In today’s fourth part of its detailed examination of the independent Tees Valley Review, North East Bylines looks at the opaque finances of South Tees (Mayoral) Development Corporation (STDC) and Teesworks Ltd (TWL), its joint venture (JV) partner – in as far as it is possible to know and understand them.
The review was established by Levelling Up Secretary Michael Gove last May under the leadership of Angie Ridgwell, chief executive of Lancashire County Council, following allegations of corruption in the House of Commons by Andy McDonald, MP for Middlesbrough.
Tees Valley Mayor Lord Ben Houchen, who is seeking re-election on 2 May, has expressed delight that the review did not find evidence of corruption, but Mr McDonald has described it as damning.
Profits for some, debts for others
While the JV partners, local businessmen Chris Musgrave and Martin Corney, have pocketed £45mn in profit and hold another £63mn in cash at TWL without making any financial investment, with none apparent in the near future, STDC and Tees Valley Combined Authority (TVCA) have run up debts of hundreds of millions on behalf of the public without much awareness of what they were doing (19.67 – 19.69).
Planned public sector investment in Teesworks by the end of 2024-25 (excluding keepsafe) will have amounted to about £500mn. At 31 March 2023 STDC’s liabilities were £257mn of prudential borrowing, of which £206mn had been borrowed long-term from TVCA, which in turn had borrowed the money from external lenders along with liability of £103mn under the SeAH (wind farm facility) lease agreement. (19.66).
According to the review panel, there is no evidence that with the possible exception of £96mn for the Quay, any of the rest has been approved by TVCA (19.67).
The STDC constitution requires that the board receive an annual Treasury management strategy, mid-year review and annual report. Yet the panel said it had been unable to identify any such reports over the period from 2020. In the periodic financial updates provided to the board, says the review, borrowing apart from the £96mn for the quay appeared to be merged under “other funding…such that they [the board] are unlikely to be aware of the scale” (19.67).
Whilst the borrowing figure is reported in the draft annual accounts for 2022/23, these have not yet been reported to the STDC Audit & Governance Committee nor the board, though they are on the TVCA website. Studying the draft accounts would also show that there are unidentified differences in the cumulative funding statement presented to the STDC Board in July 2023 and the draft annual accounts, says the review (19.67).
TVCA receives the required Treasury strategy reports which identify loans to subsidiaries in total but do not give further detail. Apart from the possible agreement to lend money to STDC for the quay, it is not apparent that any other specific approval for on-lending had been agreed by cabinet or that the districts [the five Tees Valley councils] are aware of the overall exposure to STDC (19.68).
“The panel note that the constituent authorities receive copies of the various Treasury management reports and that they are publicly available,” says the review; “however, there does not seem to be any recognition of such Treasury activity. The TVCA Audit Committee do not receive the various Treasury management reports, though they are publicly available, and do not provide any scrutiny of TVCA lending to STDC. Whilst an astute reader of the accounts would identify such lending activity it seems unlikely that most committee members would scrutinise in that level of detail” (19.68).
In contrast to this confusing picture of indebtedness in the public sector, the review is able to sum up the position of the private sector in two simple sentences: “To date the JV partners have received c.£45mn through TWL with a further £63mn held as cash in TWL. There has been no direct financial investment by the JV partners in TWL and none apparent in the near future…” (19.69).
Gove’s questions answered
When Levelling Up Secretary Michael Gove set up the Tees Valley Review he asked the independent panel chaired by Lancashire County Council Chief Executive Angie Ridgwell to answer certain specific questions. This in summary is how the panel replied. It crystallises the failings reported in recent days by North East Bylines, based on the panel’s investigation:
- We did not see sufficient information provided to [STDC] Board to allow them to provide effective challenge and undertake the level of due diligence expected of a commercial board;
- TVCA effectively has no oversight of STDC Board or TWL. The former monitoring officer advised TVCA Oversight & Scrutiny Committee (OSC) they had no remit to scrutinise STDC decisions;
- TVCA seems unaware of the direct liabilities it faces as a result of its interface with STDC and it is questionable whether there has been substantive approval to the degree of long-term lending to STDC or their access to business rates income;
- Operations at TWL are not visible beyond the published accounts at Companies House. While TWL is a private sector company…it would have been the panel’s expectation that STDC would have set some conditions aligned to managing public funds;
- The risk and reward between the public and private sectors were set out in principle to the STDC but details left to statutory officers. Details changed over time and have never been discussed holistically;
- The quality and timing of reports are variable;
- The lack of challenge from the Board and wider professional officers within TVCA constituent authorities [the five Tees Valley councils] mean that there is ineffective check and challenge in the system;
- The lack of transparency in the decision-making…undermines the confidence government can place on the evidence base and systems to secure value for money; value for money cannot be secured without the checks and balances in the system;
- The ceding of control by TVCA under the oversight of successive former monitoring officers and the permissive scheme of delegations within STDC and TVCA mean that most decisions are vested in a small number of individuals. Inappropriate decisions and a lack of transparency which fail to guard against allegations of wrongdoing are occurring and the principles of spending public money are not being consistently observed;
- Conflicts of interest are not observed;
- There is no independent scrutiny of TWL by STDC or TVCA; and
- The governance and financial management arrangements are not of themselves sufficiently robust or transparent to evidence value for money.
In the next part of this examination of the Tees Valley Review, North East Bylines will look at the review panel’s 28 recommendations.