Woking Borough Council Intervention and Tees Valley Independent Review

Lee Rowley Excerpts

Thursday 25th May 2023 Written Statements

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Lee Rowley)]

I would like to update the House on action the Government are taking in relation to two local authorities. In the case of Woking Council, Government are taking decisive action given clear evidence that the best interest of taxpayers is not being served. In the case of Tees Valley Combined Authority, in response to a request from the Mayor, the Secretary of State has decided on an exceptional basis to commission an external assurance review.

Woking Borough Council

Woking Borough Council is a small district that has engaged in commercial investment activities since 2016. As a result of this, as of December 2022 the council had debts of £1.9 billion, with plans to increase it to almost £2.4 billion by 2024-25, and now faces significant impairments against key assets. This makes Woking the most indebted council in England compared to its financial size, with a net budget of £24 million and core spending power of £14 million. In its most recent budget report Woking Borough Council recognises that this debt, and the council’s reliance on commercial income to fund services, places it in an extremely challenging financial position. The Department considers that this is, based on current evidence, the most challenging financial position of any local authority in England.

The Government is introducing new powers through the Levelling-up and Regeneration Bill that will allow direct intervention where authorities are exposed to excessive risk from borrowing and investment practices. Ahead of that, since May last year, we have been engaging with Woking, given that it is likely to fall within scope of those powers. As a result of our engagement, the Department has been increasingly concerned about the level of risk the council is carrying and how that is being managed.

External assurance review

As a result of the Department’s concern about the specific situation in Woking, in January 2023 the Department commissioned an external assurance review covering the council’s governance, finance and commercial issues. This review was carried out by Jim Taylor, Carol Culley OBE and Mervyn Greer, with fieldwork taking place over January and February. The review team was asked to provide an external assessment of Woking’s governance arrangements, financial situation, commercial investments and their capacity and capability to manage these in the immediate and longer-term.

The council made the Department aware of further developments in its commercial and finance arrangements in April 2023, following which the Department requested that the review team undertake further fieldwork in April and May. The resulting report reflects all review work undertaken from January to May 2023 and will be published on gov.uk, and copies have been deposited in the Libraries of both Houses. This report has been redacted in places in light of the commercially sensitive nature of some of its contents. The full report, including the commercially sensitive information, has been considered by the Secretary of State in taking his decisions in relation to Woking.

Failure to comply with best value duty

Evidence within the review shows that Woking Borough Council is failing to comply with its best value duty to make arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness, as required by the Local Government Act 1999. The financial challenge is acute, and the review has concluded that the Council cannot become financially self-sustaining without considerable Government support.

To quote the review:

“The scale of this issue is unprecedented.”

“From the historic base, the sheer scale and complexity of the investment and commercial activity of the council, means that the Council will never have the capacity to effectively manage all the commercial and economic considerations...”

“Commercially, the council is overstretched and remains reliant on further support in the form of additional skills and capacity to continue to find a resolvable solution to its commercial position.”

“There is no realistic route to the Council returning to financial sustainability alone... The Council will need to undertake significant service transformation and consider their future operating model.”

"The new leadership of the Council is taking the right steps. However, it does not have the capacity or capability to address a challenge of this scale without additional support...on the current trajectory the Council will not rectify these issues itself and will continue to fail its best value duty. The Council will require significant support, including statutory oversight.”

“There are critical decisions that need to be taken in the next 2-3 months, for which immediate expert support is required.” “...the financial issues are more severe and immediate than initially thought [when undertaking work in January and February]”

“...This leads to the conclusion that, despite many initiatives and advice being actioned there is no overarching strategy for the whole situation under the council’s control.”

In addition to the work of the reviewers, the Department has had direct engagement with Woking Borough Council in relation to its financial situation. It is the Department’s view that the council has failed to provide assurance that it is taking the necessary actions to comply with its best value duty and address the serious issues noted in the review. Nor has it given the Department assurance that it has capacity to take the necessary action, or develop an adequate strategy to resolve the situation, when considering the scale and pace of the response required.

The council is aware of the gravity of the situation and has made clear in published papers for its meeting on 23 February 2023 that it is at risk of issuing a section 114 notice, with public statements attributing this to issues relating to shortfalls in commercial income and cost pressures.

Statutory intervention in Woking

The Secretary of State is satisfied that Woking Borough Council is failing to comply with its best value duty. The Secretary of State considers it necessary to put in place an intervention package immediately, to secure the council’s future and sustainable compliance with its best value duty. The intervention will consist of the appointment of commissioners to oversee specific functions of the council, alongside directions to the council. The Secretary of State is confident that this package will address the failings identified, and is necessary for the council to secure compliance with its best value duty.

It is the Secretary of State’s view that the situation in Woking is sufficiently urgent to justify forgoing the usual period of representation. He considers that there is a pressing case for urgent Government action to protect the interests of the residents and taxpayers of Woking, and the public purse. The scale of Woking’s financial challenges is unprecedented, and we have serious concerns about its commercial arrangements; the Secretary of State is concerned that further evidence of failure could come to light imminently and require further immediate action. The appointment of commissioners and the directions set out below will therefore take effect from today.

Appointment of commissioners

The Secretary of State is appointing the following individuals as commissioners to exercise certain functions as required:

Jim Taylor (Lead Commissioner). Jim is an ex-chief executive officer of three metropolitan borough local authorities and was appointed in March 2022 by the Secretary of State as a commissioner at Sandwell Metropolitan Borough Council. He also conducted a governance review of Slough Borough Council for the Secretary of State in 2021.

Carol Culley OBE. Carol is the current deputy chief executive and section 151 officer at Manchester City Council. She is CIPFA Junior Vice President, a member of the CIPFA Council and Chair of the CIPFA Public Financial Board; and

Mervyn Greer. Mervyn is a Crown Representative at the Cabinet Office where, amongst other responsibilities for strategic suppliers to HMG, he is the appointed Crown Representative for Local Government Commercial and the LGA. His background is in property and built asset management in the private sector, where he was responsible for major outsourcing and property related commercial contracts. He retired from the private sector in 2016. He was a member of the team which conducted the statutory best value inspection of Liverpool City Council in 2021.

The Secretary of State has taken the unusual step of appointing the three individuals who carried out the external assurance review as commissioners. This reflects the acute situation in Woking, and the urgent need for commissioners to begin work immediately to ensure that the council takes steps to secure compliance with their best value duty. The Secretary of State considers that these individuals are best placed to take up these roles in the immediate term, due not only to the knowledge acquired during their time reviewing the council, but to their individual knowledge and experience in local authority leadership, governance, and commercial development. Our understanding of the situation in Woking is likely to change throughout the period of intervention. Their appointments are therefore for 12 months and will be reviewed within six months or at such a time as the Secretary of State determines necessary.

The scale of the financial challenge in Woking means that the council must take immediate steps to address its commercial and financial challenges, and to make transformative change across its entire operations. The commissioners will therefore exercise the following functions:

those associated with the source of Woking’s failures, financial governance and decision making, commercial decision making and management of commercial projects, regeneration and property;

those where the council will need to make changes as a result of these failures, functions associated with the council’s operating model and service redesign to achieve value for money and financial sustainability; and

those that will ensure the council has the right skills and structures to make ongoing improvements across the entire organisation, governance and scrutiny of strategic decisions; and the appointment, dismissal and performance management for senior and statutory officer positions.

Directions to Woking Borough Council

Alongside this, Woking Borough Council will be directed to prepare and agree an improvement and recovery plan to the satisfaction of commissioners. This must include, as a minimum, plans to:

achieve financial sustainability and reduce debt;

ensure value for money when exiting commercial arrangements;

ensure compliance with financial management rules and guidance;

reconfigure services; and

ensure the Council has the necessary skills, capabilities and capacity to carry out this work

and achieve compliance with their best value duty.

As with other interventions led by the Department, the council is directed to meet the costs of the commissioners. The fees paid to individuals are published in appointment letters which are available separately on gov.uk. I am assured this provides value for money given the expertise that is being brought, and the scale of the challenge in councils requiring statutory intervention.

The Government are committed to making sure the residents of Woking have what they need from their local council, including confidence in its service delivery, financial management and governance.

I will publish the directions and explanatory memorandum associated with this announcement on gov.uk, and place copies in the libraries of both Houses.

Independent review: Teesworks

Yesterday, the Secretary of State confirmed that he has made the exceptional decision to support the commissioning of an independent review to consider the specific allegations made, and Tees Valley Combined Authority’s oversight of the South Tees Development Corporation (STDC) and Teesworks joint venture.

The Tees Valley Mayor approached Government some time ago regarding the possibility of an independent review of STDC and Teesworks. He raised concerns regarding the allegations made in Parliament by the hon. Member for Middlesbrough (Andy McDonald) of “dubious dealings” and “industrial-scale corruption”. The Mayor was, understandably, particularly concerned about the damaging effects that these allegations could have on investment and job creation across Teesside.

My colleague, the Minister for Levelling Up, explained in her letter of 17 May to the hon. Member for Middlesbrough that the Department has so far seen no evidence of corruption, wrongdoing, or illegality. This is still the case.

The Secretary of State’s decision has been taken in response to Mayor Houchen’s previous request for an independent review to address these allegations and reflects his recognition that the continued allegations of “corruption” poses a real risk to the shared ambitions to deliver jobs and economic growth in Teesside.

In line with established practice, a review panel will be appointed by the Secretary of State to undertake the independent, external assurance review. The members of the panel will be announced shortly as will detailed terms of reference. Since serious allegations of corruption, wrongdoing and illegality have been made, I will ask the panel to address these accusations directly, and to report on the governance arrangements at STDC including how decisions are made, as well as looking at the value achieved for the investment of public money on the site.

The Secretary of State yesterday wrote to the Tees Valley Mayor explaining his decision, a copy of his letter has been placed in the Library of the House of Commons. He also wrote to the Chairs of the Levelling Up, Housing and Communities and Business and Trade Committees, and to the shadow Secretary of State for Levelling Up, Housing and Communities.

Any interested party, including Members of Parliament, will be invited to make representations to the panel as part of their evidence gathering. The report and any recommendations will of course be published in line with usual practice.

[HCWS813]