Tees Valley cannot rely on the government to pick up the pieces if its Teesworks deal with private sector joint venture (JV) partners, who now own 90% of the regeneration site at Redcar, goes wrong, ministers have warned Mayor Lord Ben Houchen.
It means council tax and business rates payers in the five councils in the Tees Valley Combined Authority’s area – Darlington, Hartlepool, Middlesbrough, Redcar & Cleveland and Stockton – could be left to foot the bill for any impact on Tees Valley Combined Authority (TVCA), potentially running into millions, as well as responsibility for associated environmental protection issues.
Teesworks Ltd is a JV company 90% owned by two local businessmen who were handed it by South Tees Development Corporation (STDC), then chaired by Houchen, in 2020, leaving 10% in public ownership through STDC, a body set up by TVCA in 2017 and also chaired by Houchen until June this year. A total of £560mn of public funds has been invested in remediating the site for industry.
New guidance just issued by the Ministry of Housing, Communities and Local Government (MHCLG) says:
No obligation on the Crown
“[T]here is no obligation on the Crown to take on liabilities related to the ownership or management of land held by an MDC (mayoral development corporation) should it close, or one of its subsidiaries, should it be wound up. Constituent authorities should also note that the closure of an MDC does not release them from their statutory duties, including and not limited to those under the Environmental Protection Act.”
Combined authorities “should therefore seek legal advice to properly assess risks arising from MDCs, and MDCs should seek commercial advice on risks arising from joint ventures and subsidiaries that they establish, and subsequent contractual arrangements.”
The financial risk to TVCA from Teesworks Ltd is noted ominously in the latest report from the Authority’s auditors, Ernst and Young (EY). It points out that significant levels of payments will potentially be made by the TVCA Group to Teesworks Quay Ltd, another JV private company, and TVCA will be exposed to risk of loss if Teesworks Quay Ltd cannot make the expected repayments.
There will be more on the EY report in North East Bylines soon.
Conflict of interest
This government warning comes in the form of new guidance from the MHCLG to combined authorities and combined county authorities clarifying legislation on mayoral powers, overview & scrutiny and governance arrangements. There are ten such authorities at the moment, but the guidance is clearly aimed at Tees Valley.
It is a response to the Tees Valley Review, set up by former Levelling Up Secretary Michael Gove following allegations in the House of Commons of corruption around the Teesworks regeneration site. When it reported in January 2024, the Review found no evidence of corruption but did find that standards expected when handling public funds had not been met.
One of the Review’s recommendations was that the government should clarify the regulations in respect of TVCA and STDC (and if necessary other combined authorities and development corporations), including oversight, reserve matters, and consent as well as stranded liabilities.”
In June this year Houchen was forced by government pressure to stand down as chair of the three MDCs in Tees Valley – South Tees, Middlesbrough and Hartlepool – even though there was no legal ban on his holding those posts. But the new MCHLG guidance reinforces the government’s views that mayors should not chair the MDCs in their areas because of a conflict of interest:
“[T]he role of the mayor of a [combined authority] is to establish an MDC, make appointments to the MDC board, and provide oversight through the provision of guidance and directions on the exercise of the functions of the MDC and the provision of consent to decisions, such as compulsory purchase and disposal of land below value.
“Whilst legislation does not prevent a mayor from being the chair of an MDC, their oversight role is not compatible with them also taking the role of chair. The oversight function should be clearly separate from decision making to avoid conflicts of interest. As the mayor provides oversight of the MDC, and has powers in relation to the issuing of guidance and direction to an MDC, the mayor should not be the chair of an MDC.”
Scrutiny
TVCA’s overview and scrutiny committee has always been weak and ineffective, and in September 2021 was put off scrutinising the three MDCs altogether by advice from the then monitoring (legal) officer, who told the backbench councillor members that their reach ended with the TVCA’s decisions and did not extend inside some of the principal funding recipients such as STDC and Teesside Airport.
This was strongly challenged by the Tees Valley Review and has now been overridden by the new government guidance. It says: “Whilst an oversight and scrutiny committee cannot directly scrutinise the decisions of an MDC it can scrutinise mayoral decisions made in relation to an MDC and combined authority officers. The overview and scrutiny committee of a combined authority should engage in all these activities and the mayor, combined authority members and officers, and MDC board members and officers should facilitate such scrutiny, in order for local residents to be confident that public assets and money are being used for public benefit.”
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