How much state aid has This Land Ltd received?

Cambridgeshire County Council’s (CCC) plan in May 2016 to set up a housing development company revolved around an accounting trick in which the council would borrow substantial sums from the Public Works Loan Board at preferential interest rates and lend it on to its Housing Development Vehicle (HDV) at much higher, “commercial rates”.  

The difference between the two rates it called “revenue income”, which was to be spent on the council’s frontline services, and so relieve the authority of the discipline of finding in-year revenue savings.  This is how the Chief Finance Officer explained the arrangement to Members of CCC’s Assets and Investments Committee on 27^th May 2016:

“The HDV needs to borrow at market rates in order to avoid state aid regulations, but CCC can borrow at far more competitive rates from the Public Works Loan Board and take the margin on the loan in to CCC’s revenue account. CCC will therefore gain approximately 3.0 to 3.5% on everything it lends to the HDV from the point at which the loan is made, not when sales or rents start to be received by the HDV. This will mean that the HDV will be making substantial losses for many years. This is not of concern as this will be within the financial model and long-term business plan of the HDV.”  See Agenda 5 HERE.

The practice of councils borrowing for yield has now been outlawed by central government, precisely because of the risk of irresponsible councils abusing it and getting themselves and their commercial subsidiaries into massive debt.  

CCC’s revenue stream was illusory.  Since This Land has never made any profits, the cash it needed to service its (interest only) loans could only be sourced from additional borrowing by and from CCC, resulting in a vicious debt spiral that has propelled This Land into its current position where it owes CCC £113.8 million while making comprehensive losses totalling £38.35 million in its first seven years of trading.  

That equates to a loss of £724,000 on each of the 53 homes sold up to March 2023. In the most recent year of account, the average sale price per unit was just £247,000, down from £550,000 two years earlier.

Not falling foul of state aid regulations was CCC’s justification for its “making money out of nothing” scheme, as one elected member described the borrowing and lending arrangement.  Instead, the income stream merely created an unpayable debt for This Land, and consequently also for CCC, its sole shareholder.  This Land’s projection of repaying all its debt by March 2029 is pie in the sky.

How well has This Land done at avoiding state aid?  One could argue that each additional loan to allow the company to pay its interest was state aid that might have been denied any other company in a similar position with a hopeless business plan.

In its financial statements to March 2021, This Land at last acknowledged it had not always been able to pay its loan interest on time.  On occasions it had to wait until CCC approved the next tranche of borrowing and lending.  It is unlikely other companies in the real world would have been treated as sympathetically by their lenders without having to pay stiff penalties.

The question of state aid for This Land also arises in CCC’s published Transparency Code supplier payment data.  Two cost centres - “CHIC Start Up” and “This Land” recorded £691,000 worth of payments (incl. VAT) between December 2016 and August 2023. 

The £144,127 for consultancy payments all relates to a report by Avison Young about This Land commissioned by CCC in 2021.  It is therefore bona fide CCC expenditure.

But the £144,662 payments for Professional Fees and Hired Services, and Other Hired Contract Services (£65,473) were made to property management companies like BNP Paribas and CBRE Ltd, and to recruitment companies like Hays Specialist Recruitment.   Were they advising CCC, and were they recruiting for CCC, or did those payments relate to This Land’s own expenditure, for which Cambridgeshire taxpayers were picking up the bill?  These payments look more like the latter.

There can be little doubt however about whose expenditure was behind the single biggest expense type – the £214,915 spent on Advertising/Publicity.  The entire amount was paid to Small Back Room Design Consultants (SBR).  The company’s website shows what it has produced for This Land Ltd – a website, glossy brochures, a range of business cards, and even mugs, tee shirts and shopping bags, all sporting the stylised This Land logo.

This looks like a straight subsidy by CCC to its supposed arm’s length company.  Who authorised those invoices and payments from the county council’s bank account?  Perhaps it was CCC’s former Chief Finance Officer, and the main architect behind This Land – Chris Malyon, who was also a This Land non-executive director for four years, until he resigned in July 2020, because of the “appearance” of a conflict of interest.

The evidence from the payment data shows that a sizeable proportion at least of CCC’s payments coded to the above two cost centres was unlawful state aid to its lossmaking property company.  That is indicative of a lack of effective internal controls and conflicts of interest.  

What the public cannot see is the extent of any further state aid to This Land that has been coded to other cost centres, or removed at source from the published payment data to conceal it from the public – a habit CCC has engaged in for at least the last nine years.  

In the interest of transparency, This Land’s current non-executive directors attached to CCC – Frank Jordan (Executive Director of Place and Sustainability) and Cllr Neil Gough should make a statement explaining to the public the extent of CCC’s unlawful state aid to This Land, and how local taxpayers will be relieved of that burden.