, probably about 3,000 calories of pork escallop, covered in cheese, deep-fried…probably best served up after people have had several gallons of beer at 2 o’clock in the morning.”
An ally of Houchen said, also at the time:
“The parmo is populist and fun, and he made the Chief Secretary to the Treasury [Liz Truss] eat a parmo in public (laughs) on video…The day he gets Theresa May to eat a parmo I think he’ll have completely succeeded.”
The parmo might seem a trivial matter in the context of a mayoral election campaign, but it was included by Houchen as a deliberate move to arouse local pride in support of his election. The ally just quoted carefully qualified his description of Houchen’s campaign as populist by adding:
“It certainly caught the mood of politics. It wasn’t extreme; it wasn’t populist on things like immigration and race and things like that. It was populist in economic terms though…Ben definitely ran a populist campaign, but populist should not be used as some kind of pejorative statement. Just because it’s populist doesn’t mean it’s wrong.”
As well as being populist, Houchen can be combative, and he carried on this style of popular, forceful politics into his tenure of the mayoralty, where it was up to his cabinet made up of the leaders of the TVCA’s five local authorities to measure his plans against their view of the public interest and to backbench councillors from the same councils to hold both mayor and cabinet to account for their decisions.
Teesside Airport and the cabinet
One of the first big issues where Houchen and those scrutinising him came into conflict was his manifesto pledge to buy Teesside Airport.
The purchase of Teesside Airport should not have been easy for Houchen, as all five members of his cabinet initially opposed the plan. They had their own, less ambitious ideas for carrying out modest, incremental improvements in partnership with the private sector owners.
Houchen solved his cabinet problem with a popular PR campaign to mobilise his base supporters, avid for an international airport to rival Newcastle. It culminated with a cabinet meeting on 24 January 2019, attended by this author and described thus by him at the time:
“The scene was set for a showdown, and a conference room in a local hotel was booked for the Cabinet meeting in anticipation of a rare display of public interest in local government. ]O]ne by one, the…Cabinet members [had] announced they would back the plan; one of the last, two days before the vote, was the Redcar & Cleveland leader, who said she would do so ‘despite real concerns’.
“The potential showdown turned into a triumph for the Mayor as hundreds of members of the public applauded his plans in front of a bank of TV cameras. He had combined political, professional and PR skills to find a way of spending £40mn on a project which required the unanimous support of his Cabinet and which they had all earlier opposed.”
The ball was now in the court of the TVCA OSC, and the way it handled the issue failed even to satisfy its own members.
Teesside Airport and the OSC
The OSC’s difficulties in holding the mayor to account, like his cabinet’s, started with the Teesside Airport purchase.
In January 2018, when it heard £46,000 had been spent on financial and legal advice with more set aside, the OSC wanted to be fully informed of financial and legal issues. There was a “full discussion” on whether £500,000 set aside was reasonable. In March 2018 the OSC held a special, closed meeting devoted to the airport and held a “wide-ranging discussion”, followed by requests for confidential information, and for regular updates.
On 6 December 2018 members held a “thorough discussion” relating to the process for scrutinising the proposed acquisition of the airport, requested all relevant information as early as possible and a meeting with the private sector owners. When that special, closed meeting was held on 20 December questions were put to the Mayor and the proposed airport operators.
The Mayor gave a presentation again, in public, on 17 January 2019, in terms which must have made it difficult for anyone to oppose his plan:
He reported unanimous backing for the plan by the private sector members of the Local Enterprise Partnership. The proposals had also been presented to the combined authority’s transport and audit & governance committees, the North East Chamber of Commerce and Tees Valley local authority leaders and chief executives. He restated the current owner’s announcement that the airport would close in 2021 without a change in ownership, and stated that this would have a significantly negative economic and reputational impact on the Tees Valley. He said that the cost of a replacement airport had been estimated at £200mn, with a 10-15 year gap in provision.
The OSC’s self-doubt
Just a week later, as we have seen above, the airport purchase was approved unanimously by a reluctant cabinet. But that was not the end of the story as far as the OSC was concerned. It was soon asking critical questions of its own role in the airport affair.
As the local press reported at the time, one Labour member of the OSC said the committee should have used its call-in powers; including the airport deal within the much wider [TVCA] investment plan at a late stage had been “gerrymandering” and a ploy to make call-in more difficult: ”I don’t think we did enough.”
It was too late for the OSC to take any further action, but the committee’s chair, referring to mayor and cabinet, said: “It’s not our job to work for them, it’s our job to scrutinise and make sure they’re doing their jobs.”
Houchen responded unapologetically by telling OSC doubters: “If Labour are still asking basic questions about a deal they voted for, it’s obvious they didn’t read the full 233-page business case.”
It must indeed have been difficult if not impossible for backbench councillors, without independent expert advice, to evaluate the more than 200 pages of business case, business plan and valuation report with which they were presented. The OSC was not denied the information it needed; it was overwhelmed by it.
The OSC continued to be uneasy about the airport. At an inquorate meeting in April 2019 the chair said the committee must play a significant role in future overview and scrutiny of the airport. It was stressed that serious debate was needed about the role of overview and scrutiny and that an arrangement needed to be in place to allow effective and timely scrutiny.
Other failings
Diversity
At around the same time the OSC failed to complete the approval and submission of a study which the cabinet had asked for on diversity within the TVCA. The Fawcett Society, IPPR think tank, TUC and Local Government Information Unit had all agreed to receive the report for comment. But as far as is known it is still gathering dust somewhere on a TVCA shelf.
Constitution
On 28 June 2019 the cabinet appeared to try to bounce the OSC into accepting changes to the TVCA constitution under an updating plan in line with statutory changes which would limit its (the OSC’s) own powers. These included removing the requirement on the mayor to publish a draft budget each December for the following year; clarifying that it is the mayor who agrees items of business for the cabinet agenda; and removing the requirement to send all decisions to the OSC within two days, replacing it with the requirement to send only key decisions within that period.
Members of the OSC were not happy. When they met two weeks later they complained that they had not been consulted and had only seen some of the papers that day (though it was pointed out that the proposed changes had been sent to their individual local authorities). They said, among other things, that it was fundamental to scrutiny that they see all decisions within two days; that scrapping the December budget deadline would leave less time to examine it; and that they should retain their independence to put reports on the mabinet agenda.
The OSC voted by a majority to defer a decision on whether to call in the constitutional changes but were warned by an official that while they could do this, they could do it only once. Yet when the deferred meeting was held a week later to consider a matter considered important enough to merit a rare call-in, it was inquorate.
Those present went ahead with an informal meeting anyway and were told that the removal of the December budget deadline was staying; and only key decisions would be notified within two days and subject to call-in, while other decisions would be exempt from both the deadline and call-in. These and other constitutional amendments went ahead by default because of the inquoracy. The OSC’s only success was in relation to placing matters on the cabinet agenda, which was protected by law.
Budget
Partly perhaps because of the removal of the December deadline for publication, but also because the relevant meeting was again inquorate, the OSC was unable to approve and submit its report on the 1920-21 budget,
Nevertheless, in spite of these failings of scrutiny, including the OSC’s inquorate meetings, failure to call in the airport purchase, failure to compete and submit its 2020-21 budget review and the supine response to the cabinet’s imposition of constitutional changes affecting its rights, TVCA reported with implausible complacency in its annual governance review presented to the AGC on 28 May 2020, that:
“The [OSC] continues to conduct strong scrutiny of the Combined Authority’s activities, including establishing a Task and Finish Group to conduct an in-depth investigation into the draft Combined Authority Budget for 2020/21, as part of the consultation process.”
After this unpromising and what must have been demoralising period, the OSC began to get its act together. It wrote to the government asking permission for named substitutes to stand in at committee meetings, and in the municipal year ending this month (June 2023) all meetings were quorate – though there have only been four of them.
This was the background against which the OSC set about the task of scrutinising the STDC.
South Tees Development Corporation
Ironically in view of the current controversy, the Development Corporation was one area of TVCA activity that the OSC does appear to have scrutinised diligently at this early stage.
It received regular official reports on key activity relating to the site, including both physical activity like demolition and construction, and site acquisition by STDC from the South Tees Site Company, jointly owned and controlled by the Department for Business Enterprise and Industrial Strategy (BEIS) and STDC. A comprehensive report to the committee on 12 November 2020 covered, among other matters, the business case for the redirection of £71mn BEIS funding towards demolition and site remediation.
These reports gave committee members an opportunity to ask questions, and they took it. The minutes of the OSC meeting of 18 June 2020 indicate that questioning at the time was quite robust:
“It was questioned why no jobs have yet been created to replace those lost with the closure of SSI [steelworks]. It was explained that the nature of the site means that opportunities are long term. There was never an expectation for job creation in the first few years, the land is still not officially owned by us yet. We will see construction jobs starting in the next few months and this will continue to upscale as time goes on. It is a long-term solution.
“A discussion took place regarding the significant changes to STDC board and management structure, specifically the decision not to replace the CEO and also the reduced board membership. Councillor [Sue] Jeffrey commented that she is disappointed with the changes to the board, in particular that there are no women on the board, other than the Redcar and Cleveland Borough Council leader.
“She also questioned how the current MP for Redcar [Jacob Young, Conservative] was given a place on the board when the previous MP for the same area [Anna Turley, Labour] had requested a seat and was denied. It was explained that there is a process set out in the constitution for how the board is established and that this process was followed. It is ultimately a Cabinet decision and it was agreed at their last meeting.
“The management changes are to realign STDC so that it is working more closely with TVCA and operates as a group. The CEO is now across the group and the financial director and commercial director will also work across the group. The structure therefore is quite different, and this is to meet the needs moving forward and towards transition in the autumn.
“It was questioned if there is a way for the committee to see what success looks like over the forthcoming months and years to allow them to measure progress. It was agreed to look at a way to allow the committee to understand the long-term project and that this is something that can be measured against moving forward.”
Hands off STDC and the Airport
But then came what must been a shock for the committee members, though it shouldn’t have done if they had done their homework: now that the Teesworks site had passed into the ownership and control of STDC, they were told in a report in September 2021, they could no longer poke their noses in. And the same applied to the Airport and, it emerged later, the mayoral development corporations being set up in Middlesbrough and Hartlepool, though not the Freeport:
“Whilst the remit [of the OSC] extends to the Combined Authority including the decisions relating to funding given by the Combined Authority and [the] role the Combined Authority takes”, the committee was told, “its reach ends with the Combined Authority’s decisions and does not extend inside some of the principal funding recipients such as the STDC and International Airport.”
Committee members were advised that the legislation governing the committee was set by parliament, supplemented by guidance, also from government.
Audit and Governance Committee
The AGC also took an interest in Teesside (or Durham Tees Valley as it was still called) Airport. It met on 17 January 2019, just a week before the cabinet met and approved the airport purchase, in a closed session and, according to the draft minutes, after receiving a presentation on the proposed acquisition of the airport members resolved that:
“Following the opportunity to challenge and question Officers and based on the presentation received, the Committee are comfortable that the Combined Authority is undertaking sound governance, effective internal control and financial management in relation to this matter.”
The next meeting of the AGC on 28 February 2019 was inquorate. Having, like the OSC, failed to prevent or influence the purchase of the airport, it now turned its attention to the STDC. We have already seen that the OSC had been advised that its reach did not extend to the STDC, but the AGC at least had the chance to nominate a member to the Development Corporation’s own audit and risk committee (ARC).
But at the AGC meeting on 24 July 2019 there were no takers for this important job. Instead, a Redcar & Cleveland councillor was suggested in her absence. But she apparently did not want the job and three months later on 15 October, Redcar & Cleveland had still not come up with a nominee. The AGC deferred an appointment until Redcar & Cleveland’s full council has ratified its nominee.
The AGC held a conference call on 15 November, but the nomination to the SDTC’s ARC did not come up. Anyway, the call was not quorate. It was not until 19 November 2020, 16 months after being asked, that the AGC got round to appointing a member – a Redcar & Cleveland councillor – to the STDC’s ARC. The following July he was replaced by another Redcar and Cleveland councillor. Six months later he had been replaced by another and seven months after that by yet another.
This game of musical chairs into which the serious business of auditing and managing risk at the STDC had been turned had placed responsibility in the hands of four Redcar and Cleveland councillors in 21 months.
Meanwhile the auditors of the AGC turned the spotlight on their colleagues – the scrutineers of the OSC. At a meeting on 23 January 2020 a councillor asked for information about inquorate meetings of the combined authority’s OSC, as reported in the press. An official stated – again implausibly – that whilst four meetings had been inquorate in the past year, this had not inhibited the committee’s ability to provide comprehensive and robust scrutiny of combined authority activities and decisions. Quis custodiet Ipsos custodes?
Comment
Who, indeed, guards the guards themselves? That is one of the questions for Gove’s independent review.
Whether or not “industrial scale corruption” has taken place in Tees Valley, as alleged in the House of Commons by Middlesbrough MP Andy McDonald, is now for the inquiry panel established by Gove to determine. What is clear from the research outlined above is that the path to possible corruption has been made easier by a combination of four factors.
One is the forceful, streetwise and populist campaigning and governing style of Houchen, which has won him the support, even adulation, of many local voters and enabled him to outmanoeuvre all opponents so far. Like Boris Johnson, he is a difficult politician to scrutinise and control.
Second is the comparatively supine response of those opponents, lacking the political backbone to stand up against the airport purchase which none of them supported, failing to make use of their call-in powers to review a cabinet decision, and failing even to hold quorate meetings at crucial moments.
Third is a system that allowed the Mayor to gather power over virtually all local governance institutions of significance in Tees Valley in his own hands – chair of the combined authority’s cabinet, chair of STDC, chair of Middlesbrough Development Corporation, chair of Shadow Hartlepool Development Corporation and chair of Teesside Freeport.
(As this was being written the future of Middlesbrough Development Corporation was thrown into doubt by the election of a Labour borough mayor).
At Teesside Airport, Houchen is a major player with his majority shareholding as mayor through Goosepool 2019 Ltd and has his place-woman, the TVCA chief executive, on the board.
Finally, with the exception of the Freeport, he has been able – quite legally – to keep his most cherished pet projects – the airport and the STDC – away from the prying eyes and searching questions of those who are supposed to scrutinise him.
The solution to the first two of these problems – if the first at least is a problem and not simply part of the explanation – is arguably for the people of Tees Valley to find. They could elect different politicians.
The third and fourth, though, are for the government. One lesson for the inquiry panel should surely be that some limit should be put on the extent to which mayors can take control of virtually every important local governance institution in their area. Most important of all, however, is that the scrutiny system needs strengthening.
