Introduction and Constraints
I have put my name to a motion (18c) to wind down Tawd Valley Development Ltd (TVDL) the Borough’s Council’s 100% owned development company. There has recently been some comment in the media – traditional and social – on this matter and I wanted to set down my reasons for supporting the motion.
Most of the information has been determined to be private and confidential. I disagree with this. There are only small pieces of information that are commercially sensitive and they could be redacted. Other information should be available to the public. Nevertheless, I remain constrained in what I say and have erred on the side of caution in this blog piece and removed most financial figures. However, all this confidential information is available to all councillors and much of it should be in the public domain.
How TVDL started
Firstly, it helps to understand the genesis of this Company. Around 2016/17, the then ruling Labour Group started work on their now abandoned local plan proposals – the one that proposed 16,000 new houses many of them over West Lancashire’s green belt and to house many people from out of the area. This was in line with central Conservative Government policy to build, build, build. In fact, the Conservative County Council supported Labour’s local plan proposals. So, it was no surprise that the council were able to get a Government grant to work up the idea of a Council Development Company to capitalise on all this expected house building with the new local plan.
Then our concerns grew. The Council engages Savills to carry out the preparatory work for the Development Company. Well, who should be a Director of the local Savills office at the time but Simon Waller who was also Lord Derby’s land manager? The links between the local plan proposals and the Development Company were becoming clear. My Colleague Ian Davis spoke publicly on the matter here at the time. It was hardly surprising then that at around the same time the local plan proposals emerged which would have seen huge tracts of Green Belt released for Development much of it on Lord Derby’s land!
The scene was being set for the Council to purchase land and then remove the land from green belt. Following this it would grant itself planning permission and then, the icing on the cake, use its own development company to build hundreds of homes on this land. Through OWL intervention, the proposals to appoint Savills personnel as non-Executive Directors on the Development Company was thankfully shelved.
Opposition grows
However, this is where the well-laid plans started to go awry. Firstly, there was opposition within Labour ranks to the formation of TVDL. So, the decision to move ahead was delayed in October 2018. By the time Labour had resolved their internal disagreements to approve the formation of the Development Company in February 2019 the local plan consultation had taken place and the opposition of the general public to the plans to build 16,000 houses was starting to become clear.
Yet the business plan that councillors approved in February 2019 to establish TVDL was still working to the premise that the local plan proposals would go ahead and therefore a huge eight-figure loan facility from the Council to the new Company was approved in spite of opposition from myself and other councillors. The business plan also approved the provision of a seven-figure sum in equity contributions straight from council reserves. These are to cover the running costs of TVDL which are significant. The MD post being advertised at a salary of £100,000 alone. These equity payments are phased every 6 months for up to 5 years and so are a significant drain on council resources at a time when we have a significant budget gap. My colleague Cllr Davis, a professional accountant and former MD of a listed Engineering PLC pointed out strongly that this was the wrong way to support the company as equity in shares is harder to extract from the company than additional loan would be.
Changes of Direction and Delays
Looking back at that business plan is instructive because it shows how things have moved away from their original intention:
· The council report states that the first development was supposed to start in September 2019 and the first houses would be occupied in March 2020. So called Phase 2 sites were due to commence on site in June 2020 yet none have yet started. Those timescales were missed by a country mile yet officers have stated in a small section of another report to councillors this week that “all schemes on target to be completed within the agreed timescales”. That is clearly inaccurate and has the effect of misleading newer councillors and the general public. It’s not the only partial information provided in the public report to councillors as I’ll comment later in this piece.
· The business plan said 29 of the Phase 1 homes would be for market sale, yet not one is being built because of concerns over risk. Yet councillors are expected to believe that the risk equation will alter when considering officer forecasts for market sales in 2023 and 2024. The officer forecasts in February 2019 were clearly awry. They may be so again.
· The business plan in February 2019 setting up the company approved unspecified Phase 3 sites which were clearly intended to be sites made available as the local plan proceeded. Well things rapidly changed on that score. When Labour saw the feedback from the public consultation on the Local Plan proposals in March 2019, they paused it. When they lost 4 seats in the May 2019 elections, they ditched the Local Plan altogether.
This was good news in many ways but it left a Development Company without the much-needed flow through of development sites for market sale needed to cover its fixed costs and start to show a surplus. By the February 2020 business plan, the significant delays from the previous year’s business plan were confirmed and the financial figures such as they were (no detailed profit and loss projection was provided) showed significance variance from previously and much uncertainty. Later in 2020 the Company’s Chief Executive and Head of Development both left to be replaced. Still the pattern of overpromise and underdeliver continued. The business plan talked about sites for 369 houses in the Borough but 17 months later the number now being considered has shrunk to modest two figures and none of these have progressed to planning permission. The April 2022 start date is impossible.
The better way to build council homes
So, we have a housing company with significant running costs being paid from the council’s general reserves and with wholesale change to the original concept and targets missed every year. The original concept to build a mix of housing with houses for market sale in the majority has become a concept delivering solely 100% council housing.
As a Council Portfolio Holder, I delivered new council housing as part of the Firbeck Revival. I delivered the new council homes at Elmstead (the first to be built for 15 years) and I started the Beechtrees revival. All of these schemes were developed without the need for a Development Company – the council contracted directly with building contractors. Indeed, the council has also delivered houses for market sale before the TVDL was established with the successful scheme on Walmsley Drive next to the Council Offices in Ormskirk.
So, TVDL is not essential for the development of new homes in the Borough by the council, but worse still it is being set up to become a financial wheeze to siphon money from the rents paid by council tenants, typically among the less well off, to support the General Fund of the Council which provides services across the board benefitting some of the most affluent in society.
Taking from the Poor
How does this happen? TVDL has no revenue source from outside the council. Every incoming pound into the company is generated from within the council. As TVDL is only building houses for the council then the funding for these houses is coming from the rents paid by tenants plus some modest funds from a small % of the proceeds of a council house sale that the council is permitted to spend in such a way.
There’s a document called the 30-year Housing Revenue Account Business Plan that officers have not shared with councillors [I have shared it with all councillors at the time of publishing this blog piece]. As a former Housing Finance Portfolio Holder, I knew of this document and had to make repeated requests, escalated up to the Chief Operating Officer before I finally received a copy of the current document just 24 hours before councillors considered TVDL’s 2021 business plan in February 2021. It was clear when I received it why officers appeared to be so loathe to share it with councillors. The business plan shows that there are available funds of between £4.5 million and £5.5 million every year in the Housing Revenue account.
Once rents are collected and all day-to-day housing revenue account expenditure is dealt with; and once the agreed capital programme for larger works to keep the houses maintained; and once the interest payments on our housing debt are paid, then there is around £5million available to spend.
Have councillors ever been asked to have a debate on how this money is spent? No. Some will be needed for the building of new council houses – yes. However, some is also need to commence a third revival project to follow on the successes of Firbeck and Beechtrees and some is also needed to improve the energy efficiency of our existing near 6000 council homes to reduce fuel poverty and take a big step to being a carbon neutral council by 2030. Greater Manchester councils are launching an ambitious retrofitting programme on their housing stock. We are not even in the starting blocks on the race to carbon zero.
Neither a 3rd revival or energy efficiency on homes has been getting a look in because all the £5million surplus is being pushed through TVDL to cover for the fact that the original concept for the Development Company was a cul-de-sac, and in an attempt to balance the books and cover up the embarrassment of senior people.
I have complaints from tenants in Birch Green and Ormskirk about significant damp and insulation concerns on their properties and they aren’t getting a decent response from the council because all the headroom £5million is being diverted through TVDL.
The bogus “profit”
TVDL charges a Developer’s fee of 10% on all developments. As I point out above, this isn’t a route the council needs to take. It built council homes at Firbeck; Elmstead and Beechtrees in the past decade without this financial arrangement. So, we are getting 10% fewer council homes than we need to, even if it is considered that all the £5million should go into new council house building.
TVDL’s 10% Developer’s Fee then becomes its “profit” (Remember that General Council Reserves are already covering TVDL’s significant running costs) and it is this “profit” that council officers trumpet will come back to the General Fund as a dividend from 2022/23 in their report on another part of the agenda for this week’s council meeting. Again, this is a partial presentation of the facts. Once the equity payment from Council Reserves is included the “profit” becomes a “loss” but councillors aren’t informed of this.
So, money is siphoned from the Housing Account to the General Account but the overall financial position of West Lancashire Borough Council is no stronger, indeed it is worse. Council reserves are being ploughed in to cover TVDL running costs and incredibly if a dividend is paid in 2022/23 then because of the arrangement with TVDL, 19% of it will need to be paid to the Government in Corporation tax – all from a “profit” that has not been generated from anywhere outside the council and so is a financial loss to our area.
It is quite wrong to deal with council house tenants rent monies in this way. There are strict rules to prevent the Housing Account subsidising the General Account. Now, this may be a clever and legal “wheeze” around those rules – I don’t know, but it doesn’t make it right. When I was Finance Portfolio Holder, I was faced with how the costs of grass cutting should be fairly split across the General and Housing Accounts. We came up with a rule that, so far as I know is still in place, which ensured that whenever a council house was sold the amount charged to the housing account was reduced and to the General Fund increased. This went down to changes of £100. That’s how important it is that council house tenants are not paying for grass cutting in Rufford or bin emptying in Aughton – services that are to be funded from the General Account. Yet through TVDL that is exactly what is happening to the rent money of tenants across the Borough.
This is the main concern I have and why I will be supporting
the motion on Wednesday evening though I’ve listed many more
above and there are countless horror stories of Council Development Companies
around the country. The motion is also
welcome in pointing to an alternative approach in saying that we should build
council homes directly and also by releasing £1.2million for energy efficiency
measures on our existing housing. I hope
a third revival can also be started with a slice of that £5 million.
